Barrett Business Services, Inc. — Third Quarter 2026 Earnings Summary

Financial Performance:

• Revenues increased 5% year-over-year to $334.1 million for the quarter ended September 30, 2026, compared to $318.9 million in the prior year period.
• Total gross billings increased 3% year-over-year to $2.40 billion, up from $2.32 billion in the third quarter of 2025.
• Net income was $16.8 million ($0.69 per diluted share), a decrease from $20.6 million ($0.79 per diluted share) in the year-ago quarter.
• Gross margin as a percentage of gross billings was 3.0% for the quarter, down from 3.3% in the same period last year.
• Workers' compensation expense as a percent of gross billings was 2.4%, compared to 2.2% in the prior year quarter; the current quarter included $0.8 million in favorable prior year adjustments, while the prior year included $3.9 million.
• Average worksite employees (WSEs) increased 0.6% year-over-year to 142,319.
• Unrestricted cash and investments were $73.7 million as of September 30, 2026, up from $67.9 million as of June 30, 2026.
• The company remained debt-free at quarter end.

Guidance and Future Outlook:

• Calendar-year 2026 outlook projects gross billings growth of 3% to 4%.
• Outlook includes average WSE growth of 1% to 2%.
• Projected gross margin as a percent of gross billings is 2.70% to 2.75%.
• Effective annual tax rate is expected to remain between 26% and 27%, excluding one-time charges related to prior-year tax credits.
• Management noted that while client hiring trends remain soft, improving conditions in the workers' compensation market and the ability to secure rate increases position the company for growth into 2027.

Business Segments and Product Lines:

• Growth in gross billings was driven by Professional Employer Organization (PEO) services, primarily from net new clients and higher average billings per WSE per day.
• Professional employer services revenue was $316.2 million for the quarter, up from $299.7 million in the prior year.
• Staffing services revenue was $17.9 million for the quarter, down from $19.3 million in the prior year.
• The company serves more than 8,200 PEO clients across all 50 states.

Market and Competitive Landscape:

• The company differentiates itself through an integrated platform combining human resource outsourcing and professional management consulting.
• Management highlighted favorable conditions in the workers' compensation market as a positive trend.
• Client hiring trends were described as soft, though the company continues to secure rate increases.

Risks and Challenges:

• Forward-looking statements identify risks including the ability to retain current clients and attract new ones.
• Potential disruptions from technology implementation, including AI and automation displacing employees.
• Risks related to IRS audits and determinations regarding wage-based tax credits.
• Economic trends, changing governmental policies (immigration, tariffs, trade, climate), and geopolitical instability (wars in Ukraine, Iran, and the Middle East).
• Material deviations in expected workers' compensation claims experience and changes in the regulatory environment.
• Rising PEO client benefit costs, particularly health insurance, and potential security breaches or IT system failures.
• Collectability of accounts receivable and changes in tax rates or effective payroll tax rates.

Management Commentary and Tone:

• Gary Kramer, President and CEO, stated results were "in line with our expectations," reflecting execution on controllable growth initiatives and disciplined operational management.
• Management expressed encouragement regarding improving workers' compensation market conditions and the ability to secure rate increases.
• The tone emphasized a focus on disciplined growth, delivering client value, and strengthening the platform for long-term success.

Other Key Points:

• The company repurchased $9.0 million of common stock in the third quarter (273,695 shares at an average price of $33.01) under a program established in August 2025.
• Approximately $31.2 million remained available under the $100 million repurchase program as of September 30, 2026.
• The company paid $1.9 million in dividends for the quarter and confirmed a regular quarterly cash dividend of $0.08 per share, payable December 4, 2026.
• Year-to-date capital returned to shareholders via stock repurchases and dividends totaled more than $50 million.
• A non-recurring tax adjustment of $11.6 million related to the disallowance of prior-year wage-based tax credits was excluded from non-GAAP measures.
• Non-GAAP net income for the nine months ended September 30, 2026, was $26.4 million ($1.06 per diluted share), compared to GAAP net income of $14.8 million ($0.60 per diluted share).