What changed in this filing

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Item 7. Management’s Discussion and Analysis

2026-02-13 compared with 2025-02-13 · 86 added, 62 removed, 284 unchanged (34% of the section changed)

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These statements may be identified by words such as “anticipate,” “potential,” “estimate,” “forecast,” “target,” “project,” “plan,” “intend,” “believe,” “expect,” “should,” “could,” “would,” “may,” “might,” “will,” or variations or negatives thereof or by similar or comparable words or phrases.

In addition, historical, current and forward-looking information about the Company’s environmental, social and governance (“ESG”) and compliance programs, including targets or goals, may not be considered material for the Securities and Exchange Commission (“SEC”) or other mandatory reporting purposes and may be based on standards for measuring progress that are still developing, on internal controls, diligence or processes that are evolving, on representations reviewed or provided by third parties, and on assumptions that are subject to change in the future.

Forward-looking statements are estimates only and are based on management’s current expectations, currently available information and current strategy, plans or forecasts, and involve certain known and unknown risks, uncertainties and assumptions that are difficult to predict, often beyond our control and are inherently uncertain.

In addition, historical, current and forward-looking information about the Company’s corporate responsibility and compliance programs, including targets or goals, may not be considered material for the Securities and Exchange Commission (“SEC”) or other mandatory reporting purposes and may be based on standards for measuring progress that are still developing;

on internal controls, diligence or processes that are evolving;

on representations reviewed or provided by third parties;

and on assumptions that are subject to change in the future.

Forward-looking statements are estimates only and are based on management’s current expectations, currently available information, and current strategy, plans or forecasts, and involve certain known and unknown risks, uncertainties and assumptions that are difficult to predict, often beyond the Company’s control and are inherently uncertain.

Forward-looking statements are subject to risks and uncertainties that could cause actual results and outcomes, or the timing of these results or outcomes, to differ materially from those expressed or implied in the statements.

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Executive Overview

The Company’s results were impacted by the ongoing macroeconomic uncertainty that affects client and candidate confidence, lengthening decision cycles and delaying hiring activities and projects in the short term.

The Company’s service revenues were $5.38 billion in 2025, a decrease of 7.2% from the prior year.

Full-year 2025 net income decreased 47.1% to $133 million and diluted net income per share decreased 45.5% to $1.33.

Demand for the Company’s contract talent solutions, permanent placement talent solutions and Protiviti is largely dependent upon general economic and labor trends both domestically and abroad.

real gross domestic product increased 2.3% in 2024, compared to an increase of 2.5% in 2023, while the unemployment rate rose from 3.8% in December

2023 to 4.1% in December 2024.

Global labor markets remain resilient with U.S.

job openings significantly above historical averages indicating pent-up demand for talent.

In the U.S., unemployment stands at 4.1% and remains even lower for those with a college degree, where the rate is 2.4%.

The Company is confident about its ability to weather the current economic cycle.

The NFIB’s Small Business Optimism Index continues to climb and recently reached levels not seen in more than six years.

Rising business confidence is conducive to hiring urgency, accelerated project demand and reprioritization of deferred growth initiatives.

The Company is encouraged by the current combination of elevated job openings, low unemployment and strong business confidence.

The Company is well-positioned to capitalize on emerging opportunities and support its clients’ talent and consulting needs through the strength of its industry-leading brand, people, technology and unique business model.

real gross domestic product increased at an annual rate of 4.4% in the third quarter of 2025 (the latest information available as of the date of this filing), compared to an increase of 2.3% in 2024.

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.

job market remains resilient with overall unemployment at 4.4% in December 2025, up from 4.1% in December 2024.

Particularly noteworthy is that the unemployment rate for college-educated professionals is holding steady at just 2.8%, with even lower rates prevailing among specialized accounting, finance and technology roles.

Although current hiring and quit rates remain subdued and well below post-Covid highs, job openings continue to be well above historical levels, indicating strong pent-up hiring demand.

The Company continues to invest in technology and innovation, including AI.

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Also, the Company will continue to leverage its proprietary data assets to enhance the AI tools its recruiters use to discover, assess and select talent for its clients, and the AI tools recruiters use to effectively target leads for additional revenue.

Protiviti continues to invest in and deploy AI-enabled solutions by integrating AI into its existing offerings while aiming to enhance its own AI infrastructure.

The Company monitors various economic indicators and business trends in all of the countries in which it operates to anticipate demand for the Company’s services.

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Accordingly, the Company’s headcount and other investments are typically assessed on at least a quarterly basis.

During 2024 the Company decreased headcount for its contract talent solutions and permanent placement talent solutions segments, when compared to prior year-end levels.

In addition, the full-time headcount for Protiviti increased when compared to prior year-end levels.

During 2025 the Company’s headcount remained relatively flat for its contract talent solutions, permanent placement talent solutions and Protiviti segments when compared to prior year-end levels, while administrative headcount decreased.

Critical Accounting Policies and Estimates

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If such losses are ultimately utilized to offset future operating income, the Company will recognize a tax benefit up to the full amount of the related valuation reserve.

The Organization of Economic Cooperation and Development (“OECD”), an international association of many countries, has introduced a framework to impose a 15% global minimum corporate tax, referred to as Pillar Two, effective for tax years beginning in 2024.

Currently, there are no laws enacted incorporating Pillar Two in the U.S., however, certain countries in which the Company operates have adopted, or are in the process of adopting legislation to implement Pillar Two.

The OECD continues to release additional guidance and countries are implementing legislation with widespread adoption of the Global Anti-Base Erosion (“GloBE”) Model Rules for Pillar Two.

The Company is continuing to evaluate the GloBE Model Rules for Pillar Two and related legislation;

no material tax impacts are expected.

Previously, the Organization of Economic Cooperation and Development (“OECD”), an international association of many countries including the U.S., introduced a framework to impose a 15% global minimum corporate tax, referred to as Pillar Two, effective for tax years beginning in 2024.

On January 5, 2026, the OECD released new guidance establishing the Side-by-Side (“SbS”) program under the Pillar Two global minimum tax framework.

The SbS program includes a Simplified Effective Tax

Rate Safe Harbor, an extended Transitional Country-by-Country Reporting Safe Harbor, and a Substance-based Tax Incentive Safe Harbor.

The Company does not expect the SbS guidance to materially affect its tax obligations and will continue to monitor global implementation.

While management believes that its judgments and interpretations regarding income taxes are appropriate, significant differences in actual experience may materially affect the future financial results of the Company.

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adjusted selling, general and administrative expenses;

combined segment income;

and as adjusted revenue growth rates.

The following measures, adjusted gross margin and adjusted selling, general and administrative expenses, include gains and losses on investments held to fund the Company’s obligations under employee deferred compensation plans.

adjusted operating income;

and adjusted revenue growth rates.

The following measures:

adjusted gross margin, adjusted selling, general and administrative expenses, and adjusted operating income, include gains and losses on investments held to fund the Company’s obligations under employee deferred compensation plans.

The Company provides these measures because they are used by management to review its operational results.

Combined segment income is income before income taxes, adjusted for interest income and amortization of intangible assets.

The Company provides combined segment income because it is how management evaluates performance.

As adjusted revenue growth rates represent year-over-year revenue growth rates after removing the impacts on reported revenues from the changes in the number of billing days and foreign currency exchange rates.

Adjusted revenue growth rates represent year-over-year revenue growth rates after removing the impacts on reported revenues from the changes in the number of billing days and foreign currency exchange rates.

The Company provides this data because it focuses on the Company’s revenue growth rates attributable to operating activities and aids in evaluating revenue trends over time.

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Historically, demand for permanent placement talent solutions is even more sensitive to economic and labor market conditions than demand for contract talent solutions and this is expected to continue.

Protiviti revenues were $1.95 billion for the year ended December 31, 2024, increasing by 1.1% compared to revenues of $1.93 billion for the year ended December 31, 2023.

Protiviti revenues were $1.95 billion for the year ended December 31, 2025, decreasing by 0.1% compared to revenues of $1.95 billion for the year ended December 31, 2024.

Key drivers of Protiviti revenues are the billable hours worked on client engagements and average hourly bill rates.

The increase in Protiviti revenues for 2024 was primarily due to a 2.4% increase in average hourly bill rate, partially offset by a 1.3% decrease in billable hours.

On an as adjusted basis, Protiviti revenues increased 0.6% for 2024 compared to 2023.

In the U.S., 2024 revenues increased 3.5% on a reported basis, and increased 3.0% on an as adjusted basis, compared to 2023.

International revenues for 2024 revenues decreased 8.5% on a reported basis, and decreased 8.9% on an as adjusted basis, compared to 2023.

The decrease in Protiviti revenues for 2025 was due to a 7.3% decrease in average hourly bill rate, partially offset by a 7.2% increase in billable hours.

The decrease in the average hourly bill rate was primarily driven by the relative mix of contractors and full-time staff and their related experience levels deployed on engagements.

On an as adjusted basis, Protiviti revenues decreased 0.1% for 2025 compared to 2024.

In the U.S., 2025 revenues decreased 2.5% on a reported basis, and decreased 2.2% on an as adjusted basis, compared to 2024.

International revenues for 2025 revenues increased 10.9% on a reported basis, and increased 8.8% on an as adjusted basis, compared to 2024.

A reconciliation of the non-GAAP year-over-year revenue growth rates to the reported year-over-year revenue growth rates for the year ended December 31, 2025, is presented in the following table:

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As a percentage of revenues, gross margin dollars for contract talent solutions were 39.0% in 2025, down from 39.2% in 2024.

The decrease in gross margin percentage was primarily due to lower conversions and a smaller mix of higher margin services which impacted pay-bill spreads.

Gross margin dollars for permanent placement talent solutions represent revenues less reimbursable expenses.

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As a percentage of revenues, reported selling, general and administrative expenses for contract talent solutions were 39.9% in 2025, up from 37.3% in 2024.

Selling, general and administrative expenses for contract talent solutions, on an adjusted basis, were $1.19 billion for the year ended December 31, 2024, down 5.6% from $1.26 billion in 2023.

As a percentage of revenues, adjusted selling, general and administrative expenses for contract talent solutions were 37.4% in 2025, up from 35.3% in 2024, due primarily to negative leverage as revenues decreased as a result of economic conditions.

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These adjustments have no impact on income before income taxes.

Income from Investments Held in Employee Deferred Compensation Trusts .

Under the Company’s employee deferred compensation plans, employees direct the investment of their account balances, and the Company invests amounts held in the associated investment trusts consistent with these directions.

As realized and unrealized investment gains and losses occur, the Company’s employee deferred compensation plan obligations change and adjustments are recorded in selling, general and administrative expenses, or in the case of Protiviti, costs of services.

The value of the related investment trust assets also changes by the equal and offsetting amount, leaving no net costs to the Company, and therefore no effect on reported net

The Company’s income from investments held in employee deferred compensation trusts consists primarily of unrealized and realized gains and losses and dividend income from trust investments and is presented separately on the Consolidated Statements of Operations.

The Company’s income from investments held in employee deferred compensation trusts was $94 million for the year ended December 31, 2024, and $88 million for the year ended December 31, 2023.

The income from trust investments was due to positive market returns during 2024.

Income Before Income Taxes and Segment Income.

The Company’s total income before income taxes was $358 million, or 6.2% of revenues, for the year ended December 31, 2024, down from $577 million, or 9.0% of revenues, for the year ended December 31, 2023.

Combined segment income was $337 million, or 5.8% of revenues, for the year ended December 31, 2024, down from $555 million, or 8.7% of revenues, for the year ended December 31, 2023.

The Company’s non-GAAP combined segment income is summarized as follows (in thousands):

Year Ended December 31,

2024 % of Revenue 2023 % of Revenue

Combined Segment Income

Operating Income The Company’s operating income consists of gross margin less selling, general and administrative expenses.

The Company’s reported operating income was $76 million for the year ended December 31, 2025, down 68.3% compared to $241 million for the year ended December 31, 2024.

As a percentage of revenues, reported operating income was 1.4% for the year ended December 31, 2025, down from 4.2% for the year ended December 31, 2024.

The Company’s adjusted operating income was $183 million for the year ended December 31, 2025, down 45.6% from $336 million for the year ended December 31, 2024.

As a percentage of revenues, adjusted operating income was 3.4% for the year ended December 31, 2025, down from 5.8% for the year ended December 31, 2024.

Since operating income is defined as gross margin less selling, general and administrative expenses, the year over year change is explained by factors previously discussed.

The Company’s operating income (loss) by reporting segment is summarized as follows (in thousands):

Year Ended December 31, Relationships

As Reported As Adjusted As Reported As Adjusted

2025 2024 2025 2024 2025 2024 2025 2024

Operating Income (Loss)

Contract talent solutions

$ (25,076) $ 63,936 $ 48,621 $ 130,518 (0.8 %) 1.9 % 1.6 % 3.9 %

Permanent placement talent solutions

12,931 37,318 21,564 46,052 2.9 % 7.7 % 4.9 % 9.5 %

Protiviti 88,606 140,220 112,368 158,983 4.5 % 7.2 % 5.8 % 8.1 %

Total $ 76,461 $ 241,474 $ 182,553 $ 335,553 1.4 % 4.2 % 3.4 % 5.8 %

The following table provides a reconciliation of the non-GAAP combined segment income to reported income before income taxes for the years ended December 31, 2024, and 2023 (in thousands):

The following tables provide reconciliations of the non-GAAP adjusted operating income to reported operating income (loss) for the years ended December 31, 2025, and 2024:

Year Ended December 31, 2025

2024 % of Revenue 2023 % of Revenue

Income before income taxes $ 357,671 6.2 % $ 576,583 9.0 %

Interest income, net (22,118) (0.4) % (23,973) (0.3) %

Amortization of intangible assets 1,217 0.0 % 2,883 0.0 %

Combined segment income $ 336,770 5.8 % $ 555,493 8.7 %

Contract talent

solutions Permanent placement talent solutions Protiviti Total

$ % of Revenue $ % of Revenue $ % of Revenue $ % of Revenue

Operating Income (Loss)

As Reported $ (25,076) (0.8 %) $ 12,931 2.9 % $ 88,606 4.5 % $ 76,461 1.4 %

Adjustments (1) 73,697 2.4 % 8,633 2.0 % 23,762 1.3 % 106,092 2.0 %

As Adjusted $ 48,621 1.6 % $ 21,564 4.9 % $ 112,368 5.8 % $ 182,553 3.4 %

Year Ended December 31, 2024

Contract talent

solutions Permanent placement talent solutions Protiviti Total

$ % of Revenue $ % of Revenue $ % of Revenue $ % of Revenue

Operating Income

As Reported $ 63,936 1.9 % $ 37,318 7.7 % $ 140,220 7.2 % $ 241,474 4.2 %

Adjustments (1) 66,582 2.0 % 8,734 1.8 % 18,763 0.9 % 94,079 1.6 %

As Adjusted $ 130,518 3.9 % $ 46,052 9.5 % $ 158,983 8.1 % $ 335,553 5.8 %

(1) Changes in the Company’s employee deferred compensation plan obligations related to talent solutions operations are included in operating income (loss).

The non-GAAP financial adjustments shown in the table above are to reclassify investment income from investments held in employee deferred compensation trusts to the same line item that includes the corresponding change in obligation.

These adjustments have no impact on income before income taxes.

Income from Investments Held in Employee Deferred Compensation Trusts .

Under the Company’s employee deferred compensation plans, employees direct the investment of their account balances and the Company invests amounts held in the associated investment trusts consistent with these directions.

The value of the related investment trust assets also changes by the equal and offsetting amount, leaving no net costs to the Company, and therefore no effect on reported net income.

The Company’s income from investments held in employee deferred compensation trusts was $106 million and $94 million for the years ended December 31, 2025, and 2024, respectively.

The income from trust investments was due to positive market returns during 2025.

Provision for income taxes .

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The higher tax rate for 2025 can be attributed to an increased impact of nondeductible expenses and fewer tax credits.

On July 4, 2025, the United States enacted tax reform legislation through the One Big Beautiful Bill Act (the “Tax Act”).

Included in this legislation are provisions that allow for the immediate expensing of domestic United States research and development expenses, immediate expensing of certain capital expenditures, and other changes to the U.S.

taxation of profits derived from foreign operations.

The Tax Act did not have a material impact on income tax expense for the year ended December 31, 2025.

Years ended December 31, 2024, and 2023

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Operating activities provided $410 million during the year ended December 31, 2024, offset by $87 million and $496 million of net cash used in investing and financing activities, respectively.

Fluctuations in foreign currency exchange rates had the effect of decreasing reported cash and cash equivalents by $21 million during the year ended December 31, 2024, compared to an increase of $9 million in 2023.

Fluctuations in foreign currency exchange rates had the effect of increasing reported cash and cash equivalents by $22 million during the year ended December 31, 2025, compared to a decrease of $21 million in 2024.

Operating activities—Net cash provided by operating activities for the year ended December 31, 2025, was $320 million.

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Investing activities—Cash used in investing activities for the year ended December 31, 2025, was $86 million.

This was composed of capital expenditures of $56 million and investments in employee deferred compensation trusts of $69 million, partially offset by proceeds from employee deferred compensation trust redemptions of $38 million.

This was composed of capital expenditures of $53 million, investments in employee deferred compensation trusts of $80 million, and payments for acquisitions of $11 million, partially offset by proceeds from employee deferred compensation trust redemptions of $58 million.

Cash used in investing activities for the year ended December 31, 2024, was $87 million.

This was composed of capital expenditures of $46 million, investments in employee deferred compensation trusts of $103 million, and $1 million cash paid for an acquisition, partially offset by proceeds from employee deferred compensation trust redemptions of $38 million.

This was composed of capital expenditures of $56 million, and investments in employee deferred compensation trusts of $69 million, partially offset by proceeds from employee deferred compensation trust redemptions of $38 million.

Capital expenditures, including $29 million related to cloud computing implementations, in 2025 totaled $82 million, approximately 65% of which represented investments in software initiatives and technology infrastructure, both of which are important to the Company’s sustainability and future growth opportunities.

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During the years ended December 31, 2025, and 2024, such repurchases totaled 0.2 million shares, at a cost of $11 million, and 0.3 million shares, at a cost of $23 million, respectively.

Repurchases of shares have been funded with cash generated from operations.

Repurchases of shares have been funded with cash generated from operations and from cash reserves.

The Company’s working capital as of December 31, 2025, included $464 million in cash and cash equivalents and $748 million in net accounts receivable, both of which will be a significant source of ongoing liquidity and financial resilience.

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The Company’s variable direct costs related to its contract talent solutions business will largely fluctuate in relation to its revenues.

In May 2023, the Company entered into an amendment to extend the maturity of its $100 million unsecured revolving credit facility (the “Credit Agreement”) to May 2026.

Borrowings under the Credit Agreement will bear interest in accordance with the terms of the borrowing which will be calculated according to the Adjusted Term Secured Overnight Financing Rate (“SOFR”), or an alternative base rate, plus an applicable margin.

On May 28, 2025, the Company entered into a $100.0 million credit agreement (the “2025 Credit Agreement”) which matures in May 2030.

Borrowings under the 2025 Credit Agreement will bear interest in accordance with the terms of the borrowing, which typically will be calculated according to the adjusted term Secured Overnight Financing Rate (“SOFR”), or an alternative base rate, plus an applicable margin.

The 2025 Credit Agreement is subject to certain financial covenants, and the Company was in compliance with these covenants as of December 31, 2025.

There were no borrowings under the Credit Agreement as of December 31, 2024, or December 31, 2023.

The Company had no borrowings under the Credit Agreement as of December 31, 2025, and maintained $10.1 million in standby letters of credit to satisfy workers’ compensation insurer’s collateral requirements.

In connection with entering into the 2025 Credit Agreement, the Company terminated its prior Credit Agreement dated May 11, 2020 (as amended from time to time, the “2020 Credit Agreement”).

At the time of termination, the 2020 Credit Agreement provided for up to $100 million of borrowings and the Company had no outstanding borrowings.

There were no early termination fees associated with the Company’s termination of the 2020 Credit Agreement.

There were no borrowings outstanding under the 2020 Credit Agreement as of December 31, 2025.

On February 12, 2026, the Company announced a quarterly dividend of $0.59 per share to be paid to all shareholders of record as of February 25, 2026.

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In the event the Company vacates a location prior to the end of the lease term, the Company may be obliged to continue making lease payments.

For further information, see Note G— “ Leases ” to the Company’s Consolidated Financial Statements included under Part II—Item 8 of this report.

For further information, see Note F—“Leases” to the Company’s Consolidated Financial Statements included under Part II—Item 8 of this report.

Purchase Obligations.

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The timing of these payments may change based upon factors including termination of the Company’s employment arrangement with a participant.

These obligations are funded through contributions to investment trusts, whose assets as of December 31, 2024, were substantially equal to the obligations.

These obligations are funded through contributions to investment trusts, whose assets as of December 31, 2025, exceeded the obligations.

Assets of these plans are held by an independent trustee for the sole benefit of participating employees and consist of money market funds and mutual funds.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis