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

Hello, everyone. We appreciate your time today. Before we get started, I'd like to remind you that the comments made on today's call contain forward-looking statements, including predictions and estimates about our future performance. These statements represent our current judgment of what the future holds. However, they are subject to the risks and uncertainties that could cause actual results to differ materially from the forward-looking statements. These risks and uncertainties are described in today's press release and in our most recent 10-K and 10-Q filed with the SEC. We assume no obligation to update the statements made on today's call. During this presentation, we may mention some non-GAAP financial measures and reference these figures as adjusted. Specifically, we present adjusted revenue growth rates, which remove the impacts on reported revenues from the changes in the number of billing days and foreign currency exchange rates. Additionally, we present adjusted gross margin; adjusted selling, general and administrative expenses; and adjusted operating income by combining the gains and losses on investments held to fund the company's obligations under employee deferred compensation plans with the changes in the underlying deferred compensation obligations. Since the gains and losses from investments and the changes in deferred compensation obligations completely offset, there is no impact on our reported net income. Reconciliations and further explanations of these measures are included in the supplemental schedule to our earnings press release. For your convenience, our prepared remarks for today's call are available in the Investor Center of our website, roberthalf.com. For the fourth quarter of 2025, global enterprise revenues were $1.302 billion, down 6% from last year's fourth quarter on a reported basis and down 7% on an adjusted basis. We are very pleased to see talent solutions and enterprise revenues return to positive sequential growth on a same-day constant currency basis for the first time in over 3 years. Weekly revenue trends during the quarter continued to show positive momentum, which extended into the first 3 weeks of January. Our revenue and earnings exceeded the midpoint of our previous fourth quarter guidance. Net income per share for the quarter was $0.32 compared to $0.53 in the fourth quarter 1 year ago. We entered 2026 very well positioned to capitalize on emerging opportunities and support our clients' talent and consulting needs through the strength of our industry-leading brand, our people, our technology and our unique business model that includes both professional staffing and business consulting services. Cash flow provided by operations during the quarter was $183 million, the highest quarter this year and an 18% increase over 2024 Q4. In December, we distributed a $0.59 per share cash dividend to our shareholders of record for a total cash outlay of $59 million. Return on invested capital for the company was 10% in the fourth quarter. Now I'll turn the call over to our CFO, Mike Buckley.

Thank you, Keith, and hello, everyone. As Keith noted, global revenues were $1.302 billion in the fourth quarter. On an adjusted basis, fourth quarter talent solutions revenues were down 9% year-over-year. U.S. talent solutions revenues were $623 million, down 9% from the prior year's fourth quarter. Non-U.S. talent solutions revenues were $200 million, down 8% year-over-year. We conduct talent solutions operations through offices in the United States and 18 other countries. In the fourth quarter, there were 61.4 billing days compared to 61.6 billing days in the same quarter 1 year ago. The first quarter of 2026 has 61.9 billing days as did the first quarter of 2025. Billing days for the remaining 3 quarters of 2026 will be 63.1, 64.6 and 61.1 for a total of 250.7 billing days in the year, which is the same as the full year of 2025. Currency exchange rate movements during the fourth quarter had the effect of increasing reported year-over-year total revenues by $15 million. That was $10 million for talent solutions and $5 million for Protiviti. Contract talent solutions bill rates for the fourth quarter increased 3.2% compared to 1 year ago, adjusted for the changes in the mix of revenues by functional specialization, currency and country. This rate for the third quarter was 3.7%. Now let's take a closer look at results for Protiviti. Global revenues in the fourth quarter were $479 million. $373 million of that is from the United States, and $106 million is from outside of the United States. On an adjusted basis, global fourth quarter Protiviti revenues were down 3% versus the year ago period with U.S. Protiviti revenues down 6%, while non-U.S. Protiviti revenues were up 9% compared to 1 year ago. Protiviti and its independently owned member firms serve clients through locations in the United States and 28 other countries. Turning now to gross margin. In contract talent solutions, gross margin was 39.2% of applicable revenues in the current quarter compared to 39.1% in the fourth quarter 1 year ago. Conversion or contract to hire revenues were 3.2% of contract revenues in both the current quarter and the fourth quarter of 2024. Our permanent placement revenues were 12.5% of consolidated talent solutions revenues in the current quarter compared to 12.1% in the fourth quarter of 2024. When combined with contract talent solutions gross margin, overall gross margin for talent solutions was 46.7% of applicable revenues in the current quarter compared to 46.4% in the fourth quarter of 2024. For Protiviti, gross margin was 21.9% of Protiviti revenues in the fourth quarter and 24.9% in the fourth quarter 1 year ago. Adjusted gross margin for Protiviti was 22.8% for the quarter just ended compared to 25.1% last year. We ended 2025 with 11,200 full-time Protiviti employees and contractors, up 1.5% from the prior year. Enterprise selling, general and administrative costs were 35.9% of global revenues in the fourth quarter compared to 34.1% in the same quarter 1 year ago. Adjusted enterprise SG&A costs were 34.6% for the quarter just ended compared to 33.8% 1 year ago. Talent solutions SG&A costs were 47.6% of talent solutions revenues for the fourth quarter versus 44.4% in the fourth quarter of 2024. Adjusted talent solutions SG&A costs were 45.6% for the quarter just ended compared to 43.9% last year. We ended 2025 with 7,400 full-time internal employees in talent solutions, down 3.2% from the prior year. Fourth quarter SG&A costs for Protiviti were 15.7% of Protiviti revenues compared to 15.3% for the same quarter 1 year ago. Operating income for the fourth quarter was $22 million. Adjusted operating income was $43 million in the quarter or 3.3% of revenues. Fourth quarter adjusted operating income from our talent solutions divisions was $9 million or 1.1% of revenues. Adjusted operating income for Protiviti in the fourth quarter was $34 million or 7.1% of revenues. Our fourth quarter 2025 income statement includes a $21 million gain from investments held in employee deferred compensation trusts. This is completely offset by an equal amount of higher employee deferred compensation costs, which are reflected in SG&A expenses and direct costs. As such, it has no effect on our reported net income. Our fourth quarter tax rate was 32% compared to 28% 1 year ago. The higher tax rate in the current quarter is due to the increased impact of nondeductible expenses relative to lower pretax income. At the end of the fourth quarter, accounts receivable were $748 million, and implied days sales outstanding, or DSO, was 51.8 days. Before we move to first quarter guidance, let's review some of the monthly revenue trends we saw in the fourth quarter and so far in January, all adjusted for currency and billing days. Contract talent solutions exited the fourth quarter with December revenues down 8.9% versus the prior year compared to a 9.9% (sic) [ 9.0% ] decrease for the full quarter. Revenues for the first 2 weeks of January were down 6.6% compared to the same period last year. Permanent placement revenues in December were down 11% versus December 2024. This compares to a 5.9% decrease for the full quarter. For the first 3 weeks in January, permanent placement revenues were down 9.4% compared to the same period in 2025. We provide information so that you have insight into some of the trends we saw during the fourth quarter and into January. But as you know, these are very brief time periods. We caution against reading too much into them. With that in mind, we offer the following first quarter guidance: revenues, $1.26 billion to $1.36 billion; income per share, $0.08 to $0.18. Midpoint revenues of $1.31 billion are 5% lower than the same period in 2025 on an adjusted basis. Our midpoint revenue guidance for the first quarter reflects continued positive adjusted sequential revenue growth for talent solutions. Our Q1 midpoint adjusted operating margin guidance declined sequentially by 1 percentage point, which is consistent with long-term historical trends. This includes Protiviti's sequential decline of 4 percentage points. Historically, Protiviti's Q1 segment margins seasonally declined by mid-single-digit percentage points on a sequential basis. There are 2 primary drivers. Internal audit revenues are negatively impacted as clients focused instead on annual financial statements and related external audits. In addition, Protiviti employees receive annual compensation adjustments effective January 1, which are recovered through pricing adjustments realized as client contracts are negotiated. Segment margins then improve accordingly. We estimate our midpoint tax rate for the first quarter to be 56% to 58%. This is much higher than normal for 2 reasons: as expected tax charge related to stock compensation and the magnified impact of nondeductible tax items when measured against seasonally low Q1 pretax income. A majority of our employee stock compensation awards vest in the first quarter each year, and the related tax impacts are measured based upon the stock price at that time. With the current stock price below grant values, a tax charge estimated at $4.5 million or $0.05 per share results. For the remainder of 2026, a quarterly tax rate of 33% to 35% is expected. The major financial assumptions underlying the midpoint of these estimates are as follows: adjusted revenue growth year-over-year for talent solutions, down 4% to 8%; Protiviti, flat to down 4%; overall, down 3% to 6%; adjusted gross margin percentages for contract talent, 38% to 40%; Protiviti 18% to 21%; overall, 35% to 38%; adjusted SG&A as a percentage of revenues for talent solutions, 44% to 46%; for Protiviti, 15% to 17%; overall, 33% to 36%; adjusted operating income as a percentage of revenues for talent solutions, 0% to 3%; Protiviti, 2% to 5%; overall, 1% to 3%; tax rate, 56% to 58%; shares, 99 million to 100 million; 2026 capital expenditures and capitalized cloud computing costs, $70 million to $90 million with $10 million to $20 million in the first quarter. All estimates we provide on this call are subject to the risks mentioned in today's press release and in our SEC. Now I'll turn the call back over to Keith.

Thank you, Mike. Our fourth quarter results reflect a return to sequential growth on a same-day constant currency basis for the first time since early 2022. Concerns around a near-term economic downturn have moderated supported by a more conducive macro environment. Continued progress in the rate cutting cycle, easing inflation, less regulation and relatively more clarity on trade policy all contribute. The NFIB Small Business Optimism Index has continued to trend higher with hiring plans holding steady and labor availability remaining a key constraint. At the same time, the Uncertainty Index declined meaningfully last month, falling to its lowest level since June of 2024. Although hiring and quit rates remain subdued, job openings continued to run well above historical averages, underscoring significant pent-up demand for skilled professionals. Decision time lines are beginning to shorten, and we're seeing increased client engagement as clients revisit postponed initiatives and discuss hiring tied to business-critical priorities. Internal resource levels at small businesses remain particularly lean as these companies have focused on cost containment for much of the last 4 years. Employment data from the ADP National Employment Report indicates that between January of '22 and December of 2025, companies with fewer than 500 employees have grown their employee counts by only 1.1% annually, while below the 2.8% annual growth rate seen among companies with over 500 employees. As project activity begins to pick up, this places additional strain on already limited internal capacity. Against this backdrop, unemployment remaining low and skilled talent in short supply, clients increasingly require specialized expertise to help fill open roles and execute critical work, supporting demand for both our talent solutions and consulting services. While prospectives on medium- to long-term structural impact of AI on the labor market vary greatly, most of the evidence suggests a negligible impact so far on our areas of employment particularly among small businesses. For example, a very recent study by Oxford Economics concludes that, "firms don't appear to be replacing workers with AI on a significant scale and we doubt that unemployment rates will be pushed up heavily by AI over the next few years." Also, feedback from our SMB clients indicates that potential future labor savings from AI are not a material factor in their current headcount decisions. That said, as AI reshapes how work gets done and the skills required for many roles evolve, clients are increasingly relying on us to help them navigate change, deploy talent quickly and support the implementation of new technologies, including the requisite data requirements. At the same time, the fast-growing use of generative AI by job seekers, particularly to tailor their resumes to client opportunities, has made it more difficult for clients to distinguish among candidates and authenticate their qualifications. This further reinforces the value of our services, including our proprietary data on actual candidate performance. As expected, Protiviti's year-over-year growth rate showed improvement in the quarter, although it continued to be impacted by tougher prior comparables from large project builds and by longer sales cycles and smaller sized new engagements. Protiviti's pipeline remains strong across all its major solution areas, and at the midpoint of our Q1 revenue guidance, its growth rates are expected to continue to improve. Our strategic engagement of contract professionals via our talent solutions divisions plays an essential role in Protiviti's success and further amplifies our unique enterprise-wide competitive advantage. Protiviti was recently recognized on Glassdoor's Best Places to Work for a third consecutive year. We begin 2026 energized by our time-tested corporate purpose to connect people to meaningful and exciting work and provide clients with the talent and consulting expertise they need to confidently compete and grow. We weathered many economic cycles in the past, each time emerging to achieve higher peaks. Aging workforce demographics and clients' desire for flexible resources with variable costs are structural tailwinds that are expected to propel us forward in the years to come. Finally, I would like to thank our global workforce for their continued dedication. Their efforts once again earned Robert Half recognition by Fortune as one of the World's Most Admired Companies for the 29th consecutive year. We're proud of our unique position as the only company in our industry to be awarded this distinction for nearly 3 decades. We are also recognized as one of Forbes' World's Top Companies for Women and chosen by Newsweek as one of America's Most Responsible Companies. Now Mike and I'd be happy to answer your questions. [Operator Instructions]

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

Keith and Mike, it looks like -- first of all, it's good to see that you're returning to sequential growth here. And when we take a look at the guide as it relates to 2026, we're still looking at a year-over-year decline, but you're expecting margins on the whole to improve, primarily because of Protiviti. And so what I'm wondering about is it's great to see the projection for the margins to improve. I'm wondering how you're thinking about the top line potentially inflecting kind of a modest economic environment. Obviously, there's still a lot of discussion with regards to the impact of AI. And a lot of it is unknown, and a lot of it is changing rapidly. So I'm wondering how are you thinking about the top line from a longer-term perspective? And also, if we end up having just a very moderate sort of improvement in terms of the top line, what are some of the steps that you've taken to increase the efficiency of the operations, which it seems like we're seeing in the first quarter, but just when we think about it from a longer-term perspective in order to be able to get back to halfway back and then ultimately all the way back to prior margins?

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

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

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

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

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

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

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

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

Well, the other dynamic in Protiviti's headcount is their use of contractors, which flexes with the revenue and the revenue expectations. And so clearly, their full-time staff is underutilized relative to what it could and arguably should be. Further, as we've talked about before, some of their full-time staff is underutilized and that they've been reassigned to roles typically performed by contractors at much lower rates. And so there's hidden capacity, if you will, there, as that converts to what they're typically working on. And so I'd say there's full-time capacity. There's also a contractor capacity relative to what it's been in the past. So I don't think Protiviti is concerned about having the resources to scale up quickly and appropriately as the revenue support.

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

Well, there's certainly nothing near as dramatic as is the case for the first quarter because of Protiviti's seasonal impacts. But typically, in the second quarter, on the contract side, it's modestly down on a same-day basis. For full time, it's typically up seasonally relative to the first quarter. Protiviti, they began to recover from their seasonal low Q1, and overall, we certainly have more profitability in Q2 than we do Q1. But the seasonal impacts are nowhere near in Q2 what they are in Q1. And by the way, the tax rate that's been jumping all over the place as we talked about, it normalizes back to 33%, 34% in Q2 and beyond versus the much higher number that was the case in Q1.

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

This is Ronan Kennedy on for Manav. Keith, you talked in your response to Mark's question on the first positive same-day CC sequential growth that if the momentum -- or if the trend sequentially continues, you would see positive growth in the third quarter. Could we just get a sense of your optimism on that and what you would need to see in the February, March weekly trends to confirm it will be a potential multi-quarter recovery if it's anything beyond weekly revenues such as time to fill, the rec conversion, pipeline, anything else? And then you also referenced some external leading indicators. What can you place trust in at this stage, whether it's ADP, NFIB, JOLTS, ASA, SAI? Curious as to your thoughts there and your overall optimism.

Well, I'd say our overall optimism is a reflection of, a, discussions with clients; b, weekly results. I'm very happy to report that, as of this morning -- and we get weekly results every Thursday, but as of this morning, they were very encouraging and better than they had been even for the first 3 weeks, which were good themselves. And so we sit here feeling very good about very short-term trends. As to external indicators and sources, there's no magic bullet there. We look at everything. We look at ASA. We look at SIA. We look at NFIB. We look at PMIs. I mean, we look at everything, but nothing has a high correlation factor in and of itself. But altogether, I mean, it certainly tells a trend story. And generally speaking, the entire staffing industry is trending upward. Most are close to, if not at positive year-on-year revenue growth. And I would say the differential there with us is most of them are larger mid- and large-cap enterprise serving staffing firms. We're mostly SMB enterprise typically leads SMB. Even ourselves, we're 70% SMB, 30% mid-cap. That mid-cap is doing better than SMB as we speak. So it's not a surprise that we're lagging a little. But like I said earlier, at current trends, which we're feeling even better about, as of today at those current trends, we'd be positive year-on-year third quarter. That's a great thing.

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

So the really good news is our cash flow, our free cash flow, operating cash flow for the first -- for the fourth quarter was really strong. And in fact, we added $100 million to our cash balance after paying for the dividend. And so for all of 2025 for the full year, our free cash flow covered the dividend, and we reached into the balance sheet for about $100 million to buy stock. And so given those trends, if you extrapolate them, that we just talked about, that would say that we would have enough free cash flow in 2026 to cover the dividend. And then we would have -- we could then look to our balance sheet to the extent we wanted to buy stock. And so excellent, excellent Q4 free cash flow quarter, the highest of the year. We did a very nice job of managing our working capital on both the receivables and the liability side. And we also got a $20 million benefit from the new Tax Act from expensing what would otherwise be capital cost. But even without that, it would have been our highest quarter of the year by a long shot, which is a great thing.

And the next question comes from Stephanie Moore with Jefferies.

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

And so U.S. versus international Protiviti, Protiviti international is stronger for a couple of reasons. One, the regulatory environment with financial institutions internationally is stronger. That is the case in the U.S. The regulatory environment in the U.S. is more benign. Examiners are more accommodating. That allows clients to use more of their internal resources for things they might otherwise have used outside partners for. So that's a modest headwind for U.S. Protiviti, not the case for Europe Protiviti, if you will. Further, U.S. Protiviti has these larger projects that you're just beginning to anniversary that impact their growth rates. The international locations didn't have the same extent of those larger projects, and to the extent they've had them, they haven't wound down. And so that would put international Protiviti a bit stronger. The other thing that I would say, offsetting what I just said about U.S., technology consulting in Protiviti, U.S. included, is very strong. It's actually leading as we speak, is Protiviti's largest solution area, particularly in the United States. Platform modernization is a big demand driver. Protiviti is participating nicely there, and so we feel good about Protiviti globally, U.S. and non-U.S. Pricing environment for some time has been very competitive with the Big 4. That continues, not really worse, not really better.

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

So Protiviti pricing going forward in the AI era, Protiviti in virtually every consulting firm is currently looking at should they, could they, will they price differently than hourly time and materials going forward, should it be more outcome-based, should it be more unit-based, based on what's being worked on, a number of cases, number of transactions. And so I would say the entire industry is taking a very creative and innovative look at how it prices with a strong consideration to the value added and how should they appropriately participate in the value added that might be different than the time and materials of late. But early days there. ACS, we do have confidence in ACS. ACS had a couple of larger projects [ within ] that kept its negative growth rates higher than the rest. Oddly enough and kind of counter to the trend you hear about, our customer service, which includes call center, actually did better than the rest of ACS. So you can't pin AI call center impact on ACS' relative performance.

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

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

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

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

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

And the next question comes from Kevin McVeigh with UBS.

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

No special charges in fourth quarter for headcount-related or any other expenses, and it's pretty much taking our current cost structure and getting more efficient where we can, getting more on the Protiviti side as they manage kind of all levels of their pyramid from managing directors down to the entry-level consultants and the mix of that versus contractors. All of those play a part in their gross margins and their operating margins. So no special charges. It is what it is. It's straightforward, but we do believe we can add to margins. In fact, Protiviti, I would say Protiviti would be disappointed if, for 2026, they didn't add 100 to 200 basis points to their gross and operating margins for the year.

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

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

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

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

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

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

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

Right, right. Yes.

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

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

Well, I didn't say the industry aren't getting any increases. They are because -- but the other dimension to this is the nature of the work, both as to industry, as to solution. And many times, that mix determines the composite rate as much as anything. But being -- generally speaking, the industry is getting cost of living type increases as they have to give those to their staff, which is true with Protiviti as well. But mix is a big deal. And as Protiviti's had less of the large high-margin FSI regulatory that it has replaced with smaller, somewhat lower margin other types of work, there's been some compression there. But again, it's not like there are no increases currently in bill rates. What you see is more a function of mix, a relative mix of resources than the pure same level last year versus same level this year.

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

Well -- and that's an interesting question. A couple of comments on generally before I get to that. I'd say everybody wants to target accounting as being especially vulnerable to AI. And I would argue and I would at least ask everyone to consider that AI -- or the accounting even at SMBs is already fully automated. Even the smallest companies use QuickBooks and NetSuite. They have tax software, et cetera. And so I think you need to think about the starting point as to how impactful AI would be as much as what the impact itself going to be. I also would suggest that you need to think about that accounting is very precise and accuracy sensitive, which matters because, currently, GenAI, LLMs are nowhere near as accurate as they need to be to be trusted in accounting. And so as you think about AI adoption, particularly in accounting, particularly for SMBs, I think those are factors that need to be considered that typically aren't when people kind of race to accounting is particularly vulnerable. As to upside, AI is actually making it harder for our clients to hire. It's now easier for job seekers to mass apply, which overwhelms our clients. Further, over half, according to Gartner, job seekers today are using AI to tailor their resume to the job requirement, which makes it harder for our clients to distinguish one candidate from another. Further, LLM hallucinations in that process of tailoring resumes are actually creating fictitious work histories to improve the match. To prove this, we did a little test with our data science group. We took 25,000 job descriptions. We took 50,000 resumes. We gave those to the top 3 LLMs, and the prompt was while staying true to the original resume, tailor the resume to the job requirement. And what we found was one of the LLMs frequently fabricated and created fictitious work history. One of the LLMs never did that, and one was in the middle. But the point is it's harder than ever for our SMB clients to trust what a resume shows, particularly as to work history, which makes our services, our vetting even more valuable. And for us, the gold standard for vetting is having performance ratings for how candidates actually performed on prior assignments. And so as AI makes it harder for our clients to hire, we play a bigger and more important role, which is good for us.

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

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

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

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

Well, clearly, FSI is Protiviti's largest industry group. As I said earlier, in the United States, the regulatory environment has become more benign. Examiners are more flexible, particularly with deadlines and dates, which means clients have more time to do it themselves, which comes at some expense to all of the third-party providers, Protiviti included. And so there's a modest headwind, modest headwind there. That's being offset by tech modernization, all the data optimization, platform modernization, everything related to that, that Protiviti is participating in nicely. Further, they're starting to see traction in the PE IPO transaction market, which there's also a tailwind coming from that. And so when you look at Protiviti's pipeline, it is disproportionately tech related as we speak, and we feel good about that. Tech consulting is Protiviti's largest solution area across their solutions. And it's been that way for some time, and it's becoming even more so as all this demand related to tech modernization, data optimization in advance of AI are prevalent.

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

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

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

Got it. And then...

And then internal staff, right?

Yes.

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

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

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

I heard that. Yes.

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

Certainly would.

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