General
Company Background Barrett Business Services, Inc. (“BBSI,” the “Company,” “our” or “we”), is a leading provider of business management solutions for small and mid-sized companies. The Company has developed a management platform that integrates a knowledge-based approach from the management consulting industry with tools from the human resource outsourcing industry. This platform, through the effective leveraging of human capital, helps our business owner clients run their businesses more effectively. We believe this platform, delivered through a decentralized organizational structure, differentiates BBSI from our competitors. BBSI was incorporated in Maryland in 1965.
Business Strategy Our strategy is to align local operations teams with the mission of small and mid-sized business owners, driving value to their business. To do so, BBSI:
•partners with business owners to leverage their investment in human capital through a high-touch, results-oriented approach;
•brings predictability to each client organization through a three-tiered management platform; and
•enables business owners to focus on their core business by reducing organizational complexity and maximizing productivity.
Business Organization We operate a decentralized delivery model using operationally focused business teams, typically located within 50 miles of our client companies. These teams are led by experienced business generalists and include senior-level professionals with expertise in human resources, organizational development, risk mitigation and workplace safety, recruiting, employee benefits, and various types of administration, including payroll. These teams are responsible for growth and profitability of their operations, and for providing strategic leadership, guidance and expert consultation to our client companies. The decentralized structure fosters autonomous decision-making in which business teams deliver plans that closely align with the objectives of each business owner client.
Services Overview BBSI’s core purpose is to advocate for business owners, particularly in the small and mid-sized business sector. Our evolution from an entrepreneurially run company to a professionally managed organization has helped to form our view that all businesses experience inflection points at key stages of growth. The insights gained through our own growth, along with the trends we see in working with more than 8,200 companies each day, define our approach to guiding business owners through the challenges associated with being an employer. BBSI’s business teams align with each business owner client through a structured three-tiered progression. In doing so, business teams focus on the objectives of each business owner and deliver planning, guidance and resources in support of those objectives.
Tier 1: Tactical Alignment
The first stage focuses on the mutual setting of expectations and is essential to a successful client relationship. It begins with a process of assessment and discovery in which the business owner’s business objectives, philosophies, and culture are aligned with BBSI’s processes, controls and culture. This stage includes an implementation process, which addresses the administrative components of employment.
Tier 2: Dynamic Relationship
The second stage of the relationship emphasizes organizational development as a means of achieving each client’s business objectives. There is a focus on process improvement, development of best practices, supervisor training and leadership development.
Tier 3: Strategic Counsel
With an emphasis on advocacy on behalf of the business owner, the third stage of the relationship is more strategic and forward-looking with a goal of cultivating an environment in which all efforts are directed by the mission and long-term objectives of the business owner.
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In addition to serving as a resource and guide, BBSI can provide workers’ compensation coverage as a means of meeting statutory requirements and protecting our clients from employment-related injury claims. Through our third-party administrators, we provide claims management services for our clients. We work to manage and reduce job injury claims, identify fraudulent claims and structure optimal work programs, including modified duty.
BBSI also offers employee benefit programs to our clients. The benefit programs available to our clients include medical, dental and vision plans, flexible spending accounts and health savings accounts, life insurance and voluntary accident coverage, and critical illness and disability coverage, among others. These employee benefit programs are offered through fully insured arrangements with third-party carriers and are designed to provide strategic value to our clients through access to best-in-class plans and service.
Results of Operations
The following table sets forth the percentages of total revenues represented by selected items in the Company’s condensed consolidated statements of operations for the three and six months ended June 30, 2026 and 2025 ($ in thousands):
Percentage of Total Net Revenues
Three Months Ended Six Months Ended
June 30, June 30,
2026 2025 2026 2025
Revenues:
Professional employer services $ 304,969 95.5 % $ 290,170 94.3 % $ 597,966 95.5 % $ 565,096 94.1 %
Staffing services 14,299 4.5 17,487 5.7 28,307 4.5 35,127 5.9
Total revenues 319,268 100.0 307,657 100.0 626,273 100.0 600,223 100.0
Cost of revenues:
Direct payroll costs 10,634 3.3 13,165 4.3 21,116 3.4 26,471 4.4
Payroll taxes 158,165 49.5 155,026 50.4 332,261 53.1 324,416 54.0
Benefit costs 28,918 9.1 18,251 5.9 56,366 9.0 35,867 6.0
Workers’ compensation 56,697 17.8 47,956 15.6 108,491 17.3 97,586 16.3
Total cost of revenues 254,414 79.7 234,398 76.2 518,234 82.8 484,340 80.7
Gross margin 64,854 20.3 73,259 23.8 108,039 17.2 115,883 19.3
Selling, general and administrative expenses 47,194 14.8 48,188 15.7 94,674 15.1 93,026 15.5
Depreciation and amortization 2,257 0.7 2,038 0.7 4,430 0.7 3,996 0.7
Income from operations 15,403 4.8 23,033 7.5 8,935 1.4 18,861 3.1
Other income, net 1,920 0.6 2,297 0.7 3,950 0.6 4,931 0.8
Income before income taxes 17,323 5.4 25,330 8.2 12,885 2.0 23,792 3.9
Provision for income taxes 4,453 1.4 6,876 2.2 14,818 2.4 6,359 1.1
Net income (loss) $ 12,870 4.0 % $ 18,454 6.0 % $ (1,933 ) (0.4 ) % $ 17,433 2.8 %
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During the first quarter of 2026, the Company recorded tax-effected charges of $11.6 million related to the disallowance of certain wage-based tax credits claimed in prior years. This charge was recorded within provision for income taxes on our condensed consolidated statements of operations. We have excluded this charge from our non-GAAP measures as it relates to prior periods and is not indicative of our current or future operational performance. See “Note 5 – Income Taxes” to the condensed consolidated financial statements included in Item 1 of Part I of this report for additional information.
The reconciliation of net loss and diluted loss per share to non-GAAP net income and non-GAAP diluted income per share for the six months ended June 30, 2026 is shown in the table below (in thousands, except per share amounts):
(Unaudited)
Six Months Ended
June 30,
2026
Net (Loss) Income Diluted (Loss) Income Per Share
GAAP net loss $ (1,933 ) $ (0.08 )
Non-recurring tax adjustment 11,565 0.47
Non-GAAP net income $ 9,632 $ 0.39
Weighted average number of diluted common shares outstanding 24,689
We report PEO revenues net of direct payroll costs because we are not the primary obligor for wage payments to our clients’ employees. However, management believes that gross billings and wages are useful in understanding the volume of our business activity and serve as an important performance metric in managing our operations, including the preparation of internal operating forecasts and establishing executive compensation performance goals. We therefore present for purposes of analysis gross billings and wage information for the three and six months ended June 30, 2026 and 2025.
(Unaudited) (Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
(in thousands) 2026 2025 2026 2025
Gross billings $ 2,292,861 $ 2,234,472 $ 4,454,132 $ 4,323,141
PEO and staffing wages $ 1,984,228 $ 1,939,966 $ 3,848,893 $ 3,749,434
In monitoring and evaluating the performance of our operations, management also reviews the following ratios, which represent selected amounts as a percentage of gross billings. Management believes these ratios are useful in understanding the efficiency and profitability of our service offerings.
(Unaudited) (Unaudited)
Percentage of Gross Billings Percentage of Gross Billings
Three Months Ended Six Months Ended
June 30, June 30,
2026 2025 2026 2025
PEO and staffing wages 86.5% 86.8% 86.4% 86.7%
Payroll taxes 6.9% 7.0% 7.5% 7.5%
Benefit costs 1.3% 0.8% 1.3% 0.8%
Workers' compensation 2.5% 2.1% 2.4% 2.3%
Gross margin 2.8% 3.3% 2.4% 2.7%
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We refer to employees of our PEO clients as worksite employees (“WSEs”). Management reviews average and ending WSE growth to monitor and evaluate the performance of our operations. Average WSEs are calculated by dividing the number of unique individuals paid in each month by the number of months in the period. Ending WSEs represents the number of unique individuals paid in the last month of the period.
(Unaudited)
Three Months Ended
June 30,
2026 Year-over-year % Growth 2025 Year-over-year % Growth
Average WSEs 139,712 0.5% 138,969 8.0%
Ending WSEs 141,561 0.6% 140,671 8.2%
(Unaudited)
Six Months Ended
June 30,
2026 Year-over-year % Growth 2025 Year-over-year % Growth
Average WSEs 137,353 1.2% 135,714 7.8%
Ending WSEs 141,561 0.6% 140,671 8.2%
Three Months Ended June 30, 2026 and 2025
Net income for the second quarter of 2026 amounted to $12.9 million compared to net income of $18.5 million for the second quarter of 2025. Diluted net income per share for the second quarter of 2026 was $0.52 compared to diluted net income per share of $0.70 for the second quarter of 2025.
Revenue for the second quarter of 2026 totaled $319.3 million, an increase of $11.6 million or 3.8% over the second quarter of 2025, which reflects an increase in the Company’s PEO services revenue of $14.8 million or 5.1% and a decrease in staffing services revenue of $3.2 million or 18.2%.
The increase in PEO services revenue was primarily attributable to a 0.5% increase in the average number of WSEs as well as a 2.2% increase in average billing per WSE per day.
Gross margin for the second quarter of 2026 totaled $64.9 million or 20.3% of revenue compared to $73.3 million or 23.8% of revenue for the second quarter of 2025. The decrease in gross margin as a percentage of revenues is primarily a result of the factors discussed within the separate components of gross margin below.
Direct payroll costs for the second quarter of 2026 totaled $10.6 million or 3.3% of revenue compared to $13.2 million or 4.3% of revenue for the second quarter of 2025. The decrease in direct payroll costs as a percentage of revenues was primarily due to a decrease in staffing services within the mix of our customer base compared to the second quarter of 2025.
Payroll taxes for the second quarter of 2026 totaled $158.2 million or 49.5% of revenue compared to $155.0 million or 50.4% of revenue for the second quarter of 2025. The decrease in payroll taxes as a percentage of revenues in the second quarter of 2026 was primarily due to a higher mix of revenue attributable to PEO client benefits coverage, which is not subject to payroll taxes.
Benefit costs for the second quarter of 2026 totaled $28.9 million or 9.1% of revenue compared to $18.3 million or 5.9% of revenue for the second quarter of 2025. The increase in benefit costs as a percentage of revenues was primarily due to expanded adoption of our PEO client benefit programs, as well as an increase in health insurance premium rates.
Workers’ compensation expense for the second quarter of 2026 totaled $56.7 million or 17.8% of revenue compared to $48.0 million or 15.6% of revenue for the second quarter of 2025. The increase in workers’ compensation expense as a percentage of revenues was primarily attributable to higher workers’ compensation costs in the second quarter of 2026, which included favorable prior year liability and premium adjustments of $2.0 million, compared to favorable prior year liability and premium adjustments of $8.8 million in the second quarter of 2025.
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Selling, general and administrative (“SG&A”) expenses for the second quarter of 2026 totaled $47.2 million or 14.8% of revenue compared to $48.2 million or 15.7% of revenue for the second quarter of 2025. The decrease of $1.0 million in SG&A expense was primarily attributable to decreased employee-related costs compared to the second quarter of 2025.
Other income, net for the second quarter of 2026 totaled $1.9 million compared to other income, net of $2.3 million for the second quarter of 2025. The decrease was primarily attributable to a decrease in investment income in the second quarter of 2026.
Our effective income tax rate for the second quarter of 2026 was 25.7% compared to 27.1% for the second quarter of 2025. Our income tax rate typically differs from the federal statutory tax rate of 21% primarily due to state taxes as well as federal and state tax credits.
Six Months Ended June 30, 2026 and 2025
Net loss for the first six months of 2026 amounted to $1.9 million compared to net income of $17.4 million for the first six months of 2025. Diluted net loss per share for the first six months of 2026 was $0.08 compared to diluted net income per share of $0.66 for the first six months of 2025.
Revenue for the first six months of 2026 totaled $626.3 million, an increase of $26.1 million or 4.3% over the first six months of 2025, which reflects an increase in the Company's PEO services revenue of $32.9 million or 5.8% and a decrease in staffing services revenue of $6.8 million or 19.4%.
The increase in PEO services revenue was primarily attributable to a 1.2% increase in the average number of WSEs as well as a 2.0% increase in average billing per WSE per day.
Gross margin for the first six months of 2026 totaled $108.0 million or 17.2% of revenue compared to $115.9 million or 19.3% of revenue for the first six months of 2025. The decrease in gross margin as a percentage of revenues is primarily a result of the factors discussed within the separate components of gross margin below.
Direct payroll costs for the first six months of 2026 totaled $21.1 million or 3.4% of revenue compared to $26.5 million or 4.4% of revenue for the first six months of 2025. The decrease in direct payroll costs as a percentage of revenues was primarily due to a decrease in staffing services within the mix of our customer base compared to the first six months of 2025.
Payroll taxes for the first six months of 2026 totaled $332.3 million or 53.1% of revenue compared to $324.4 million or 54.0% of revenue for the first six months of 2025. The decrease in payroll taxes as a percentage of revenues for the first six months of 2026 was primarily due to a higher mix of revenue attributable to PEO client benefits coverage, which is not subject to payroll taxes.
Benefit costs for the first six months of 2026 totaled $56.4 million or 9.0% of revenue compared to $35.9 million or 6.0% of revenue for the second quarter of 2025. The increase in benefit costs as a percentage of revenues was primarily due to expanded adoption of our PEO client benefit programs, as well as an increase in health insurance premium rates.
Workers' compensation expense for the first six months of 2026 totaled $108.5 million or 17.3% of revenue compared to $97.6 million or 16.3% of revenue for the first six months of 2025. The increase in workers' compensation expense as a percentage of revenues was primarily due to higher workers' compensation costs in the first six months of 2026, which included favorable prior year liability and premium adjustments of $3.1 million in the first six months of 2026 compared to favorable prior year liability and premium adjustments of $12.6 million in the first six months of 2025.
SG&A expense for the first six months of 2026 totaled $94.7 million or 15.1% of revenue compared to $93.0 million or 15.5% of revenue for the first six months of 2025. The increase of $1.7 million in SG&A expense was primarily attributable to increased employee-related benefit and information technology costs compared to the first six months of 2025.
Other income, net for the first six months of 2026 totaled $4.0 million compared to other income, net of $4.9 million for the first six months of 2025. The decrease was primarily attributable to a decrease in investment income in the first six months of 2026.
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Provision for income taxes for the first six months of 2026 was $14.8 million compared to provision for income taxes of $6.4 million for the first six months of 2025. The increase was primarily due to additional tax expense and interest recorded during the first quarter of 2026 related to the disallowance of certain wage-based tax credits claimed in prior years. See “Note 5 – Income Taxes” to the condensed consolidated financial statements included in Item 1 of Part I of this report for additional information.
Fluctuations in Quarterly Operating Results
We historically have experienced significant fluctuations in our quarterly operating results, including losses or minimal income in the first quarter of each year, and expect such fluctuations to continue in the future. Our operating results may fluctuate due to a number of factors such as seasonality, wage limits on statutory payroll taxes, claims experience for workers’ compensation, demand for our services, and competition. Payroll taxes, as a component of cost of revenues, generally decline throughout a calendar year as the applicable statutory wage bases for federal and state unemployment taxes and Social Security taxes are exceeded on a per employee basis. Our revenue levels may be higher in the third quarter due to the effect of increased business activity of our customers’ businesses in the agriculture, food processing and forest products-related industries. In addition, revenues in the fourth quarter may be reduced by many customers’ practice of operating on holiday-shortened schedules. Workers’ compensation expense varies with both the frequency and severity of workplace injury claims reported during a quarter and the estimated future costs of such claims. Positive or adverse loss development of prior period claims during a subsequent quarter may also contribute to the volatility in the Company’s estimated workers’ compensation expense.
Liquidity and Capital Resources
The Company’s cash balance of $30.9 million, which includes cash, cash equivalents, and restricted cash, decreased $95.5 million for the six months ended June 30, 2026, compared to a decrease of $45.4 million for the comparable period of 2025. The decrease in cash at June 30, 2026 as compared to December 31, 2025 was primarily due to the factors discussed below.
Net cash used in operating activities for the six months ended June 30, 2026 amounted to $78.0 million, compared to cash used of $48.6 million for the comparable period of 2025. For the six months ended June 30, 2026, net cash used in operating activities was primarily due to increased trade accounts receivable of $52.9 million, decreased premium payable of $42.7 million, decreased payroll taxes payable of $14.0 million, decreased other accrued liabilities of $9.5 million and decreased workers’ compensation claims liabilities of $9.1 million, partially offset by increased accrued payroll and related benefits of $34.6 million and increased income taxes payable of $13.5 million.
Net cash provided by investing activities for the six months ended June 30, 2026 totaled $22.7 million, compared to cash provided of $26.1 million for the comparable period of 2025. For the six months ended June 30, 2026, net cash provided by investing activities consisted of proceeds from sales and maturities of investments and restricted investments of $35.8 million, partially offset by purchases of property, equipment and software of $11.2 million.
Net cash used in financing activities for the six months ended June 30, 2026 was $40.2 million, compared to cash used of $22.9 million for the comparable period of 2025. For the six months ended June 30, 2026, net cash used in financing activities primarily consisted of repurchases of common stock of $35.5 million and dividend payments of $3.9 million.
The Company is required to maintain minimum collateral levels for certain policies issued under the insured program, which is held in a trust account (the “trust account”). The balance in the trust account was $135.0 million and $175.3 million at June 30, 2026 and December 31, 2025, respectively. The trust account balance is included as a component of the current and long-term restricted cash and investments in the Company’s condensed consolidated balance sheets.
See “Note 4 – Revolving Credit Facility” to the condensed consolidated financial statements included in Item 1 of Part I of this report for additional information regarding the Company’s credit agreement with Wells Fargo Bank, N.A.
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Forward-Looking Information
Statements in this report include forward-looking statements, which are not historical in nature and are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include, among others, discussion of economic conditions in our market areas, especially in California, and their effect on revenue levels; the competitiveness of our service offerings; the availability of certain fully insured medical and other health and welfare benefits to qualifying worksite employees; our ability to attract and retain clients and to achieve revenue growth; the effect of changes in our mix of services on gross margin; labor market conditions, including the impact of AI and automation on workplace displacement; the adequacy of our workers’ compensation reserves; the effect of changes in estimates of our future claims liabilities on our workers’ compensation reserves, including the effect of changes in our reserving practices and claims management process on our actuarial estimates; expected levels of required surety deposits and letters of credit; the outcome of audits and other determinations by the IRS; the effect of our formation and operation of two wholly owned licensed insurance subsidiaries; the risks of operation and cost of our insured program; the financial viability of our excess insurance carriers; the effectiveness of our management information systems; our relationship with our primary bank lender and the availability of financing and working capital to meet our funding requirements; litigation costs; the effect of inflationary pressures or changes in the interest rate environment on the value of our investment securities; the adequacy of our allowance for expected credit losses; and the potential for and effect of acquisitions.
All our forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such factors with respect to the Company include: our ability to retain current clients and attract new clients; technology disruption, including the displacement of employees through the adoption of AI and automation by our clients; difficulties associated with integrating clients into our operations; economic trends in our service areas and the potential effects of changing governmental policies, including those related to immigration, tariffs, other trade policies, or climate regulation; risks to our business and the business of our clients arising from current or future tariffs or other trade restrictions, supply chain issues, changes in labor force, or geopolitical instability, including the wars in Ukraine and Iran, other conflicts in the Middle East, and the potential for future conflicts or disruptions in other parts of the world; natural disasters; the potential for material deviations from expected future workers’ compensation claims experience; changes in the workers’ compensation regulatory environment in our primary markets; PEO client benefit costs, particularly with regard to health insurance benefits; security breaches or failures in the Company’s information technology systems; collectability of accounts receivable; changes in executive management; changes in effective payroll tax rates and federal and state income tax rates; the carrying values of deferred income tax assets and goodwill (which may be affected by our future operating results); the effects of inflation on our operating expenses and those of our clients; the impact of and potential changes to the Patient Protection and Affordable Care Act, escalating medical costs, and other health care legislative initiatives on our business; the impact of the One Big Beautiful Bill Act and other recently enacted legislation on our business; the effect of changing monetary policy, interest rates and conditions in the global capital markets on our investment portfolio; and the availability of capital, borrowing capacity on our revolving credit facility, or letters of credit necessary to meet state-mandated surety deposit requirements for maintaining our status as a qualified self-insured employer for workers’ compensation coverage or our insured program. Additional risk factors affecting our business are discussed in Item 1A of Part I of our Annual Report on Form 10-K for the year ended December 31, 2025, which was filed with the SEC on February 26, 2026 and in Item 1A of Part II in this report. We disclaim any obligation to publicly announce any revisions to any of the forward-looking statements contained herein to reflect future events or developments.
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