Robert Half Inc. 2026 Q3 Earnings Call

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 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 third quarter of 2026, global enterprise revenues were $1.359 billion, roughly flat with last year on an adjusted basis. Talent Solutions returned to adjusted year-over-year revenue growth for the first time since 2022, with revenues increasing 2%. Global enterprise earnings exceeded the midpoint of our third quarter guidance. Hiring activity continues to improve, supported by gradually improving market conditions. Demand for risk and compliance consulting services also showed encouraging signs of improvement during the quarter.

Our combination of innovative technology, specialized expertise, and high-touch client service positions us well to deliver the talent and consulting solutions clients need to advance their business priorities. Net income per share in the third quarter was $0.49, up 14% from $0.43 a year ago. This marked the first year-over-year increase in quarterly earnings per share since 2022. Cash flow provided by operations during the quarter was $66 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. Return on invested capital for the company was 17% in the third quarter. Now I'll turn the call over to our CFO, Mike Buckley.

Thank you, Keith. Hello, everyone. As Keith noted, global revenues were $1.359 billion in the third quarter. On an adjusted basis, third quarter Talent Solutions revenues were up 2% year-over-year. U.S. Talent Solutions revenues were $670 million, up 3% from the prior year's third quarter. Non-U.S. Talent Solutions revenues were $206 million, down 1% year-over-year. Our Contract Talent Solutions operations achieved adjusted year-over-year revenue growth of 1%, and Permanent Placement operations delivered 6% growth. We conduct Talent Solutions operations through offices in the United States and 18 other countries. In the third quarter of 2026, there were 64.6 billing days, compared to 64.2 billing days in the third quarter one year ago. The fourth quarter of 2026 has 61.1 billing days, compared to 61.4 billing days in the fourth quarter of 2025.

Billing days for the four quarters of 2027 will be 61.5, 63.7, 64.5, and 61.5 for a total of 251.2 billing days in the year. Currency exchange rate fluctuations during the third quarter had a de minimis impact to reported revenues. Contract Talent Solutions bill rates for the third quarter increased 3.6% 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 2.3%. Now let's take a closer look at results for Protiviti. Global revenues in the third quarter were $483 million. $383 million of that 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 5%, while non-U.S. Protiviti revenues were up 2% compared to one year ago. Protiviti and its independently owned member firms serve clients through locations in the United States and 27 other countries. Turning now to gross margin. In Contract Talent Solutions, third quarter gross margin was 39.3% of applicable revenues versus 38.9% in the third quarter one year ago. Conversion or contract-to-hire revenues were 3.4% of contract revenues in the current quarter, compared to 3.2% in the third quarter of 2025. Our Permanent Placement revenues were 13.4% of consolidated Talent Solutions revenues in the current quarter, compared to 12.9% in the third 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 to 46.7% in the third quarter of 2025.

For Protiviti, gross margin was 24.2% of Protiviti revenues in the third quarter and 20.9% in the third quarter one year ago. Adjusted gross margin for Protiviti was 24.1% for the quarter just ended, compared to 23% last year. Enterprise SG&A costs were 33.6% of global revenues in the third quarter, compared to 36.2% in the same quarter one year ago. Adjusted enterprise SG&A costs were 33.8% for the quarter just ended, compared to 33.5% one year ago. Talent Solutions SG&A costs were 43.2% of Talent Solutions revenues in the third quarter versus 48.2% in the third quarter of 2025. Adjusted Talent Solutions SG&A costs were 43.4%, compared to 43.9% for the third quarter one year ago. Third quarter SG&A costs for Protiviti were 16.4% of Protiviti revenues, compared to 15.5% for the same quarter one year ago. Reported operating income for the third quarter was $75 million.

Adjusted operating income was $73 million in the quarter or 5.3% of revenues. This compares to $61 million or 4.5% of revenues one year ago. Third quarter adjusted operating income for Talent Solutions was $36 million or 4% of revenues. This compares to $24 million or 2.8% of revenues last year. Adjusted operating income for Protiviti in the third quarter was $37 million or 7.7% of revenues. Adjusted operating income for Protiviti in the third quarter one year ago was $37 million or 7.5% of revenues. Our third quarter 2026 income statement includes a $2 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 third quarter tax rate was 33% in both the current quarter and the third quarter one year ago. At the end of the third quarter, accounts receivable were $826 million and implied Days Sales Outstanding or DSO was 54.8 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 up 1% versus the prior year, the same as the 1% increase for the full quarter. Revenues for the first two weeks of October are up 2% compared to the same period last year. Permanent Placement revenues in September were up 5% versus September 2025. This compares to a 6% increase for the full quarter.

For the first three weeks in October, Permanent Placement revenues were up 5% 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 third quarter and into October. We caution against reading too much into them. With that in mind, we offer the following fourth quarter guidance. Revenue, $1.285 billion to $1.385 billion. Income per share, $0.36 to $0.46. Midpoint revenue of $1.335 billion are 3% higher than the same period in 2025 on an adjusted basis. Midpoint earnings per share of $0.41 and are 30% higher than last year. Our midpoint revenue guidance for the fourth quarter reflects year-over-year revenue growth of 3% for Talent Solutions and 2% for Protiviti. The major financial assumptions underlying the midpoint of these estimates are as follows.

Adjusted revenue growth year-over-year for Talent Solutions up 1%-5%. For Protiviti, flat to up 4%. Overall, up 1%-5%. Adjusted gross margin percentages, Contract Talent 38%-40%, Protiviti 22%-25%, overall 37%-40%. Adjusted SG&A as a percentage of revenue for Talent Solutions 43%-45%, for Protiviti 16%-18%, and overall 33%-35%. Adjusted operating income as a percentage of revenues for Talent Solutions 2%-4%, for Protiviti 6%-8%, overall 3%-5%. The assumed tax rate 31%-33%, and shares outstanding 100.5 million to 101.5 million shares. 2026 capital expenditures and capitalized cloud computing costs $60 million-$70 million with $15 million-$20 million in the fourth quarter. For the first quarter of 2027, we offer the following directional observations.

Number one, historically, Protiviti Q1 segment margins seasonally decline by mid-single digit percentage points on a sequential basis. There are two primary drivers. Internal audit revenues are negatively impacted as clients' focus is shifted to 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. Based on this, first quarter consolidated operating margins have historically been 1-2 percentage points lower sequentially than the fourth quarter. Number two, there is typically more variability in the Q1 tax rate compared to other quarters related to the vesting of our employee stock compensation awards. We currently expect the Q1 tax rate to be between 36% and 40%.

All estimates we provide on this call are subject to the risks mentioned in today's press release and in our SEC filing. Now, I'll turn the call back over to Keith.