Business management solutions provider Barrett Business Services (NASDAQ:BBSI) reported Q1 CY2025 results beating Wall Street’s revenue expectations, with sales up 10.1% year on year to $292.6 million. Its non-GAAP loss of $0.04 per share was 68.6% above analysts’ consensus estimates.
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Barrett (BBSI) Q1 CY2025 Highlights:
- Revenue: $292.6 million vs analyst estimates of $285.9 million (10.1% year-on-year growth, 2.3% beat)
- Adjusted EBITDA: $444,000 vs analyst estimates of -$5.5 million (0.2% margin, significant beat)
- Operating Margin: -1.4%, in line with the same quarter last year
- Market Capitalization: $1.09 billion
StockStory’s Take
Barrett Business Services’ first quarter results were driven by robust new client additions, strong client retention, and the successful upselling of expanded benefits offerings. CEO Gary Kramer highlighted the company’s record start to the year, underpinned by a 55% increase in worksite employees from new client adds and steady execution on product initiatives. Kramer emphasized that controllable growth—growth derived from internal initiatives such as sales funnel expansion and product innovation—contributed to higher-than-expected revenue. The introduction of BBSI Benefits, the company’s health insurance product, continued to gain traction with both small and large clients across diverse industries, while the asset-light market entry strategy enabled the company to efficiently test and establish new geographies. However, the staffing segment experienced a decline, attributed to macroeconomic pressures and regional demand imbalances.
Looking ahead, management signaled a cautious approach to full-year guidance despite the company’s strong first quarter momentum. Kramer cited ongoing economic uncertainty, particularly around trade negotiations and government initiatives, as reasons for maintaining rather than raising the outlook for billings and worksite employee growth. He acknowledged that although BBSI’s controllable growth drivers remain intact—with positive trends in client adds and product adoption continuing into April—the broader macro environment could lead to slower hiring and more restrained demand. Kramer stated, “We would have raised our billings outlook for the year, but with this uncertainty, we think it prudent to err on the side of caution and maintain our outlook for billings growth and WSE growth.” Management believes BBSI’s service model and product breadth position the company well to navigate potential economic headwinds in the months ahead.
Key Insights from Management’s Remarks
Barrett’s management attributed first quarter outperformance to new product adoption, geographic expansion, and healthy client retention, while acknowledging headwinds in staffing and macroeconomic risks.
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Health benefits traction: The BBSI Benefits product, especially partnerships with Aetna and Kaiser Permanente, gained momentum, contributing to new client wins and deeper penetration in core markets. Management noted that approximately 50% of new benefits participants came from new clients, enabling expansion into industries previously out of reach.
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Geographic expansion strategy: The asset-light approach allowed BBSI to cost-effectively enter new markets, adding over 600 worksite employees in the quarter. New physical branches are scheduled in Dallas, Chicago, and Nashville, with further locations considered based on market development progress and real estate availability.
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Client retention and sales funnel improvements: CEO Gary Kramer emphasized improvements in the sales process and training, which have driven a record number of worksite employees added from net new clients. Retention levels also continued to trend above historical averages, supporting overall revenue growth.
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Technology product launches: The March rollout of BBSI’s Applicant Tracking System streamlined hiring for clients, integrating job postings, interview management, and onboarding with payroll systems. Early client feedback has been positive, with efficiency gains noted, though management expects broad adoption to take time.
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Staffing segment decline: BBSI’s staffing business contracted by 10% year over year, below company expectations. This was attributed to regional supply and demand imbalances and macro headwinds, particularly in logistics and manufacturing-related segments. Management reiterated that staffing remains a small component of total revenue.
Drivers of Future Performance
Management highlighted macroeconomic uncertainty, ongoing product innovation, and continued investment in market expansion as the primary factors influencing future performance.
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Macroeconomic caution: Leadership expressed concerns about the potential impact of trade negotiations, government policies, and broader economic uncertainty on client hiring and investment. While BBSI has minimal direct tariff exposure, management noted that indirect effects—such as reduced client workforce needs—could moderate growth in the coming quarters.
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Product and technology investments: Ongoing development of the employee life cycle platform (including the new Applicant Tracking System) and enhancements to BBSI Benefits are expected to support future client wins and retention. Management believes these technology investments will improve client efficiency, though widespread adoption and revenue impact may materialize over a longer time frame.
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Geographic and market expansion: The company is expanding its physical footprint in select markets following successful asset-light entries. Management views these new branches as long-term profitability drivers rather than immediate revenue contributors, with full margin benefits expected after year three of operation.
Catalysts in Upcoming Quarters
In the coming quarters, our analysts will closely watch (1) the rate of adoption and client feedback for new technology offerings like the Applicant Tracking System, (2) progress and initial results from new physical branches in Dallas, Chicago, and Nashville, and (3) trends in client hiring and retention amid ongoing macroeconomic uncertainty. These factors will be key to assessing BBSI’s ability to maintain momentum and effectively manage external risks.
Barrett currently trades at a forward P/E ratio of 18.7×. In the wake of earnings, is it a buy or sell? The answer lies in our full research report (it’s free).
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