Earnings call transcript: Robert Half Q3 2025 sees stock dip on revenue miss

Robert Half International Inc. (RHI) reported its Q3 2025 earnings, meeting EPS expectations but falling short on revenue forecasts. The company posted an earnings per share (EPS) of $0.43, aligning with analyst predictions. However, revenues came in at $1.354 billion, slightly below the expected $1.36 billion, leading to a 4.36% drop in stock price in aftermarket trading. According to InvestingPro analysis, RHI currently appears undervalued based on its Fair Value metrics, with the stock offering a notable 7.5% dividend yield. For deeper insights into RHI’s valuation and 14 additional ProTips, explore the comprehensive Pro Research Report available on InvestingPro.

Key Takeaways

• EPS met expectations at $0.43, while revenue fell short of forecasts.
• Stock price declined by 4.36% in aftermarket trading.
• Global revenues decreased by 8% year-over-year.
• The company continues to invest in AI and technology to drive future growth.
• Q4 2025 guidance suggests potential for sequential growth.

Company Performance

Robert Half’s performance in Q3 2025 reflected ongoing challenges in the staffing industry, which is in its third year of a downturn. The company reported a global revenue decline of 8% year-over-year, influenced by reduced job churn and a downturn in certain sectors. Despite these challenges, Robert Half remains committed to maintaining its competitive edge through technology and skill specialization.

Financial Highlights

• Revenue: $1.354 billion, down 8% year-over-year.
• Earnings per share: $0.43, down from $0.64 in Q3 2024.
• Cash flow from operations: $77 million.
• Dividend: $0.59 per share, totaling $59 million.
• Share repurchases: 550,000 shares for $20 million.

Earnings vs. Forecast

Robert Half’s Q3 2025 EPS of $0.43 met the forecast, with no surprise deviation. However, revenue fell short of expectations by $6 million, marking a 0.44% miss. This revenue miss, although minor, contributed to a negative market reaction.

Market Reaction

Following the earnings release, Robert Half’s stock price dropped 4.36% in aftermarket trading, closing at $30.98. This decline places the stock closer to its 52-week low of $29.48, reflecting investor concerns over the revenue shortfall and broader industry challenges. InvestingPro technical analysis shows the stock has fallen over 50% in the past year, with a significant 30% decline in the last six months alone. Get access to detailed technical analysis and more with InvestingPro’s comprehensive research tools.

Outlook & Guidance

Looking forward, Robert Half provided Q4 2025 revenue guidance between $1.245 billion and $1.345 billion, with EPS expected to range from $0.25 to $0.35. The company anticipates a return to sequential growth and improvements in Protiviti’s margins in 2026.

Executive Commentary

Michael C. Buckley, CFO, emphasized the company’s commitment to returning free cash flow to investors, stating, "We remain very committed to returning all our free cash flow to investors." CEO M. Keith Waddell highlighted the role of AI in driving productivity, noting, "The consensus experience they’re seeing with their clients is nowhere in the same country, much less local zip code, as to kind of productivity gains they’re seeing from generative AI so far."

Risks and Challenges

• Continued downturn in the staffing industry could pressure revenues.
• Potential macroeconomic pressures, including interest rate changes, may impact growth.
• Competition in the technology and consulting sectors remains intense.
• Protiviti’s margin challenges require strategic adjustments.
• Dependence on AI and technology investments to drive future growth.

Q&A

During the earnings call, analysts inquired about the sustainability of dividends, the impact of AI on the labor market, and Protiviti’s project mix. Executives addressed these concerns by reaffirming their commitment to dividends and highlighting Protiviti’s focus on margin improvements.

Full transcript - Robert Half International Inc (RHI) Q3 2025:

Conference Moderator, Robert Half: Hello, and welcome to the Robert Half third quarter 2025 conference call. Today’s conference call is being recorded. If you’d like to ask a question during the Q&A portion of the call, please press star and the number one on your telephone keypad. Our hosts for today’s call are Mr. M. Keith Waddell, President and Chief Executive Officer of Robert Half, and Mr. Michael C. Buckley, Chief Financial Officer. Mr. Waddell, you may begin.

M. Keith Waddell, President and Chief Executive Officer, Robert Half: 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’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 one 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 in 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 our 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 is 13% in the third quarter. Now, I’ll turn the call over to our CFO, Michael C. Buckley.

Michael C. Buckley, Chief Financial Officer, Robert Half: 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 one year ago. The fourth quarter of 2025 has 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 one 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 Protiviti 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 one 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 one 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 one 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 one year ago. Adjusted enterprise SG&A costs were 33.5% for the quarter just ended, compared to 33.3% one 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 costs for Protiviti were 15.5% of Protiviti revenues, compared to 15.6% of revenues for the quarter one 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 divisions 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% one year ago. The higher tax rate in the current quarter is due to the increased impact of non-deductible expenses related to lower pre-tax income. At the end of the third quarter, accounts receivable were $838 million, and implied day 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 two 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 three 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. 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 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 two 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 two 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 receive annual compensation adjustments effective January 1, which are recovered through pricing adjustments realized as client contracts are negotiated. Segment margins then improve 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 filings. Now, I’ll turn the call back over to Keith. Thank you, Mike.

While the macroeconomic 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’re 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 three 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 assistance 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 would be happy to answer your questions. Please ask just one question and a single follow-up if needed. If there’s time, we’ll come back to you for additional questions.

Conference Moderator, Robert Half: Thank you. If you would like to signal with questions, please press star one on your touch-tone telephone. If you would like to withdraw your question, please press star two. If you’re joining us today using speakerphone, please make sure your mute function is turned off before pressing the corresponding digits. Again, that is star one. If you would like to signal with questions, star one. The first question will come from Mark Marcon with Baird.

Mark Marcon, Analyst, Baird: Good afternoon, and thanks for taking my questions. I want to start with Protiviti. Keith, during the last call last quarter, you mentioned that the pipeline was building. I was wondering, when we take a look at the fourth quarter guide 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? 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?

Michael C. Buckley, Chief Financial Officer, Robert Half: 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. We feel good about the pipe. We are winning pretty much as expected. That said, we talked about large projects that were coming to an end. 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 a third of what it is for the average full-time staff. There’s 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. There’s no major pricing story other than there’s a mix shift to shorter projects. Further, there’s a mix shift to reallocate full-time employees down to contractor roles in the short term as client caution subsides and confidence grows. 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.

Mark Marcon, Analyst, Baird: That’s great. Keith, I hesitate to ask this on the call, but you probably wouldn’t answer it if I asked offline. It’s got to be asked online. There’s been lots of chatter among investors about the sustainability of the dividend. 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. It sounds like sequentially we may start seeing some improvement with regards to the revenue trends. 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?

Michael C. Buckley, Chief Financial Officer, Robert Half: 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 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. Near-term results say free cash flow covers the dividend. Beyond that, we do have $360 million of cash on the balance sheet, so there’s a cushion from that. 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. 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. That’s just how it is.

Mark Marcon, Analyst, Baird: Appreciate the answer. Thank you.

Conference Moderator, Robert Half: The next question will come from Andrew Steinerman with JPMorgan.

Andrew Steinerman, Analyst, JPMorgan: Hi, Keith. I’m going to ask you to use an adjective 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. 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?

Michael C. Buckley, Chief Financial Officer, Robert Half: We would describe the guide as conservative. Let’s start with, we met our third quarter guide. 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. What we’ve forecast is just barely being positive. The differential would be a cushion. That cushion isn’t 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 digits, but that’s also been true the last three years where it didn’t happen. 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 three years.

Andrew Steinerman, Analyst, JPMorgan: Yeah, that’s well said. Thank you, Keith.

Conference Moderator, Robert Half: The next question will come from Manav Patnaik with Barclays.

Hi, this is Ronan Kennedy on from Manav. Thank you for taking my question. Can you please confirm the margin driver dynamics and the puts and takes of the guide at fourth-year margins? You know, the role of mix conversion, wage rate, bill pay spreads, and anything to call out from a segment-specific standpoint, please?

Michael C. Buckley, Chief Financial Officer, Robert Half: 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’s three fewer days sequentially. Given those three 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, it’s SG&A because most of their costs are downstairs. Again, kind of walking through the puts and takes from a gross margin standpoint, we see flat sequentially in Talent Solutions. I would point out that notwithstanding this staffing industry downturn the last three years, our gross margins have held up remarkably. We would note that that reinforces because it’s a proxy for the value added our clients see. 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, this shorter quarter impacts them there. At midpoint, Protiviti’s gross margins are down 20-ish basis points. 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. 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. For 10 of 10 over the last 10 years, sequentially, our operating margins have been down on average by one point. We’re right there. I would argue the progression from Q3 to Q4 with our guidance is very normal, very non-remarkable, if you look at that same trend for the last 10 years.

As I said earlier, relative to 90 days ago, we feel better as we sit here today.

Thank you very much for the comprehensive answer. Could I confirm for the trends exiting 3Q and early in 4, what are you seeing from a firm placement versus contract? In the context of kind of historical sensitivity and demand dynamics and reflection or reaction to demand inflections, what does that tell you about a potential recovery?

We’ve talked before, perm is more volatile. Perm is less predictive in short periods. Ironically, this time, perm is actually better than contract. I’d prefer not to say that, but it’s still the truth. You know, 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. There was some euphoria from that, particularly with our SMB clients. We had some subsequential pickup that halted, if you will, with the tariff uncertainty that happened thereafter. The year-on-year comps aren’t as easy as they might be. 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. 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. 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. Net-net, I think the trend for both contract and perm September into October is positive. That’s what informs our guidance for the quarter.

Thank you. Appreciate it.

Conference Moderator, Robert Half: Your next question will come from Stephanie Moore with Jefferies.

Stephanie Moore, Analyst, Jefferies: Great. Good afternoon. Thank you. I was hoping maybe we could continue on a conversation that we had maybe two questions ago as we look at Protiviti and the gross margin profile. Kind of a two-point question. The first question, and I apologize if I missed it, just wanted to hear what drove the compression in Protiviti gross margin year over year. Secondly, or second part, maybe a little bit more of a philosophical or longer-term question. You know, what’s your degree of confidence for the Protiviti business to return to that, you know, more so high 20s gross margin profile that we saw a couple of years ago? What do we need to see from an overall market or demand or pricing or however you want to describe it standpoint? Thank you.

Michael C. Buckley, Chief Financial Officer, Robert Half: Yeah. 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. In the competitive kind of Big Four 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. 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. If you looked 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.

All of those have resulted in gross margin compression. As we look to the future and their opportunity, you know, forever and ever and ever, we’ve said we’re committed with Protiviti. Protiviti is committed to double-digit operating margins. They’ve 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 levels of Managing Directors all the way to the lowest levels of staff. Protiviti is very committed to getting their gross margins back to double digits. There have been periods in history when they’ve been much higher than that.

What we’ve committed to for a long time is Protiviti is a double-digit operating margin business. 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.

Stephanie Moore, Analyst, Jefferies: Thank you.

Conference Moderator, Robert Half: The next question will come from Trevor Romeo with William Blair.

Hi, good afternoon. Thanks for taking my questions. I just wanted to start maybe by kind of thinking about your longer-term operating margin opportunity. You know, demand kind of is what it is. Hopefully, we’re at the low point of a cycle now. As you’re thinking about, I guess, things that you can do internally, such as maybe investments in technology, other productivity efficiency initiatives, what kind of initiatives or investments are you making now for the next couple of years? How much of a positive impact do you think that could have on margins outside of what happens with demand?

Michael C. Buckley, Chief Financial Officer, Robert Half: 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 two-way group, we get higher margins at higher skills than we do at the more operational skills. I would point to that, number one. Two, we absolutely plan to relever our operating costs that have been delevered over the last three 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 number one item of concern. Further, we continue to work on making our recruiters and salespeople more productive as we use AI to prioritize the leads and how they address them.

We also use generative 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 rank ordered. 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.

Thanks, Keith. That’s helpful. I’ve got a couple of questions on your public sector business. Maybe first, anything you could say on the size of that public sector revenue today would be great. 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 funding for state and local programs or anything we should be aware of?

The federal government is less than half of 1% of our revenue. We’ve seen 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. All forms of government together are a little less than mid-single digit and the federal less than half of 1%.

Okay, that is helpful. Thanks, Keith.

Conference Moderator, Robert Half: The next question will come from George Tong with Goldman Sachs.

Mark Marcon, Analyst, Baird: Hi, thanks. Good afternoon. 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 was over that timeframe, and if the trends were linear?

Michael C. Buckley, Chief Financial Officer, Robert Half: If you take September, early October, there’s about a, between a 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.

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

Michael C. Buckley, Chief Financial Officer, Robert Half: There are views all over and a lot on the impact of AI. I’m sure you know MIT did a study that said that only 5% of the companies currently using generative AI were seeing any ROI so far. Our observation would be historically that those types of changes take a whole lot longer than what are first thought to be the case. It would certainly be my view that that would also be the case here with generative AI. We have a view into that with our Protiviti clients that happen to be large enterprises. I can assure you that the consensus experience they’re seeing with their clients is nowhere in the same country, much less local zip code, as to kind of productivity gains they’re seeing from generative AI so far relative to their own productivity.

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 roles remain stable. Harvard says generative AI is reducing entry-level hiring while increasing reliance on senior talent. Yale says the broader labor market has not experienced any discernible disruption from generative AI. I guess my point would be as to impact to labor overall, impact to, 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 lens, the gains are modest, if at any, if at all so far.

We’re not AI doomers. We ourselves use it, nor are we AI boomers. 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.

Mark Marcon, Analyst, Baird: Very helpful. Thank you.

Conference Moderator, Robert Half: The next question will come from Kevin McVeigh with UBS.

Kevin McVeigh, Analyst, UBS: Great. Thank you very much, and the 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, you know, dimensionalizing the start to 2026? 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. I know you typically don’t go out two quarters, but just to try to get a sense of framing the Q1 as we think about 2026 is where I want to start.

Michael C. Buckley, Chief Financial Officer, Robert Half: Sequentially, there’s a meaningful impact, which is why we called it out. To have sequential impacts in the $0.20s per share impact, that’s not unusual. 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 understands that that’s what’s normal based on history. Q1 is the low point because of Protiviti’s seasonal circumstances that we described in our remarks.

Kevin McVeigh, Analyst, UBS: That’s helpful. Just to follow up on George’s question, Keith, when you think about the generative AI relative to the adjustments in temp the last couple two, three years, was that adjustments from COVID or just the pressure you’re seeing? I’m not saying Robert Half specific, but across the temp industry.

Michael C. Buckley, Chief Financial Officer, Robert Half: Right. Kevin, I’d say this. We did with our data science group, we did a deep dive looking back for the last three years. We analyzed the results from our roles that are vulnerable based on the World Economic Forum, which are the customer service, the coders, the lower-level operational-level positions. We looked at that in very granular detail and found that it performed no differently than the rest. Further, NFIB did their own study. 98% of their constituents said AI had had no impact on their number of employees. Now you look at Stanford, Harvard, Yale, and basically say to the extent there’s been an impact, it’s on early career entry-level people. 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.

To the extent that’s where there’s an impact, it’s easier to understand, or it certainly confirms our own internal studies that there’s no impact from that. You then say, okay, why has the industry been down for three years? That’s where I come back to, let’s talk about churn. Let’s look at JOLTs. In October 2022, there were 6 million people hired, and there were 4 million people that quit. You roll that forward to August 2025, there were 5 million hires in the U.S., and there were 3 million quits. That’s a huge difference. There’s a lot less churn. That churn plus the job growth that has taken place in the U.S. have been concentrated in government, clinical healthcare, and leisure and hospitality. Those are not big consumers of contract temporary help for the industry, and particularly for Robert Half.

I feel about as confident as I feel with anything that AI has not contributed to what has happened so far, either for the industry or for Robert Half. Instead, it’s about clients as they focused on their cumulative inflation issue, as they worry about all of these forecasts of recession, they’ve 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. The industry now is in year three 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. You don’t need AI as an impact to connect them. It’s less churn. It’s narrow growth, not that applicable to the industry and/or Robert Half.

Kevin McVeigh, Analyst, UBS: Very helpful. Thank you.

Conference Moderator, Robert Half: The next question will come from Jeff Silber with BMO Capital Markets.

Thanks so much. I wanted to return to some of the earlier discussion on capital allocation. Can you just remind us what your policy is regarding whether you’re going to repurchase shares or dividend? What are the drivers for making those decisions?

Michael C. Buckley, Chief Financial Officer, Robert Half: 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. 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 that free cash flow. The residual, what’s left, has been for repurchases. We’ve done that for 20, 25 years, uninterrupted. That’s still where we are. What that means is with today’s free cash flow, the dividend’s taking most of that, leaving little for repurchases, which is unfortunate at these prices, and that hurts. 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 worked and average hourly billing rates? Also, what is your billing days by quarter for 2026? Thanks.

When you ask for rates, are you talking kind of GAAP, not adjusted to normalize for all the differences we talk about? Could we talk about our billing rate already as being up 3.7%?

Okay, that’s fine. What about the average hourly work? Again, the number that you report in your Q.

Don’t have that.

The number of hours worked.

Right. Don’t have that in front of me. Clearly, we’ll be in the Q 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.

Okay, fantastic. Thanks so much.

Very good.

Conference Moderator, Robert Half: The next question comes from Kartik Mehta with Northcoast Research.

Hey, good evening, Keith and Mike. 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?

Michael C. Buckley, Chief Financial Officer, Robert Half: 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. A combination of all of the things we’ve talked about, the nature of the projects, the mix of the staff assigned to the projects, the kind of attention or even more focus on cost generally, starting with staff, will contribute. 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. You got to start somewhere.

Makes sense. Just from a bigger picture capital allocation standpoint, Keith, I know obviously there’s sensitivities around the dividend, but you seem pretty confident in your free cash flow. 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. Trust me, it hurts. That said, we’re committed to our dividend. We will remain committed to our dividend. Therefore, there’s a smaller residual, starting with our free cash flow left for repurchases. We’ve always committed to return our free cash flow to shareholders. We continue to do that. The mix of dividends and repurchases is heavily weighted toward 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. As I said earlier as well, we don’t think the nature of this business is such that you ought to lever it up.

Fair enough. Thank you very much for the time.

Conference Moderator, Robert Half: The next question will come from Toby Summer with Truist Securities.

Hi, this is Henry on for Toby. Thanks for taking my question. To start, just looking at Protiviti, you know, revenue is up about 1% sequentially. 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? Thank you.

Michael C. Buckley, Chief Financial Officer, Robert Half: With Protiviti, 40 to 50% for financial services to be 40 to 50% of Protiviti, it’s hard for its trend to be that different from the overall trend. We feel good about financial services. It performed well in the third quarter. Frankly, the strength was spread across its major solution areas that we mentioned before. We’re positive. We feel good.

That’s great. Then.

This large project, small project issue we’ve been discussing is true, very much true in financial services. Some of these very, very large projects were in financial services. We’re backfilling with smaller projects in financial services. Financial services is clearly impacted by that trend. 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. Thank you for that color. Just to pivot a little bit, can you just discuss any difference around current trends between your enterprise customers and SMB customers? You know, those different cohorts discussing different things to increase their business confidence in the current climate. Thank you.

Yeah. It has been true for several quarters. Our enterprise clients have better results than do our SMB clients, and that’s not unusual. That’s further evidenced by Protiviti’s growth rates have been more resilient than our Talent Solutions rates. 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. That’s been more resilient than has 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. More resilient is good at times like these. Less resilient or more quickly impacted will be a good thing on the upside.

Thank you.

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

Conference Moderator, Robert Half: 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 into the conference call replay. Details are contained in the company’s press release issued earlier today.

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