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Hello, and welcome to the Robert Half Third Quarter 2025 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'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 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 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 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 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 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% 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 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 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 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 Employer's 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 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? 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 ends. 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 subsides 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. So 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 -- that 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 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. 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 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 digit. But that's also been true 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 to the guide of 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's 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 1 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.

Could I confirm for the 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 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 prefer 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 Protiviti 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 it standpoint?

If you look about -- 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.

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, so 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 was 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, there are views all over 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 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

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

Great. 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 $0.20 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 the low 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, Keith. 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, NFIB did their own study. And 98% of their constituents said, AI had no impact on their number of employees. And now you look at the Stanford, Harvard, Yale and basically say 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 JOLTS. 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. That churn 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 as 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 less churn, it's narrow growth, not that applicable to the industry and/or Robert Half.

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

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?

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 that 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 billing 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 GAAP, not adjusted to normalize for all the differences we talked about? Or we talked about our billing rate already as 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?

Don't have that.

The number of average work...

Right. Don't have that in front of me. Clearly, we'll be in shortly 10-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.

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. But 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, the kind of attention or even more focus on cost 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 standpoint, 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 Protiviti, 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. That said, 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 on the upside. Okay. So that was our last question. We appreciate you joining us today. Thank you very much.