Robert Half: Unlocking Pent-Up Demand with AI and Integrated Expertise (NYSE:RHI) - RHI Stock Research Report

## Executive Summary / Key Takeaways * Robert Half's unique integrated model, combining specialized talent solutions with Protiviti's business consulting, and significant investments in AI, strategically positions the company for substantial upside in an eventual economic recovery. * Despite a challenging Q2 2025 with global revenues down 7% year-over-year and operating income significantly pressured, management reports stabilizing revenue trends and improving client sentiment, signaling a potential inflection point. * Protiviti, the consulting arm, continues to demonstrate resilience and growth, with Q2 2025 revenues up 1.8% year-over-year, leveraging cross-segment synergies and a strong pipeline of new opportunities. * Strategic cost actions initiated in Q1 2025, projected to yield $80 million in annual savings, coupled with a robust balance sheet and a commitment to consistent dividend growth, underpin the company's financial stability. * RHI's technological edge, particularly its AI-powered recruitment tools, and its retained "unused capacity" in revenue-producing staff are key differentiators poised to capture market share from smaller competitors as demand accelerates. ## A Specialized Powerhouse Poised for the Upcycle Robert Half Inc. (RHI), founded in 1948, has evolved into a global leader in specialized talent solutions and business consulting. Operating its talent solutions segments across the U.S. and 18 other countries, and its Protiviti consulting arm in the U.S. and 13 additional countries, RHI's business model is built on connecting highly skilled professionals with rewarding opportunities and providing clients with critical consulting expertise. This integrated approach, formalized with its name change in July 2023, is a foundational strength, allowing for seamless collaboration and a distinctive enterprise-wide competitive advantage. The broader industry landscape, while currently subdued, presents compelling long-term tailwinds. The U.S. job market remains resilient, with overall unemployment at 4.1% and an even lower 2.5% for college-educated professionals. Despite current hiring and quit rates being below post-COVID highs, job openings persist well above historical levels, indicating significant pent-up demand. Management highlights that current job openings are double those seen at the start of recoveries following the dot-com bust and the Great Financial Crisis. Small business confidence, as measured by the NFIB's Optimism Index, has also rebounded modestly from recent lows, suggesting a more favorable environment for future hiring. RHI is strategically positioned to capitalize on these structural tailwinds, including aging workforce demographics and increasing client demand for flexible resources and variable costs. ## The AI Advantage: RHI's Technological Moat Central to Robert Half's strategy and competitive differentiation is its continuous investment in technology and innovation, particularly in artificial intelligence. The company's core differentiated technology includes its AI-powered tools, notably the AI Recommended Clients (ARC) tool. This advanced solution leverages AI to help talent solutions professionals identify and engage the right clients at the right time. The tangible benefits of this technology are clear: it enhances recruiter productivity, creates real-time candidate shortlists, efficiently matches candidates to client needs, and optimizes client outreach. Management notes that these tools lead to "fewer calls to get a client visit" and "better conversion rates to job orders than we did pre this technology," implying quantifiable improvements in sales efficiency and effectiveness. Furthermore, the company's ability to move up the skill curve, particularly in technology roles, is partially driven by its AI capabilities, contributing to average bill rate increases that are "100 basis points to 200 basis points difference" higher on an unadjusted basis due to mix shifts. RHI's commitment to technological leadership extends to its Protiviti segment, which launched its AI Pulse Survey series in 2025 to explore data confidence and AI maturity in client solutions. This focus on "tech modernization, ERP upgrades, security privacy" is directly linked to "AI readiness." For investors, the "so what" of these technological aspects is profound: AI is a "distinctive enterprise-wide competitive advantage." It enables RHI to "take share from our true competitors, which are local and regional staffing firms" who lack the resources and proprietary data scale to compete effectively. While management states that AI has had "very little impact on our revenues" so far, primarily attributing current revenue pressures to cyclical factors, these investments are foundational to RHI's long-term growth strategy, promising higher ASPs, improved margins through productivity gains, and a strengthened market position. ## Performance Under Pressure: Q2 2025 and H1 Trends The second quarter of 2025 reflected the persistent global economic uncertainty, impacting Robert Half's financial performance. Global enterprise revenues for Q2 2025 were $1.37 billion, a 7.0% decrease year-over-year on both a reported and adjusted basis. Net income saw a significant decline to $40.97 million ($0.41 diluted EPS) from $68.16 million ($0.66 diluted EPS) in Q2 2024. Operating income experienced a substantial drop, falling to $1.54 million from $75.54 million in the prior year's second quarter. For the first half of 2025, total revenues were $2.72 billion, down 7.7% year-over-year, with net income at $58.32 million ($0.58 diluted EPS).

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Breaking down performance by segment: * Contract Talent Solutions: Revenues were $759.8 million in Q2 2025, decreasing by 11.1% year-over-year. This decline was primarily driven by a 15.4% decrease in hours worked by engagement professionals, partially offset by a 4.7% increase in average bill rates. Gross margin remained relatively stable at 39.1% (compared to 39.3% in Q2 2024), while adjusted segment income was $18.4 million, representing 2.4% of revenues. Management noted that "tech solutions are clearly the strongest part of our practice groups," indicating a shift towards higher-skilled, technology-focused roles. * Permanent Placement Talent Solutions: This segment saw revenues of $114.7 million in Q2 2025, a 12.5% decrease year-over-year. The decline was attributed to an 18.0% decrease in the number of placements, partially mitigated by a 5.5% increase in average fees earned per placement. With de minimis reimbursable expenses, gross margin was 99.9%, and adjusted segment income was $8.3 million, or 7.2% of revenues. This segment is historically more sensitive to economic and labor market conditions. * Protiviti: The consulting segment demonstrated resilience, with Q2 2025 revenues increasing by 1.8% year-over-year (1.5% adjusted) to $495.2 million. This marks the fourth consecutive quarter of year-over-year revenue growth for Protiviti. The growth was driven by a 7.7% increase in billable hours, though partially offset by a 5.9% decrease in average hourly bill rates. Reported gross margin for Protiviti was 19.7% (down from 22.5% in Q2 2024), with the adjusted gross margin at 22.3% (down from 23.2%), primarily due to the "relative composition of and number of professional staff and their respective pay and bill rates." Adjusted segment income was $32.5 million, or 6.6% of revenues. Notably, international Protiviti operations, particularly in Germany and Canada, showed strong adjusted revenue growth of 10.7% year-over-year, benefiting from "very large joint go-to-market projects with talent solutions."

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\ Overall profitability was impacted, with adjusted operating income for Q2 2025 at $59 million (4.3% of revenue), down from $91 million (6.2%) in Q2 2024. The tax rate for Q2 2025 increased to 33.3% from 29.3% in Q2 2024, attributed to the "increased impact of nondeductible expenses relative to lower pretax income." In response to persistent economic uncertainty, RHI undertook cost actions in Q1 2025, including administrative headcount reductions, expected to generate $80 million in annual savings. These savings began impacting Q2 2025 results with $18 million recognized, and $20 million is anticipated in each of Q3 and Q4 2025. From a liquidity standpoint, cash and cash equivalents stood at $380.55 million as of June 30, 2025, a decrease from $537.58 million at December 31, 2024. Operating activities provided $60.03 million in cash during H1 2025.

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The company maintains financial flexibility, having entered into a new $100 million credit agreement in May 2025, with no cash borrowings as of June 30, 2025. Robert Half also continues its commitment to shareholder returns, declaring a $0.59 per share quarterly dividend in Q2 2025, an 11.3% increase year-over-year. ## Competitive Landscape: Differentiating in a Crowded Market Robert Half operates in a highly competitive global market, facing a diverse set of rivals. Its primary direct competitors in talent solutions include major global staffing firms like ManpowerGroup (TICKER:MAN), Adecco Group (TICKER:AHEXY), Randstad (TICKER:RANYY), and Kelly Services (TICKER:KELYA). In the consulting arena, Protiviti competes directly with the Big Four accounting and consulting firms. RHI's market positioning is defined by its specialization and integrated service model. The company's focus on high-skill placements in finance, accounting, technology, and legal, coupled with Protiviti's deep expertise in risk and technology consulting, provides a distinct advantage. This specialization often translates into higher efficiency in complex projects and stronger customer loyalty in niche markets compared to the broader, more generalized approaches of competitors like ManpowerGroup or Randstad. A key differentiator for RHI is the strategic integration of its talent solutions with Protiviti. Protiviti's expanded use of contract professionals sourced through Robert Half's talent divisions is a "distinctive enterprise-wide competitive advantage," described by management as a "bullet they have relative to the Big Four" who lack such an integrated talent pipeline. This synergy enhances operational execution and strategic adaptability, allowing Protiviti to scale resources efficiently. Technologically, RHI's investments in AI, such as the AI Recommended Clients (ARC) tool, provide a competitive edge. Management believes this technology allows RHI to "take share from our true competitors, which are local and regional staffing firms" that lack the necessary resources and proprietary data at scale. This technological moat is critical for maintaining leadership in talent discovery, assessment, and client engagement. A comparison of TTM financial ratios highlights RHI's competitive strengths: * Gross Profit Margin (TTM): RHI's 38.00% significantly surpasses ManpowerGroup's 17.00%, Adecco Group's 19.00%, and Kelly Services' 20.00%. This underscores RHI's focus on higher-value, specialized services and its ability to command better pricing. * Operating Profit Margin (TTM): RHI's 2.98% is comparable to ManpowerGroup's 2.00% and Adecco Group's 2.00%, and notably stronger than Kelly Services' -0.35%. * Net Profit Margin (TTM): RHI's 3.20% is higher than ManpowerGroup's 0.81%, Adecco Group's 1.00%, and Kelly Services' -0.01%, reflecting better bottom-line efficiency. * Debt/Equity Ratio (TTM): RHI's 0.00 is significantly lower than ManpowerGroup's 0.58, Adecco Group's 0.97, and Kelly Services' 0.25, indicating a much stronger and more conservative balance sheet.

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These financial metrics, combined with consistent recognition (e.g., Forbes' #1 Professional Recruiting Firm, Fortune's Most Admired Companies), reinforce RHI's strong brand and reputation, which are crucial for attracting both clients and high-caliber talent. While indirect competitors like LinkedIn and AI-driven HR tools offer alternative talent acquisition methods, RHI views these as "frenemies," leveraging some of their technologies while maintaining its core competitive advantages in specialized, human-led recruitment and consulting. ## Outlook and Strategic Trajectory: Poised for the Upcycle Robert Half's management offers a cautiously optimistic outlook, balancing current economic headwinds with strong indicators for future growth. For Q3 2025, the company projects revenues between $1.31 billion and $1.41 billion, with a midpoint of $1.36 billion, representing an 8% year-over-year adjusted decline but a 3% sequential decrease. Income per share is guided to be between $0.37 and $0.47. Key assumptions underpinning this guidance include the stabilization of revenue trends, with weekly sequential revenues remaining "essentially flat" for the six-week period ending July 11, 2025. Management noted an improved "tone of conversations" with clients, suggesting a shift in sentiment. The midpoint adjusted operating income dollars are expected to increase sequentially from Q2, marking "the first sequential Q3 increase since 2021," a significant operational milestone. Segment-specific guidance for Q3 2025 anticipates Talent Solutions revenues to be down 9-13% year-over-year adjusted, while Protiviti revenues are projected to be flat to down 4% year-over-year adjusted. The slight decline for Protiviti is attributed to a few large projects completing in Q2, which will take time to replace, despite a "very strong" pipeline and "substantially" increased new opportunities. Protiviti's stated goal is a "double-double," aiming for double-digit revenue growth and operating margins. Strategically, RHI is well-prepared for an economic upcycle. The company has maintained "unused capacity" in its revenue-producing staff, estimating it could achieve "20% to 30% upside" in top-line growth with existing personnel based on historical productivity levels. This allows for rapid scaling without immediate hiring costs during a recovery. Capital expenditures for 2025 are projected to be $75 million to $90 million, with a significant portion dedicated to software initiatives and technology infrastructure, including capitalized cloud computing costs, reinforcing its technological roadmap. However, risks remain. Elevated global economic uncertainty continues to extend client and job seeker caution, elongating decision cycles. The company is also involved in class action lawsuits in California regarding wage-related claims, with outcomes currently unpredictable. While foreign currency fluctuations have had an "immaterial impact on reported net income," they can affect reported revenues and expenses. Long-term, the potential for AI disruption, though currently minimal for RHI, remains a watch item for industries reliant on human labor. ## Conclusion Robert Half Inc. stands at a pivotal juncture, demonstrating resilience amidst persistent economic uncertainty while strategically positioning itself for future growth. The company's integrated business model, combining specialized talent solutions with Protiviti's consulting expertise, provides a unique competitive advantage. This is further amplified by its proactive investments in AI-powered recruitment tools, which enhance efficiency and market share capture against smaller, less technologically advanced rivals. Despite recent financial pressures, including a decline in Q2 2025 revenues and operating income, management's outlook points to stabilizing trends and improving client sentiment. The strategic cost reductions implemented in Q1 2025 are set to bolster profitability, and a strong balance sheet underpins the company's commitment to consistent shareholder returns through its long-standing dividend program. With significant "unused capacity" in its revenue-generating workforce and a robust technological foundation, Robert Half is well-equipped to capitalize on the substantial pent-up demand in the labor market. The company's ability to leverage its specialized expertise, integrated service offerings, and technological leadership, particularly as business confidence translates into accelerated hiring and project demand, positions it for a strong rebound and potential new highs in profitability in the coming economic upcycle.