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Hello, and welcome to the Robert Half Second Quarter 2026 Conference Call. Today's conference call is being recorded. [Operator Instructions] Our hosts for today's call are Mr. Keith Waddell, President and Chief Executive Officer of Robert Half; and Mr. Michael Buckley, Chief Financial Officer. Mr. Waddell, you may begin.

Hello, everyone. We appreciate your time today. Before we get started, I'd like to remind you that comments made on today's call contain forward-looking statements, including predictions and estimates about our future performance. These statements represent our current judgment of what the future holds. However, they are subject to the risks and uncertainties that could cause actual results to differ materially from the forward-looking statements.

These risks and uncertainties are described in today's press release and our most recent 10-K and 10-Q filed with the SEC. We assume no obligation to update the statements made on today's call. During this presentation, we may refer to certain non-GAAP financial measures as adjusted. Adjusted revenue growth excludes the impact of billing day variations and foreign currency exchange rates.

Adjusted gross margin, SG&A and operating income reflect the combining of investment gains and losses related to employee deferred compensation plans with corresponding changes in those obligations. These items have no impact on reported net income.

Reconciliations and additional information are included in the supplemental schedules to our earnings release. For your convenience, our prepared remarks for today's call are available at the Investor Center of our website, roberthalf.com.

For the second quarter of 2026, Global Enterprise revenues were $1.336 billion, down 2% from last year's second quarter on a reported basis and down 3% on an adjusted basis. Talent Solutions delivered its third consecutive quarter of sequential revenue growth on an adjusted basis while its permanent placement operations, also posted adjusted year-on-year revenue growth of 2.5%.

Global Enterprise revenues and earnings exceeded the midpoint of our second quarter guidance. Hiring demand continues to improve and market conditions are increasingly more supportive of our business. Our unique combination of award-winning, high-tech capabilities and high-touch expertise positions us well to help clients navigate a dynamic business environment and connect them with a specialized talent and consulting services they need.

Net income per share in the second quarter was $0.26 compared to $0.41 in the second quarter a year ago. As we discussed in last quarter's call, second quarter EPS was impacted by cost actions taken by Protiviti, which Mike will discuss further in a moment.

Cash flow provided by operations during the quarter was $109 million. In June we distributed a $0.59 per share cash dividend to our shareholders of record for a total cash outlay of $59 million. Return on invested capital for the company was 9% in the second quarter.

Now I'll turn the call over to our CFO, Mike Buckley.

Thank you, Keith. As Keith noted, global revenues were $1.336 billion in the second quarter. On an adjusted basis, second quarter Talent Solutions revenues were down 2% year-over-year. U.S. Talent Solutions revenues were $660 million, down 1% from the prior year's second quarter. Non-U.S. Talent Solutions revenues were $205 million down 4% year-over-year. We conduct Talent Solutions operations throughout offices in the United States and 18 other countries.

In the second quarter of 2026, there were 63.1 billing days compared to 63.2 billing days in the second quarter 1 year ago. The third quarter of 2026 has 64.6 billing days compared to 64.2 billing days in the third quarter of 2025.

Currency exchange rate movements during the second quarter had the effect of increasing reported year-over-year total revenues by $7 million, $6 million for Talent Solutions and $1 million for Protiviti.

Contract Talent Solutions bill rates for the second quarter increased 2.3% compared to 1 year ago, adjusted for changes in the mix of revenues by functional specialization, currency and country. This rate for the first quarter was 2.6%.

Now let's take a closer look at results for Protiviti. Global revenues in the second quarter were $471 million, $373 million of that is from the United States and $98 million is from outside of the United States.

On an adjusted basis, Global second quarter Protiviti revenues were down 5% versus the year ago period. U.S. Protiviti revenues were down 6%, while non-U.S. Protiviti revenues were down 3% compared to 1 year ago. Protiviti and its independently owned member firms serve clients through locations in the United States in 27 other countries.

Turning now to gross margin. In Contract Talent Solutions, gross margin was 39.1% of applicable revenues in both the current quarter and the second quarter 1 year ago. Conversion for contract to hire revenues were 3.4% of contract revenues in both the current quarter and to the second quarter of 2025.

Our permanent placement revenues were 13.6% of consolidated Talent Solutions revenues in the current quarter compared to 13.1% in the second quarter of 2025. When combined with Contract Talent Solutions gross margin, overall gross margin for Talent Solutions was 47.4% of applicable revenues in the current quarter compared with 47.1% in the second quarter of 2025.

For Protiviti, gross margin was 13.5% of Protiviti revenues in the second quarter and 19.7% in the second quarter 1 year ago. Adjusted gross margin for Protiviti was 18.5% for the quarter just ended compared to 22.3% last year.

As we discussed in our last call, Protiviti revenue results reflect ongoing shifts in the U.S. financial services regulatory environment. As a result, cost actions were taking during the quarter, including $7 million in severance costs, which reduced adjusted gross margin by 1.4 percentage points or $0.04 per share.

Enterprise SG&A costs were 40.1% of global revenues in the second quarter compared to 37.1% in the same quarter 1 year ago. Adjusted enterprise SG&A costs were 34.3% for the quarter just ended compared to 33.8% 1 year ago.

Talent Solutions SG&A costs were 53% of Talent Solutions revenues in the second quarter versus 49.2% in the second quarter of 2025. Adjusted Talent Solutions SG&A costs were 44.1% for both the current quarter and the second quarter 1 year ago.

Second quarter SG&A costs for Protiviti were 16.4% of Protiviti revenues compared to 15.7% for the same quarter 1 year ago. Reported operating income for the second quarter was negative $62 million. Adjusted operating income was positive $39 million in the quarter or 2.9% of revenues. Second quarter adjusted operating income for Talent Solutions was $29 million or 3.3% of revenues. Adjusted operating income for Protiviti in the second quarter was $10 million or 2.1% of revenues.

Our second quarter 2026 income statement includes a $101 million gain from investments held in employee deferred compensation trusts. This is completely offset by an equal amount of higher employee deferred compensation costs, which are reflected in SG&A expenses and direct costs. As such, it has no effect on our reported net income.

Our second quarter tax rate was 35% compared to 33% 1 year ago. The increase in the tax rate is primarily the result of lower tax credits and the increased impact of nondeductible expenses relative to lower pretax income. At the end of the second quarter, accounts receivable were $821 million, and implied days sales outstanding, or DSO, was 55.4 days.

Before we move to third quarter guidance, let's review some of the monthly revenue trends we saw in the second quarter and so far in July, all adjusted for currency and billing days.

Contract Talent Solutions exited the second quarter with June revenues down 2% versus the prior year, the same as the 2% decrease for the full quarter. Revenues for the first 2 weeks of July were down 1% compared to the same period last year. Permanent placement revenues in June were up 4% versus June of 2025. This compares to a 3% increase for the full quarter.

For the first 3 weeks in July, permanent placement revenues were up 4% compared to the same period in 2025. We provide this information so that you have insight into some of the trends we saw during the second quarter and into July. But as you know, these are very brief time periods, we caution against reading too much into them.

With that in mind, we offer the following third quarter guidance: revenues, $1.31 billion to $1.41 billion. Income per share $0.43 to $0.53. Midpoint revenues of $1.36 billion are flat with the same period in 2025 on an adjusted basis.

Our midpoint revenue guidance for the third quarter reflects year-over-year growth of 3% for Talent Solutions and 6% lower revenues for Protiviti. Protiviti's results continue to reflect the ongoing shifts in the U.S. financial services regulatory environment, which we discussed last quarter.

The major financial assumptions underlying the midpoint of these estimates are as follows: adjusted revenue growth year-over-year for Talent Solutions up 1% to 5%. For Protiviti, down 4% to 8% overall, down 2% to up 2%. Adjusted gross margin percentage for contract talent 38% to 40%, for Protiviti, 23% to 25% overall, 38% to 40%.

Adjusted SG&A as a percentage of revenue for Talent Solutions, 42% to 44%, for Protiviti, 16% to 18% and overall 33% to 35%. Adjusted operating income as a percentage of revenue for Talent Solutions, 3% to 5%, for Protiviti, 6% to 8% overall, 4% to 6%. Tax rate, 33% to 35% and shares outstanding $100 million to $101 million.

2026 capital expenditures and capitalized cloud computing costs of $50 million to $70 million with $10 million to $20 million during the third quarter.

For the fourth quarter, we offer the following directional observations. Because of the November and December holidays, the fourth quarter has 61.1 billing days compared with 64.6 billing days in the third quarter. A quarter-over-quarter decrease of approximately 5%. This reduction is typically partially offset by seasonal growth in average same-day billings which has historically been in the low single digits.

Lower sequential revenues result in negative operating leverage such that fourth quarter operating margins have historically been 0.5 to 1.5 percentage points lower sequentially than third quarter margins. All estimates we provide on this call are subject to the risks mentioned in today's press release and in our SEC filings.

Now I'll turn the call back over to Keith.

Thank you, Mike. Our second quarter results for Talent Solutions reflect continued sequential revenue growth on a same-day constant currency basis and a return to year-over-year growth for our permanent placement segment. Technology was our strongest performing practice group within contract Talent Solutions, achieving adjusted year-over-year revenue growth of 2.3% for the quarter.

Client engagement remained strong throughout the quarter with job orders and project activity increasing across many markets, particularly in technology modernization, data, cybersecurity and IT infrastructure. Many of our smaller midsize business clients continue to operate with lean organizations after several years of disciplined cost management.

As confidence improves and strategic priorities advance, we're seeing demand for specialized talent and consulting expertise to help execute those initiatives. While clients continue to approach hiring thoughtfully, we are seeing steady progress in client interactions and activity.

While geopolitical and macroeconomic uncertainty persists, our clients remain resilient, although inflation remains a key concern, including the potential effects of escalating tensions in the Middle East.

Organizations continue to focus on initiatives that drive productivity, growth and long-term competitiveness. Employment levels among many of the professionals we place are healthy and job openings continue to outpace historical norms.

The labor market for specialized talent remains tight, professionals with in-demand skills continue to prioritize flexibility rare opportunities and competitive compensation, reinforcing the value of Robert Half's ability to identify and deliver exceptional talent efficiently.

Artificial intelligence continues to complement, not replace the work performed by the professionals we place. We're seeing growing demand for candidates who combine deep domain expertise with AI fluency and the judgment required to apply these technologies effectively and responsibly, including verifying the accuracy of their outcomes. The rapid adoption of generative AI by job seekers has also changed the recruiting landscape, increasing application volumes and making candidate evaluation more complex.

This underscores the importance of Robert Half's proprietary candidate insights, specialized recruiting expertise and proven ability to identify highly skilled talent. Protiviti's results were largely as expected during the quarter. Technology consulting continues to lead with particularly strong demand and platform transformation engagements.

At the same time, Protiviti's Risk and Compliance solutions practice continues to navigate shifts in the U.S. financial services regulatory environment and included a marked decline in new enforcement actions and the easing of prior enforcement requirements.

As financial institutions adjust, we're beginning to see new work focused on improving efficiency of ongoing compliance programs, many of which rely on substantial internal resources and aging infrastructure.

These changes continue to influence Protiviti's engagement mix with fewer large-scale regulatory and remediation projects and growing demand for solutions focused on operational efficiency, productivity and advanced technologies. These projects are generally shorter in duration and have different staffing and leverage characteristics than traditional remediation engagements.

During the second quarter, Protiviti acted decisively to better align its resource base with shifting client demand while continuing to invest in capabilities that position the business for sustained growth.

These actions resulted in a onetime charge in Q2 of $7 million or $0.04 per share and an annualized cost savings of $45 million, which are fully reflected in our third quarter guidance. Demand across Protiviti's other key solution areas remains healthy, and the pipeline is strong, and we expect sequential revenue growth in those practices during the third quarter.

Our strategic use of contract professionals through our Talent Solutions business remains a key differentiator, enhancing our ability to serve clients and reinforcing our enterprise-wide competitive advantage. Looking ahead, we remain optimistic about the trajectory of our business. Clients continue to prioritize critical investments in technology, business transformation and growth.

As hiring activity recovers and organizations advance strategic initiatives, we believe Robert Half is well positioned to help clients secure the specialized talent and consulting expertise they need to be successful.

Our purpose has never been more relevant, connecting companies with specialized talent and helping people build meaningful careers backed by our trusted brand, exceptional people, innovative capabilities and diversified business model, we remain confident in our ability to create long-term value for our clients, our employees and our shareholders.

Finally, we'd like to thank our global workforce for their continued dedication. Their commitment to excellence was recently recognized as Robert Half earned the #1 ranking on Forbes America's Best professional recruiting firms.

Now Mike and I'd be happy to answer your questions. Please ask just one and a single follow-up as needed. If there's time, we'll come back to you for additional questions.

[Operator Instructions] And our first question will come from Mark Marcon with Baird.

Keith and Mike, last quarter, you talked about the risk and compliance solutions, and you talked about a $5 million charge and $35 million in savings. I take it from the discussion that you just went through that you actually saw some additional factors that came into play that changed the plan a little bit on the risk and compliance side. So I'm wondering if you could just dig in a little bit in terms of what you ended up seeing during the quarter in terms of risk and compliance solutions. To what extent did it deteriorate further?

And what percentage of Protiviti is still risk and compliance solutions? And how are you thinking about that? And then on the technology side, there have been some mixed messages depending on which conference calls you're on about projects being delayed. I'm wondering if you've seen any of that on the Technology Solutions side. It doesn't sound like it, but I just want to confirm that?

Okay. And so $5 million in severance grew to $7 million and the savings got larger proportionately, I'd say there was a more international zone realignment than had been first expected. And so that was the biggest delta between what we estimated and where it came in.

Risk and compliance is a little under 20%, Protiviti's total revenues as to project delays in technology, we're happy to report that our -- the Protiviti's technology consulting practice group reported the best revenue quarter in its history and clearly was not impacted by project delays.

That's great. And then I'd like to ask just kind of an overall big picture question. So on the Protiviti side, with the change that we've seen, like how confident are you in terms of getting Protiviti to return to growth. And we're really encouraged on the Talent Solutions side.

On the Talent Solutions side, do you think barring a huge change in terms of the macro environment, which is possible, but barring a huge change, do you think the bottom is in on the staffing cycle? And do you foresee an opportunity to get back to prior peak revenues on the staffing side?

As to how confident are we that Protiviti returns to growth, I'd say if you look at Protiviti's pipeline on a probability-weighted basis, their total pipeline including FSI, is up sequentially and year-on-year total, that's probability weighted. And so that says that tech is particularly strong in that composition. And we feel great about Protiviti's future and its ability to return to growth.

And if you look at FSI and non-FSI, non-FSI is already growing and is expected to continue to grow. And the offset from FSI over time will win. So we feel good about Protiviti returning to growth in the not-too-distant future.

Talent Solutions is the bottom end. Well, we've now had 3 quarters of sequential growth. That continued into the post-quarter. And so we've been steady. We've been consistent for some time. I think everybody worries about inflation everybody worries about renewed tensions in the Middle East, but barring some major impact from that, we feel good given we've already had three straight quarters that were in the early parts of recovery.

Can we get back to prior peaks, I've been here a long time. And every time we've had a downturn, we've subsequently not only returned to but made new peaks. And I see no reason why that wouldn't be the case this time.

And the next question comes from Trevor Romeo with William Blair.

One I had kind of just a follow-up on Protiviti. I guess, you talked about the U.S. regulatory environment quite a bit. But the international Protiviti business, I think you just mentioned you had some realignment there. That business declined 3%, whereas it had been a pretty strong growth area for you previously. So maybe you could just dive a little deeper on what caused the weakening in internationally for Protiviti this quarter? And would you expect that to continue?

And so unrelated to FSI in international zone, particularly Germany, they had some large public sector engagements that wound down that impacted their results given the macro in Germany and to a lesser extent, but still in Belgium, it seems that higher inflation, higher energy prices kind of are impacting sentiment and macro tone over there more. So it's harder for them to backfill and replace those projects that have wound down. And so the Protiviti IZ year-on-year change between quarters 1 and 2 is not related to FSI, it's public sector wind down.

Okay. That's helpful. And then a follow-up, I guess, I wanted to touch on the -- in the Contract Talent Solutions, the bill rate growth, I think, decelerating to closer to 2% this quarter, which I think is the lowest you've seen in while. I think the gross margins were steady. So it doesn't feel like spread compression. I think those metrics are already adjusted for mix. So maybe could you just talk a little bit about the bill rates and what you're seeing there? Is that like wage inflation slowing or maybe something else?

Well, it was only, what, 30 basis points different than the prior quarter. So that's not a big change but they largely reflect the weighted average pay rates of our different practice groups. And so typically, if our bill rate growth is less, so as our pay rate growth because as you noted, our gross margins stayed the same.

And the next question will come from Andrew Steinerman with JPMorgan.

I wanted to ask you a fourth quarter directional question about Protiviti. Obviously, you gave these direct observations about the total company for fourth quarters typically being down 50 to 100 basis points in the third quarter.

So my question is, can you give us some of that same perspective or a typical Protiviti margin in the fourth quarter versus the third quarter and also allowing you some -- if you want to make any kind of caveat, is this kind of setting up to be a typical or atypical year for Protiviti margins as we think about kind of heading towards year-end?

And so our Q4 directional observations were enterprise-wide. And so that was Talent Solutions plus Protiviti. So we did not break out one from the other. But the historical range is inclusive of Protiviti. I mean, the only thing that's particularly different is something we've now talked about a bunch is the impact of regulatory and that impact is expected to continue into Q4. The other thing is there's nuances with the calendar.

And so you'll lose one more billing day this year in the fourth quarter than you typically do. And so that cost you about $20 million in revenue. But other than that, the 2-quarter directional guidance, it's not even guidance. It's 2-quarter historical trends that we noted are enterprise to trends, not one or the other.

And the next question will come from Jeff Silber with BMO Capital Markets.

Actually I just had a couple of follow-up questions from some prior questions. The first was on billing rates. I know mix really played a big role into the change. But is underlying wage inflation changing at all? And I know there's some economists thinking that's going to accelerate. If that does, should we see an acceleration in bill rate increases?

And so underlying wage inflation has come down and so have bill rates just like kind of post-COVID when wage inflation flared up so did our bill rates to recover. And so if you believe wage inflation is getting ready to rise, then we would expect our bill rates to rise along with that. If there's anything we've been consistent about over a very long, long period of time, it's about protecting our gross margins.

All right. That's great to hear. And then let me go back to Mark's questions about getting back to prior peak revenues. Is there any reason you can't get back to prior peak margins as well?

Absolutely not. And I actually am bullish that we can get to new peak margins. Not only do you get operating leverage, but we've, over time, change the mix of revenues between higher level and operational level positions and we get higher gross margins at higher levels. So we have a larger portion of those from here forward than we have in prior cycles.

And so I think there's upside there. I think there's upside from efficiencies we might gain from technology over time. And so I feel good about future margin upside from where we are, principally about mix.

The other thing I would mention there, our full-time engagement professionals is cycle low as we sit here. It's closer to 15% of the total. It's been north of 20%, and we could go even further north of that. That's also margin accretive. So that's another mix of revenue upside in the next peak relative to the last.

And the next question comes from George Tong with Goldman Sachs.

You're guiding to Talent Solutions to return to year-over-year growth in 3Q. As you think beyond the near-term recovery, what do you view as a reasonable steady state revenue growth rate for the staffing business in a more normalized environment?

I think normal -- you'd have to define normal and normal -- who knows what normal even means the last 4 or 5 years. But somewhere mid-ish single digits is -- we're where normal Talent Solutions growth would be. Half of that would probably be wage/bill rate inflation and the other part volume, but mid-single-digit.

Got it. That's helpful. On Protiviti, you've discussed ongoing impact from changes in the U.S. financial services regulatory environment including fewer enforcement actions, less remediation work, how much of this pressure do you view as tied to the current regulatory backdrop versus a more permanent shift in demand? And what would need to change for that business to return to growth?

Well, since anti-money laundering is the key area that's been impacted here, history says money laundering doesn't go away. And if anything, if there's less scrutiny today, that probably means there are more issues in the future which would bode well for demand in anti-money laundering.

So the changes are more about the current administration and their stance on regulation broadly, and so it's certainly not a structural -- there's less money laundering. And therefore, long term, there's going to be less anti-money laundering demand from regulators. I would argue it's the opposite. I'd argue that there's probably pent-up demand being created as we sit here today because there's less scrutiny.

And the next question is from Kartik Mehta with Northcoast Research.

Keith, I know you've talked about the financial services regulatory headwinds, and you said that should last in the fourth quarter. When does that -- when do you move beyond that? And when do you stop lapping that?

Well, the FSI growth rates with solidly negative in Q3 of last year, they took a bigger step down in Q1 and 2. And so I would say, starting first quarter of 2027, you'll get some relief and then you'll get a lot of reliefs Q2.

And then one of the things I think about, I don't know, a few quarters ago, we talked about kind of the pricing environment Protiviti and the market had changed a little bit, maybe gotten a little bit more competitive. As you look today, how would you -- how do you view the market in terms of pricing outside of this regulatory stuff?

I would say, consistently competitive. It's been competitive for a while but it hasn't gotten even more competitive. I mean, the big four, it's very market-based. If Big 4 firms have capacity in a given market, they will price very aggressively in that market.

But that's been true for some time. But I'd say the pricing environment for going on a couple of years with the Big 4 has been very competitive. And it remains so today, but not more so.

And the next question will come from Manav Patnaik with Barclays.

This is Ronan Kennedy on for Manav. This is discussed much earlier in the call in response to Mark's second question, but can I please reconfirm the characterization as recovery and the leading indicators and metrics that give you confidence in such. In addition, what you're seeing today, how that compares to prior recoveries in terms of hiring velocity, client urgency and willingness to approve incremental headcount?

Well, yes, some of this is semantics. And every downturn and following recovery is different. We had dot-com back in early 2000, you had great financial crisis, 2008 to '10. They were very different and the post those periods were very different. And this time, officially, there hasn't been a recession, but there's certainly been a staffing recession, and there's a big difference between enterprise, mid- and large cap and SMB who are more conservative.

And so conditions are quite different now unemployment is very low, which is not the case coming out of dot-com nor coming out a great financial crisis. That's a good thing for us because it makes it harder for clients to hire themselves. Job openings much higher than it was coming out of either of those.

That's also good for us. I think AI has made it tougher for clients to hire, as we've talked about before in that there are more applications. It's harder to distinguish one from the other to the extent they're using Gen AI.

And so they're different, but the metrics you would typically look at unemployment rates, pent-up demand via job openings. We've got the new AI impacts, which are playing out to be more benign than some have feared. I would argue that the metrics taken as a whole are more positive today than they were at similar early recovery periods post dot-com, post great financial crisis.

Got it. And then another follow-up question for me, please. You expressed confident that your return or ultimately exceed prior peak margins. Can I please reconfirm that opportunity? Does that come from primarily mix, structural efficiencies, productivity improvements and then how should we think about what comes first is revenue recovery? Is it gross margin? Is it the productivity and efficiency or operating margin?

I would say there's the most upside cycle-to-cycle, peak to peak on gross margins because of mix. I think there's some additional upside for operational efficiencies. Economies of scale covering fixed costs that would add somewhat to that. But I'm more bullish on gross margin upside than necessarily is the case with SG&A.

And the next question will come from Tobey Sommer with Truist.

I had a question about your directional guidance or directional context for the fourth quarter. Would the current business trend that you're seeing with three consecutive quarters, a slight sequential same-day billing growth. Would that be characterized as typical with normal seasonal patterns because you're trying to triangulate it on whether that historical pattern can be achieved or the current demand environment is sort of better or worse for example?

I would say up until the last couple of quarters, we've underperformed typical seasonal patterns. But starting the last couple of quarters and expected for the next few, we're returning to normal seasonal patterns. So for Q4, on the one hand, it's a much shorter quarter, even more so this year because of the calendar, we're going to lose an extra day more than we typically lose because of the calendar.

But as far as the billings per day, we're looking at normal seasonality. We're not making a forecast, we're just saying normal seasonality in the fourth quarter. On a per day basis, you would get 1 or 2 percentage points of growth on a per day basis.

That's clear. Within Protiviti, what are your opportunities like on the government side, state, local and federal. It was a number of years ago that you did capture some good work there. What does it look like today? And I'm kind of steering clear of the context of the financial regulation?

We like our opportunities in the public sector. Protiviti focuses more in federal and state than they do local or talent solutions has a bigger presence. But we have a very -- we have a dedicated team and effort that approaches federal and state separately. We've got good opportunities there. The pipeline is solid. And so we feel good about public sector. It's very different than it was coming out of COVID.

And so we've made some relationships that were sticky that remain to this date. And so we're well positioned to have a tranche of revenue that we didn't have traditionally. And then defense and aerospace, by the way, incrementally adds to that.

And the next question will come from the line of Kevin McVeigh with UBS.

Keith, could you just run through the restructuring, again, I apologize a couple of calls at the same time. Just what was it in the third quarter, the impact and the impact for Q4? And then how do we think about that in '27?

Okay. So in Q2, we had $0.04 of severance. If you want a pro forma in the savings that weren't fully reflected, you got another $0.05 for a total of $0.09. If you want a full pro forma Q2, you got $0.09. Now if you look at Q3, all those savings the quarter or, call it, $11 million in savings have been embedded in the guidance we gave for Q3 and no more severance.

So take Q2, add $0.09, that's your Q2 pro forma giving effective the savings as of the beginning of the quarter. And then Q3 is as stated, it takes full advantage of the $45 million in annualized savings or I'll call it, $11 million on a quarterly basis.

I think if you look at Protiviti's margins, they're recovering very well. They're getting back to near what a year ago's margins were on less revenue because of the cost actions they've taken because of how they've reallocated between work that contractors do versus work that their employees do.

Clearly, the incremental margins when their own employees do work are much higher than when contractors do and so the combination, we're very happy with the margin impact of the actions Protiviti have taken, some of which are cost actions, some of which are reallocation of resources between contractors and full-time employees.

And are you at the mix, Keith, in terms of fixed versus variable and Protiviti where you want to because I know you had some targets in the past. Is that mix in terms of staffing ratio fixed versus variable, where you want it to be with these most recent cost actions? Or was it independent of that?

Where we want it to be, it's more project-driven than that. Certain projects lend themselves to contractors more than full time because of the skills involved. Because of the ramp up and scale and speed of that involved. And so it's not like we stand up centrally and say, we want a contractor full-time mix of x, it's more project by project, what makes sense relative to the skills and capabilities needed on that project.

Generally speaking, these large FSI projects that have declined very highly leveraged contractor-heavy engagements, very profitable. The projects that replace them are less contractor heavy.

Thank you very much. That was our last question.

This concludes today's teleconference. If you missed any part of the call, it will be archived in audio format in the Investor Center of Robert Half's website at roberthalf.com. You can also log in to the conference call replay. Details are contained in the company's press release issued earlier today.

Hello, and welcome to the Robert Half First Quarter 2026 Conference Call. Today's conference call is being recorded. [Operator Instructions]

Our host for today's call are Mr. Keith Waddell, President and Chief Executive Officer of Robert Half; and Mr. Michael Buckley, Chief Financial Officer. Mr. Waddell, you may begin.

Hello, everyone. We appreciate your time today. Before we get started, I'd like to remind you that the comments made on today's call contain forward-looking statements, including predictions and estimates about our future performance. These statements represent our current judgment of what the future holds. However, they are subject to the risks and uncertainties that could cause actual results to differ materially from the forward-looking statements. These risks and uncertainties are described in today's press release in our most recent 10-K and 10-Q filed with the SEC. We assume no obligation to update the statements made on today's call.

During this presentation, we may refer to certain non-GAAP financial measures as adjusted. Adjusted revenue growth excludes the impact of billing day variations and foreign currency exchange rates. Adjusted gross margin, SG&A and operating income reflect the combining of investment gains and losses related to employee deferred compensation plans with corresponding changes in those obligations. These items have no impact on reported net income.

Reconciliations and additional information are included in the supplemental schedules to our earnings release. For your convenience, our prepared remarks for today's call are available in the Investor Center of our website, roberthalf.com.

For the first quarter of 2026, global enterprise revenues were $1.3 billion, down 4% from last year's first quarter on a reported basis and down 6% on an adjusted basis. We're very pleased that talent solutions delivered a second consecutive quarter of positive sequential growth on a same-day constant-currency basis with revenue trends strengthening as the quarter progressed and into early April. Overall, we believe market conditions are becoming increasingly conducive to our business and our unique combination of award-winning high-tech capabilities and high touch expertise positions us well to deliver meaningful value for clients in navigating a dynamic business environment.

Net income per share in the first quarter was $0.14 compared to $0.17 in the first quarter a year ago. As Mike will discuss, first quarter EPS was impacted by a seasonally elevated tax rate tied to stock-based compensation, which we expect to normalize as the year progresses.

We remain very well positioned to capitalize on emerging opportunities and support our clients' talent and consulting needs through the strength of our industry-leading brand, people, technology and unique business model that includes both professional staffing and business consulting services.

Cash flow used in operations during the first quarter was $112 million. Cash outflows are seasonally elevated each year in the first quarter due to the annual payment cycle for bonuses and SaaS subscription renewals, among others.

In March, we distributed a $0.59 per share cash dividend to our shareholders of record for a total cash outlay of $62 million. Return on invested capital for the company was 4% in the first quarter.

Now I'll turn the call back over to our CFO, Mike Buckley.

Thank you, Keith, and hello, everyone. As Keith noted, global revenues were $1.3 billion in the first quarter. On an adjusted basis, first quarter talent solutions revenues were down 7% year-over-year. U.S. talent solutions revenues were $626 million, down 7% from the prior year's first quarter. Non-U.S. talent solutions revenues were $208 million, down 3% year-over-year. We conduct talent solutions operations throughout offices in the United States and 18 other countries.

In the first quarter of 2026, there were 61.9 billing days, the same as the first quarter 1 year ago. The second quarter of 2026 has 63.1 billing days compared to 63.2 billing days in the second quarter of last year.

Currency exchange rate movements during the first quarter had the effect of increasing reported year-over-year total revenues by $24 million, $16 million for talent solutions and $18 million for Protiviti.

Contract talent solutions fill rates for the first quarter increased 2.6% compared to 1 year ago, adjusted for changes in the mix of revenues by functional specialization, currency and country. This rate for the fourth quarter was 3.2%.

Now let's take a closer look at the results for Protiviti. Global revenues in the first quarter were $466 million. $362 million of that is from the United States and $104 million is from outside of the United States. On an adjusted basis, global first quarter Protiviti revenues were down 4% versus the year ago period. U.S. Protiviti revenues were down 6% while non-U.S. Protiviti revenues were up 8% compared to 1 year ago. Protiviti and its independently owned member firms serve clients through locations in the United States in 27 other countries.

Turning now to gross margin. In contract talent solutions, gross margin was 38.9% of applicable revenues in both the current quarter and the first quarter 1 year ago. Conversion or contract to hire revenues were 3.1% of contract revenues in the current quarter compared to 3.2% in the first quarter of 2025.

Our permanent placement, revenues were 13.1% of consolidated talent solutions revenues in the current quarter compared to 12.8% in the first quarter of 2025. When combined with contract talent solutions gross margin, overall gross margin for talent solutions were 46.8% of applicable revenues in the current quarter compared to 46.7% in the first quarter of 2025.

For Protiviti, gross margin was 19.2% of Protiviti revenues in the first quarter and 18.9% in the first quarter 1 year ago. Adjusted gross margin for Protiviti was 18.8% for the quarter just ended compared to 18.1% last year.

Enterprise selling, general and administrative costs were 34.1% of global revenues in the first quarter compared to 34.0% in the same quarter 1 year ago. Adjusted enterprise SG&A costs were 34.6% for the quarter just ended compared to 35.2% 1 year ago. Talent solutions SG&A costs were 44.2% of talent solutions revenues in the first quarter versus 43.7% in the first quarter of 2025. Vested talent solutions SG&A costs were 45% for the quarter just ended compared to 45.5% last year.

First quarter SG&A costs for Protiviti were 15.9% of Protiviti revenues compared to 16.3% for the same quarter 1 year ago.

Operating income for the first quarter was $37 million. Adjusted operating income was $29 million in the quarter or 2.2% of revenues. First quarter adjusted operating income from talent solutions was $16 million or 1.8% of revenues. Adjusted operating income for Protiviti in the first quarter was $13 million or 2.9% of revenues.

Our first quarter 2026 income statement includes an $8 million loss from investments held in employee deferred compensation trusts. This is completely offset by an equal amount of lower employee deferred compensation costs, which are reflected in SG&A expense and direct costs. As such, it has no effect on our reported net income.

Our first quarter tax rate was 56% compared to 22% 1 year ago. This elevated tax rate is primarily the result of a tax charge related to our employee stock-based compensation grants, majority of which vested in the first quarter and the magnified impact of nondeductible tax items when measured against seasonally low Q1 pretax income.

At the end of the first quarter, accounts receivable were $776 million, and implied days sales outstanding, or DSO, was 53.8 days.

Before we move to second quarter guidance, let's review some of the monthly revenue trends we saw in the first quarter and so far in April, all adjusted for currency and billing days.

Contract talent solutions exited the first quarter with March revenues down 5% versus the prior year compared to a 7% decrease for the full quarter. Revenues for the first 2 weeks of April were down 1% compared to the same period last year. Permanent placement revenues in March were down 6% versus March 2025. This compares to a 5% decrease for the full quarter. For the first 3 weeks of April, permanent placement revenues were down 7% compared to the same period in 2025.

We provide this information so you have insight into some of the trends we saw during the first quarter and into April. But as you know, these are very brief time periods. We caution against reading too much into them.

With that in mind, we offer the following second quarter guidance: revenue, $1.275 billion to $1.375 billion. Income per share $0.20 to $0.30. Income per share, excluding the $0.03 onetime severance charge, which I'll discuss in a moment, $0.23 to $0.33.

Midpoint revenues of $1.325 billion are 4% lower than the same period in 2025 on an adjusted basis. Our midpoint revenue guidance for the second quarter reflects continued positive adjusted sequential revenue growth for talent solutions. Our Q2 revenue guidance for Protiviti reflects ongoing shifts in the U.S. financial services regulatory environment, which Keith will address in just a moment. As a result, cost actions are planned that impacted our Q2 midpoint adjusted gross margin guidance by $5 million in expected severance costs or $0.03 per share. We expect these actions will be fully completed by the beginning of the third quarter.

Financial assumptions underlying the midpoint of these estimates are as follows: adjusted revenue growth year-over-year for talent solutions flat to down 4%. Protiviti, down 4% to 8%. Overall, down 1% to 5%. Adjusted gross margin percentage, contract talent, 38% to 40%. Protiviti 19% to 21%. Overall, 36% to 39%. Adjusted SG&A as a percentage of revenue, talent solutions, 43% to 45%. Protiviti, 16% to 18%. Overall, 34% to 36%.

Adjusted operating income as a percentage of revenues, talent solutions, 2% to 4%. Protiviti, 2% to 4%. Overall, 2% to 4%. Tax rate, 34% to 36%. Shares outstanding $100 million to $101 million.

2026 capital expenditures and capitalized cloud computing costs, $70 million to $90 million with $15 million to $25 million in the second quarter.

For the third quarter, we offer the following general observations. For talent solutions, typical Q3 seasonal trends show relatively flat sequential revenues due to summer holiday effects, especially in Europe. That said, current trends would result in Q3 year-on-year adjusted revenue growth of 1% to 3%, marking a return to positive growth for the first time since 2022.

For Protiviti, Q3 revenues typically increase sequentially tied to seasonally higher internal out of work related to clients' annual internal control certifications. This typically drives higher staff utilization rates and elevated incremental margins, and we expect a similar pattern this year. In addition, for Protiviti will benefit from the absence of Q2 severance costs and lower Q3 staff costs following the Q2 cost actions previously referenced. We estimate Q3 Protiviti sequential revenue gains 0% to 3%. And combined with the newer low cost structure, Q3 adjusted segment margins of 7% to 9%, a substantial improvement over Q2 margins and comparable to margins from last year. We estimate that both talent solutions and Protiviti will deliver positive year-over-year segment income growth in Q3, driving Q3 consolidated net income and EPS growth of 8% to 12% and year-over-year. All estimates we provide on this call are subject to the risks mentioned in today's press release and in our SEC filings.

Now I'll turn the call back over to Keith.

Thank you, Mike. Our first quarter results for talent solutions reflect continued sequential growth on a same-day constant currency basis. We experienced some weather-related disruption in February, but activity levels improved steadily throughout March and into early April. This included increased client engagement and higher numbers of job orders, particularly in areas such as technology modernization, data initiatives and IT infrastructure. Resource levels in small and mid-sized businesses which represent the majority of our client base remain lean following several years of cost discipline, creating capacity constraints as project activity begins to recover. In addition, broader labor market indicators continue to point to underlying demand for skilled talent. Unemployment remains low, particularly among college-educated workers and in many of the roles we support while job openings continue to run above historical averages. Decision time lines remain extended but are beginning to improve as companies revisit postponed initiatives and consider hiring tied to business critical priorities, economic uncertainties related to the conflicts in the Middle East and higher energy costs have not yet significantly impacted client demand. However, concerns remain if these conditions persist.

Candidate behavior also reflects a gradually improving market. Professionals within demand skills are increasingly selective with continued preference for flexibility and competitive compensation, reinforcing the value of our ability to deliver highly scaled talent efficiently.

With respect to artificial intelligence, we continue to see limited impact on employment levels related to the roles we place in our specialties. This is supported by multiple external studies, and there is very little evidence to date, that AI adoption is leading to widespread job displacement. Instead, AI is reshaping the way work gets done and increasing the need for skilled professionals with domain expertise and enhanced AI skills who can also apply judgment, validate outputs and support implementations.

In addition, the growing use of generative AI by job seekers has increased application volumes, made it more difficult to verify candidate qualifications and made resumes more homogenous and harder to differentiate. This further underscores the value of our services, including our proprietary data on Canada performance and our ability to deliver vetted, proven talent.

Protiviti's segment results were impacted by the Q1 seasonal trends we previously guided with internal audit revenues sequentially lower and higher staff compensation costs due to annual adjustments made as of January 1. Protiviti is also navigating continued shifts in risk and compliance solutions practice, reflecting ongoing changes in the U.S. financial services regulatory environment.

With a marked decline in new enforcement actions, and notable easing in prior enforcement requirements, client demand is increasingly focused on enhancing the efficiency of ongoing compliance programs, which currently involve substantial internal resources and aging infrastructure. This shift is influencing the mix of Protiviti's work with relatively fewer large-scale remediation engagements and increased demand for efficiency-oriented solutions, including the application advanced technologies. These engagements are typically in shorter in duration and have different resource leverage profiles than traditional remediation work. We are actively aligning our resource levels with these evolving client needs while continuing to invest in capabilities that support long-term growth. As such, we are taking cost actions that will reduce annual costs by $30 million and resulted in a Q2 onetime charge of $5 million or $0.03 per share. These cost actions are expected to be fully implemented by the beginning of the third quarter.

Protiviti's pipeline remains strong across all of its other major solutions, which are all expected to grow sequentially in the second quarter. Our strategic engagement of contract professionals via our talent solution operations plays an essential role in Protiviti's success and further amplifies our unique enterprise-wide competitive advantage.

Looking ahead, we believe current market conditions are increasingly conducive to our business. Clients are operating with lean teams, unemployment remains low, making it harder for our clients to hire on their own and demand for professionals with specialized skills persists as confidence continues to improve, even modest increases in hiring activity can drive incremental demand for our services.

We remain energized by our time-tested corporate purpose to connect people to meaningful and exciting work and provide clients with the talent and consulting expertise they need to compete and grow. Our unique combination of award-winning, high-tech capabilities and high-touch expertise positioned us well to support clients as they navigate an evolving labor market and increasingly complex business environment.

Finally, we'd like to thank our global workforce for their continued dedication, their efforts have earned Robert Half recent recognition as one of America's Most Innovative Companies by Fortune and one of the Fortune 100 Best Companies to Work For. And just this week, we were named by Forbes as one of America's Best Employers for Company Culture.

Now Mike and I'd be happy to answer your questions. Please ask just one question and a single follow-up as needed. If there's more time, we'll come back to you.

[Operator Instructions] The first question will come from Trevor Romeo with William Blair.

I wanted to start with the Q3 commentary you had in the prepared remarks. Really appreciate your thoughts there, first of all. When you talk about returning to, I guess, 1% to 3% revenue growth for talent solutions, are you just essentially taking the recent kind of weekly revenues and holding them constant? Or is there any further improvement there? And then for Protiviti the sequential growth you embed there, does that contemplate any recovery in the risk and compliance area.

Okay. So for talent solutions, our current run rate is stronger than our Q2 guidance, which would fall over into Q3. And so I would say we're somewhat conservative for Q2 and its carryover into Q3. So hopefully, there's some upside there. Risk and compliance, we've taken a hard look at kind of the portfolio of projects that we have. We have not assumed any short-term snapback, if you will, and the risk and compliance practice, but we believe it to be reasonable.

Okay. Appreciate that. And then maybe as far as Protiviti's other solution areas outside risk and compliance, maybe you could talk about the underlying demand trends there and specifically on the tech consulting. I know you mentioned efficiency-oriented solutions. So maybe just a more specific sense of how the revenue trends for the tech consulting business are trending and what you kind of see in the next several quarters going forward.

Yes. So I think I'll start by kind of updating on the mix of solution areas within Protiviti, and tech consulting is now the largest. It's about 1/3 of their revenues, internal audit would be next at 25%, risk and compliance would be 20% and business process improvement and a couple of other small make up the other 20%. So tech consulting is the largest, and we would argue has the brightest prospects as we speak. That crosses tech modernization, data, cyber, and the same themes would carry over into talent solutions, but we're very upbeat about Protiviti's tech consulting solutions area. Internal audit is solid. It's not as impacted by financial services as is risk compliance. And so in risk and compliance, 5% or more of that relates to financial services. And internal audit, it's well less than half. And so internal audit has the most longer-term contract-related revenue sources. So it's the most stable and the least impacted and not that it's totally unimpacted by the regulatory rollback that we're talking about.

And so we feel really good about technology. We feel good about internal audit. And then business process improvement, particularly as we move more and more into getting ready for AI with our clients, process improvement is a big part of that.

On the risk and compliance side itself, remember, this is a U.S. phenomenon outside the U.S. Regulatory enforcement action work is still quite strong, and we have some very good engagements there. Outside the U.S., we would also say there's areas like fintech, insurance and other adjacent but still within financial services opportunities that we're pursuing.

And then further, as we alluded to, specifically, to the extent that banks aren't spending as much time internally on regulatory compliance per se and dealing with enforcement actions. They've got more time to focus on efficiencies and with their aging infrastructure. There's a lot of low-hanging fruit there. We've already shown many of our banking clients that, frankly, the co-sourcing work they do with us were more efficient than their internal people are. And so there's a learning we've experienced. There's automation. We've already taken advantage of that we convey to our clients as well. And so we think while there's this lull in enforcement action work, there's a big opportunity with helping our clients become more efficient with the very large resources that are already dedicating to compliance themselves.

And the next question comes from Mark Marcon with Baird.

Question and a follow-up. In terms of the first question, when I and a number of my peers ended up attending the staffing industry analyst conference down in Austin, Texas, there was some discussion from a number of different staffing players that are private that were basically saying, they are certainly seeing a pickup in terms of demand trends. And part of that seemed to be due to the fact that in some cases, companies are basically holding off in terms of permanent employment but the work still needs to be done. And so they're turning more towards temps if they have some freezes in place. I'm just wondering to what extent you're obviously seeing some improvement with regards to the talent solutions. And so I'm wondering to what extent do you think that might also be the case for some of your smaller clients if that applies or not? Or what is the -- what are you seeing in terms of the primary driver in terms of the improving sequential trends with regards to talent solutions? I want to start there.

Well, I would say for our SMB clients, our perm operations are just as strong, if not stronger, than our contract operations are. So we're certainly not seeing disproportionate weakness in perm while contract gains. Instead, we would point out once again that if you look over the last 4 years, companies with fewer than 500 employees have hired 2.5 to 3x fewer people than those at bigger companies, they're leaner, and there's a backlog of projects to be done. And as they get more confident about the future, they're more willing to invest. And I would argue, it's that more than I'll pause on full time that's fueling demand for contract.

I mean as we go up to larger companies, I think there is some kind of evaluation by larger companies as to what this whole AI wave is going to mean to their full-time employee count. And while they're making that evaluation to the extent they have needs, they hire -- they use more contractors in that case. But as to our bread and butter core SMB clients, it's more about pent-up demand and really lean resources. There only so much you can stretch your existing employees. And our SMB clients are pretty much at that point.

Great. And then stepping over to Protiviti, you're taking a $5 million cost action here in this quarter, and that's going to yield $30 million in terms of savings. But the cost action, that falls all in the gross margin line, which basically would imply that it's basically bench talent that is being pruned and [indiscernible]. Is that all in the risk and compliance area? Or how is that set up? And to what extent, is it broader than just risk and compliance?

It's primarily by leaps and bounds directly related to the regulatory enforcement action work that I just described. And so it's Q2 cost actions relative to people in that particular area.

Okay. Can I just ask one -- sneak one more in? Just with regards to the, with regards to the other areas, particularly on the technology side, there is another player that was basically saying they were seeing some delays with regards to projects and things being pushed back. Are you seeing any of that?

It's kind of hard not to be aware of that other company. But just a couple of comments as well as about delays. I'd say, first of all, remember, we're 70% SMB, 30% mid-cap. They're mostly large cap. They have a large exposure to federal government. We have a less than 1% exposure to federal government. They've grown significantly by acquisition. All our growth is organic. We have no debt. We have a strong balance sheet.

Tech is our strongest practice group. Not only has there not been delays in the areas of tech modernization, data, cyber, that I talked about earlier, the pipeline is small but strong. The project size itself is smaller, but they're more of them. Frankly, our mid-cap is even stronger than our SMB in tech. And Protiviti too, which then lean towards large cap, it's also Protiviti's largest and strongest solution area. And so the answer is an emphatic, no. We're not seeing delays.

And as you, as you look at the progression and the improvement we saw over the course of the first quarter, which has continued into the second, tech is a big part of that. It's the largest part of that.

And the next question comes from Andrew Steinerman with JPMorgan.

Keith, Now that Robert Half is closer to targeted year-over-year growth in the third quarter, my question is, what do you think about the shape of the revenue recovery for Robert Half kind of once it begins.

Well, we're optimistic about the shape of the recovery for the reasons we've talked about. There is pent-up demand. Job openings are way above traditional levels. Unemployment is low. It's harder for our clients to hire. It's harder yet again them to hire themselves because of AI and the homogenization of resumes that we've talked about. And so given the leanness of our client base, we're further enthused about the shape of recovery.

It seems like we've had a fall start or 2 the last 2 years. Last year, it was tariffs. This year so far, the conflict in Iran doesn't seem to have an impact. But Andrew, we're feeling pretty good about where we are. We just had our annual top awards conference in Las Vegas for our people. They were 600 or 700 of them. So we get to interact directly firsthand. And I've got to tell you the excitement and enthusiasm level was palpable and meaningfully better than it was 12 months ago. And that felt great. And it shows up our numbers.

We talked to you about earlier what we've done post quarter in contract, which is dramatically better even than how we into the quarter in March. As I said, the run rate we've got so far this quarter is greater than our guidance we've given and probably by a greater extent than we've had in a long time. So we feel good we feel good.

And then as it relates to Protiviti, they've got this headwind from less scrutiny by the financial services regulators, but they've taken quick and effective cost actions. Interestingly, if you would pro forma our Q2 guidance and you would not only give effect to the severance, but you would also apply the cost savings as if they were in place then, and so then our Q2 guidance midpoint would be $0.33, right? So you'd add $0.03 for severance and you'd add $0.05 for cost savings to get a total of $0.08. And so our Q3 guidance rather than being what it was or what it is, it'd be $0.33. So that's pretty respectable and pretty close to what expectations were, absent the headwind on the regulatory front for Protiviti.

And the next question will come from Jeff Silber with BMO Capital Markets.

You talked about some of the actions you're taking in Protiviti. I'm just curious from an internal headcount perspective. From -- in talent solutions, are you starting to add hires? Or do you still have excess capacity? We don't necessarily need that to get to your goals.

We still have our 15% to 30% of capacity and talent solutions. So we're holding the line as we speak. We do anticipate some leverage as things get better. I think the guidance we've given you here for quarters 2 and 3 assume about 1 point as a percent of revenue of SG&A leverage as we move forward into those better circumstances.

And so holding the line as we speak talent solutions. But I can assure you at least half of those people, I was just with in Las Vegas, talk to me about GWS, things are getting better, we need more headcount.

Can I also ask a question about U.S. versus non-U.S. both in talent solutions and Protiviti. You gave us the numbers, but if we can get a little bit more color there, that would be great.

I'd say on talent solutions, biggest difference for the first quarter, we had more strength in permanent placement. In the international zone, permanent placement is a larger portion of the total in the international zone than it is in the U.S. And we had strength across several countries. It wasn't isolated. And so that drove the outperformance in talent solutions non-U.S.

In Protiviti, the difference in the regulatory environment is significant, and we still have some meaningful regulatory enforcement actions we're working on outside the U.S. and the environment is very different in the U.S. as we talked about.

And the next question will come from Manav Patnaik with Barclays.

This is Ronan Kennedy on for Manav. If I may, please, I just have a follow-up was discussed on the 3Q guide in response to [indiscernible] and Andrew's question. Is it as simple as you have that run rate dramatically better exiting the quarter in contract and the cost efficiency actions and Protiviti? Is it as simple as run rate element of conservatism, comp and cost actions? Or are there responses to what needs to add from a trend standpoint and sensitivities?

No, no. It's just as simple as you described. It's existing run rate, even less conservative or more conservative, if you will, than existing run rate, plus cost actions get you year-on-year revenue growth, year-on-year income growth. It's simple math. There's no complicated math.

Fair enough. So nothing to be mindful of from a sensitivity, [indiscernible] and trends for each of the [indiscernible]?

I'm sorry, I didn't hear that last part.

So nothing to be particularly mindful of with regards to drivers and trends and/or sensitivities to those for each of the respective businesses?

No. No. I mean we called out the typical drivers of the Q3 trends, a little softer in firm because of summer. Particularly Europe, Protiviti benefits, companies work on the internal controls. Certifications in a big way in Q3 getting ahead of year-end, and Protiviti gets a lift from that. And that lift is principally with their full-time staff, so they get a better utilization, better chargeability, which drives higher incremental margins. And as we said, our expectation would be Protiviti's segment margins to get back into the 7% to 9% range, which is consistent with a year ago, notwithstanding these FSI headwinds.

Got it. And then if I may, please follow up on contract solutions. I think it exited March down roughly 5% year-over-year versus down 7% for the quarter and in April trending close to flat. What drove that improvement? Was it volume starts fill rates mix? And how confident are you in that persisting through Q2?

Well, it was broad-based. It was led by technology. We're excited about that trend line. We think it's sustainable. Our guidance is more conservative than that start. But we feel the best we felt in a long time including better than we felt 90 days ago.

And the next question will come from George Tong with Goldman Sachs.

It appears the permanent placement revenues exiting the quarter and heading into March or April worsened a bit from 1Q, which is different than contract talent solutions doing better exiting the quarter and into April. Could you dive deeper into what's causing that dichotomy in performance at separation, perm weakening and temps doing better?

Well, George, perm is more volatile on a weekly or monthly basis than is contract. Short-term perm trends are not near as predictive of how we'll end up for a given quarter. And so frankly, if anything, as we looked at our own internal guidance, perm for the quarter was actually exceeded our internal expectations more so than contracted. And so we read very little into kind of 1 month or post quarter. And if you look back and you'll do a study with hindsight looking at how we started the quarter versus how we reported the entire quarter, you'll see that they're not very predictive. And so quite frankly, we still feel good about perm, equally good about perm as we do about contract. And ironically, versus our own internal expectations, perm actually outperformed.

Got it. You talked about expecting positive growth across the business in 3Q year-over-year. Does that apply to the individual lines within talent solutions. So finance and accounting admin customers with technology, all of those you expect to inflect positively in 3Q as well?

Yes. I don't have that in front of me. It would certainly be true for tech that's close, if not already there. It's likely true finance and accounting administrative customer service may be not. We've walked away from some lower-margin business in ACS, as we call it. We further reallocated some headcount away from that practice group that area to the others. And so it might be -- for internal reasons, that would not be the case for ACS. But again, overall, which what is the most important, we do expect not only sequential but year-on-year contract revenue growth for Q3. And frankly, we feel even better about that based on what we've seen as up through this morning, which is when we got last week's results. We feel great about the prospects that we're going to have year-on-year revenue growth again. And as I talked about earlier, a year-on-year top line growth, but even more year-on-year bottom line growth.

And the next question will come from Kartik Mehta with Northcoast Research.

It seems as though decision time lines still remain a little bit extended. And I'm wondering if you could look Adam in terms of what they were when they were normal, how stretched they are maybe normal has been a long time ago. But just your perspective on where they are today versus where they were when things were better.

I'm not sure we've quantified precisely by what extent they're longer. I mean it's not a few percentage points. It's -- I'd venture to say 20% to 30% longer, but that's an educated guess based on any data that I'm looking at.

And then can you just, obviously, SMB clients are lagging a little bit on enterprise clients. So I imagine that's impacting mix compared to when things were obviously a lot better, what kind of impact is that having on margin for you?

Well, our mid-cap margins are a little bit lower than SMB margins, but they're not dramatically lower, and they're nowhere near what the other publicly held staffing firms that deal principally with large cap clients have. And so from a margin perspective, they're not that different. Mid-caps are a little smaller, but not orders of magnitude smaller. But the mid-cap -- our mid-cap is are doing better for us at the top line than our SMBs, and that's a very typical pattern.

SMB is always like enterprise. And so our view of enterprise is both our 30% of which are mid-cap as well as what we're seeing in Protiviti ex FSI regulatory.

And the next question comes from Stephanie Moore with Jefferies.

I wanted to maybe go back to the discussion on AI and you always give, I think, really good color on just the investments that you're making. I think this has been a key theme across really the entire sector here. So I just wanted to maybe get a little bit more color on 2 sides of AI questions. So first, like are you seeing the benefits of the investments that you've made, maybe just the higher, any color around increased placement rates, have you seen faster close time for job openings?

And then on the other side of it, I mean, I think there's a lot of conversation just across all industries about just that AI could ultimately lead to certain job eliminations. So maybe if you could just address maybe any strategic changes around end markets or jobs that you would look to address that might not be so in line with being potentially disintermediated by AI?

As far as -- from investments, as you know, have been in how we match candidates to job orders. Our clients for 40 years when surveyed, the most important thing to them is the quality of candidates that we deliver that match their needs. And so our AI specifically addresses that, it's award-winning. We continuously look at the inputs, the weightings, the factors we use there, it continues to improve.

Our people have adopted it. We've embedded it into the tools they use every day anyway. And so I would argue that the quality of our matches it is not only what our clients care most about. But if you ask their candidates, what's the most important thing to them, it's the quality of the jobs that we offer. And that same matching engine does that same matching for the benefit of our candidates. And I would argue, again, our award-winning matching engine, which is AI driven, does a better and better and better job. And it's core to who we are. It's core to how we provide value to our clients and our candidates, and so there's no question in my mind.

And the fact that it's driven based on proprietary data around candidate performance rather than clicks, which is what many of the larger aggregator job board, AI-native platforms use, I would argue it further distinguishes it because we're trying to optimize for candidate perform is not for clicks.

Similarly, as we've talked about before, we're trying to kind of make our pipeline more intelligent by rank ordering for our people, the prospects that they should pursue. So we can quantify number of calls it makes -- it takes for them to get a connect with the client. Further, we can quantify the conversion rates once they do connect, and they're both meaningfully improved when they use our AI-driven intelligent pipeline, if you will.

On this issue of Java Lentin, I guess with every passing day, I get more and more convinced this is about augmentation more than it is displacement that it's more about taking somebody that already has domain expertise and enhancing their skills with AI. And I'll take a person with that domain expertise as enhanced every day versus a novice that doesn't have the main expertise using these new tools. And so domain expertise is not obsolete. I don't think it's going to become obsolete. And every technology cycle, every technology wave we've seen historically, that's exactly what's happened, and that's exactly what we see playing out so far, and I would expect to continue to see play out.

And your next question will come from Tobey Summer with it.

This is Tyler Barishaw on for Toby. Just on the regulatory environment, you're mentioning it's a little bit weaker. Is this going to last for the rate of the administration? Or just curious of your thoughts on this period of weakness.

Well, it's either going to last the duration of this administration or there's going to be some event. There's going to be some money laundering event that's going to trigger a rethink of the current environment, but it's certainly unprecedented, particularly the way the examiners have followed a new administration relative to the past because typically, there's more inertia at the examiner implementation level relative to policies above it than this time where they've gotten in line. And so as I said, it's either a different administration or at some event that could happen. And history says major money laundering events do happen and arguably with less scrutiny, they'll happen more often. But the good news is Protiviti is kind of biting the bullet and said, all right, let's assume this is the new normal, now let's adjust our constructure accordingly, and that's what they've done. They've done it quickly and they've done effectively.

Got it. That makes sense. I think last quarter, you said you expect Protiviti margins to increase by about 100 bps year-over-year. Just curious what these cost actions and the weakness in the regulatory environment. Does that guidance still stand? Or any changes to that?

Well, I would say, as we previously remarked, given that the headwinds are more than we expected on the regulatory scrutiny front just to stay even with last year's margins, I think, is an accomplishment in this market. Might we do better than that? Yes. But I would probably dial that back again given that the headwinds intensified and the cost actions to get us back to near last year margins. Maybe there's some upside there, but let's let it be upside.

And the next question is from Kevin McVeigh with UBS.

I don't know if you mentioned this in another call. But on the restructuring, was that -- it sounds like primarily Protiviti? And how much does it benefit Q3?

Well, and so just to be clear, we have a pro forma Q2 as if these actions were taken as of the beginning of Q2 and that adds $0.08 to our Q2 guidance. $0.03 is the absence of severance and $0.05 is the impact of the cost savings. Because those cost savings are expected to be done complete by the beginning of Q3, the Q3 number we've given you is pure. There's no severance and it has the full impact of cost savings. But what that does is it takes your Q2 pro forma EPS to $0.33, which is $0.08 higher than what we just guided. And the Q3 directional guidance we gave includes the benefit of the cost savings and doesn't have any severance.

Okay. That was our last question. Thank you very much for joining us.

Thank you. This concludes today's teleconference. If you missed any part of the call will be archived in the audio format in the Investor Center of Robert Half's website at roberthalf.com. You can also log into the conference call replay. Details are contained in the company's press release issued earlier today.

Hello, and welcome to the Robert Half Fourth Quarter 2025 Conference Call. Today's conference call is being recorded. [Operator Instructions] Our hosts for today's call are Mr. Keith Waddell, President and Chief Executive Officer of Robert Half; and Mr. Michael Buckley, Chief Financial Officer. Mr. Waddell, you may begin.

Hello, everyone. We appreciate your time today. Before we get started, I'd like to remind you that the comments made on today's call contain forward-looking statements, including predictions and estimates about our future performance. These statements represent our current judgment of what the future holds. However, they are subject to the risks and uncertainties that could cause actual results to differ materially from the forward-looking statements. These risks and uncertainties are described in today's press release and in our most recent 10-K and 10-Q filed with the SEC. We assume no obligation to update the statements made on today's call.

During this presentation, we may mention some non-GAAP financial measures and reference these figures as adjusted. Specifically, we present adjusted revenue growth rates, which remove the impacts on reported revenues from the changes in the number of billing days and foreign currency exchange rates. Additionally, we present adjusted gross margin; adjusted selling, general and administrative expenses; and adjusted operating income by combining the gains and losses on investments held to fund the company's obligations under employee deferred compensation plans with the changes in the underlying deferred compensation obligations. Since the gains and losses from investments and the changes in deferred compensation obligations completely offset, there is no impact on our reported net income. Reconciliations and further explanations of these measures are included in the supplemental schedule to our earnings press release. For your convenience, our prepared remarks for today's call are available in the Investor Center of our website, roberthalf.com.

For the fourth quarter of 2025, global enterprise revenues were $1.302 billion, down 6% from last year's fourth quarter on a reported basis and down 7% on an adjusted basis. We are very pleased to see talent solutions and enterprise revenues return to positive sequential growth on a same-day constant currency basis for the first time in over 3 years. Weekly revenue trends during the quarter continued to show positive momentum, which extended into the first 3 weeks of January. Our revenue and earnings exceeded the midpoint of our previous fourth quarter guidance. Net income per share for the quarter was $0.32 compared to $0.53 in the fourth quarter 1 year ago.

We entered 2026 very well positioned to capitalize on emerging opportunities and support our clients' talent and consulting needs through the strength of our industry-leading brand, our people, our technology and our unique business model that includes both professional staffing and business consulting services.

Cash flow provided by operations during the quarter was $183 million, the highest quarter this year and an 18% increase over 2024 Q4. In December, we distributed a $0.59 per share cash dividend to our shareholders of record for a total cash outlay of $59 million. Return on invested capital for the company was 10% in the fourth quarter.

Now I'll turn the call over to our CFO, Mike Buckley.

Thank you, Keith, and hello, everyone. As Keith noted, global revenues were $1.302 billion in the fourth quarter. On an adjusted basis, fourth quarter talent solutions revenues were down 9% year-over-year. U.S. talent solutions revenues were $623 million, down 9% from the prior year's fourth quarter. Non-U.S. talent solutions revenues were $200 million, down 8% year-over-year. We conduct talent solutions operations through offices in the United States and 18 other countries.

In the fourth quarter, there were 61.4 billing days compared to 61.6 billing days in the same quarter 1 year ago. The first quarter of 2026 has 61.9 billing days as did the first quarter of 2025. Billing days for the remaining 3 quarters of 2026 will be 63.1, 64.6 and 61.1 for a total of 250.7 billing days in the year, which is the same as the full year of 2025.

Currency exchange rate movements during the fourth quarter had the effect of increasing reported year-over-year total revenues by $15 million. That was $10 million for talent solutions and $5 million for Protiviti. Contract talent solutions bill rates for the fourth quarter increased 3.2% compared to 1 year ago, adjusted for the changes in the mix of revenues by functional specialization, currency and country. This rate for the third quarter was 3.7%.

Now let's take a closer look at results for Protiviti. Global revenues in the fourth quarter were $479 million. $373 million of that is from the United States, and $106 million is from outside of the United States. On an adjusted basis, global fourth quarter Protiviti revenues were down 3% versus the year ago period with U.S. Protiviti revenues down 6%, while non-U.S. Protiviti revenues were up 9% compared to 1 year ago. Protiviti and its independently owned member firms serve clients through locations in the United States and 28 other countries.

Turning now to gross margin. In contract talent solutions, gross margin was 39.2% of applicable revenues in the current quarter compared to 39.1% in the fourth quarter 1 year ago. Conversion or contract to hire revenues were 3.2% of contract revenues in both the current quarter and the fourth quarter of 2024. Our permanent placement revenues were 12.5% of consolidated talent solutions revenues in the current quarter compared to 12.1% in the fourth quarter of 2024. When combined with contract talent solutions gross margin, overall gross margin for talent solutions was 46.7% of applicable revenues in the current quarter compared to 46.4% in the fourth quarter of 2024.

For Protiviti, gross margin was 21.9% of Protiviti revenues in the fourth quarter and 24.9% in the fourth quarter 1 year ago. Adjusted gross margin for Protiviti was 22.8% for the quarter just ended compared to 25.1% last year. We ended 2025 with 11,200 full-time Protiviti employees and contractors, up 1.5% from the prior year.

Enterprise selling, general and administrative costs were 35.9% of global revenues in the fourth quarter compared to 34.1% in the same quarter 1 year ago. Adjusted enterprise SG&A costs were 34.6% for the quarter just ended compared to 33.8% 1 year ago.

Talent solutions SG&A costs were 47.6% of talent solutions revenues for the fourth quarter versus 44.4% in the fourth quarter of 2024. Adjusted talent solutions SG&A costs were 45.6% for the quarter just ended compared to 43.9% last year. We ended 2025 with 7,400 full-time internal employees in talent solutions, down 3.2% from the prior year. Fourth quarter SG&A costs for Protiviti were 15.7% of Protiviti revenues compared to 15.3% for the same quarter 1 year ago.

Operating income for the fourth quarter was $22 million. Adjusted operating income was $43 million in the quarter or 3.3% of revenues. Fourth quarter adjusted operating income from our talent solutions divisions was $9 million or 1.1% of revenues. Adjusted operating income for Protiviti in the fourth quarter was $34 million or 7.1% of revenues.

Our fourth quarter 2025 income statement includes a $21 million gain from investments held in employee deferred compensation trusts. This is completely offset by an equal amount of higher employee deferred compensation costs, which are reflected in SG&A expenses and direct costs. As such, it has no effect on our reported net income. Our fourth quarter tax rate was 32% compared to 28% 1 year ago. The higher tax rate in the current quarter is due to the increased impact of nondeductible expenses relative to lower pretax income. At the end of the fourth quarter, accounts receivable were $748 million, and implied days sales outstanding, or DSO, was 51.8 days.

Before we move to first quarter guidance, let's review some of the monthly revenue trends we saw in the fourth quarter and so far in January, all adjusted for currency and billing days. Contract talent solutions exited the fourth quarter with December revenues down 8.9% versus the prior year compared to a 9.9% (sic) [ 9.0% ] decrease for the full quarter. Revenues for the first 2 weeks of January were down 6.6% compared to the same period last year.

Permanent placement revenues in December were down 11% versus December 2024. This compares to a 5.9% decrease for the full quarter. For the first 3 weeks in January, permanent placement revenues were down 9.4% compared to the same period in 2025.

We provide information so that you have insight into some of the trends we saw during the fourth quarter and into January. But as you know, these are very brief time periods. We caution against reading too much into them.

With that in mind, we offer the following first quarter guidance: revenues, $1.26 billion to $1.36 billion; income per share, $0.08 to $0.18. Midpoint revenues of $1.31 billion are 5% lower than the same period in 2025 on an adjusted basis.

Our midpoint revenue guidance for the first quarter reflects continued positive adjusted sequential revenue growth for talent solutions. Our Q1 midpoint adjusted operating margin guidance declined sequentially by 1 percentage point, which is consistent with long-term historical trends. This includes Protiviti's sequential decline of 4 percentage points.

Historically, Protiviti's Q1 segment margins seasonally declined by mid-single-digit percentage points on a sequential basis. There are 2 primary drivers. Internal audit revenues are negatively impacted as clients focused instead on annual financial statements and related external audits. In addition, Protiviti employees receive annual compensation adjustments effective January 1, which are recovered through pricing adjustments realized as client contracts are negotiated. Segment margins then improve accordingly.

We estimate our midpoint tax rate for the first quarter to be 56% to 58%. This is much higher than normal for 2 reasons: as expected tax charge related to stock compensation and the magnified impact of nondeductible tax items when measured against seasonally low Q1 pretax income. A majority of our employee stock compensation awards vest in the first quarter each year, and the related tax impacts are measured based upon the stock price at that time. With the current stock price below grant values, a tax charge estimated at $4.5 million or $0.05 per share results. For the remainder of 2026, a quarterly tax rate of 33% to 35% is expected.

The major financial assumptions underlying the midpoint of these estimates are as follows: adjusted revenue growth year-over-year for talent solutions, down 4% to 8%; Protiviti, flat to down 4%; overall, down 3% to 6%; adjusted gross margin percentages for contract talent, 38% to 40%; Protiviti 18% to 21%; overall, 35% to 38%; adjusted SG&A as a percentage of revenues for talent solutions, 44% to 46%; for Protiviti, 15% to 17%; overall, 33% to 36%; adjusted operating income as a percentage of revenues for talent solutions, 0% to 3%; Protiviti, 2% to 5%; overall, 1% to 3%; tax rate, 56% to 58%; shares, 99 million to 100 million; 2026 capital expenditures and capitalized cloud computing costs, $70 million to $90 million with $10 million to $20 million in the first quarter. All estimates we provide on this call are subject to the risks mentioned in today's press release and in our SEC.

Now I'll turn the call back over to Keith.

Thank you, Mike. Our fourth quarter results reflect a return to sequential growth on a same-day constant currency basis for the first time since early 2022. Concerns around a near-term economic downturn have moderated supported by a more conducive macro environment. Continued progress in the rate cutting cycle, easing inflation, less regulation and relatively more clarity on trade policy all contribute.

The NFIB Small Business Optimism Index has continued to trend higher with hiring plans holding steady and labor availability remaining a key constraint. At the same time, the Uncertainty Index declined meaningfully last month, falling to its lowest level since June of 2024. Although hiring and quit rates remain subdued, job openings continued to run well above historical averages, underscoring significant pent-up demand for skilled professionals. Decision time lines are beginning to shorten, and we're seeing increased client engagement as clients revisit postponed initiatives and discuss hiring tied to business-critical priorities.

Internal resource levels at small businesses remain particularly lean as these companies have focused on cost containment for much of the last 4 years. Employment data from the ADP National Employment Report indicates that between January of '22 and December of 2025, companies with fewer than 500 employees have grown their employee counts by only 1.1% annually, while below the 2.8% annual growth rate seen among companies with over 500 employees. As project activity begins to pick up, this places additional strain on already limited internal capacity. Against this backdrop, unemployment remaining low and skilled talent in short supply, clients increasingly require specialized expertise to help fill open roles and execute critical work, supporting demand for both our talent solutions and consulting services.

While prospectives on medium- to long-term structural impact of AI on the labor market vary greatly, most of the evidence suggests a negligible impact so far on our areas of employment particularly among small businesses. For example, a very recent study by Oxford Economics concludes that, "firms don't appear to be replacing workers with AI on a significant scale and we doubt that unemployment rates will be pushed up heavily by AI over the next few years." Also, feedback from our SMB clients indicates that potential future labor savings from AI are not a material factor in their current headcount decisions. That said, as AI reshapes how work gets done and the skills required for many roles evolve, clients are increasingly relying on us to help them navigate change, deploy talent quickly and support the implementation of new technologies, including the requisite data requirements.

At the same time, the fast-growing use of generative AI by job seekers, particularly to tailor their resumes to client opportunities, has made it more difficult for clients to distinguish among candidates and authenticate their qualifications. This further reinforces the value of our services, including our proprietary data on actual candidate performance.

As expected, Protiviti's year-over-year growth rate showed improvement in the quarter, although it continued to be impacted by tougher prior comparables from large project builds and by longer sales cycles and smaller sized new engagements. Protiviti's pipeline remains strong across all its major solution areas, and at the midpoint of our Q1 revenue guidance, its growth rates are expected to continue to improve. Our strategic engagement of contract professionals via our talent solutions divisions plays an essential role in Protiviti's success and further amplifies our unique enterprise-wide competitive advantage. Protiviti was recently recognized on Glassdoor's Best Places to Work for a third consecutive year.

We begin 2026 energized by our time-tested corporate purpose to connect people to meaningful and exciting work and provide clients with the talent and consulting expertise they need to confidently compete and grow. We weathered many economic cycles in the past, each time emerging to achieve higher peaks. Aging workforce demographics and clients' desire for flexible resources with variable costs are structural tailwinds that are expected to propel us forward in the years to come.

Finally, I would like to thank our global workforce for their continued dedication. Their efforts once again earned Robert Half recognition by Fortune as one of the World's Most Admired Companies for the 29th consecutive year. We're proud of our unique position as the only company in our industry to be awarded this distinction for nearly 3 decades. We are also recognized as one of Forbes' World's Top Companies for Women and chosen by Newsweek as one of America's Most Responsible Companies.

Now Mike and I'd be happy to answer your questions. [Operator Instructions]

[Operator Instructions] Your first question will come from Andrew Steinerman with JPMorgan. Hearing no response from that line, we'll take our next question from Mark Marcon with Baird.

Keith and Mike, it looks like -- first of all, it's good to see that you're returning to sequential growth here. And when we take a look at the guide as it relates to 2026, we're still looking at a year-over-year decline, but you're expecting margins on the whole to improve, primarily because of Protiviti. And so what I'm wondering about is it's great to see the projection for the margins to improve. I'm wondering how you're thinking about the top line potentially inflecting kind of a modest economic environment.

Obviously, there's still a lot of discussion with regards to the impact of AI. And a lot of it is unknown, and a lot of it is changing rapidly. So I'm wondering how are you thinking about the top line from a longer-term perspective? And also, if we end up having just a very moderate sort of improvement in terms of the top line, what are some of the steps that you've taken to increase the efficiency of the operations, which it seems like we're seeing in the first quarter, but just when we think about it from a longer-term perspective in order to be able to get back to halfway back and then ultimately all the way back to prior margins?

And so Mark, on the top line, so if you take our current trend line from a sequential revenue point of view, we would return to positive year-over-year growth in the third quarter and that would be both talent solutions, Protiviti and enterprise. As to steps for efficiency, I'd say we -- as you know, we've held on to our best producers throughout this downturn, and we would expect that they would ramp more quickly than what we'd otherwise ramp, and there's some positive leverage from that. We continue to get traction from our own use of AI, both in terms of how we match and in terms of rank ordering the prospects that we pursue as we try to capture that additional revenue as it becomes available. And so we've said for some time, we certainly expect we can retrace in a positive way the negative leverage we've had to deal with over the last 4 years.

That's great. And then within talent solutions, just how are you thinking about the perm market just given relatively flat no hire, no fire kind of an environment thus far? Do you think that, that ends up seeing some sort of change? And what sort of impact as we start getting to Peak 65 could we end up seeing?

Yes. I'd say that perm is stronger than the headlines would lead you to believe. As we talked last quarter, we have just as much difficulty getting candidates to change jobs as we do getting clients having demand for additional roles and positions. And so given that the market remains tight, given that candidates remain conservative in their willingness to entertain new roles, I'd say the perm outlook is solid. And again, I understand the no hire, no fire overall environment, but our SMB clients are in a different place. As we talked about, they've added significantly fewer people the last 4 years. They've been in cost mode for quite some time. They've largely normalized their headcounts for that over that extended period of time and they're left very lean not only from a full-time standpoint but contractors as well. I would just say SMB is in a very different place.

And the next question will come from Andrew Steinerman with JPMorgan.

Keith, it's Andrew. I wanted to ask you about what I've been hearing with really kind of industry, staffing industry executives talking about the current labor uncertainty because of AI driving more interest in flexible workers as the labor recovery takes hold. What do you think of this thesis? And have you seen any evidence that flex might kind of gain share even in a moderate labor hiring environment?

Well, I think any time uncertainty declines, clients are more willing to add resources that, early on, they're conservative of adding those resources full time and are more receptive to contract help. I think in addition now, we've got this uncertainty around, well, if I hire full-time now, I might need to adjust that later because of AI is going to make everyone more productive. I think it certainly adds to that potential, but as I said in my prepared remarks earlier, we're not seeing a lot of current demand on the full-time side by clients saying they're holding off from their own internal hiring because of AI. I think they're basically saying, particularly SMB again, that they're not being impacted but for the potential of what AI might become.

And the next question will come from Trevor Romeo with William Blair.

I had one on Protiviti. I think you disclosed the headcount numbers, talked about, I think, 1.5% growth for Protiviti, including contractors last year, while revenue, I think, was flat. So I think some rough math there. Protiviti's revenue per head well below what it was several years ago. So at this point, what are your headcount growth plans for 2026 there for Protiviti? And how much revenue upside do you think you could capture in that segment without adding meaningful headcount from where you are now?

Well, the other dynamic in Protiviti's headcount is their use of contractors, which flexes with the revenue and the revenue expectations. And so clearly, their full-time staff is underutilized relative to what it could and arguably should be. Further, as we've talked about before, some of their full-time staff is underutilized and that they've been reassigned to roles typically performed by contractors at much lower rates. And so there's hidden capacity, if you will, there, as that converts to what they're typically working on.

And so I'd say there's full-time capacity. There's also a contractor capacity relative to what it's been in the past. So I don't think Protiviti is concerned about having the resources to scale up quickly and appropriately as the revenue support.

Okay. Helpful there. And then just sort of a, I guess, a modeling question. Last quarter, I think you were kind enough to call out the typical seasonal trends for 2 quarters ahead. I was wondering if you might be able to do that again for Q2, what you've kind of historically seen for revenue and earnings just so we're all on the same page heading into next quarter.

Well, there's certainly nothing near as dramatic as is the case for the first quarter because of Protiviti's seasonal impacts. But typically, in the second quarter, on the contract side, it's modestly down on a same-day basis. For full time, it's typically up seasonally relative to the first quarter. Protiviti, they began to recover from their seasonal low Q1, and overall, we certainly have more profitability in Q2 than we do Q1. But the seasonal impacts are nowhere near in Q2 what they are in Q1.

And by the way, the tax rate that's been jumping all over the place as we talked about, it normalizes back to 33%, 34% in Q2 and beyond versus the much higher number that was the case in Q1.

And the next question will come from Manav Patnaik with Barclays.

This is Ronan Kennedy on for Manav. Keith, you talked in your response to Mark's question on the first positive same-day CC sequential growth that if the momentum -- or if the trend sequentially continues, you would see positive growth in the third quarter. Could we just get a sense of your optimism on that and what you would need to see in the February, March weekly trends to confirm it will be a potential multi-quarter recovery if it's anything beyond weekly revenues such as time to fill, the rec conversion, pipeline, anything else?

And then you also referenced some external leading indicators. What can you place trust in at this stage, whether it's ADP, NFIB, JOLTS, ASA, SAI? Curious as to your thoughts there and your overall optimism.

Well, I'd say our overall optimism is a reflection of, a, discussions with clients; b, weekly results. I'm very happy to report that, as of this morning -- and we get weekly results every Thursday, but as of this morning, they were very encouraging and better than they had been even for the first 3 weeks, which were good themselves. And so we sit here feeling very good about very short-term trends.

As to external indicators and sources, there's no magic bullet there. We look at everything. We look at ASA. We look at SIA. We look at NFIB. We look at PMIs. I mean, we look at everything, but nothing has a high correlation factor in and of itself. But altogether, I mean, it certainly tells a trend story.

And generally speaking, the entire staffing industry is trending upward. Most are close to, if not at positive year-on-year revenue growth. And I would say the differential there with us is most of them are larger mid- and large-cap enterprise serving staffing firms. We're mostly SMB enterprise typically leads SMB. Even ourselves, we're 70% SMB, 30% mid-cap. That mid-cap is doing better than SMB as we speak. So it's not a surprise that we're lagging a little. But like I said earlier, at current trends, which we're feeling even better about, as of today at those current trends, we'd be positive year-on-year third quarter. That's a great thing.

Understood. Appreciate it. And may I ask for your current assessment of capital allocation and sustainability of the dividend?

So the really good news is our cash flow, our free cash flow, operating cash flow for the first -- for the fourth quarter was really strong. And in fact, we added $100 million to our cash balance after paying for the dividend. And so for all of 2025 for the full year, our free cash flow covered the dividend, and we reached into the balance sheet for about $100 million to buy stock. And so given those trends, if you extrapolate them, that we just talked about, that would say that we would have enough free cash flow in 2026 to cover the dividend. And then we would have -- we could then look to our balance sheet to the extent we wanted to buy stock.

And so excellent, excellent Q4 free cash flow quarter, the highest of the year. We did a very nice job of managing our working capital on both the receivables and the liability side. And we also got a $20 million benefit from the new Tax Act from expensing what would otherwise be capital cost. But even without that, it would have been our highest quarter of the year by a long shot, which is a great thing.

And the next question comes from Stephanie Moore with Jefferies.

This is Harold Antor on for Stephanie Moore. I guess just on Protiviti, it seems as though like the revenue growth performance globally was a little bit different in the U.S. versus international. So want to know if you guys could discuss what you're seeing in the Protiviti business in the U.S. versus internationally in this. Any comments you could give on what you're seeing on the pricing side of that business?

And so U.S. versus international Protiviti, Protiviti international is stronger for a couple of reasons. One, the regulatory environment with financial institutions internationally is stronger. That is the case in the U.S. The regulatory environment in the U.S. is more benign. Examiners are more accommodating. That allows clients to use more of their internal resources for things they might otherwise have used outside partners for. So that's a modest headwind for U.S. Protiviti, not the case for Europe Protiviti, if you will.

Further, U.S. Protiviti has these larger projects that you're just beginning to anniversary that impact their growth rates. The international locations didn't have the same extent of those larger projects, and to the extent they've had them, they haven't wound down. And so that would put international Protiviti a bit stronger.

The other thing that I would say, offsetting what I just said about U.S., technology consulting in Protiviti, U.S. included, is very strong. It's actually leading as we speak, is Protiviti's largest solution area, particularly in the United States. Platform modernization is a big demand driver. Protiviti is participating nicely there, and so we feel good about Protiviti globally, U.S. and non-U.S. Pricing environment for some time has been very competitive with the Big 4. That continues, not really worse, not really better.

Got it. I guess, when you think of pricing going forward as AI's implemented, do you see risk if customers were to [ perhaps ] share in that benefit? And I guess my other question is just on ACS on admin and customer support. I guess to what degree of confidence do you have that the business line rebounds in line with historical levels? In the quarter, it seems to remain fairly weak. And given implementation of AI, there's -- there are comments out there that say that this business line could be one of the most at risk. So just any comments on that would be super helpful. And that's all for me.

So Protiviti pricing going forward in the AI era, Protiviti in virtually every consulting firm is currently looking at should they, could they, will they price differently than hourly time and materials going forward, should it be more outcome-based, should it be more unit-based, based on what's being worked on, a number of cases, number of transactions. And so I would say the entire industry is taking a very creative and innovative look at how it prices with a strong consideration to the value added and how should they appropriately participate in the value added that might be different than the time and materials of late. But early days there.

ACS, we do have confidence in ACS. ACS had a couple of larger projects [ within ] that kept its negative growth rates higher than the rest. Oddly enough and kind of counter to the trend you hear about, our customer service, which includes call center, actually did better than the rest of ACS. So you can't pin AI call center impact on ACS' relative performance.

And the next question will come from Jeff Silber with BMO Capital Markets.

I want to ask a couple of questions about talent solutions that were asked about Protiviti, first, if we can just focus on your internal headcount. I know it shrunk a little bit, but the rate of decline, I guess, is getting less worse, so to speak. What do you expect for 2026? Do you think you'll be adding headcount in talent solutions? And what will it take to get there?

On talent solutions, we did not reduce heads as much as revenues would have otherwise dictated as things declined. And you should -- we, therefore, have unused capacity anywhere from 15% to 30% based on what metrics you use and how robust the demand environment is, but we can grow nicely in talent solutions without adding heads given what we've done so far, which is hold on to our better people.

All right. That's great to hear. And then also on talent solutions, can we just get some comments what's going on internationally versus the U.S.? And maybe you can focus on any specific markets that are doing better or worse. That would be great.

Well -- and as we break out the growth rates between U.S. and international talent solutions, frankly, they're not very different one to another. Generally speaking, Germany is doing well. The U.K. is doing well. Canada is doing well and Brazil are doing well but not much different than the last few quarters and not much different than the U.S.

And the next question comes from Kevin McVeigh with UBS.

Keith, were there any charges or rightsizing of the expense base to position for '26 to help with some of the margin expansion that it looks like you're going to be able to put up over the course of the year?

No special charges in fourth quarter for headcount-related or any other expenses, and it's pretty much taking our current cost structure and getting more efficient where we can, getting more on the Protiviti side as they manage kind of all levels of their pyramid from managing directors down to the entry-level consultants and the mix of that versus contractors. All of those play a part in their gross margins and their operating margins.

So no special charges. It is what it is. It's straightforward, but we do believe we can add to margins. In fact, Protiviti, I would say Protiviti would be disappointed if, for 2026, they didn't add 100 to 200 basis points to their gross and operating margins for the year.

Got it. And then the commentary on the Q2 was super helpful. You think from an EPS perspective, should it be kind of the normal sequential step-up that you see from a Q1 to Q2?

I would say that's true. I think you need to be careful when you look at 2025's sequential trend from Q1 to Q2. We took a cost action charge in Q1 that didn't repeat in Q2. And so that progression is not representative of a normal progression and just be careful with that. But otherwise, from a revenue standpoint, as I said earlier, not much typical impact, contract a little less seasonally, perm a little more seasonally, Protiviti better and particularly better on the margin side as they start to distance themselves from their seasonally low first quarter.

Right. So I know last year, it was about $0.24. It's -- so do you think maybe like $0.15 because I know there's the adjustment factor on the tax rate, too, right? The tax rate goes down a lot from Q1 to Q2.

That's right. That's right. And again, I think last year and prior trends at the revenue line are fine, but just be careful in SG&A, not to overly rely on the short-term trend because of the cost actions.

That's helpful. And that was again about $0.17, I think, last year, right, or $0.08 something like that, $0.08?

It was $17 million, as I recall, in cost -- in severance cost in Q1 that didn't repeat in Q2. So Q2 showed an improvement with the absence of those costs, and you won't see that improvement this Q2 because we don't have those severance costs.

And that's a normal tax rate, Keith, on the $17 million, right, just to make that adjustment?

Right, right. Yes.

And the next question will come from Kartik Mehta with Northcoast Research.

Keith, I was hoping to go back to your comments on Protiviti and pricing. And you had said kind of the Big 4, nothing is different. It kind of stays the same. As you look to get price increases in 2026, I'm assuming you will since you've got to offset the comp expense, what's the environment like and maybe your confidence level as to why you might be able to get some price increases in 2026 to offset comp expense increases?

Well, I didn't say the industry aren't getting any increases. They are because -- but the other dimension to this is the nature of the work, both as to industry, as to solution. And many times, that mix determines the composite rate as much as anything. But being -- generally speaking, the industry is getting cost of living type increases as they have to give those to their staff, which is true with Protiviti as well.

But mix is a big deal. And as Protiviti's had less of the large high-margin FSI regulatory that it has replaced with smaller, somewhat lower margin other types of work, there's been some compression there. But again, it's not like there are no increases currently in bill rates. What you see is more a function of mix, a relative mix of resources than the pure same level last year versus same level this year.

And then just your comments on AI, obviously, maybe not having as a negative of an impact as people would like to think. But what about on the other side? How could this be a driver? Or how much of a driver could it be, especially for Protiviti and maybe talent solutions in terms of helping your customers?

Well -- and that's an interesting question. A couple of comments on generally before I get to that. I'd say everybody wants to target accounting as being especially vulnerable to AI. And I would argue and I would at least ask everyone to consider that AI -- or the accounting even at SMBs is already fully automated. Even the smallest companies use QuickBooks and NetSuite. They have tax software, et cetera. And so I think you need to think about the starting point as to how impactful AI would be as much as what the impact itself going to be.

I also would suggest that you need to think about that accounting is very precise and accuracy sensitive, which matters because, currently, GenAI, LLMs are nowhere near as accurate as they need to be to be trusted in accounting. And so as you think about AI adoption, particularly in accounting, particularly for SMBs, I think those are factors that need to be considered that typically aren't when people kind of race to accounting is particularly vulnerable.

As to upside, AI is actually making it harder for our clients to hire. It's now easier for job seekers to mass apply, which overwhelms our clients. Further, over half, according to Gartner, job seekers today are using AI to tailor their resume to the job requirement, which makes it harder for our clients to distinguish one candidate from another.

Further, LLM hallucinations in that process of tailoring resumes are actually creating fictitious work histories to improve the match. To prove this, we did a little test with our data science group. We took 25,000 job descriptions. We took 50,000 resumes. We gave those to the top 3 LLMs, and the prompt was while staying true to the original resume, tailor the resume to the job requirement. And what we found was one of the LLMs frequently fabricated and created fictitious work history. One of the LLMs never did that, and one was in the middle.

But the point is it's harder than ever for our SMB clients to trust what a resume shows, particularly as to work history, which makes our services, our vetting even more valuable. And for us, the gold standard for vetting is having performance ratings for how candidates actually performed on prior assignments. And so as AI makes it harder for our clients to hire, we play a bigger and more important role, which is good for us.

And the next question will come from Tobey Sommer with Truist Securities.

I wanted to just ask you a question about what incremental margins historically looked like in a recovery and then maybe you could point out any nuances or differences that you would anticipate as revenue improves here versus that historic norm.

I guess the easiest way to think about it for us is and hopefully a conservative way to think about it is we retrace on the way back up what happened on the way down. And as we delevered cost on the downside, we'll relever those costs on the upside. And while everybody wants to first attribute the headcount deleveraging to our recruiters and salespeople, quite frankly, it's much more related to corporate services and field management. And I would argue those are easier to relever than would necessarily be the case with recruiters and salespeople. And so I would say the conservative thing to do would be to retrace the path up similar to the path down.

Understood. If I -- if you could dig into Protiviti, what are the industry verticals that are sort of growing and contributing the most versus those that may be lagging? In your answer, I'd love it if you could touch on financial services and where that falls.

Well, clearly, FSI is Protiviti's largest industry group. As I said earlier, in the United States, the regulatory environment has become more benign. Examiners are more flexible, particularly with deadlines and dates, which means clients have more time to do it themselves, which comes at some expense to all of the third-party providers, Protiviti included. And so there's a modest headwind, modest headwind there. That's being offset by tech modernization, all the data optimization, platform modernization, everything related to that, that Protiviti is participating in nicely.

Further, they're starting to see traction in the PE IPO transaction market, which there's also a tailwind coming from that. And so when you look at Protiviti's pipeline, it is disproportionately tech related as we speak, and we feel good about that. Tech consulting is Protiviti's largest solution area across their solutions. And it's been that way for some time, and it's becoming even more so as all this demand related to tech modernization, data optimization in advance of AI are prevalent.

And the next question will come from Mark Marcon with Baird.

A follow-up with regards to the margin improvement as you relever. If we take a look at 2025, we did $5.375 billion in terms of revenue with EBITA margin of 3.4% for the full year. And obviously, that included a charge, so we could strip that out. But what I'm wondering is, back in 2018, 2019 pre-COVID, we were able to generate 10% EBITA margins in the -- doing $5.8 billion to $6 billion in revenue. And so I'm wondering, is that a more appropriate way to think about the level of revenue growth that we need to get as it relates to the incremental margins? Or do we need to get back into -- we obviously had a post-pandemic boom in 2022 and parts of 2021. Do we need to get back to those revenue levels in order to get back to double-digit margins?

I haven't done the specific math that you're referring to, but I would say the biggest difference would be, between pre-pandemic and now, has been the cumulative inflation since then. And so we've had to pay our workforce that cumulative inflation. And that has to be offset as part of getting back to those margins, those EBIT margins.

Got it. And then...

And then internal staff, right?

Yes.

The contractor staff, it's a pass-through that we've covered nicely with gross margin.

And this level setting, you mentioned the normal seasonal trends occur. Then, we may end up inflecting to positive year-over-year growth in the third quarter. If that ends up occurring, what would be kind of a realistic margin assumption around if we were just modestly up 1% to 2%?

Well, again, I started with Protiviti will be disappointed if they don't get another 100 to 200 basis points.

I heard that. Yes.

Talent solutions, I think, with a continuation of the trend that we're talking, we would have modest improvements in the short term for that incremental revenue. But again, it would certainly be nice to see positive year-on-year growth of kind of low to mid-single digits in the third quarter.

Certainly would.

Okay. So that was our last question. We appreciate you joining us today. Thank you very much.

Thank you. This concludes today's teleconference. If you missed any part of the call, it will be archived in audio format in the Investor Center of Robert Half's website at roberthalf.com. You can also log in to the conference call replay. Details are contained in the company's press release issued earlier today.

Hello and welcome to the Robert Half Third Quarter 2025 Conference Call. Today's conference call is being recorded. Our host for today's call are Mr. Keith Waddell, President and Chief Executive Officer of Robert Half; and Mr. Michael Buckley, Chief Financial Officer. Mr. Waddell, you may begin.

Hello, everyone. We appreciate your time today. Before we get started, I'd like to remind you that the comments made on today's call contain forward-looking statements, including predictions and estimates about our future performance. These statements represent our current judgment of what the future holds. However, they're subject to the risks and uncertainties that could cause actual results to differ materially from the forward-looking statements. These risks and uncertainties are described in today's press release and in our most recent 10-K and 10-Q filed with the SEC. We assume no obligation to update the statements made on today's call.

During this presentation, we may mention some non-GAAP financial measures and reference these figures as adjusted. Specifically, we present adjusted revenue growth rates which remove the impacts on reported revenues from the changes in the number of billing days and foreign currency exchange rates. Additionally, we present adjusted gross margin, adjusted selling, general and administrative expenses and adjusted operating income by combining the gains and losses on investments held to fund the company company's obligations under deferred compensation plans with the changes in the underlying deferred compensation obligations.

Since the gains and losses from investments and the changes in the deferred compensation obligations completely offset, there's no impact on our reported net income. Reconciliations and further explanations of these measures are included in a supplemental schedule to our earnings press release. For your convenience, our prepared remarks for today's call are available in the Investor Center of our website, roberthalf.com.

For the third quarter of 2025, Global Enterprise revenues were $1.354 billion, down 8% from last year's third quarter on both a reported basis and on an adjusted basis. Net income per share in the third quarter was $0.43 compared to $0.64 in the third quarter 1 year ago. Revenues and earnings were in line with the midpoint of our previous third quarter guidance. Client and job seeker caution continued during the quarter, subduing hiring activity and new project starts. That said, we're encouraged by the weekly trends and contract talent revenues, which sustained late second quarter levels for most of the third quarter and began to grow sequentially in September and into October.

Our fourth quarter revenue guidance at and above the midpoint reflects a return to sequential growth on a same-day constant currency basis for the first time since the second quarter of 2022. We remain very well positioned to capitalize on these emerging opportunities and meet our clients' evolving talent and consulting needs, our industry-leading brand, talented people, advanced technology and our unique combination of professional staffing and business consulting services continue to set us apart and position us for long-term success.

Cash flow provided by operations during the quarter was $77 million. In September, we distributed a $0.59 per share cash dividend to our shareholders of record for a total cash outlay of $59 million. We also acquired approximately 550,000 Robert Half shares during the quarter for $20 million. We have 5.6 million shares available for repurchase under our Board-approved stock repurchase plan. Return on invested capital for the company was 13% in the third quarter.

Now I'll turn the call over to our CFO, Mike Buckley.

Thank you, Keith, and hello, everyone. As Keith noted, global revenues were $1.354 billion in the third quarter. On an adjusted basis, third quarter Talent Solutions revenues were down 11% year-over-year. U.S. Talent Solutions revenues were $649 million, down 11% from the prior year's third quarter. Non-U.S. Talent Solutions revenues were $207 million, down 12% year-over-year. We conduct Talent Solutions operations through offices in the United States and 18 other countries.

In the third quarter, there were 64.2 billing days compared to 64.1 billing days in the same quarter 1 year ago. The fourth quarter of 2025 at 61.4 billing days compared to 61.6 billing days during the fourth quarter of 2024. Currency exchange rate movements during the third quarter had the effect of increasing reported year-over-year total revenues by $9 million, and that was $6 million for Talent Solutions and $3 million for Protiviti. Contract Talent Solutions bill rates for the third quarter increased 3.7% compared to 1 year ago, adjusted for changes in the mix of revenues by functional specialization, currency and country. This rate for the second quarter was 3.8%.

Now let's take a closer look at results for Protiviti. Global revenues in the third quarter were $498 million, $398 million of this is from the United States and $100 million is from outside of the United States. On an adjusted basis, global third quarter productivity revenues were down 3% versus the year ago period. U.S. Protiviti revenues were down 6%, while non-U.S. Protiviti revenues were up 8% compared to 1 year ago. Protiviti and its independently owned member firms serve clients through locations in the United States and 28 other countries.

Turning now to gross margin. In Contract Talent Solutions, gross margin was 38.9% of applicable revenues in both the current quarter and the third quarter 1 year ago. Conversion or contract to hire revenues were 3.2% of contract revenues in the current quarter compared to 3.3% in the third quarter of 2024. Our permanent placement revenues were 12.9% of consolidated Talent Solutions revenues in both the current quarter and the third quarter of 2024. When combined with contract Talent Solutions gross margin, overall gross margin for Talent Solutions was 46.7% of applicable revenues in the current quarter compared to 46.8% in the third quarter of 2024. For Protiviti, gross margin was 20.9% of Protiviti revenues in the third quarter and 24.6% in the third quarter 1 year ago. Adjusted gross margin for Protiviti was 23% for the quarter just ended compared to 25.8% last year.

Moving on to SG&A. Enterprise SG&A costs were 36.2% of global revenues in the third quarter compared to 34.9% in the same quarter 1 year ago. Adjusted enterprise SG&A costs were 33.5% for the quarter just ended compared to 33.3% 1 year ago. Talent Solutions SG&A costs were 48.3% of Talent Solutions revenues in the third quarter versus 45.2% in the third quarter of 2024. Adjusted Talent Solutions SG&A costs were 43.9% for the quarter just ended compared to 42.8% last year. Third quarter SG&A cost for Protiviti were 15.5% of Protiviti revenues compared to 15.6% of revenues for the quarter 1 year ago. Operating income for the quarter was $14 million. Adjusted operating income was $61 million in the third quarter or 4.5% of revenue. Third quarter adjusted operating income from our Talent Solutions division was $24 million or 2.8% of revenue. Adjusted operating income for Protiviti in the third quarter was $37 million, or 7.5% of revenue. Our third quarter 2025 income statement includes a $48 million gain from investments held in employee deferred compensation trusts. This is completely offset by an equal amount of higher employee deferred compensation costs, which are reflected in SG&A expenses and direct costs. As such, it has no effect on our reported net income. Our third quarter tax rate was 33% compared to 31% 1 year ago. The higher tax rate in the current quarter is due to the increased impact of nondeductible expenses related to lower pretax income. At the end of the third quarter, accounts receivable were $838 million, and implied days sales outstanding, or DSO, was 55.8 days.

Before we move to fourth quarter guidance, let's review some of the monthly revenue trends we saw in the third quarter and so far in October, all adjusted for currency and billing days. Contract Talent Solutions exited the third quarter with September revenues down 10% versus the prior year compared to a 10.9% decrease for the full quarter. Revenues for the first 2 weeks of October were down 9.7% compared to the same period last year. Permanent placement revenues in September were down 12.3% versus September of 2024, this compares to an 11.4% decrease for the full quarter. For the first 3 weeks of October, permanent placement revenues were down 3.3% compared to the same period in 2024. We provide this information so that you have insight into some of the trends we saw during the third quarter and into October. But as you know, these are very brief time periods.

We caution against reading too much into that. With that in mind, we offer the following fourth quarter guidance: Revenues, $1.245 billion to $1.345 billion, income per share $0.25 to $0.35. Midpoint revenues of $1.295 billion are 7% lower than the same period in 2024 on an as-adjusted basis. Our midpoint revenue guidance for the fourth quarter reflects a return to positive adjusted sequential growth for the first time in 13 quarters. Our Q4 midpoint adjusted operating margin guidance declined sequentially by 1.3 percentage points, which is consistent with long-term historical trends. fewer billing days because of the holidays result in modest Q4 negative leverage of operating costs.

The major financial assumptions underlying the midpoint of these estimates are as follows: adjusted revenue growth year-over-year, Talent Solutions, down 8% to 11%; Protiviti, flat to down 4%; overall, down 5% to 9%. Adjusted gross margin percentages, contract talent, 38% to 40%; Protiviti, 22% to 24%; overall, 36% to 39%. Adjusted SG&A as a percentage of revenues, Talent Solutions, 44% to 46%; Protiviti, 15% to 17%; overall, 33% to 36%. Adjusted operating income as a percentage of revenues, Talent Solutions, flat to 2%; Protiviti, 6% to 8%; overall, 2% to 5%. Tax rate, 30% to 34%, shares outstanding $99 million to $100 million. The 2025 capital expenditures and capitalized cloud computing costs $75 million to $90 million with $15 million to $25 million in the fourth quarter. While we do not provide full earnings guidance for 2 quarters into the future, we would call out the following seasonal items we expect to impact the first quarter of 2026.

Historically, Protiviti's Q1 segment margins seasonally decline by mid-single-digit percentage points on a sequential basis. There are 2 primary drivers of this. Internal audit revenues are negatively impacted as clients focus instead on annual financial statement and related external audits. In addition, Protiviti employees received annual compensation adjustments effective January 1, which are recovered through pricing adjustments realized as client contracts are negotiated. Segment margins then improved accordingly. A majority of our employee stock compensation awards vest in the first quarter each year and the related tax benefits are measured based upon the stock price at that time. With the current stock price below grant values, we expect an unfavorable Q1 tax charge of $4 million or approximately $0.04 per share. All estimates we provide on this call are subject to the risks mentioned in today's press release and in our SEC release.

Now I'll turn the call back over to Keith.

Thank you, Mike. While the macro economic backdrop is generally unchanged. We are seeing some early signs of improvement as trade policy volatility becomes business as usual and the probability of multiple interest rate cuts rises. While decision cycles are still measured, we are beginning to have more client discussions about staffing deferred projects, and hiring for critical roles.

As we mentioned earlier, we are encouraged by our recent weekly revenue trends that have turned up sequentially. While overall hiring and quit rates remain low, job openings continue to trend well above historical averages, signaling strong pent-up demand for talent. Though the latest NFIB Small Business Optimism Index is modestly below its recent peaks. The average for the past 3 months is up sequentially and small business hiring plans are at their highest level since January. Rising client and candidate confidence fuels additional hiring and project activity and increases pressure on already stretched client resources. These are the conditions that have historically marked the early stages of recovery and expansion, creating a strong demand environment for both our Talent Solutions and consulting services. With historically low levels of unemployment, clients will need even more professional assistants filling their open roles and unstaffed projects.

As expected, Protiviti's year-over-year growth rates turned slightly negative during the quarter, in part due to tougher prior year comparables from large project builds and also due to longer sales cycles and smaller sized new engagements. That said, Protiviti's pipeline continues to grow across all of its major solutions areas and at the midpoint of our Q4 revenue guidance, its growth rates are expected to improve. The strategic use of contract professionals sourced through our Talent Solutions divisions remains a vital contributor to Protiviti's success, reinforcing our unique enterprise-wide competitive edge.

We remain committed to our time-tested corporate purpose to connect people to meaningful and exciting work and provide clients with the talent and consulting expertise they need to confidently compete and grow. Our employees' commitment to success earned us several honors in the third quarter, including being named by Forbes among the world's best employers and America's best employers for company culture and by fortune, as one of the best workplaces in consulting and professional services.

Now Mike and I'd be happy to answer your questions. Please ask just one question and a single follow-up as needed. If there's time, we'll come back to you for additional questions.

[Operator Instructions] And the first question will come from Mark Marcon with Baird.

I want to start with Protiviti. Keith, during the last call -- last quarter, you mentioned that the pipeline was building. And I was wondering, when we take a look at the fourth quarter gap for Protiviti, to what extent did you see some of those projects materialize as expected? How is the conversion rate with regards to the pipeline? And can you talk a little bit about what you're seeing from a pricing perspective on the Protiviti side? In other words, is the gross margin down slightly due to lower utilization rates? Or is there anything that's going on from a pricing perspective? .

Well, we did say the pipe was growing last quarter, and we continue to say that. It's growing on a gross basis year-on-year. and it's also growing on a probability of success weighted basis. So we feel good about the pipe. We are winning pretty much as expected. That said, we talked about large projects that were coming to end. And as we replace those, we're replacing them with smaller projects that have shorter durations and are not as efficient, if you will, as we can operate on the larger projects. As to pricing, we've said the pricing has been competitive for some time. the gross margin pieces are nuanced, the utilization looks good at face value. Part of how we get there is that we reassign Protiviti, full-time employees to projects that were otherwise to be staffed by contractors and understand that the bill rate for contractors is about 1/3 of what it is for the average full-time staff. And so there is some margin compression by that reallocation of resources, which is being done to keep as many Protiviti full-time people deployed and employed as possible. So there's no major pricing story other than there's a mix shift to shorter projects. And further, there's a mix shift to reallocate full-time employees down to contractor roles in the short term as client caution subside and confidence grows. But again, the pipeline looks good. If anything, we feel just as good today about Protiviti and Talent Solutions for that matter, as we did 90 days ago.

That's great. Keith, I hesitate to ask this on the call, but you probably wouldn't answer it if I ask offline. It's got to ask on online. There's been lots of chatter among investors about the sustainability of the dividend. And I was wondering -- I know it's a Board decision, but I'm wondering if you can comment with regards to the commitment to the dividend. And it sounds like sequentially, we may start seeing some improvement with regards to revenue trends. But if the trend that's been in place for a while continues, what sort of leverage do you have in order to protect the dividend? Or is that something that is not all that important? .

Well, the dividend is very important, and we remain very committed to it. I would say that the second and third quarters and then for the -- at midpoint guidance for the fourth quarter, our free cash flow more than covers the dividend. The first quarter is a seasonally low cash flow quarter. So that wasn't the case then. But near-term results say free cash flow covers the dividend. Beyond that, we do have $360-odd million of cash on the balance sheet. So there's a cushion from that. And further, I would say that if unlike our recent trends, which have been positive, they were to turn around as we move forward, just as we did in 2023 and just as we did in 2024, we would look at our cost structure. But we remain very committed to returning all our free cash flow to investors. Because we're in the third year of a staffing industry downturn on an absolute basis, our numbers are lower, which means a disproportionate part of that free cash flow is going to return via dividends but that's just how it is.

And the next question will come from Andrew Steinerman with JPMorgan.

Keith, I'm going to ask you to use an additive when describing the fourth quarter revenue guide versus the third quarter. I know your team is encouraged by the revenue pickup recently on a weekly basis on a sequential basis. But I think if you look at sequential fourth quarter versus third, the pickup is still below a typical seasonal pickup on the flex side. Would you describe the guide then as conservative?

We would describe the guide as conservative. But let's start with, we met our third quarter guide. And we would say that if you looked at our September so far, October results and you took that run rate for all of the effective billing days in the fourth quarter, we would grow sequentially by 1.5 to 2 points. And what we forecast is just barely being positive. And so the differential would be a cushion and that cushion in that different than what we had in the third quarter where we met the guidance. It is true that traditionally, you get some seasonal uptick in the fourth quarter, small single digit. But that's also been true in the last 3 years where it didn't happen. And so I think we could safely say this isn't purely a normal seasonal trend that we're seeing given that we didn't see that normal seasonal trend in the last 3 years.

And the next question will come from Manav Patnaik with Barclays.

This is Ronan Kennedy on for Manav. Can you please confirm the margin driver dynamics and the puts and takes of the guided 4Q margins, the role mix conversion wage rate bill pay spreads and anything to call out from a segment-specific standpoint, please?

Well, we first talked about same-day sequential having a small amount of growth. That said, remember, the fourth quarter is a short quarter. We talk about same day, but the facts are there 3 fewer days sequentially. And so given those 3 fewer days, you're going to lever your fixed cost less, which for Protiviti means gross margin because their staff is upstairs. And for Talent Solutions is SG&A because most of their costs are downstairs. And so again, kind of walking through the puts and takes from a gross margin standpoint, we see flat sequentially in Talent Solutions. And I would point out that notwithstanding this staffing industry downturn the last 3 years, our gross margins have held up remarkably, and we would note that, that reinforces because it's a proxy for the value-added our clients see. And so our gross margins have performed wonderfully and we expect that to continue starting with the fourth quarter. Protiviti again, because most of their costs are upstairs and cost of sales, the shorter quarter impacts them there. And so at midpoint, Protiviti's gross margins are down 20-ish basis points. And that's actually better than a year ago when in the fourth quarter. Their gross margins were down 70 basis points. I talked about SG&A. It's a shorter quarter, you get some negative leverage from that. And so when you put all those pieces together, operating income fourth quarter down 1.3 percentage points sequentially. We looked at a 10-year -- the last 10 years, take out COVID. And for 10 of 10 over the last 10 years, sequentially, our operating margins have been down on average by one point. And so we're right there. I would argue the progression from Q3 to Q4 with our guidance is very normal, very nonremarkable. If you look at that same trend for the last 10 years. And as I said earlier, relative to 98 days ago, we feel better as we sit here today.

Thank you very much for the comprehensive answer. Can I confirm for trends exiting 3Q and early in 4. What are you seeing from a perm placement versus contract? And then in the context of kind of historical sensitivity and the demand dynamics reflection or reaction to demand inflections, what does that tell you about a potential recovery? Well, we've talked before, perm is more volatile. Perm is less predictive in short periods. Ironically, this time, perm is actually better than contract. So I'd refer not to say that, but it's still the truth. Contract we're now comparing to a year ago, a year ago, if you think about it, we had immediately before and immediately after the election, and there was some euphoria from that. particularly with our SMB clients. And so we had some sequential pickup that halted, if you will, with the tariff uncertainty that happened thereafter. And so the year-on-year comps aren't as easy as they might be. And so perm versus contract, the other observation I would make for the third quarter ended, perm was a little soft, but we still overall met guidance. But perm was a little soft for reasons that I think you'd find somewhat surprising. It was more on the candidate side than the demand from client side as we were seeing more candidate turndowns because the compensation increases to switch and/or the work flexibility, i.e., work remote neither of which together were enough to entice candidates who already had a full-time job to switch to a new full-time job -- and we actually had a little more struggle on the candidate side with perm than on the client side, which is a little counterintuitive, at least based on what you read every day. And so Net-net, I think the trend for both Contract and perm, September into October is positive. And that's what informs our guidance for the quarter.

And your next question will come from Stephanie Moore with Jefferies.

I was hoping maybe we could continue on a conversation that we had, maybe 2 questions ago as we look at Protiviti and the gross margin profile. So kind of 2-point questions. The first question, and I apologize if I missed it. I just wanted to hear what drove the compression in PCB gross margin year-over-year? And then secondly, your second part maybe a little bit more of a philosophical or longer-term question. What's your degree of confidence for the Protiviti business to return to that more so high 20s gross margin profile that we saw a couple of years ago. What do we need to see from overall market or demand or pricing or however you want to describe at standpoint?

If you look about if you look at Protiviti gross margin compression over the last couple of years, we would comment that, one, the cumulative inflation that's impacted their staff cost, has been meaningful. And in the competitive kind of big 4 consulting market, there's been challenges with passing all of that through I'd say, further Protiviti is very committed to their staff. They're doing everything they can to keep as many as they can and that has impacted utilization a bit. And further, as I did say earlier, to help the utilization they're willing to underutilize some of their full-time staff by putting them in contractor roles to make that happen. I'd say further, if you look at the nature of the projects over the last particularly 12 months, you've got a lower mix of very large, very efficient high-margin projects that have been replaced by smaller, shorter duration, i.e., lower margin projects. So all of those have resulted in gross margin compression.

As we look to the future and their opportunity forever and ever and ever, we've said we're committed with Protiviti. Protiviti is committed to double-digit operating margins. They certainly had that in the past. They've not in the last couple of years. They do expect improvements in their operating margins in 2026 and beyond. That's going to come in part through the nature of their projects, returning more to the historical norm. That's going to be to even more diligent management of their staff resources up and down the pyramid, meaning at the highest level of managing directors all the way to the lowest levels of staff. And so Protiviti is very committed to getting their gross margins back to double digits. I mean there have been periods in history where they've been much higher than that. But what we've committed to for a long time is Protiviti is a double-digit operating margin business. And we clearly see a line of sight to that sooner rather than later. It's not going to happen overnight. But we definitely expect higher Protiviti gross margins and therefore, operating margins in 2026.

And the next question will come from Trevor Romeo with William Blair.

Just wanted to start maybe by kind of thinking about your longer-term operating margin opportunity, demand kind of is what it is. Hopefully, we're at the low point of the cycle now. But as you're thinking about, I guess, things that you can do internally such as maybe investments in technology, other productivity efficiency initiatives. I guess what kind of initiatives or investments are you making now for the next couple of years? And how much of a positive impact do you think that could have on margins outside of what happens with demand?

Well, I think the single most important thing we can do for upside to margins is to continue to move up the skill curve across our Talent Solutions practice groups because 2-way group, we get higher margins at higher skills than we do at the more operational skills. So I would point to that, number one, Two, we absolutely plan to relever our operating costs that have been delevered over the last 3 years. That gets us higher operating margins. technology. We've talked a lot about we have award-winning matching engines, which gets us better candidates in front of clients, better jobs in front of candidates, which they both have forever prioritized as their #1 item of concern. Further, we continue to work on making our recruiters and sales people more productive as we use AI to prioritize the leads and how they address them. We also use gen AI to help pull together from various sources, the information about a given company, both internal and external that they use and leverage when they're making those calls to those leads that have been ranked ordered. And so the combination of all of those things together with Protiviti, as we just said, which we believe is a long-term double-digit operating margin business, and you don't have to look back very far to see examples of that. We think we have the opportunity and the possibility to actually have higher operating margins over the next cycle.

Keith. That's helpful. And then I got a couple of questions recently, I guess, on your public sector business. Just maybe first, anything you could say on the size of that public sector revenue today would be great. And then I know you don't have much exposure to the federal government, but is there any impact at all you'd see from the government shutdown here, whether it's maybe funding for state and local programs or anything we should be aware of?

So size, to federal government is less than half of 1% of our revenue. we see no meaningful impact whatsoever from the shutdown so far and frankly, don't expect one to be. If you add state and local to federal. I think we're around 4% of revenue to size that. And so all forms of government together are mid -- a little less than mid-single digit and the federal less than half of 1%.

And the next question will come from George Tong with Goldman Sachs.

You mentioned weekly trends in contract talent revenues began to grow sequentially in September and October. Can you specify what that weekly sequential rate of growth over that time frame? And if the trends were linear?

Well, if you take September, early October, there's about a between 1.5% and 2% sequential growth rate, which is why I said earlier, if you just take that run rate and extrapolate to the full first -- fourth quarter, then we would have that as essentially cushion relative to our fourth quarter guidance.

Okay. And then separately, there have been instances of several large enterprises automating their finance departments with AI and in some cases, realizing 50% plus labor cost savings. To what extent would you see that as a risk for Robert Half going forward?

Well, the -- their views all over a lot on the AI. I'm sure you know MIT did a study that said that only 5% of the companies currently using gen AI, we're seeing any ROI so far. Our observation would be historically that those types of changes take a whole lot longer than what our first thought to be the case, and it would certainly be my view that, that would also be the case here with gen AI. We have a view into that with our Protiviti clients that happen to be large enterprises. And I can assure you the consensus experience they're seeing with their clients is nowhere in the same country, much less local ZIP code as the kind of productivity gains they're seeing from gen AI so far relative to their own productivity. And so my observation would be, as verified by several studies. And further, as it relates to impact to jobs in the last 60 to 90 days, in fact, there were big studies by Stanford, Harvard and Yale Stanford says, AI impact is for early career, entry-level people that more experienced rolls remain stable. Harvard says gen AI reducing entry-level hiring while increasing reliance on senior talent, Yale says broader labor market has not experienced any discernible disruption from gen AI. And so I guess my point would be as to impact the labor overall impact for us, accounting and finance talent overall. We've seen very little impact. My view is there's a lot of upside longer term. But shorter term, I think the trends that I've quoted and that we've seen, including through our client wins, the gains are modest, if any, if at all so far. We're not AI tumors. We ourselves use it nor are we AI boomers. And I'd say 50% productivity gains in the short term, I would put in the AI boomer category, which isn't representative of the kind of ROI statistics I see and read.

And the next question will come from Kevin McVeigh with UBS.

Great. And helpful commentary on the Q1. If you look at the seasonal sequential kind of trends from an EPS perspective, it's averaged like $0.27, I think, sequentially from Q4 to Q1. Is that a fair way to think about dimensionalizing the start to '26? Or would you expect less leverage just given where kind of the base earnings are in Q4. Just because you did talk about Q1 a little bit. And I know you typically don't go out 2 quarters, but just to try to get a sense of framing the Q1 as we think about 26 is where I want to start.

Well, sequentially, there's a meaningful impact, which is why we called it out. And so to have sequential impacts in the 2 per share impact, that's not unusual. And if you don't have to look back very far, I mean since 2023, that's what we've been seeing, which was why we called it out so that everybody understand that, that's what's normal based on history. Q1 is below point because of Protiviti's seasonal circumstances that we described in our remarks.

No, that's helpful. And then just to follow up on George's question. When you think about the gen AI relative to the adjustments in temp the last couple 2, 3 years, was that adjustments from COVID or just the pressure you're seeing -- and I'm not seeing Robert Half specific, but across the temp industry?

Kevin, I'd say this. We did with our data science group. We did a deep dive, looking back for the last 3 years, we analyzed the results from our roles that are vulnerable based on [ world ] economic forum, which are the customer service, the coders, the lower level operational level positions, and we looked at that in very granular detail and found that it performed no differently than the rest. Further in FIB did their own study and 98% of their constituent said, AI had no impact on their number of employees. And now you look at the Stanford Harvard, Yale and basically saying to the extent there's been an impact, it's on early career, entry-level people. Well, guess what? That's not our business. our clients won't pay us to get for them early career, entry-level people because they can do that themselves. They don't need us for that. And so to the extent that's where there's an impact has been. It's easier to understand or it certainly confirms our own internal studies that there's no impact from that. And so you then say, look, okay, well, then why has the industry been down for 3 years. And that's where I come back to, let's talk about churn. Well, let's look at jokes. In October of '22, there were 6 million people hired, and there were 4 million people that quit. You roll that forward to August of '25 there were 5 million hires in the United States, and they were 3 million quits. And that's a huge difference. There's a lot less churn. Bather plus the job growth that has taken place in the United States have been concentrated in government, clinical health care and leisure and hospitality. And those are not big consumers of contract temporary help for the industry and particularly for Robert Half. And so I feel about as confident that I feel with anything that AI has not contributed to what has happened so far, so far, either for the industry or for Robert Half. And instead, it's about clients as they focused on their cumulative inflation issue as they worry about all of these forecasts of recession, they become more cautious and juxtaposed against -- they want to keep their full-time staff, what's their first lever to control their cost, fewer contractors. So the industry now is in year 3 of companies trying to keep -- retain their full-time staff, control their cost and it's been primarily at the expense of their contractor usage. I think all those dots connect, but you don't need AI as an impact to connect them. It's last churn, it's narrow growth, not that applicable to the industry and/or Robert Half.

The next question will come from Jeff Silber with BMO Capital Markets.

I want to return to some of the earlier discussion on capital allocation. Can you just remind us what your policy is regarding whether you were going to refer to shares or dividend? What are the drivers for making those decisions?

And so it's actually very simple. We look at our free cash flow after we've taken care of our business, including capital expenditures the small kind of tuck-in acquisitions that we've done a few of, particularly with Protiviti. So we start with free cash flow, we say, first, step one, we'd like to grow our dividend, that takes the first -- that's the first call on free cash flow and the residual what's left has been for repurchases. And we've done that for 20, 25 years uninterrupted, and that's still where we are. But what that means is with today's free cash flow the dividend is taking most of that leaving little for repurchases, which is unfortunate at these prices, and that hurts. That said, we've never believed the nature of our business is such that we ought to lever up. Instead, we've had a very conservative fortress balance sheet, and we sleep well with that.

Okay. That's helpful. If I could just ask a couple of numbers questions. I know you usually put this in your Q, but I was hoping you can tell us from your contract talent solutions perspective, what was the year-over-year change in the number of hours work in average hourly in rates? And also what is your billing days by quarter for 2026? .

So Bill, so the -- when you ask for rates, are you talking kind of gap, not adjusted to normalize for all the differences we talked about? Or we talked about our billing rate already is being up 3 7 -- 3.7%.

Okay. That's fine. What about the average hourly work, again, the number that you reported in your Q?

I don't have that...

The number of our...

Right. I don't have that in front of me. Clearly, we'll be in shortly. But don't have that at this moment. As to billing days, my team here has handed me a note that says Q1, 61.9 days; Q2, 63.1 days; Q3, 64.6 days; and Q4, 61.1 days.

The next question comes from Kartik Mehta with Northcoast Research.

Keith, I know you've talked a lot about Protiviti and it being a double-digit operating margin business and it's getting there. I'm wondering more in the near term, what the incremental margins are I don't know if you look at capacity, how you look at it. But just for the near term, how would you look at incremental margins for that business?

I'd say for 2026, we'd be disappointed if we can't get between 100 and 200 basis points of additional gross margin maybe with some upside. But a combination of all the things we've talked about, the nature of the projects, the mix of the staff assigned to the projects kind of attention or even more focused on costs generally starting with staff. And so we're not going to get back to double digit overnight. Not going to get back to double digit more than likely in 2026, but we ought to make substantial progress toward that, and you got to start somewhere.

Makes sense. Just from a bigger picture capital allocation, Keith, I know obviously, there's sensitivities around the dividend, but you seem pretty confident in your free cash flow. And you obviously have $300 million of cash on the balance sheet. Any thought of using a portion of that to buy back stock considering where we are from a price standpoint. As I said earlier, it hurts not to buy more stock at current prices, it hurts. Tell -- I mean, trust me, it hurts. That said, we're committed to our dividend. And we will remain committed to our dividend. And therefore, there's a smaller residual starting with our free cash flow left for repurchases. So we've always committed to return our free cash flow to shareholders. We continue to do that. The mix of dividends, repurchases is heavily weighted to our dividends given the historical compounding since we started paying the dividends, I think it was in 2004. I get it, trust me. I feel your pain. But as I said earlier as well, we don't think the nature of this business is such that you ought to lever it up. .

And the next question comes from Tobey Sommer with Truist Securities.

This is Henry on for Tobey. To start just looking at productivity, revenue is up about 1% sequentially. But can you just discuss within that how the Financial Services segment performed and then the runway you see into next quarter and 2026 from the strong capital markets right now?

Well, with Protiviti for financial services to be 40% to 50% of Protiviti, it's hard for its trend to be that different from the overall trend. And we feel good about financial services. It performed well in the third quarter. frankly, the strength was spread across it's major solution areas as we mentioned before. But we're positive. We feel good. This project -- large project -- small project issue we've been discussing, that's true, very much true in financial services. some of these very, very large projects were in financial services, and we're backfilling with smaller projects in financial services. And so financial services is clearly impacted by that trend. And as I said, when financial services is as big a part of the whole as it is, it's kind of hard for the overall trend, not to be the financial services trend.

Understood. Understood. And just moving a little bit, can you discuss any difference right now in current trends between your enterprise customers and SMB customers? Those different cohorts discussing different things to increase their business confidence in the current climate?

And it's been true for several quarters, our enterprise clients. Are -- have better results than do our SMB clients, and that's not unusual. And that's further evidenced by Protiviti's growth rates have been more resilient than our talent solution rates. But if you do split out Talent Solutions enterprise and for us, enterprise means mid-cap typically $4 billion to $6 billion in revenues for our mid-cap. And that's been more resilient than as SMB, and that's always been the case. On the flip side, when things turn around, you'll see SMBs will outgrow and they'll react more quickly. And so more resilient is good at times like these, less resilient or more quickly impacted will be a good thing, the upside.

Okay. So that was our last question. We appreciate you joining us today. Thank you very much. Thank you.

And this concludes today's teleconference. If you missed any part of the call, it will be archived in audio format in the Investor Center of Robert Half's website at roberthalf.com. You can also log into the conference call replay details are contained in the company's press release showed earlier today.