Barrett Business Services (NasdaqGS:BBSI) Q3 2025 Earnings Call November 05, 2025 05:00 PM ET Speaker6Good afternoon, everyone, and thank you for participating in today's conference call to discuss BBSI's financial results for the third quarter ended September 30, 2025. Joining us today are BBSI's President and CEO, Mr. Gary Kramer, and the company's CFO, Mr. Anthony Harris. Following their remarks, we will open the call for questions. Before we go further, please take note of the company's safe harbor stat ...

Financial Data and Key Metrics Changes - The average number of paid worksite employees increased by 1.2% year-over-year to 312,842 in Q3 2025 [3] - Adjusted EPS for the quarter was minus $0.20, and adjusted EBITDA was $10 million, both below forecasted ranges due to higher-than-expected benefits costs [4][10] - Gross profit per worksite employee decreased from $247 in Q3 2024 to $208 in Q3 2025, primarily due to increased benefits costs of $20 million [4][10] Business Line Data and Key Metrics Changes - New client sales results were encouraging, with a significant increase in accounts queued for first payroll, despite a slight decline in worksite employees from new clients compared to Q3 2024 [3] - Client retention remained strong at an average of 99% per month, consistent with prior year results [3] Market Data and Key Metrics Changes - The overall hiring environment was challenging, with net hiring within the client base being negative in Q3 2025, slightly weaker than Q3 2024 [4] - The health insurance industry reported an unexpected rise in healthcare costs and loss ratios, impacting Insperity significantly [6][15] Company Strategy and Development Direction - The company is focused on attracting and retaining the right clients at competitive prices to achieve sustainable profitability [7][8] - The rollout of the new HR Scale solution is expected to enhance Insperity's PEO offerings and drive growth, particularly in the mid-market segment [20][26] - A new agreement with UnitedHealthcare aims to reduce claim costs and mitigate risks, which is projected to positively impact margins [18][34] Management's Comments on Operating Environment and Future Outlook - Management acknowledged the unexpected increase in healthcare claims costs and its impact on financial performance, indicating that this trend is expected to persist into 2026 [15][33] - The company is optimistic about a rebound in 2026, driven by strategic pricing adjustments and the rollout of HR Scale [17][37] Other Important Information - Operating expenses decreased by 4% year-over-year in Q3 2025, with significant reductions in salaries and G&A costs [8] - The company returned $22 million in cash dividends to shareholders in Q3 2025, with a total of $68 million year-to-date [9] Q&A Session Summary Question: Clarification on earnings shortfall recovery - Management indicated that the earnings shortfall primarily relates to benefits costs and expects to recover a majority of this in 2026 [38][39] Question: Impact of cost trends on new sales - Management expressed confidence that pricing changes would not significantly impact new sales, citing strong sales performance and high renewal rates [40][41] Question: Initial responses from the joint marketing pod for HR Scale - Positive feedback was received regarding the unique solution developed, with early pipeline filling ahead of expectations [42][43] Question: Adjustments to benefits repricing - Management confirmed ongoing adjustments to pricing based on healthcare trends, with expectations for higher pricing in 2026 [44][45] Question: Healthcare pricing expectations for next year - Management anticipates a low double-digit increase in benefit costs on an apples-to-apples basis for 2026 [44] Question: Managing lower profitability clients - Management indicated that the focus is on retaining profitable clients while managing out lower profitability ones [48] Question: Investment framework for HR Scale - Management clarified that ongoing operating expenses for HR Scale would be lower than previous estimates, with a focus on balancing investment across projects [55][57] Question: AI's impact on employment and business creation - Management noted that while AI's impact on employment is uncertain, it could lead to new business creation, providing a buffer against employment efficiency [59][60]