Executive Summary / Key Takeaways

• Robert Half Inc. (NYSE:RHI) is a specialized talent solutions and business consulting firm, uniquely positioned through its integrated staffing and Protiviti consulting segments, currently facing cyclical headwinds reflected in declining Q1 2025 revenues and profitability.
• The company implemented cost reduction actions in Q1 2025, resulting in one-time charges but expected to generate $80 million in annual savings, aimed at improving profitability and leveraging fixed costs as demand recovers.
• Protiviti continues to demonstrate resilience, achieving year-over-year revenue growth for the third consecutive quarter in Q1 2025, driven by demand in areas like risk and compliance, and leveraging its ability to utilize Talent Solutions contractors.
• Robert Half is investing in technology, particularly AI tools like ARC, to enhance recruiter productivity, client targeting, and candidate matching, aiming to improve efficiency and strengthen its competitive moat against both traditional and digital rivals.
• Despite near-term uncertainty and cautious Q2 2025 guidance, management expresses optimism about capitalizing on an eventual market recovery, citing elevated U.S. job openings, low unemployment for skilled professionals, and historical performance in prior economic upturns.

Setting the Stage: Specialization and Synergy in a Dynamic Market

Founded in 1948, Robert Half Inc. has evolved into a global leader in specialized talent solutions and business consulting. The company's core strength lies in its dual-segment model: Contract Talent Solutions and Permanent Placement Talent Solutions, which connect skilled professionals across finance, accounting, technology, and other fields with opportunities, and Protiviti, its global consulting arm focused on internal audit, risk, business, and technology solutions. This integrated approach, particularly the ability of Protiviti to leverage contractors sourced through Talent Solutions, provides a distinct competitive advantage in a fragmented market.

Robert Half operates across North America, South America, Europe, Asia, and Australia, serving clients ranging from small businesses to large enterprises. In the competitive landscape, Robert Half faces a mix of rivals. In staffing, it competes with large global players like ManpowerGroup (MAN) and Kelly Services (KELYA), as well as numerous local and regional firms. Its specialization in professional fields like finance and accounting, and its strong brand reputation (ranked #1 professional recruiting firm by Forbes for seven consecutive years), help differentiate it from broader staffing agencies. In consulting, Protiviti competes directly with segments of the "Big Four" firms (e.g., Deloitte, PwC, EY, KPMG) and other consulting providers like Korn Ferry (KFY). Protiviti's ability to utilize Robert Half's vast pool of skilled contractors offers a flexibility and cost-effectiveness that provides an edge against traditional consulting models, particularly in areas like risk and compliance where demand remains robust. While online platforms like LinkedIn and Upwork (UPWK) offer alternative, often lower-cost, avenues for talent acquisition, Robert Half views them as "frenemies," competing in some areas while also serving as tools for its own sourcing efforts. Management believes these platforms have not fundamentally altered the decision calculus for many clients seeking specialized, vetted talent.

Central to Robert Half's strategy is a continuous focus on moving placements up the skill curve, recognizing that higher-skilled positions often command better margins and are less susceptible to economic volatility. This strategic emphasis aligns well with the consulting services offered by Protiviti, creating opportunities for synergistic "blended solutions" engagements where Talent Solutions provides the skilled personnel for Protiviti projects.

Technological Edge: AI Augmenting Human Expertise

Robert Half is actively investing in technology and innovation, particularly in the realm of Artificial Intelligence, to enhance its core operations and strengthen its competitive position. The company's approach is centered on a "Recruiters + AI" strategy, aiming to combine the judgment and expertise of its specialized recruiters with advanced AI tools.

A key development is the AI Recommended Clients (ARC) tool, which leverages AI and proprietary data to help talent solutions professionals identify and engage clients with a higher probability of conversion. While specific quantifiable improvements from ARC were not detailed, management noted seeing "nice early traction" where it takes "fewer calls to get a client visit" and results in "better conversion rates to job orders" compared to pre-technology levels. This suggests tangible benefits in sales efficiency and lead generation.

Furthermore, the company is using AI to improve candidate discovery, assessment, and selection processes. An "industry-first" feature highlighted is the transparent display of recruiter ratings for AI-matched candidates on the company's website, tangibly demonstrating the integration of human expertise and AI in the candidate experience. Protiviti has also embraced technology, adopting Ardoq's Enterprise Architecture platform internally for efficiency and agility, and securing its first patent for automated audit artifact reconciliation, showcasing innovation in its consulting methodologies.

The "so what" for investors is that these technological investments are designed to improve operational efficiency, boost recruiter productivity, enhance the client and candidate experience, and ultimately strengthen Robert Half's competitive moat. By leveraging AI to augment its human capital, the company aims to scale its services more effectively, reduce costs over time, and maintain its leadership position in specialized markets, potentially leading to improved profitability and market share gains as the macro environment improves.

Recent Performance: Navigating Cyclical Headwinds

Robert Half's financial performance in the first quarter of 2025 reflected the challenging macroeconomic environment characterized by heightened economic uncertainty and client caution. Total service revenues for the three months ended March 31, 2025, were $1.35 billion, a decrease of 8.4% on a reported basis and 6% on an adjusted basis compared to the same period in 2024.

The Talent Solutions segments bore the brunt of the downturn. Contract Talent Solutions revenues fell 14.0% reported (-11.8% adjusted) to $763.2 million, primarily driven by a 16.2% decrease in hours worked, partially offset by a 2.7% increase in average bill rates. Permanent Placement Talent Solutions revenues decreased 10.2% reported (-7.8% adjusted) to $112.1 million, due to an 11.4% decrease in placements, slightly mitigated by a 1.2% rise in average fees per placement. Management noted that permanent placement demand remains more sensitive to economic conditions.

In contrast, Protiviti continued its growth trajectory, with revenues increasing 2.7% reported (+4.7% adjusted) to $476.6 million. This growth was attributed to a 3.4% increase in billable hours, despite a slight decrease in average hourly bill rates. Protiviti's performance highlights the resilience of its consulting services, particularly in areas like risk and compliance, and its effective utilization of resources, including Talent Solutions contractors.

Profitability metrics were significantly impacted in Q1 2025. Gross margin decreased 11.3% year-over-year to $499.0 million. Contract Talent Solutions gross margin percentage declined to 38.9% (from 39.5%), mainly due to higher fringe costs. Protiviti's adjusted gross margin percentage decreased to 18.1% (from 20.7%), impacted by $8 million in one-time charges related to cost actions. Selling, general and administrative (SG&A) expenses decreased 11.8% to $460.2 million reported, but adjusted SG&A as a percentage of revenue increased for Talent Solutions due to negative leverage from lower revenues and one-time charges ($7 million for Contract, $2 million for Permanent).

Operating income fell to $38.9 million (2.9% of revenue) from $40.9 million (2.8%) a year ago. Adjusted operating income saw a more significant decline, dropping to $18.7 million (1.4% of revenue) from $84.3 million (5.7%), reflecting the combined impact of lower revenues, margin pressures, and $17 million in total one-time cost action charges ($9 million for Talent Solutions, $8 million for Protiviti). Net income was $17.4 million ($0.17 per diluted share), down sharply from $63.7 million ($0.61 per diluted share) in Q1 2024, with the one-time charges reducing EPS by $0.13. The Q1 2025 tax rate was lower (22.1% vs. 29.8%) due to accelerated tax credits.

From a liquidity perspective, cash flow used in operations was $59.3 million in Q1 2025, typical for the first quarter due to seasonal bonus and SaaS payments. The company ended the quarter with $342.5 million in cash and cash equivalents and $786.6 million in net accounts receivable, providing a solid base of liquidity. Robert Half maintains a $100 million unsecured revolving credit facility, unused as of March 31, 2025. The company continued its commitment to shareholder returns, paying a $0.59 per share dividend ($61 million outlay) and repurchasing $39 million in common stock during the quarter. The quarterly dividend has grown consistently, averaging 11.6% annually since 2004.

Comparing Robert Half's recent TTM financial performance to competitors like ManpowerGroup, Kelly Services, and Korn Ferry using available TTM ratios highlights its relative position. Robert Half's TTM Gross Profit Margin (38.27%) is significantly higher than MAN (17%) and KELYA (20%), reflecting its focus on professional and consulting services. Its TTM Operating Profit Margin (4.23%) and Net Profit Margin (3.62%) are also generally competitive, though KFY (Operating 8%, Net 6%) shows stronger profitability at the bottom line, likely due to its focus on high-margin executive search and consulting. Robert Half's TTM Debt/Equity ratio (0.18) indicates a healthy balance sheet compared to MAN (0.58) and KFY (0.33). While recent performance has been impacted by the cycle, these relative margin and balance sheet strengths position Robert Half favorably for an eventual recovery.

Outlook and Positioning for Recovery

Management's outlook for the second quarter of 2025 reflects continued caution in the near term, while maintaining optimism for an eventual market improvement. The guidance for Q2 2025 projects revenues between $1.31 billion and $1.41 billion, with a midpoint of $1.36 billion. This midpoint represents a decrease of 7% year-over-year on an adjusted basis and a sequential decline of 4% from Q1 2025. Adjusted EPS is guided between $0.36 and $0.46, with a midpoint of $0.41.

Underlying these estimates are assumptions of continued year-over-year adjusted revenue declines for Talent Solutions (down 10% to 14%) and modest year-over-year adjusted growth for Protiviti (up 1% to 4%). Adjusted gross margin percentages are expected to be 38% to 40% for Contract Talent and 21% to 24% for Protiviti. Adjusted SG&A as a percentage of revenue is guided at 43% to 45% for Talent Solutions and 15% to 16% for Protiviti. Adjusted operating income margins are projected at 2% to 4% for Talent Solutions and 6% to 8% for Protiviti, resulting in an overall adjusted operating margin of 3% to 6%. The estimated full-year 2025 tax rate is 31% to 33%. Capital expenditures and capitalized cloud computing costs for 2025 are expected to range from $75 million to $95 million.

The Q2 guidance incorporates the benefits of the cost actions taken in Q1, which are expected to contribute approximately $18 million in savings during the quarter, rising to $20 million per quarter in the second half of the year. Management highlighted that the sequential progression from Q1 to Q2, inclusive of these savings, is expected to be one of the better historical progressions.

Despite the cautious near-term outlook, management remains optimistic about the company's positioning for an eventual recovery. They point to resilient global labor markets, elevated U.S. job openings (significantly above historical averages), and low unemployment rates for skilled professionals (2.6% for college graduates) as indicators of pent-up demand. While business confidence has recently moderated due to policy uncertainty, management believes that as confidence improves, hiring urgency and project demand will accelerate, leading to increased labor churn and creating significant demand for Robert Half's services.

Historically, Robert Half has demonstrated a strong ability to capitalize on economic upturns, with Talent Solutions operating margins recovering significantly from trough levels in prior cycles (e.g., 2.5% to 11.3% post-dot-com, 2.6% to 12.5% post-GFC). Management believes the company is well-positioned to participate quickly in the next upside due to its retained base of veteran recruiters, its ongoing investments in technology (AI), and the potential for clients to increase contractor usage as a flexible response to rising demand. Protiviti's strong pipeline and its growing use of Talent Solutions contractors are also seen as key drivers of future enterprise growth.

Risks and Challenges

While Robert Half is strategically positioned for recovery, several risks and challenges could impact its performance and the realization of its investment thesis. The most significant near-term risk is the continuation or intensification of macroeconomic and labor market uncertainty. Factors such as changes in U.S. trade and other policy developments, geopolitical events, and the potential for economic recession could further suppress client demand, extend decision cycles, and negatively impact revenues and profitability beyond current expectations.

The company's dependence on general economic and labor trends means that a prolonged downturn or a slower-than-anticipated recovery would continue to pressure financial results. Visibility into future revenues remains limited due to the relatively short duration of client engagements, making it challenging to predict the timing and strength of an upturn.

Operational risks include the ability to effectively manage headcount and costs in response to fluctuating demand while retaining sufficient capacity to capitalize on a recovery. The success of technology investments, particularly AI, in driving tangible productivity gains and competitive advantage is also crucial.

Litigation poses a potential financial risk. The company is currently involved in class action lawsuits in California related to alleged unpaid compensation for interview time and alleged misclassification of salaried recruiters. While the outcome and range of loss are not feasible to predict and the company intends to vigorously defend itself, adverse judgments could have a material impact.

Changes in demand from government and public sector clients, which increased during the pandemic, could also decrease over time as pandemic effects subside or due to shifts in government spending priorities and policies.

Conclusion

Robert Half Inc. is navigating a challenging cyclical downturn, as evidenced by its Q1 2025 financial results. The company's core Talent Solutions segments are experiencing reduced demand due to client caution and economic uncertainty, leading to lower revenues and profitability pressures exacerbated by one-time cost reduction charges. However, the underlying narrative is one of strategic resilience and positioning for the eventual market upswing.

The company's unique blended model, combining specialized staffing with Protiviti's consulting expertise, provides a competitive edge, particularly as Protiviti continues to grow and leverage Talent Solutions contractors. Investments in AI and other technologies are aimed at enhancing operational efficiency and recruiter productivity, strengthening the company's ability to capitalize on future demand. The cost actions taken in Q1, while impacting near-term results, are expected to yield significant annual savings, improving profitability leverage as revenues recover. Despite cautious near-term guidance, management's optimism is grounded in favorable labor market indicators and the company's proven ability to rebound strongly in prior economic recoveries. Investors should monitor the trajectory of macroeconomic conditions, the effectiveness of cost controls and technology investments, and the pace of recovery in client hiring and project starts as key indicators for Robert Half's future performance.