BBSI outlines 8.5%-9.5% gross billings growth target for 2025 amid record worksite employee adds and geographic expansion

Earnings Call Insights: Barrett Business Services, Inc. (BBSI) Q3 2025

MANAGEMENT VIEW

* CEO Gary Kramer opened with, "We continue to build on our momentum in the third quarter, delivering a record number of worksite employees. Solid revenue growth was fueled by new client sales, expanded adoption of new products and excellent client retention." He highlighted an 8.6% increase in gross billings over the prior year's quarter, record net new client worksite employees, and a Net Promoter Score remaining in the high 60s for the third straight year.
* Kramer noted, "We added a record 10,400 worksite employees year-over-year from net new clients." However, he also stated, "Our client hiring was lower than we forecasted. We experienced a slowdown in California across most industries, fueled by macro uncertainty, including tariff policy and interest rates."
* The company reported a 10.3% decline in the staffing business, while efforts to recruit for PEO clients resulted in 116 placements, 11 more than the prior year.
* Kramer shared that, "We are very pleased with our entrance into new markets with our asset-light model," mentioning 22 new market development managers and recent grand openings in Chicago and Dallas. He announced plans for a Nashville branch in January.
* Product expansion continues, with Kramer stating, "We added approximately 1,300 participants to our various benefits products in Q3," and through October, "we have approximately 750 clients on our various plans with over 20,000 total participants."
* CFO Anthony Harris reported, "Gross billings increased 8.6% to $2.32 billion in Q3 '25 versus $2.14 billion in Q3 '24. PEO gross billings increased 8.8% in the quarter to $2.3 billion, while staffing revenues declined 10% to $19 million in the quarter."
* Harris added, "Our balance sheet remains strong with $110 million of unrestricted cash and investments at September 30 and no debt." He confirmed $8 million in share repurchases and $2.1 million in dividends paid during Q3.

OUTLOOK

* Harris updated guidance: "We now expect gross billings growth between 8.5% and 9.5% for the year after adjusting for the slower client hiring in the quarter."
* The company expects year-end controllable growth to be strong and worksite employees to increase between 6% and 8% for the year.
* Harris stated, "We are tightening our range for gross margin as a percent of gross billings and expect it to be between 2.9% and 3.0%."
* The effective annual tax rate is expected to be between 26% and 27%.

FINANCIAL RESULTS

* Gross billings for Q3 reached $2.32 billion, PEO gross billings were $2.3 billion, staffing revenues were $19 million, and net income per diluted share for the quarter was $0.79 compared to $0.74 per diluted share in the year-ago quarter.
* SG&A expense increased by approximately 2% due primarily to employee-related costs.
* Investment income totaled $1.9 million in the third quarter, down by approximately $300,000 from the prior year due to lower average interest rates.
* The company repurchased $8 million of shares at an average price of $47 per share and returned $10 million to shareholders in Q3.
* Workers' compensation pricing trends were highlighted, with Harris noting, "The California Insurance Commissioner recently approved an average 8.7% increase in workers' compensation premium rates and several carriers in the state have filed for similar rate increases."

Q&A

* Jeff Martin, ROTH Capital Partners, LLC: Asked about BBSI Benefits performance amid rising claims costs. Kramer: "We don't take the risk on health insurance, and we've derisked on the workers' comp... rates are going up, and they're going up for every carrier in every state for everybody... our volume for what's coming into us for 1/1 business through October was about 60% higher than what we saw... in the prior year."
* Martin: Questioned the drivers behind record WSE adds. Kramer: "It's honestly not one thing. It's many things, we've -- between our tech, between our product, between our people, between our sales efforts."
* Martin: Inquired about workers' comp rate increases and 2026 WSE growth. Kramer: "We're seeing carrier filings increase to about 8% to 10%... we're not going to be shy about asking for more rate too because more rate is warranted in the industry."
* Christopher Moore, CJS Securities: Asked about variables for 2026 gross billings. Kramer: "There's no change in the formula... it's the controllable growth, which we've got a very good handle on... and then wage inflation is going to happen no matter what."
* Moore: Questioned asset-light market growth potential. Kramer: "We'll finish with over plus or minus 2,000 WSEs that we're going to add from our asset-light model."
* Vincent Colicchio, Barrington Research: Asked about the new client pipeline. Kramer: "We have more business in the funnel now than we did this time last year by a healthy percentage more, especially with the benefit side."
* Colicchio: Inquired about existing client growth and economic outlook. Kramer discussed weakness in California, labeling construction pullback as likely transitory, while transportation/logistics and retail may not rebound soon.
* Marc Riddick, Sidoti: Asked about Chicago and Dallas openings, IT product focus, and client mix. Kramer described successful branch openings, upcoming tech launches, and consistent client profile for new business.
* William Dezellem, Tieton Capital: Asked about WSE trends and health quote pipeline. Harris noted a small decrease in average hours worked; Kramer indicated average client size has increased slightly but emphasized growth is driven by velocity of new client adds.

SENTIMENT ANALYSIS

* Analysts expressed curiosity about growth sustainability, drivers behind record WSE adds, and market challenges, with a tone of cautious optimism but probing for details on potential risks and growth levers.
* Management maintained an optimistic and confident tone in prepared remarks, shifting to a more nuanced and explanatory approach during Q&A, particularly when discussing market uncertainties and regional slowdowns. Kramer demonstrated transparency, while Harris provided detailed operational and financial explanations.
* Compared to the previous quarter, analysts' questions focused more on sustainability of growth and possible macro headwinds, while management maintained a similar level of confidence but acknowledged more near-term challenges in client hiring and certain regional economies.

QUARTER-OVER-QUARTER COMPARISON

* Gross billings growth guidance for the full year was adjusted to 8.5%-9.5% from the previous quarter's 9%-10%, reflecting slower client hiring.
* PEO worksite employee growth slowed to 6.1% in Q3 from 8% in Q2, with record net new client adds offset by client workforce reductions, particularly in California.
* Staffing business decline moderated slightly from -11.5% in Q2 to -10.3% in Q3.
* Asset-light market expansion accelerated, with 22 development managers active in Q3 vs. 21 in Q2, and the model expected to contribute over 2,000 WSEs for the year.
* Management reiterated focus on controllable growth and product expansion, especially BBSI Benefits, and maintained a strong capital return approach with ongoing buybacks and dividends.
* Analyst questions in both quarters centered around growth drivers, insurance pricing, product expansion, and regional trends, but the Q3 call featured more direct questions about macroeconomic impacts and regional weakness.

RISKS AND CONCERNS

* Management cited macro uncertainty, including tariff policy and interest rates, as factors leading to lower client hiring, especially in California.
* Weakness in construction, transportation/logistics, and retail in Northern and Southern California was highlighted as impacting client workforce reductions.
* Harris acknowledged, "Workers' compensation pricing has been trending downward for several years... created some margin pressure," but noted optimism about recent rate increases.
* The company is mitigating insurance-related risks through fully insured products and continued investments in product enhancements and geographic expansion.

FINAL TAKEAWAY

Barrett Business Services, Inc. reported a quarter marked by record new client additions and expanding geographic presence, particularly in asset-light markets, despite headwinds in client hiring and regional slowdowns in California. Management reaffirmed their focus on controllable growth, product and technology rollouts, and disciplined capital returns, while adjusting full-year guidance to reflect evolving market conditions. The company sees continued opportunity in insurance rate increases and a robust sales funnel, positioning BBSI for ongoing growth with a diversified client base and strong retention.

Read the full Earnings Call Transcript [https://seekingalpha.com/symbol/bbsi/earnings/transcripts]

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* Barrett Business Services, Inc. (BBSI) Q3 2025 Earnings Call Transcript [https://seekingalpha.com/article/4838769-barrett-business-services-inc-bbsi-q3-2025-earnings-call-transcript]
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