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spk00: Welcome to the Manpower Group Fourth Quarter Earnings Results Conference Call. At this time, all participants are in a listen-only mode until the Q&A session of today's conference. This call will be recorded. If you have any objections, please disconnect at this time. And now I will turn the call over to Manpower Group Chair, CEO, Jonas Briesing. Sir, you may begin.
spk06: Welcome to the Fourth Quarter Conference Call for 2021. Our chief financial officer, Jack McGinnis, is on the call with me today. For your convenience, we have included our prepared remarks within the investor relations section of our website at manpowergroup.com. I will start by going through some of the highlights of the quarter, then Jack will go through the fourth quarter of the results and guidance for the first quarter of 2022. And I'll then share some concluding thoughts before we start our Q&A session. Jack will now cover the safe harbor language.
spk10: Good morning, everyone. This conference call includes forward-looking statements, including statements regarding the impact of the COVID-19 pandemic, which are subject to known and unknown risks and uncertainties. These statements are based on management's current expectations or beliefs. Actual results might differ materially from those projected in the forward-looking statements. We assume no obligation to update or revise any forward-looking statements. Slide 2 of our earnings release presentation further identifies forward-looking statements made in this call, and factors that may cause our actual results to differ materially, and information regarding reconciliation of non-GAAP measures. Thanks, Jack.
spk06: With another unique pandemic year behind us, we continue to see the global recovery progress, strong hiring levels, and employer optimism persist across our geographies, even when the pace of recovery has been hampered most recently by the Omicron variant. Before I turn to our financials for the fourth quarter and full year, Let me start by thanking all our people. Our resilience, agility, and innovation has continued to be tested during the last year, and I am proud of and thankful to our Manpower Group team for their relentless pursuit of success and unwavering delivery of our People First commitment. Thank you for all you do every day, helping our clients navigate a challenging environment and delivering on our purpose, by finding meaningful, sustainable employment for millions of people. Turning to our financial results, in the fourth quarter, revenue was $5.4 billion, up 9% year-over-year in constant currency, or 6% in organic constant currency. Our EBITDA for the quarter was $177 million. Adjusting for the attained transaction and integration costs, EBITDA was $189 million, reflecting significant improvement year-over-year. Reported EBITDA margin was 3.3%, and adjusted EBITDA margin was 3.5%. Reported earnings per diluted share was $2.02 and $2.20 on an adjusted basis. Both were significantly above prior year. Turning to full year results for a moment, reported earnings per share for the year was $6.91. Adjusted earnings per share was $7.24 and represented a constant currency increase of 93% year-over-year or 88% organically. Revenues for the year increased 12% in constant currency or 11% organically to $20.7 billion, and reported EBITDA was $610 million. Adjusted EBITDA was $634 million, which represented a significant constant currency improvement year over year. Globally, we continue to be optimistic and well prepared to benefit from the market opportunities ahead. We believe the pandemic has accelerated the impact of various trends we've been tracking for some time. notably talent shortages due to changing demographics and changing demands for skills due to digital transformation across industries and geographies. Employers are adapting to the new environment by transforming their business models and their attraction and retention strategies for new skill sets, all of this against the backdrop of volatility. The strategic and operational flexibility that our clients need to transform and thrive aligns well to our own transformation, our shifting business mix, our investments in technology, and progress on our plans to diversify, digitize, and innovate, DDI in short, which I will share more on shortly. In the fourth quarter, we saw increasing confidence and a stronger dynamic labor market, even if the Omicron variant muted sentiment somewhat in the final weeks of the quarter. More people were returning to work and changing jobs than we have seen for quite some time, resulting in more of a mass reshuffle, in my view, than a mass resignation. Europe's unemployment rates are now below pre-pandemic levels, and the U.S. is catching up quickly as well. This optimism was further reinforced by our own data from our Manpower Group Employment Outlook Survey, which showed that across 40 countries and 40,000 employers, hiring outlooks were strong. For the first time since the pandemic began, all countries reported positive hiring outlooks. We're also seeing the strong demand across all of our brands, in both temporary and permanent hiring across sectors within manpower, experience, and in our market-leading RPO and MSP businesses within Talent Solutions. Now, more than ever, companies need our help to source, upskill, and manage their workforce. to embrace bold thinking on where, when, and how work gets done in order to compete for scarce talent and offer what workers want while balancing the requirements of their business. Thanks, Jonas.
spk10: Going back to the quarterly results on slide three, revenues in the fourth quarter came in at the top end of our constant currency guidance range. Gross profit margin came in above our guidance range. As I mentioned last quarter, due to the amortization associated with our recent acquisition, We have added EBITDA, representing operating profit before amortization of intangible assets, to our financial information to provide additional information on underlying performance. Operating profits also disclosed, but we will talk to EBITDA. As adjusted, EBITDA was $189 million, representing a 24% increase in constant currency from the prior year period, or a 12% increase on an organic constant currency basis. As adjusted, EBITDA margin was 3.5% and came in at the top end of our guidance, representing 40 basis points of improvement or 20 basis points organically. Breaking our revenue trend down into a bit more detail, after adjusting for the negative impact of currency of 3%, our constant currency revenue increased 9%. Due to the impact of net acquisitions of almost 4% and slightly fewer billing days, the organic days adjusted revenue increase was 6%. Comparing to pre-pandemic levels, our fourth quarter revenues were below 2019 levels by 1% on an organic constant currency basis, which is a 4% improvement from the third quarter trend on this same basis. Turning to the EPS bridge on slide five, reported earnings per share was $2.02, which included 18 cents related to attained transaction integration costs. Excluding these costs, adjusted EPS was $2.20, which was well above the top end of our guidance range. Walking from our guidance midpoint, our results included improved operational performance of 12 cents, slightly lower weighted average shares due to repurchases in the quarter, which had a positive impact of one cent, and slightly better effective tax rate that added three cents. and favorable other expenses, which added one cent. Next, let's review our revenue by business line. Experis and Talent Solutions experienced organic constant currency growth versus 2019 in the fourth quarter, while Manpower significantly closed the gap to pre-pandemic revenue levels. Year over year, on an organic constant currency basis, the Manpower brand reported revenue growth of 4%, the Experis brand reported revenue growth of 14%, and Talent Solutions brand reported revenue growth of 11 percent. Within Talent Solutions, we saw record-setting revenue figures for the year in both our RPO and MSP businesses. In the quarter, RPO had revenue growth in the very high double-digit percentages and MSP in the double-digit percentages year over year. As we continue to experience a record low outplacement environment, right management saw double-digit percentage revenue decreases year over year. Looking at our gross profit margin in detail, our gross margin came in at 17.2%. Underlying staffing margin contributed a 40 basis point increase. The attained acquisition added 30 basis points. Permanent recruitment contributed an 80 basis point GP margin improvement as hiring activity was strong across our largest markets. A lower mix of right management career transition business drove 30 basis points of GP margin reduction. Improvement from Xperia Solutions resulted in a 10 basis point margin improvement. Other items represented an additional 10 basis point improvement. Moving on to our gross profit by business line, during the quarter, Manpower Brand comprised 59% of gross profit. Our Xperia's professional business comprised 26%, reflecting an all-time high contribution post-attain. And Talent Solutions comprised 15%. During the quarter, our Manpower brand reported an organic constant currency gross profit year-over-year growth of 9%. Compared to pre-pandemic levels, this was 2% below the fourth quarter of 2019. Gross profit in our Experis brand increased 25% on an organic constant currency basis year-over-year during the quarter. This represented an increase of 7% from the fourth quarter of 2019. Organic gross profit in Talent Solutions increased 15% in constant currency year-over-year. This represented an increase of 16% from the fourth quarter of 2019 on an organic constant currency basis. This was driven by the great performance in RPO and MSP discussed earlier, which was partially offset by the decreases in right management due to outplacement trends. Our SG&A expense in the quarter was $760 million. Excluding the net impact of the attained transaction and integration costs in the current year and restructuring charges in the prior year, SG&A was 18% higher on a constant currency basis and 13% higher on an organic constant currency basis. This reflects continued investment in the business. The underlying increases consisted of operational costs of $85 million, incremental costs related to the acquired businesses of $31 million, offset by currency changes of $17 million. Adjusted SG&A expenses as a percentage of revenue represented 13.9% in the fourth quarter. The America segment comprised 23% of consolidated revenue. Revenue in the quarter was $1.2 billion, an increase of 22% in constant currency or 3% on an organic constant currency basis or 5% after adjusting for days. OUP was $54 million. As adjusted, OUP was $67 million and OUP margin was 5.5%. A lower mix of right management outplacement activity drove the 10 basis point reduction in OUP margin on an organic constant currency basis. The U.S. is the largest country in the America segment, comprising 71% of segment revenues. Revenue in the U.S. was $861 million, representing a 39% increase or 8% organically compared to the prior year. As adjusted to exclude acquisition transaction and integration costs, OUP for our U.S. business was $53 million in the quarter, representing an organic increase of 15%. As adjusted, OUP margin was 6.2% or 5.2% on an organic basis. Within the U.S., the Manpower brand comprised 29% of gross profit during the quarter. Revenue for the Manpower brand in the U.S. increased 2% during the quarter. Aside from normal seasonality in December, We have seen our levels of associates on assignment build during the fourth quarter and again in early January as workers continue to return to the labor force. The experience brand in the U.S. comprised 43% of gross profit in the quarter. Within experience in the U.S., IT skills comprised approximately 90% of revenues. Experience U.S. revenues grew 24% organically during the quarter, and we anticipate continued strong double-digit organic growth in the first quarter of 2022. The Attain business also performed well during the quarter and the early phases of the integration are proceeding on schedule. We are encouraged by the current trends in our U.S. experience business, including Attain, which has significantly increased our presence in the convenience market for IT professional services. Talent Solutions in the U.S. contributed 28% of gross profit and experienced revenue growth of 9% in the quarter. This was driven by RPO, which continues to win new business and experienced record revenue levels during the quarter as hiring programs continue to strengthen. The US MSP business continued to perform well and experienced record revenue levels in the quarter as well. Within right management, career transition activity continued to run off as the economy strengthens. In the first quarter, we expect ongoing underlying improvement in revenue growth for the US in the range of 38% to 42% year over year, or 8% to 12% organically. Our Mexico operation experienced a revenue decline of 60% in constant currency in the quarter. The decline was driven by the new labor legislation we discussed in the prior quarter. Although the impact of the legislation has had a more severe impact on the industry than originally anticipated, the fourth quarter trend reflects the stabilized impact. We anticipate a similar revenue decrease in the first quarter. Southern Europe revenue comprised 43% of consolidated revenue in the quarter. Revenue in Southern Europe came in at 2.4 billion, growing 6% in constant currency. OUP equaled 117 million and OUP margin was 4.9%. France revenue comprised 55% of the Southern Europe segment in the quarter and increased 6% in constant currency. Compared to the same period in 2019, France revenues were down 6%, improving from down 10% in the third quarter. OUP was 64 million in the quarter, and OUP margin was 4.8%. As we begin the first quarter, we are estimating a year-over-year constant currency increase in revenues for France in the range of 6% to 10%. Revenue in Italy equaled 467 million in the quarter, reflecting an increase of 15% in constant currency. OUP equaled 33 million, and OUP margin was 7.2%. We estimate that Italy will continue to perform very well in the first quarter with year-over-year constant currency revenue growth in the range of 13% to 17%. Our Northern Europe segment comprised 22% of consolidated revenue in the quarter. Revenue increased 9% in constant currency to $1.2 billion, driven by most of our major markets. OUP represented $29 million, and OUP margin was 2.4%. As indicated in the notes to the segment results slide, during the quarter we had a modest restructuring charge in Germany, which was offset by a one-time pension gain. The largest market in Northern Europe segment is the U.K., which represented 36% of segment revenues in the quarter. During the quarter, U.K. revenues grew 6% in constant currency. Our U.K. business is performing well, and we expect flat to slight decreases in revenues in the first quarter, reflecting the exit of certain low margin arrangements, replaced with higher fee-based margin opportunities. These and other actions, including permanent recruitment growth, are driving significant improvement in the margin profile of our UK business. In Germany, revenues increased 9% in days-adjusted constant currency in the fourth quarter. We expect to see constant currency mid-single-digit percentage revenue improvement year-over-year in Germany in the first quarter. As noted in our earnings release materials today, as part of our geographic portfolio strategy, We sold our Russia business, which will operate as a franchise going forward. This will reduce our Northern Europe revenues by approximately 125 million annually, and we'll have a favorable impact on our global gross profit and EBITDA margins going forward. The Asia Pacific Middle East segment comprises 12% of total company revenue. In the quarter, revenue grew 7% in constant currency to 623 million. OUP was $21 million, and OUP margin was 3.3%. Revenue in Japan grew 16% in constant currency, which represents an improvement from the 13% growth in the third quarter. We are very pleased with the performance of our Japan business, which continues to lead the market in revenue growth, and we expect continued strong revenue growth in the first quarter. I'll now turn to cash flow and balance sheets. In full year 2021, free cash flow equaled $581 million compared to $886 million in the prior year. The prior year result included significant cash inflow from accounts receivable declines from the onset of the pandemic. Our fourth quarter free cash flow of $238 million exceeded the prior year period free cash flow of $201 million, representing strong current period cash collections. At quarter end, day sales outstanding was up one day year over year at 55 days. Capital expenditures represented $64 million for the year and $24 million during the fourth quarter. During the fourth quarter, we repurchased 643,000 shares of stock for $60 million. Our full year purchases stand at 2.1 million shares of stock for $210 million. As of December 31st, We have 1.2 million shares remaining for repurchase under the 2019 share program and 4 million shares remaining under the share program approved in August of 2021. Our balance sheet ended the year with cash of $848 million and total debt of $1.12 billion, resulting in a net debt position of $271 million. On October 1st, we utilized $800 million of cash to fund the acquisition of Attain. Our debt ratios at quarter end reflect total gross debt to trailing 12 months adjusted EBITDA of 1.64 and total debt to total capitalization at 31%. Our debt and credit facilities did not change in the quarter. We utilized 150 million of the 600 million revolving credit facility on October 1st in conjunction with the funding of the Attain acquisition. We are pleased to report that we have already repaid half of this amount after three months. And as previously indicated, we expect to pay down the remainder over the next nine months. Next, I'll review our outlook for the first quarter of 2022. Our guidance continues to assume no material additional COVID-19 related difficulties beyond those that exist today. On that basis, we are forecasting underlying earnings per share for the first quarter to be in the range of $1.56 to $1.64. which includes an unfavorable foreign currency impact of 10 cents per share. This does not include the impact of acquisition integration costs of 4 to 6 million or the loss on disposition of our Russia business of approximately 8 million, which will be broken out separately from ongoing operations. Regarding revenues, the stabilized impact of the regulation in Mexico represents a year over year revenue loss of about 2% in the first quarter of 2022. Considering this, our constant currency revenue guidance growth range is between 6% and 10%. After adjusting for the acquisition of Attain and the disposition of Russia mid-January, our organic constant currency growth range is estimated between 3% and 7%. As billing days are only a minor increase in the first quarter, This results in an organic days-adjusted revenue growth rate of 5% at the midpoint. We expect our EBITDA margin during the first quarter to be up 70 basis points at the midpoint compared to the prior year, with the tank contributing 20 basis points of the improvement. We estimate that the effective tax rate for both the first quarter and the full year of 2022 to be 30%. This incorporates the final phase of the multi-year reduction in the France corporate tax rate and a continuation of the 2021 French business tax reduction. As usual, our guidance does not incorporate restructuring charges or additional share repurchases, and we estimate our weighted average shares to be 54.6 million. I will now turn it back to Jonas.
spk06: Thank you, Jack. A year ago, we updated you on our acceleration progress for DDI. diversification, digitization, and innovation. Reflecting on that update, we're pleased with our progress during 2021 and confident that these strategic choices and investments are strengthening our capabilities, differentiating our offerings, and providing the foundation for profitable growth and long-term sustainable value creation. We're making great progress on diversification by improving our business mix, expanding the contribution of higher growth and higher value services, especially our Xperia's IT resourcing, talent solutions, and manpower permanent recruitment. Specific to Xperia's, which makes up 26% of our GP business mix globally, we're proud of the successful completion at speed of our acquisition of the Attain Group in recent months, which is off to a great start with a full quarter of contribution during the quarter. Our increased presence in the IT convenience segment of the market positions us as an overall top four IT resourcing and services provider in the U.S. market, and serves to reduce the impact of revenue volatility occasionally associated with large enterprise client shifts in demand. Talent Solutions also plays a critical role in our ongoing diversification, as it includes our highest margin businesses of MSP, RPO, and right management. As Jack mentioned, we're seeing record levels of volumes in both our MSP and RPO businesses, which are driving an increased contribution from talent solutions overall. We expect the right management outplacement volume to stabilize in the quarters ahead, and right management will then become a contributor in our diversification strategies as well. We're also making strong progress on the digitization part of our strategy, moving at speed and scale. In 2021, we implemented PowerSuite applications, our leading cloud-enabled front office technology, in 22 markets. We are also improving efficiency and productivity via progressive moves to global SaaS platforms, shifting more of our data assets to the cloud, and using analytics to enable better insight, predict match, and performance more accurately, and drive new value creation. Lastly, we continue making great progress on innovation. In experience, this is notably through our investment in experience academy and leading tools, specifically experience career accelerator for our professional consultants. In manpower, it is through MyPath, our innovative global associate upskilling program. Our DDI strategy also enables us to deliver on our ESG strategy. We believe this to be a clear differentiator as purpose and profit become increasingly interconnected for all organizations. Our MyPath program is a great example of how we're executing the strategy by significantly expanding the countries participating in the program, transforming the working lives of 150,000 individuals so far. We shared our ESG strategy when we published our Working to Change the World plan, focused on planet, people and prosperity, and principles of governance, reflecting the International Business Council's stakeholder capitalist metrics, which we're already incorporating into our reporting. The recent validation from the Science-Based Targets Initiative, SPTI, of our ambitious plans to drive positive climate action is a demonstration of the urgency and speed with which we intend to lead our industry in this space. We have the talent, brands, technology, and purpose in place to capture fast evolving opportunities in the market and to build on the strong foundation of 2021. We are convinced that more companies will turn to us for expertise in finding, retaining, and re-skilling diverse talent to enable them to accelerate their digital transformation and execute their business strategies. I'd now like to open the call for Q&A. Operator?
spk00: Thank you. We will now begin the question and answer session. If you would like to ask a question, please press star followed by the number 1. Please make sure that your line is unmuted and record your name after the prompt. To cancel your request, please press star 2. Once again, to ask a question, that will be star followed by the number 1. Our first question is coming from the line of Andrew Steinerman from JP Morgan. Your line is open.
spk01: Hi, it's Andrew. I was hoping you could hone in a little bit more on January, the month that was just completed in the U.S., and just kind of go over what trends you're seeing both in the manpower business and in the experience business. You know, is Omicron a positive or negative or really not a factor for your U.S. business? And do you feel like experience, which obviously had strong organic revenue growth, Do you feel like that's back to kind of market growth rates or are they benefiting from just year-over-year comparison?
spk06: Good morning, Andrew. Thanks. Yeah, maybe I'll start with the question you asked last and say that we're very pleased of how experiences I would estimate that we're tracking to the market growth, maybe slightly above. And we feel really good about the progress we've been making in experience U.S. organically over a number of quarters. So we're executing well, and we continue to see great opportunities for experience in the U.S. market. So you asked a bit about Omnicron. And, you know, the impact, I would say, is limited and manageable. Certainly less impactful for white-collar workers and our IT consultants because they have an ability to continue working, frankly, if they are not feeling great. So remote work is a positive factor in managing and mitigating the impact of Omicron. From a manpower perspective, it has clearly led to difficulties in finding people since absenteeism due to illness. high and much higher than we would normally expect to see now the good news is though that we're seeing it being a spike and that people are ill and then they come back into the workforce so over time we would expect this to to subside and really normalize as the quarter moves on and overall we've been encouraged after the seasonal slowdown to see that the workers are coming back into the workforce and our manpower business is continuing to to do well. But Omicron is much more manageable than we've seen the other variants, and we feel good about our ability to progress with the business in both of our brands.
spk10: Andrew, this is Jack. I'll just add one additional point to Jonas' comment on experience in the U.S., and certainly the organic, the legacy experience business performed very well at that 24% growth. We commented that we expect very strong double-digit growth again in the first quarter. But I really wanted to talk about the acquisition attained. So that performed very well in the fourth quarter as well. And so at the midpoint of our guidance, I mentioned about $180 million. They came in a few million above that. And more importantly, they came in stronger on the EBITDA line, about $1.2 million better than we anticipated in the guidance, too. Attain is off to a good start, and we anticipate they're going to have a good first quarter as well as part of our combined experience business.
spk01: Right. And, Jack, I really asked about January. So I assume when you kind of say, you know, what the fourth quarter was and what we're expecting in the first quarter is because January for the U.S. started out favorably, right?
spk10: Yes. Yeah, January is looking very consistent with where we were ending the fourth quarter in terms of ongoing trends, Andrew. And as we did mention on the manpower business, we are seeing the associates on assignment start to increase in the month of January as well, week over week. So that's a good sign.
spk04: Perfect. Thanks for the time.
spk00: Thank you. Our next question is coming from the line of Jeff Silber of BMO Capital Markets. Your line is open.
spk02: Thanks so much. Actually, I wanted to focus a little bit outside the U.S. You've talked about strong demand. We've seen your manpower survey showing that as well. I'm just wondering about the tight labor market. We hear a lot about it in the U.S. I know there's a little bit of an Omicron issue, but beyond Omicron, are you seeing similar aspects in terms of tight labor supply in your major markets outside the U.S.? And if you could talk a little bit about where, that would be great.
spk06: We are seeing tight labor markets across the board, Jeff, and some of this we think is a pandemic anomaly because the full workforce has not returned. I would say, though, that the U.S. is an outlier in terms of how tight the labor markets are. We don't see the labor markets as tight outside of the U.S. that follows the U.S. is probably the U.K. And both of those countries have had significant numbers of people not returning to the workforce post or, you know, at this point, at least during the pandemic. So 3,600,000 people respectively are still not back. That's not the case. in most other countries. You might have seen that the unemployment rate in the Euro area is at a 20-plus year low now. It's about 7% unemployment. And, you know, so it indicates a strong labor market. And that's been very favorable to us. And you've seen our progress In permanent placement, there's very strong demand for talent, and our permanent placement recruitment is really seeing the effects of that, not only in the U.S., but also globally. But it also is driving demand for temporary staffing in most countries, and in a number of our major operations, we have seen demand as well as our revenues surpass 2019 levels. And for those countries that aren't yet past 2019 levels, we would expect them to continue to make progress towards bypassing that milestone reasonably quickly as well. So overall demand is strong, both for temporary as well as for permanent placement across all of our brands. And you've also seen that reflected in the great progress we've seen in talent solutions with RPO and MSP posting record levels of revenues. Okay, that's really helpful.
spk02: My follow-up question is about Brexit. I know you haven't had one of those in a while. But, you know, we've been hearing about a lot of the financial services firms that are still in London, really relocating a lot of their folks over to Paris. I know Germany was expected to be a big winner. I know there's some folks going over there, but Paris seems to be a big surprise. I'm just wondering if you're seeing any of that and is it having any impact on your business there? Thanks.
spk06: Well, Jack, that is actually fake news. The big migration of financial institutions away from the UK has not happened. Although there has been some new hiring occurring outside of London and the financial district, it remains a very vibrant labor market for financial professionals, IT professionals in the UK. So the Brexit effect as it relates to that part of the workforce has really not come to pass. But what you might have seen instead is the tremendous shortage of truck drivers in the UK, shortage of healthcare staff in the UK, and those are directly linked to the impact of Brexit, new regulations making it harder for drivers to get in and out of the UK, supply chain issues. So there are a number of parts of the labor market in the UK that are seeing significant shortages, and that's due to Brexit. But it's not in the financial sector because those moves have not really come to pass.
spk10: Jeff, I would just add, in the UK, financial services is about 15% of our business there. And actually, it's been the opposite. That business has been growing for us. We took on a very large bank client last year. That's been a good addition to the portfolio. So we've actually seen that side of the business actually increasing.
spk02: All right. Really appreciate the clarification. Thanks so much.
spk00: Thank you. Our next question is coming from the line of Hamza Mazzari of Jefferies. Your line is open.
spk08: Yes, hi. Good morning. My first question is just around, labor inflation. Maybe just talk about your bill pay spreads, what they look like today versus history. How do you think they'll trend in terms of your guidance? And then just similarly on labor availability, does your scale help you today? I know not all of your employee base or candidates, I guess, can work remotely. Some can. But some of your peers have been talking about kind of national scale helping them, but most of their business can work remotely. So just any thoughts on labor availability and then labor inflation?
spk06: Of course, Hamza. Maybe the best starting point is to look at the U.S. market, and that's where we see the highest degree of wage inflation. But as with anything, you want to be careful with averages, because the average wage inflation could be between 5 and 6 percent, maybe a bit higher in some specific white-collar skill sets. But for the blue-collar workers, unskilled, semiskilled workers, the wage inflation is much stronger and has been much stronger over the last 18 months. So that's where you can really see wage inflation kicking in. And that level of wage inflation is unique to the U.S. Although wage inflation is stronger across the world generally and also in Europe, which is where we have a lot of our business, it's not as strong as it is in the U.S. In all cases, we have been able to match those wages through bill pay increases so that our spreads are moving in the right direction. As we've talked on prior calls, wage inflation is generally a positive aspect for our business, and certainly we've seen some very good evolution on our bill rates in the U.S. specifically, but also overall as we look at our business on a global basis.
spk10: And, Hamza, I would just add to your second question on remote work and availability. how our footprint. So that is absolutely a huge opportunity for our experience business. We're seeing it, as we've talked about, experience for us is predominantly IT. And similar to the comments that you mentioned, that is a big benefit for us when we look at our global experience business. And we talked about post the Attain acquisition, that $4.5 billion global business. And the U.S. is a big part of that. And with our U.S. footprint, With the Attain acquisition and the addition of our convenience market, we have a great footprint in the U.S., very broad, and that's a huge opportunity for additional worker availability that are working remotely as well. So we see the same trends in our experience business.
spk08: Got it. My follow-up question is just around M&A. The IRTAIN acquisition, you talked a lot about it. It seems like it's the largest deal you've done since maybe 2010 with ComSys. Are you getting more aggressive on M&A? Is it just sort of timing of these deals? Are you seeing more of them out there? I know you've had a strategic focus to increase higher margin professional services and solutions as part of your, you know, sort of long-term margin strategy. But just any thoughts on that would be helpful. Thank you.
spk10: Sure, Hamza. I think from a capital allocation standpoint, I'd say nothing's really changed. I think we've been pretty open that we have, you know, when we look on the professional side, that that was certainly an area of interest where we thought that could be a very good complement in terms of an acquisition. And, you know, as we talked about, Attain basically fit very, very well. But with that being said, as you know, we're very careful. So, you know, we will continue to advance our capital allocation strategy, you know, in line with what we've laid out. You know, right now, the main focus is integrating Attain. We're off to a great start, as we mentioned in our prepared remarks. So the integration is going very well. And as we go forward, certainly we'll continue to, you know, look to see if there are additional opportunities that could be good bolt-on opportunities for us as we go forward on the professional resourcing and services. Focused on IT, as we've talked about in the past, And certainly on the talent solution side, as we've talked about with our market-leading MSP and RPO, those continue to be opportunities. We're doing great on organic growth at the moment, but I'd say that would be another area that we continue to keep our eyes open. But again, it has to be a very, very good fit, and we're very careful when it comes to analyzing those opportunities.
spk09: Got it. Thank you.
spk00: Thank you. Our next question is coming from the line of Kevin McVie of Credit Suisse. Your line is open.
spk04: Great. Thanks so much. Hey, Jack or Eunice, can you give us a sense? I mean, obviously you've got a couple of different efforts in terms of, it seems like, remixing the business a little bit, you know, through the Russian disposition, some professional acquisitions and some initiatives on digitization. Is there any way to think about the puts and takes on both the gross margin line and then, operating margin longer term? I guess, Jack, maybe that's a question for you. It just, it seems like you've got more of a focus there and could lead to a nice outcome. So, just any thoughts on that?
spk06: The journey and the evolution that you're describing, Kevin, is really all encompassed within our DDI strategy. So, diversifying the business into faster growing, higher margin business segments. moving all of the company onto cloud-based mobile SaaS applications for a modern infrastructure so that we can engage our people, engage our consultants, our associates, as well as our clients in great ways, as well as generate data and analytics and insights that benefit companies. our clients and all of our stakeholders. And then finally, innovation initiatives where you've seen us really lean into the notion that in a labor-tight environment, which you are seeing right now, we are able not only to find and source the best talent in all of our brands, but we're also able to create the skills that the talent needs that may not have those skills. And that's really the direction that we're taking strategically. So what you're describing and what you're seeing is us executing on our DDI strategies.
spk10: And I would just add to that, Kevin. I think, you know, that really just goes in line with what we've talked about in terms of our EBITDA margin financial targets. So again, fully committed to the 4.5% to 5%. And, you know, these steps are the type of steps that you'd expect us to take as we're focused on that diversification part of DDI, as Jonas mentioned. So, you know, attain coming in at above 20%. You can see that coming through. We've been very open about the increase. You can see on the GP margin walk that added 30 basis points in the fourth quarter, which was great, a little higher than we actually guided to. They came in a bit better on the GP margin in the fourth quarter. As I mentioned, a strong result. And, you know, as we look at the portfolio adjustments, you know, it really is in line with our profitability hurdle rates that we look at that in the margin opportunity. And, you know, Russia was a very good business, but it was a commercial staffing business, lower margin. And, really, that's going to be a great opportunity for us going forward as a franchise where we collect franchise fees from, you know, the very strong management team there going forward. You should expect that we're going to continue to focus on diversification going forward and those are the type of steps that are improving our GP margin and that's going to be sustainable structural improvement over time.
spk04: Great, thanks. And then just real quick, Jack, is there any way to frame how much absenteeism impacted Q4 and what's in the Q1 guidance?
spk10: Yeah, I'd say we definitely saw some absenteeism in the bench countries and to a broader impact in some of the other countries. But it comes through more in the bench countries because of the impact on the GP margins. So that's not new. We've always seen sickness in the winter periods in our bench countries like Germany and the Netherlands to some degree. And I'd say the Nordics as well with Norway and Sweden. And that did tick up. So we are at higher levels than average, you know, and so if we look at sickness levels in a country like Germany, that could be, you know, at a 6% type of average for this time of year. That's probably ticking up to more like 9% at the moment. But, you know, as Jonas said, you know, when we look at this, It's much more manageable than kind of what we were dealing with in the third quarter when we were seeing much more severe impacts from the Delta variant. And so it is a bit of a drag, but candidly, it's being, you know, overcompensated by the improvement we've been seeing in other markets when we look at the strong results in the U.S. and actually the U.K. and other markets. that aren't impacted due to bench models. So it's been offset for the most part. We would expect that some of that's going to continue, certainly, and that's been factored into our guide. But I'd say at this point, Kevin, we're viewing it as relatively manageable. Thank you.
spk00: Thank you. Our next question is coming from the line of Mark Marcon of Baird. Your line is open.
spk11: Good morning, and thanks for taking my question. You mentioned that you've implemented PowerSuite in 22 markets. I was wondering if you could talk a little bit about what you're seeing in the markets that you've implemented PowerSuite in. Also, when we think about more manpower in France, what the impact has been there, and then what the rollout looks like across the rest of your operations across the globe. You know, how soon should we expect that and what sort of lift should we get from that?
spk06: So the rollout of the PowerSuite technology is something that you've heard us talk about for the last couple of years. And it's a major effort to really strengthen both the back in the middle and the front office. for all of our major operations and ultimately for the whole company. We have been doing this at an accelerated pace. And in the countries with the most mature adoption, because as you can imagine, these are like waves that are rolling through the organization, we're seeing greater employee engagement, better recruiter productivity, faster match, easier access to information for our associates, and our consultants in experience. And we are, of course, also at this point being able to leverage the visibility of common platforms across the globe. So we're collecting data and insights on MyPath, for instance, on reskilling and upskilling efforts that inform what would be the best predictable match of a candidate to a specific opportunity, because we're always striving to perfect the match And that means doing it faster, better, with greater productivity gains for the associate or the consultant for the client benefit. And so we feel very good about the progress that we're making. And, you know, France is in deployment phase now. And that is going to be a very big deployment. But we've had a number of major countries deploy. implement PowerSuite over the last 12 months. And overall, we're very pleased with the progress and the early signs that we're seeing of the productivity improvements, user experiences from our people, experiences interacting with the systems from an associate and consultant perspective, as well as the client feedback. We can leverage the data insights and give them really pinpoint analytics on what they could do to improve the composition of their workforce, to improve their retention rates, not only for our population, but frankly for the entirety of their workforce in a specific location. That's proven to be a really valuable addition for many of our clients where we have deployed those solutions and tools.
spk11: Jonas, could you be a little bit more granular with regards to some of the productivity improvements? Like, for example, in terms of recruiter productivity, does it go up by 50% or 100% post-implementation? How do you look at that just in terms or fill rates or time to fill when you take a look at some of the key metrics?
spk06: You know, I'd love to be able to say that we get 50 to 100% productivity improvements when we use the tools, but we were quite efficient and productive already before, as you can imagine, at our scale mark. So I think we're looking at productivity improvements, you know, in the high teens, we would be You know, very pleased with the progress there. Sometimes it's more, sometimes it's less. But frankly, it's all to do with also the maturity. As you can tell, we've been on a very rapid deployment schedule. And, you know, I don't think we've optimized the adoption levels yet. So there's more to come on productivity. And I think it translates exactly into the kind of measures you're discussing. More placements per recruiter, quicker placements, And we have seen some very good improvements on speed to match when we're leveraging some of these new tools, which are frankly surprising and very positive to see. Now, at our scale, all of this needs to be done, and that's why we have global platforms in many different countries before we can start to see the effects come through quickly. at a global level but we've been very encouraged by these new technology tools and not only from the productivity perspective but also from the promise of what data and insight can provide us as support to our clients if they want to reduce turnover for instance which has been a hot topic here in the US what might be counter to any prevailing logic, if you increase your wage rates significantly, you can also significantly reduce turnover. Many of our client organizations are reluctant to increase their pay rates, but if you increase their pay rates in a scientific way, looking at all of the data and the surrounding locations and what other employers are doing, you can reduce turnover very, very significantly. It's that kind of insight, new counterintuitive insights that the data is providing us, which is benefiting our clients and, frankly, benefiting our growth, both in margins as well as in revenues.
spk11: Great. And then as a follow-up, you know, obviously these productivity tools, as you rolled them out across the globe, are going to be helpful. Then we also have an improvement with regards to MIX, both in terms of solutions as well as experience. And, you know, in contrast to last quarter, we're not talking about supply chain issues to the same extent. So, it sounds like, you know, as we think about rolling towards the second half of this year, hopefully by that point, some of the supply chain issues and Omicron are dissipated. How are you thinking about kind of the margin trajectory with all of the positives that you have going for you, helping you to move towards that 4.5% to 5% target that we discussed earlier?
spk10: Mark, this is Jack. I'll talk to that. So I would say I like the way you frame that because that's the same way we're thinking of the opportunity. And, you know, we've talked about it a bit in our prepared remarks, but the more and more we talk to our clients, They're seeing more and more visibility on the supply chain timeline in terms of expecting that to start to work itself out in the first half of the year here. So that's been a positive. And as you can tell from the fourth quarter results, it's coming through as more and more manageable. So there's still a ways to go, but more and more manageable. by our clients, so it's helping them with their ability to schedule demand and so forth with us. When we think about the margin progression, I think the way to think about it is quarter in, quarter out, we're very focused on margin expansion. So another quarter in the fourth quarter of good underlying margin expansion on the bottom line, the GP margin, has certainly been strengthened by the strong levels of PERM. But the staffing going up 40 basis points on an underlying basis point is really, really encouraging. And I think that's what we're very focused on as well. So I'd say as we go forward, you should expect that from us as we march towards those financial targets. Each quarter will be continued expansion on an overall basis. We'll certainly call out any unique items as part of that. But you should expect as the revenue levels come back, we will get more and more operational leverage. And, you know, we should note as part of this, we know that France has been a bit behind some of the other large countries in terms of versus 2019 levels. But it was really good to see in the fourth quarter that we projected we were looking at them going from minus 10% the 2019 levels in the third quarter to minus eight in the fourth quarter, and they came in at minus six, so about 2% better. So that's going to be a big part of the improvement as we go forward. France coming back, our largest operation, adding more and more operational leverage as they get back to pre-crisis levels. And as Jonas said, we expect that to happen relatively soon. We'll continue to march in that direction. All of that will equate to good ongoing EBITDA margin expansion year over year. So I think 2022 will be a great year of margin expansion for us on the bottom line. It's been a great year already for us on the top line, but as the operational leverage continues to come in, you should expect that we're going to make very good progress in 2022 as we approach that goal.
spk11: Great to hear. Thank you.
spk00: Thank you. Our next question is coming from the line of George Ta of Goldman Sachs. Your line is open.
spk09: Hi, thanks. Good morning. You indicated that your Mexico operation has started to stabilize after a decline due to new labor legislation. Can you elaborate on some of the trends you're seeing in Mexico in response to the legislation?
spk06: Well, George, it's still early days in Mexico. As you know, the, you know, the, the, um, Impact of the legislation was really starting to be felt in late July and then more so in August and fully so in September. But I would say based on the most recent trend we've seen, you know, the significant decline of almost 60% has now stabilized. And we feel that we are seeing some normalization of the new market and the new industry that we're operating in. We've been very successful, and the Mexican team has been very good at creating a market-leading position. We have the most specializations approved by the Mexican government, and that means we can operate in many different sectors except the one broad-based general staffing, which is the one that was eliminated in the legislation. So we feel very good about our opportunity, but I would say it's still early days to determine, you know, what the opportunities are going to be. Frankly, many of our clients are still coming to grips with these changes, and we think it'll take time for them to get comfortable with the new situation, and then we'll start to see some improvement in our Mexican business. But, you know, so far so good in terms of stabilization. that we perceive to have happened in the market, and then we'll take it from there going forward.
spk09: Got it. Very helpful. And then can you discuss the impact of ongoing supply chain disruptions on your business and in which geographies and markets you're seeing the most impact?
spk06: Jack said, you know, we think it's becoming increasingly manageable. You know, our clients are sounding more optimistic that they can see the light at the end of the tunnel in more than countries maybe I would say it's it's about sectors and industries the automotive sector has had difficulties anybody dealing with any equipment that uses chips has clearly computer chips has clearly been impacted as well but you know we are in our discussions with our clients starting to see some some settling in terms of when this is going to come through. And of course, it depends on country and it depends on the it depends on the industry. But it appears that it's coming to, you know, coming to a more normal situation during the course of twenty twenty two. If you look at the countries that are the most impacted, Germany clearly stands out and you can see that in their GDP estimates for the fourth quarter. They are the worst affected country in Europe and one of the worst affected countries in the world, I suspect. But also there, over time, we think, since they're so dependent on the automotive sector, when that gets better, the country will get better as well.
spk09: Got it. Thank you very much.
spk00: Thank you. Our next question is coming from the line of Toby Summer of Truist Securities. Your line is open.
spk07: Thank you. Could you speak to your existing productivity and where you're adding recruiters? You've already talked about productivity improvements, but if you could give us some color as to where you're adding recruiters now and if you are. Thank you.
spk06: Toby, we are definitely leaning into what we think is a very strong growth environment, and as you can see, You know, and some of our businesses are already over, but as it comes over 2019 levels and getting close as a whole, but in terms of resourcing and investment in our producers, so recruiters and salespeople, we are already ahead of 2019. And we're anticipating a good growth environment and we're staffing accordingly. Jack, maybe you have some further color on the question that Toby asked.
spk10: Sure, Jonas. You know, just a little color around that. So we're up 5% in FTEs from pre-crisis levels. And so as we guide it in the third quarter, we were going to be hiring in the fourth quarter. We did that, but that's been a trend over the last few quarters. So, you know, FTEs are up 5% from year-end 2019. They're up 17% in the fourth quarter. So we are clearly investing heavily in the growth and, you know, in line with our previous comments about the way we're looking at 2022 is a great opportunity for us. And to your, you know, to your point where Toby it's broad based, I'd say the only large country we're not adding FTEs is Mexico due to the reasons Jonas just talked about due to the legislation there, but very broad based that probably the U S is the most and, The U.S., it's really all three, Manpower, Experience, and Talent Solution brands are all growing nicely. So that's broad-based increase. The U.K. is adding, you know, very heavy amounts as well. And, you know, we talked about Italy has been progressively adding. Italy is a great per market for us. And France is adding as well. So it is broad-based across all of our largest businesses.
spk07: Thank you. My follow-up question has to do with the RPO and MSP businesses and industry. Where are we in the adoption, in the growth there? Trying to just get a sense for whether there's still room in terms of not only new clients, but sort of wallet share where your customers are just shifting that fixed recruiting expense into variable expense. Thanks.
spk06: I'd say the U.S. is the most mature market, and Europe is probably lagging five to six years in maturity, with the other regions coming behind that. So in terms of potential for growth, we still see some very good opportunities for growth across the world. Now, when I say the U.S. maturity is the highest, we don't believe that it's fully saturated yet. We think we have lots of opportunities, and as you heard us say in our prepared remarks, Companies are coming to us and really looking for innovative RPO solutions, innovative MSP solutions that frankly are evolving and have evolved significantly since we started to see strong growth maybe over the last, you know, eight to six years in the U.S. And that is really part of our strength, to be able to evolve our service offerings leverage the data and the insights that we gain from these very significant global platforms, and use them to enhance our service, make our hiring more accurate, and then add to that, of course, the reminder for many organizations that volatility can strike at any moment and be unexpected. So having the ability to ramp up very quickly is something that we excel at. And that is clearly going to be a feature going forward as well. So I think we can still see some very good growth here in the U.S., some very good growth outside of the U.S. based on the penetration rates of the offerings as a whole. But overall, I'd also say that the industry is in full evolution, and we are leading that innovation drive to make sure that we are great for the services that we provide for today's needs, but also developing for future needs. And clearly technology and leveraging the data to create insights has been a huge driver of our ability to satisfy our clients and, frankly, also being able to engage talent in a very, very tight labor market.
spk03: Thank you.
spk05: Excellent.
spk06: That brings us to the end of our fourth quarter earnings call, and we look forward to speaking with you on our next earnings call. Thanks very much. Have a good rest of the week.
spk00: Thank you, and that concludes today's conference call. Thank you all for joining. You may now disconnect.
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