ManpowerGroup

Welcome to Manpower Group's second 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 Chairman and CEO, Jonas Brissing. Sir, you may begin.

Thank you, and welcome to the second quarter conference call for 2022. Our Chief Financial Officer, Jack McGinnis, is with me today. And for your convenience, we've included our prepared remarks within the investor relations section of our website at mampagroup.com. I'll start by going through some of the highlights of the quarter, and Jack will go through the second quarter results and guidance for the third quarter of 2022. And I will then share some concluding thoughts before we start our Q&A session. Jack will now cover the safe harbor language.

Good morning, everyone. This conference call includes forward-looking statements, including statements regarding the impact of COVID-19 pandemic and the Russia-Ukraine war, 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 two 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 in information regarding reconciliation of non-GAAP measures.

Thanks, Jack. I'm just back from extensive trips through Europe, which included the World Economic Forum's annual meeting in Davos, VivaTech, which is one of the world's largest technology and startup events in Paris, the Choose France Summit held just last week in Versailles, France. I will touch on these events as well as insights from my clients during my business reviews later in the call. Turning to our financial results, in the second quarter, revenue was $5.1 billion, up 6% year-over-year in constant currency, or 3% in organic constant currency. Our EBITDA for the quarter was $190 million, Adjusting for the U.S. acquisition integration costs, EBITDA was $193 million, reflecting growth of 22% in constant currency year-over-year. Reported EBITDA margin was 3.7%, and adjusted EBITDA margin was 3.8%. Earnings per diluted share was $2.29 on a reported basis and $2.33 on an adjusted basis. Adjusted earnings per share increased 28% year-over-year in constant currency. After recent meetings with clients, policymakers, and our teams across markets on my travels, I'm struck by the fact that despite the clouds weighing on the outlook of the global economy, the labor markets remain strong. Although there have been and continue to be disruptions from supply chain shortages in specific sectors, such as automotive, construction, and to a lesser degree logistics, our clients continue to prioritize acquiring talent in this environment. As a result, demand for our services remains strong across many of our major markets. Our clients are particularly interested in permanent recruitment, both in our talent solutions RPO business, as well as in our staffing businesses. in MSP within talent solutions, in experience IT resourcing and solutions broadly, and across our MAMPAR specializations. Our own quarterly forward-looking hiring research across 40,000 employers in 40-plus countries, the MAMPAR Group Employment Outlook Survey, also showed that hiring confidence has remained very strong in absolute measures, with organizations experiencing talent shortages at record highs. In our most recent survey, completed in May, 75% of companies globally predicted that they wouldn't be able to find the talent they need, which is the highest in 16 years. In summary, labor markets are healthy, talent shortages are high, and demand for our services and solutions remain strong. Having said that, the combination of the continued war in Ukraine, increasing energy and food prices driving higher inflation rates, and continued supply chain issues creates a more uncertain economic outlook. This will likely create economic headwinds that may eventually spill into labor markets to a greater degree than what we have seen so far. Should that be the case, we're confident in our ability, as we have in the past, to manage changes in the market environment and adapting quickly, leveraging our diversified business mix and experienced leadership to position our company for continued success. We have made progress in diversifying our business into specialized higher value services and solutions, digitizing our business on common global platforms, and creating talent at scale through our MyPath and Experience Academy initiatives. This should position as well, even in a more turbulent environment, and create competitive strength to our advantage. I'll now turn it over to Jack to take you through the results.

Thanks, Jonas. Revenues in the second quarter came in at the low end of our constant currency guidance range. Gross profit margin came in above our guidance range. As adjusted, EBITDA was 193 million, representing a 22 percent increase in constant currency from the prior year period, or an 11 percent increase on an organic constant currency basis. As adjusted, EBITDA margin was 3.8 percent and came in at the high end of our guidance, representing 50 basis points of year-over-year improvement for 30 basis points organically. Due to the significant strengthening of the dollar, particularly against the euro, year-over-year foreign currency movements had a much bigger impact than usual on our results. This drove an almost 10 percent swing between the U.S. dollar reported revenue trend and the constant currency-related growth rate. After adjusting for the negative impact of foreign exchange rates, our constant currency revenue increased 6 percent. Due to the impact of net acquisitions increasing revenue about 3 percent, and slightly more billing days, the organic days adjusted revenue increase was about 2.5 percent compared to our guidance of 5 percent. The softer revenue trend was the result of more modest growth than anticipated in the manpower brand. Turning to the EPS bridge, reported earnings per share was $2.29, which included 4 cents related to the experience U.S. acquisition integration costs. Excluding the integration costs, adjusted EPS was $2.33. Walking from our guidance midpoint, our results included improved operational performance of $0.02, slightly lower weighted average shares due to share repurchases in the quarter, which had a positive impact of $0.03, a slightly better effective tax rate, which had a positive $0.01 impact, and foreign currency impact was $0.06 more negative than anticipated in our guidance, particularly due to the euro weakness during the quarter. And other expenses had a negative $0.02 impact. Next, let's review our revenue by business line. Year-over-year, on an organic constant currency basis, the Manpower brand reported revenue growth of 1 percent. The Experis brand reported revenue growth of 10 percent. And the Talent Solutions brand reported revenue growth of 13 percent. Within Talent Solutions, we continue to see exceptional revenue growth in RPO and very strong revenue growth in MSP. As the outplacement environment continues to experience low levels of activity, 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 18.2 percent. Underlying staffing margin contributed 30 basis point increase. The experience U.S. acquisition added 30 basis points. Permanent recruitment contributed 90 basis point GP margin improvement as hiring activity continued to be strong across our largest markets. Experience solutions contributed 30 basis point improvement, which was driven by the U.S. business. This was offset by a lower mix of right management career transition business, which resulted in a 10 basis points of GP margin reduction, and other items represented a positive 20 basis points. Moving on to our gross profit by business line. During the quarter, the Manpower brand comprised 57 percent of gross profit. Our experience professional business comprised 27 percent, and talent solutions comprised 16 percent. During the quarter, our manpower brand reported an organic constant currency gross profit increase of 6 percent year-over-year. Organic gross profit in our experience brand increased 20 percent in constant currency year-over-year. This reflects strong growth in higher margin solutions as well as permanent recruitment. Organic gross profit in talent solutions increased 22 percent in constant currency year-over-year. This was driven by the 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 $741 million. Excluding acquisition integration costs, SG&A was 16 percent higher on a constant currency basis and 11 percent higher on an organic constant currency basis. This reflects continued investment in the business, reflecting the addition of recruiters and sales personnel in experience, RPO, and in various growth opportunity markets and manpower. The underlying increases consisted of operational costs of $78 million, incremental costs related to net acquired businesses of $29 million, offset by currency changes of $60 million. Adjusted SG&A expenses as a percentage of revenue represented 14.5 percent in the second quarter. The Americas segment comprised 25 percent of consolidated revenue. Revenue in the quarter was $1.3 billion, an increase of 23 percent in constant currency or 4 percent on an organic constant currency basis, or 6 percent after adjusting for days. OUP was 81 million. As adjusted, OUP was 84 million, and OUP margin was 6.6 percent. The U.S. is the largest country in the America segment, comprising 72 percent of segment revenues. Revenue in the U.S. was 904 million, representing a 44 percent increase, or 12 percent organically compared to the prior year. As adjusted to exclude acquisition integration costs, OUP for our U.S. business was 67 million in the quarter, representing an organic increase of 22 percent. As adjusted, OUP margin was 7.5 percent. Within the U.S., the Manpower brand comprised 26 percent of gross profit during the quarter. Revenue for the Manpower brand in the U.S. increased 3 percent during the quarter, a slight deceleration from the 6 percent growth recorded in the first quarter. The Xperis brand in the U.S. comprised 45 percent of gross profit in the quarter. Within Xperis in the U.S., IT skills comprised approximately 90 percent of revenues. Xperis U.S. had a very strong quarter with revenues growing 25 percent organically, and we anticipate continued strong double-digit organic growth in the third quarter. The acquired U.S. experience business had solid revenue growth during the quarter, and the integration is proceeding on schedule. Account solutions in the U.S. contributed 29 percent of gross profit and experienced revenue growth of 17 percent in the quarter. This was driven by RPO, which continued to win new business and experienced another quarter of record revenue levels, as hiring programs remained very strong. The U.S. MSP business continued to perform well with strong revenue growth in the quarter, Within right management, career transition activity remains low. In the third quarter, we expect ongoing strong revenue growth for the U.S. in the range of 34 percent to 38 percent year-over-year, or 6 percent to 10 percent organically. Our Mexico operation experienced a revenue decline of 61 percent in constant currency in the quarter, representing a stable trend since the commencement of the new labor regulation in 2021. We begin to anniversary the impact of the regulations in August and expect a revenue decrease of approximately 23 percent to 27 percent in the third quarter. Southern Europe revenue represented 43 percent of consolidated revenue in the quarter. Revenue in Southern Europe came in at 2.2 billion, growing 2 percent in constant currency. OUP equaled 112 million, and OUP margin was 5.1 percent. France revenue comprised 56 percent of the Southern Europe segment in the quarter and increased 4 percent in constant currency. OUP was 62 million in the quarter, and OUP margin was 5 percent. France experienced a decelerating revenue trend during the quarter as Russia-Ukraine related supply chain disruptions continued to impact the automotive sector and, to a lesser degree, construction and logistics. As we begin the third quarter, we are estimating a year-over-year constant currency revenue trend for France in the range of minus 1 percent to plus 3 percent. Our recent revenue trend in the month of June was plus 1 percent, which also represents the midpoint of our third quarter guidance range for France. Revenue in Italy equaled $454 million in the quarter, reflecting an increase of 11 percent in days adjusted constant currency. OUP equaled 35 million, and OUP margin was 7.8 percent. We estimate that Italy will continue to have solid growth in the third quarter, with the year-over-year constant currency revenue increase in the range of 1 percent to 5 percent, which represents mid-single-digit growth at the midpoint on a days-adjusted basis. Our Northern Europe segment comprised 20 percent of consolidated revenue in the quarter. Revenue of $1 billion was flattened organic constant currency or represented 1 percent growth adjusted for billing days. OUP represented 11 million, and OUP margin was 1.1 percent. Our largest market in the Northern Europe segment is the U.K., which represented 36 percent of segment revenues in the quarter. During the quarter, U.K. revenues decreased 6 percent in constant currency, or 4 percent adjusted for billing days. This reflects the exit of certain low-margin arrangements replaced with higher fee-based margin business. Considering this, our U.K. business is performing well, and we expect low- to mid-single-digit constant currency revenue growth in the third quarter. In Germany, revenues decreased 9 percent in days adjusted constant currency in the second quarter. As we have discussed in the past, Germany is one of the most difficult markets for our industry due to the regulations impacting management of the bench workforce, the outsized impact of the automotive sector, and more recently, the impact from the Russia-Ukraine war. Although we have made some progress in improving the business, we are not satisfied with the rate of improvement and have more work to do in this challenging market. Overall, we are expecting a similar year-over-year revenue trend in the third quarter. The Asia-Pacific Middle East segment comprises 12 percent of total company revenue. In the quarter, revenue grew 10 percent in concurrency to $604 million. OUP was $23 million, and OUP margin was 3.7 percent. Our largest market in the APME segment is Japan, which represented 45 percent of segment revenues in the quarter. Revenue in Japan grew 13 percent in days adjusted constant currency. We're very pleased with the performance of our Japan business, and we expect continued strong revenue growth in the third quarter. I'll now turn to cash flow and balance sheet. In the six months here to date, free cash flow equaled a cash outflow of $20 million compared to positive free cash flow of $171 million in the prior year. In the second quarter, free cash flow represented a cash outflow of $72 million compared to positive free cash flow of $43 million in the prior year. The cash outflow during the second quarter was driven by strong growth in North America and timing of payables. We expect to resume strong free cash flow in the second half of the year. At quarter end, day sales outstanding was up about two days year-over-year at 58 days. Capital expenditures represented $23 million during the second quarter. During the second quarter, we repurchased 1.14 million shares of stock for $100 million. As of June 30th, we have 3.5 million shares remaining for repurchase under the share program approved of August of 2021. Our balance sheet ended the quarter with cash of $886 million and total debt of $1.4 billion. On June 30th, we issued a new 400 million euro note as part of our refinancing of the euro note of the same amount scheduled to mature in September 2022. With the proceeds from the June 30th sale, we repaid the maturing euro note during the first week of July. As a result, the balance sheet of June 30th reflects the temporary increase in our debt as a result of the refinancing activity. The adjusted amounts presented on the slide reflect the underlying debt and capitalization ratios without the additional Euro note for this brief period. Net debt equaled 537 million at quarter end. Our debt ratios at quarter end reflect total adjusted gross debt to trailing 12 months adjusted EBITDA of 1.22 and total adjusted debt to total capitalization of 29 percent. Our debt and credit facility summary reflects the new Euro note issuance maturing in June of 2027 and an effective interest rate of 3.514 percent. As I noted, this issuance has now replaced the previous 400 million euro note, which was repaid shortly after quarter end. During the quarter, we also entered into a new 600 million revolving credit agreement for a new five-year term maturing in May of 2027. These new credit arrangements further strengthen our debt duration and overall balance sheet position. We expect to repay the remaining 50 million related to the prior year U.S. experience acquisition during the third quarter. Next, I'll review our outlook for the third quarter of 2022. Our guidance continues to assume no material additional COVID-19 or Russia-Ukraine war-related impacts, including energy-related disruptions in Europe, beyond those that exist today. On that basis, we are forecasting underlying earnings per share for the third quarter to be in the range of $2.19 to $2.27. which includes an unfavorable foreign currency impact of 29 cents per share. This does not include the impact of projected acquisition integration costs of $4 to $6 million, which will continue to be broken out separately from the ongoing operations. Our constant currency revenue guidance growth range is between 4 percent and 8 percent, and at the midpoint represents 6 percent. After adjusting for the acquisition of the U.S. experience business, the disposition of Russia, and an almost equal number of billing days in the third quarter, our organic days adjusted revenue growth represents 3 percent at the midpoint. This represents a stable to slightly improving trend from the second quarter revenue growth on the same basis. The third quarter revenue trend incorporates solid revenue growth across our industry verticals in our major markets, with the exception of automotive, which we expect to continue to be sluggish predominantly in France and Germany, and to a lesser degree, construction in France. Our third quarter guidance assumes a stable economic environment throughout the full quarter and assumes the important September post-holiday period in Europe experiences no material trend change in demand. We expect our EBITDA margin during the third quarter to be up 60 basis points at the midpoint compared to the prior year, with the acquired U.S. experience business contributing 20 basis points of the improvement. We estimate that the effective tax rate for both the third quarter and the full year of 2022 to be 30%. As usual, our guidance does not incorporate restructuring charges or additional share purchases, and we estimate our weighted average shares to be 52.8 million. I will now turn it back to Jonas.

Thanks, Jack. We continue to make good progress in our strategy to digitize, diversify, and innovate, and our investments to create talent at scale through MyPath and Experience Academy. On diversification, our experience business continues to grow very nicely globally, particularly here in the US, which is the largest market for IT resourcing and where our market share is strong, as well as in the UK and other key markets globally. We also expanded our higher value talent solutions offering with a small acquisition in July in France, which expands our capabilities in the public sector. Having just attended the Choose France event hosted by President Macron, I note that our industry is seen as an important contributor to achieve the French government's ambitious labor market agenda for full employment, which is very encouraging. On digitization, we continue to execute our global technology agenda at pace, including the completion of the large PowerSuite implementation final wave of the US manpower business, which followed the US experience implementation conducted in prior years. We also successfully transitioned the US acquired experience business onto our PowerSuite front office during the quarter. So US and global IT teams have been quite busy executing these successful implementations in the past quarters. And on innovation, we continue to make excellent progress. For the sixth consecutive year, we were the gold HR partner at VivaTech. Attended by half a million people over four days, VivaTech serves as an excellent platform from which we can showcase human capital innovation through our experience, IT resourcing, and project solutions offerings, as well as our tech innovations across the talent solutions and manpower brands. During the event, we also launched our new Age of Tech Talent Report, on which tech skills are most in demand globally. The innovations we showcased at VivaTech included our move into the metaverse with our virtual reality skills insight assessment, RightMap, our data-driven digital career management offering, as well as Manpower MyPath and Experience Academy, providing our clients with solutions that create, develop, and retain talent and use machine learning and AI to upskill and reskill in-demand tech workers at speed and scale, all of which is matching people to meaningful, sustainable jobs with better accuracy than either humans or machines could do on their own. We were proud to host more than 20 HR tech startups in our Working to Change the World Lab, using innovation to represent our ESG commitments around planets people and prosperity, and principles of governance. We also hosted many of our clients and other partners that demonstrate our community investment, including Junior Achievement, the world's sixth largest NGO that reaches more than 14 million young people each year and whose global board I'm honored to chair to showcase examples of creating entrepreneurial talent for the jobs of today and tomorrow. And finally, As further reinforcement and external recognition of our diversification, digitization, and innovation capabilities, we are very pleased to be named Star Performer and Global Leader in Recruitment Process Outsourcing for the 12th year in the Everest Group PEAT Matrix Assessment, recognized in both Global and EMEA categories. Everest especially recognizes our breadth of global service offerings strong performance across a portfolio of buyers of all sizes, and continued investment in our PowerSuite technology stack, including our automated rapid recruit solution and IntelliReach, which is our data and analytics portal. This is recognition to all of our Global Talent Solutions team, and I thank them and the rest of the Manpower Group team for another quarter of good results and for delivering on our purpose to find meaningful and sustainable employment for millions of people every year. I'd now like to open the call for Q&A. Operator.

Thank you. We will now begin the question and answer session. To ask a question, you may press star followed by the number one. Please unmute your phone and record your name as well as your company name clearly when prompted. Your name and company name is required to introduce your question. And to cancel your request, you may press star and then the number two. One moment please for the first question. Thank you for waiting. Our first question is from Andrew Steinerman of JP Morgan. Your line is now open.

Hi, Eunice. I wanted to just kind of go over the macro picture. I know you just gave third quarter guide that included an assumption of stable economic environment here. Could you give us a sense of where you think we are in terms of the U.S. and European economic cycle as central banks are hiking interest rates to fight inflation? And have you seen wage inflation stabilize yet?

Good morning, Andrew. Yes, and that is the question on everyone's mind. Where is this going? I think, as you heard us say in our prepared remarks, the first observation is that from a client behavior at this point, we see no change in their desire to acquire more skilled workers of various kinds across industries, with the exceptions we've talked about, such as automotive in some markets and construction, as well as logistics to a lesser degree. What is equally clear is that many of our clients are quite concerned about the economic outlook on the one hand, but when we ask them how they're feeling about their own business, they're saying that they're still working through the pent-up demand from the pandemic, that they're looking for more talent, they're looking for our help in more ways than we were able to provide them even before the pandemic. So their view is that talent is going to be immensely important for them as they navigate through this turbulent environment. And as we've discussed in the past, Andrew, during turbulent times, during growth times, but with greater uncertainty, our clients are looking to us to provide operational and strategic flexibility. And certainly that's what we would expect also going forward. So based on what we are seeing, across labor markets, across the demand structure that we have today, I think we're feeling good about our outlook. If you then look at this from a US versus Europe perspective, the US economy is very strong. Labor markets are very strong. But as you will have noted, as we discussed in our last earnings call, wage inflation appears to be sitting around 5% and not moving higher in any discernible way. Wage inflation in Europe is lower than what it is in the U.S., and I think there are a few months behind. You can still see some wage inflation in Europe to a greater extent than what we see in the U.S., but we would expect this to stabilize as well, and the rate of growth to come down slightly in the coming months as well. So, so far, you know, you can still see PMIs being positive both in Europe and in the U.S. So we are in a slowing growth environment, Andrew, and not at this point seeing any indications in terms of our client behavior, in terms of our demand picture, and in terms of the strength of the labor markets.

of anything that's that's different to that excellent that was well said thank you so much thanks andrew thank you mr steinerman our next question is from the line of kevin mcfay of credit suisse their line is now open great thanks so much and thanks for all the good color

Hey, Jack, can you give us a sense? It seems like the EBITDA was at the higher end of the range versus the revenue at the lower. Any puts and takes on profitability? Was that primarily mix or anything else that drove the EBITDA performance?

Yeah, no, I'd be happy to talk to that, Kevin. Yeah, I'd say the higher end of the range, as you look at the GP bridge, you can see the higher margin offerings in businesses had higher growth across the board. So that's really the impact of experience coming through. That's the impact of talent solutions coming through, both of them at double-digit growth. And when those businesses are growing faster, then that's going to drop down to both our GP margin, but importantly, our EBITDA margin. And so that's part of our ongoing strategy to continue that trend. Certainly, perm recruitment had an impact as well. And so we've been seeing consistent, strong perm hiring trends across our largest markets. And that's the biggest item in the GP bridge. And that actually was a driver as well in that top of the end range on the EBITDA margin. But other than that, Kevin, I'd say it was a pretty clean quarter. I know a year ago, we had a pretty big direct cost adjustment that impacted earnings, that we didn't really have that this year. So, considering that, you know, the up 50 basis points year over year, if you consider the fact that last year it splattered 20 basis points, it's actually on an underlying basis been a bit better on an overall basis. So, that's what I'd say in terms of the EBITDA trend.

That's helpful. And then just real quick, Given the dramatic shift in currency and just obviously the war in Ukraine and energy, are you seeing any shift from a client perspective in terms of outsized impact in different industries that you'd call out one way or the other? Again, just obviously the currency seems like it's a big driver of where the guidance sat, but just any shift in behavior from an FX or just energy perspective within the client context?

Yeah, no, I'd say from an FX perspective, you know, we operate largely in the local currency in our market. So as a result, FX doesn't really impact client demand in our major markets. So we're not seeing an impact from FX. I think from an energy standpoint, I think, you know, similar to Jonas's comments, Energy certainly has been a contributor to year-over-year inflation on a general standpoint, and certainly in Europe it's been more severe. But so far that has not impacted demand for our services. So we have not seen, you know, a significant impact. Now, certainly we've talked about the sectors that have been disrupted by supply chain issues, and some of that could be energy-related. But on an overall basis, putting supply chain disruptions to the side We really haven't seen a significant impact on demand for those reasons.

Awesome. Thank you so much.

Thank you. Our next question is coming from Jeff Silber of BMO Capital Markets. Your line is now open.

Thanks so much. Jonas, you briefly alluded to President Macron in France. I know he won his election, but his party did not win. Do you see any changes, either positive or negative, because of this governmental structure going forward in France?

You know, spending a lot of time last week with all of the – relevant ministries and hearing President Macron speak and hearing their thinking about how they intend to drive their structural reforms forward, they don't appear to be overly concerned with our ability to get the main pillars of their programs implemented. And from our perspective, what's, of course, important is the change in business tax that they have talked about. And, you know, listening to Bruno Le Maire and asking him about that, he reaffirmed his commitment to the business tax change in the 2023 budget, which from our perspective is very positive. Talking to the labor minister in terms of our role as a manpower group in France and helping them move to the next level of employment progress in terms of their stated objective for full employment and how important they see our contributions there. We really feel very good about France under the Macron administration and also feel very good about their ability to drive through their structural reform programs that they have outlined during the election. What's important to remember, Jeff, is that you have uh... a uh... parliament that where the macro administration is clearly and by far the biggest player and you have many smaller players on the right and on the left but most of the time have opposing views on various aspects of any program so the likelihood that all of the various uh... extremes would be able to unite and go against as a majority vote against the Macron administration seems very unlikely. Possible, of course, but very unlikely. And especially on the broader economic and labor market initiatives that we're interested in, you know, we think that the Macron administration is going to be able to drive it through. And for that reason, I have to say that I feel very good about the French markets and the policies that are going to make France more competitive and as such, for us, an extremely important market to continue to dwell in.

Okay, that's really helpful. And then shifting gears a little bit more broadly, you've mentioned energy-related disruptions a number of times. We've been reading, you know, potentially things get worse as we head into the winter. And if they cut off, you know, Russian supplies, you know, especially in Germany, they're talking about rationing. I know it still may be early, but are you hearing any discussions along those lines from any of your clients, either in Germany or anywhere else in Europe? Thanks.

Overall, just as you are, I am reading in the papers around the preparations that Europe is making for that very eventuality. And in the sessions with the French government last week, for instance, you know, a lot of their hypotheses and their planning is around the zero supply of gas into Europe and what that would mean. So Europe is preparing, I think, for all alternatives. And, you know, the outlook, you know, and they appear to feel that there are options and ways of working around it. No doubt it appears that it could become quite difficult, also depending on the severity of the winter. If it's a mild winter, it would be less severe. If it's a more severe winter, You know, it'd be more difficult. But as you can tell, these are things that are entirely out of our control. And, you know, coming back to what this means to us, at this point, we don't see any of our clients changing their behavior or asking us to do anything different than trying to find them the talent that they need to execute their on their business strategies. And for now, that's what we're seeing. We, of course, are fully aware of what could happen, but how it would be resolved and whether it actually happens, that's something we just have to be ready to react to. And as you well know, we are very used to reacting quickly to changes in market, and we would do that in this case as well.

Okay. Really appreciate the call. Thanks so much.

Thanks, Jeff.

Our next question is from the line of Mark Marken of Baird. Your line is now open.

Good morning, Jonas and Jack. I'm wondering, can you talk a little bit about what your expectations are, you know, in terms of cyclical sensitivity for the talent solutions business as well as experience? obviously you've had a fairly significant shift in terms of the business mix. And I'm wondering, you know, particularly talent solutions, how you, how you think that and, and perm, you know, would end up operating if, you know, things slow down a little bit further.

Well, we have a positive view on the diversification, as you heard me say earlier, in the prepared remarks and Jack talked about, you know, the shift in our business mix and what that is doing to our operating and EBITDA margins. And we think that this increased diversification will serve us well during a cyclical downturn. PERM tends to be more cyclical sometimes than temporary staffing or resourcing solutions But at the same time, I would say that, you know, the environment that we're looking at from a labor market perspective would make us think that in the proximity to the pandemic, how clients react in a downturn today, especially if it's of a lighter variety, so maybe more of a technical recession or a shallow recession, if that were to happen, companies will remember what it was like to find talent after the pandemic. And they've worked very hard and are frankly still working very hard at finding the talent they need to execute on their plans. So we think that the position that we have obtained across manpower experience and talent solutions, both from a resourcing on the temporary or contingent side, as well as on the perm side, will be very good for us as we go into a time of a need for greater flexibility from a company perspective, because we can ramp up and down quickly on their behalf. So I think the position that we have, both from a business mix diversification and the proximity to the pandemic and the memories of what that kind of talent shortage market looks like, could give us actually an opportunity to experience more resilience in our business model than what we have seen in the past.

That's great.

And then, obviously, the U.S.

business has diversified the most, and clearly we're seeing the benefit with regards to the margins. To what extent do you think of the U.S. as basically being a template that could be exported to a greater extent across your international operations.

Well, clearly, we are driving that kind, the diversification that you're seeing us do in the U.S. and many other, in many other geographies as well. I would note, though, Mark, that the composition of the market itself in the U.S. is quite different from what you see in Asia-Pac, in Latin America and especially in Europe. So, I think we're going to be pushing the market, you know, the market composition in terms of our own diversification harder. But, you know, it's important to remember that the market composition in the U.S. is also much bigger diversification than what you see in Europe and in Latin America and in Asia Pacific. But having said that, our strategy is the same. We're diversifying our business to higher margin, faster growing businesses between the brands, Experis and Talent Solutions and Manpower, and also within the brands. In Manpower, we see some good growth in higher level skilled specializations, both from a contingent side and especially from a perm side. And that is something that we will continue to drive across all of our geographies, Mark.

Great. Thank you.

Thank you. Our next question is from the line of Karthik Mehta of North Coast Research. Your line is now open.

Good morning. You know, you've talked about your clients are a little bit concerned about the economy but haven't made any changes. Is that surprising at all that clients are reading and a little bit concerned about the economy but they're not making any behavioral changes or demand changes?

I think, Karthik, what we're seeing is, you know, the individual business doing well, having a great order stock... and still working through the pent-up demand and, you know, the supply chain issues that they may have experienced. And that's what their, you know, staffing and recruitment activities in their businesses are indicating. But at the same time, they're looking out, they're reading, and they're clearly understanding that, you know, the central banks across the world are trying to bring down inflation, which means cooling down the economy. So they are seeing what is the intent, but they are living a reality of a continued strong business environment for them. So this is a bit of a time where it's all going to be a question of the economy bending. So economic growth slowing, labor markets maybe cooling off a little bit, but remaining very strong. And then coming back to improved growth or economies coming down into a recessionary environment of some kind. And I think that's what they are debating. But at this point, as we mentioned in our prepared remarks, none of them, most of the clients that we're working with are not experiencing drops in demand that are changing behavior. They continue to express difficulties due to supply chain, which is impacting their ability to produce and manufacture and deliver certain services. So that's what they're still dealing with at this stage.

And then just one last question. You talked a little bit about wage inflation and the rate of growth slowing. Is that translating into greater talent availability, or how does talent availability look for you?

Well, so first, talking about inflation specific to our business model, as we've talked about in the past, generally wage inflation benefits us as the majority of arrangements pass those wage inflations on to our clients, and that's what we need to do to be able to find and recruit the talent. But, you know, in terms of impact on the global economy, clearly, you know, there is going to be something to watch on the – inflation and the recovery, and we know this is the top priority. So, although we can see the risk on inflation, generally speaking, as a cooling effect on the economy from our business model, you know, it is still something that is working well.

Edward Bernstein And I would just add to that, Kartik, is, you know, Jonas has talked about in the past, in terms of the availability of supply, The one market where we have been very vocal in the past where it was very difficult was the U.S. And we talked a lot about that last summer. And what we saw starting in the fourth quarter and continuing into the first quarter was supply improved. So particularly in the manpower brand and the commercial staffing side of things. And, you know, the update on that through the second quarter is those trends are generally holding up. So supply has improved in the U.S., which used to be the extreme. And generally, I would say that that is going to be an opportunity for us based on these current trends that we've been talking about. So although there could be some impact for all the reasons we've been talking about on this call in terms of some of the economic clouds that are out there, that should be favorable for supply. And so that will be an offsetting factor for us, particularly on the commercial staffing side.

Thank you very much. I really appreciate it.

Thank you. Next one in queue is Mr. Toby Sommer of Truist. Your line is now open.

Thank you. In the context of the macro uncertainty but still kind of unwavering demand, how are you managing your growth in your own sales-related staff across geographies and lines of business?

As you might have, you know, heard on the call, Toby, we are continuing to invest in talent in the areas where we see great opportunities. And notably, you know, in the past quarter, you know, that's been in RPO, in our PERM offerings, in experience, in MAMPAR specializations, in a number of markets. So we still have had a forward-leaning posture as it comes to investing in talent, and by now we are well above our pre-pandemic levels of talent within MAMPAR Group, and we feel good about that also coming into the third quarter. Having said that, of course, we monitor the evolution very closely and we're able to adapt that, but at this point, we still think that there is opportunity for growth and where those opportunities exist. We're investing in hiring recruiters as well as salespeople across the three brands.

And conversely, are there any, any pockets or geographies of lines of business where you slowed or halted investment in sales related stuff?

Well, you could see that, you know, we're in the countries where we've had more difficulties, notably in Germany due to the automotive sector, That's clearly an area where we're pulling back and we're being more cautious also with an outlook maybe that could look more challenging. But even there, within pockets such as in talent solutions and in permanent recruitment, we still feel good about adding resources in specific areas of Germany. So we make that assessment on a country-by-country, on a brand-by-brand basis. on an ongoing and continuing basis as well.

And I would add to that, Toby. So to Jonas's point, it's really in those sectors where they've been impacted by supply chain that, as you would expect, you know, we are not adding salespeople in those parts of the businesses. And that's primarily manpower. But when I look across our largest businesses, Japan, is probably near the top of the list. And again, Japan has been a very special market that grew during the entire pandemic and continues to have very strong double-digit growth. I would also add the U.S. in there, as we've talked about. We've been investing very heavily in the experience and talent solutions businesses. You clearly see that coming through in the results. And I would include Italy in there as well. So Italy has been growing very nicely, and Italy's had some very, very strong permanent recruitment coming through as well. So just a little bit of color. I think, you know, I would add the Nordics to the list as well. Seeing very good positive growth trends there, and we're seeing good opportunities for continued growth as well.

Thank you very much.

Our next question is from George Tong of Goldman Sachs. Your line is now open.

Hi, thanks. Good morning. Taking a step back, you mentioned that you're seeing soft as an expected organic revenue growth trends in the manpower brand business. How do you reconcile that with your observation that labor markets remain strong? And I guess, where are you seeing the pockets of weakness?

The pockets of weakness are Far and few between, if you look at the labor markets, you can see that participation rates in Europe are above pre-pandemic levels. European employment is higher than it's been in decades. Our employment here in the US is also very high and unemployment very low. And as Jack just mentioned, you know, the only weaknesses that we would see really come from the pockets that are impacted by supply chain. And in the case of the U.S., you can see that some of the weakness comes through in sectors where the consumers are pulling back. You know, notably, a lot of tech companies that saw a surge during the pandemic, be it in streaming or tech products, you know, they're pulling back a bit. Consumption of retail products is being traded against experiences and travel. and, you know, leisure spend instead by the consumers. So, you know, you're seeing some shifts within, but if you then step back and you look at the overall picture of the labor market, the labor markets are still very, very healthy. And, you know, the weaknesses at this point are absorbed by excess demand and strength in other parts of the economy. And that's certainly true both for the U.S. and Europe.

Got it. Based on the latest PRISM data in France, we're seeing a slowdown in French temp staffing growth. Can you elaborate on the labor market conditions there and the key drivers?

Yeah, no, we can see that the PRISM data really reflects the reality of our own business. And we have seen the French market cool down. And I think the French market has been hit particularly around construction, access to materials, as well as automotive being an important part of the French economy. But speaking to the labor minister last week, his outlook for the French labor market is still very bullish all the way through the end of the year. So despite an increase in retirements, and as you know, George, retirements in Europe are mandated and they are age-based, so the outflow from the labor market is known on a year-by-year basis. He expects job creation to offset that decline, participation rates to continue to move up, and the labor market to continue to be in very good shape. So, you know, the French labor market is still looking strong, but it does have pockets all the weakness in certain sectors. Now, since most of those are supply chain related, which many companies believe will start to improve over the course of the coming 12 months, I would say overall, the outlook at this point in France is for the labor market is still looking good.

Very helpful. Thank you.

Thank you. Our last question in queue is Mr. David Silver from CL King. Your line is now open.

Yeah, hi. Thank you. I had a question, I guess, about customer attitudes towards utilizing manpower's outsourcing services. So I guess situations differ regionally, but if we are in kind of a – slower slowing economic environment if Europe is facing maybe somewhat greater uncertainty related to geopolitical events. I mean, maybe if you could just touch on the customer attitudes towards utilizing manpower's outsourcing services? In other words, do they see a slowing economy as an opportunity to reduce their fixed cost base by tapping manpower to handle some functions? Or is it alternatively the case that maybe internally if there is a slower economy, they might choose to handle more things captively? So how do you see outsourcing demand maybe in the US and then in Europe responding to a slowing global economy. Thank you.

The two scenarios we think about as you consider a slowing scenario are really twofold. The gradual slowing and the knowledge of a slowing economy means that companies tend to want to become more flexible, more adaptable, able to pivot quicker should the market take a further turn down. And that can be very beneficial for manpower, frankly, experience, as well as talent solutions, because companies in the U.S., and frankly, even to a greater degree in Europe, then resort to our services to provide them that strategic and operational flexibility. And, you know, in an environment where the labor markets are tight and you have slowing growth rates, which improve the supply of available labor, you know, we could have some good opportunities not only in terms of improving the penetration rates as in the use of our services, but also benefiting from an increased supply of labor. Of course, in a more severe downturn, such as the one we experienced in 2008 and 2009, and to its extreme for the brief period of time during the pandemic, you get a very quick reduction in the provision of our services. And that comes mainly from a very big, surprising downward trend or event that reduces the need for labor overall. So I guess those are the two scenarios you can think about. And what we believe that what we're seeing at least now is knowledge of an economic headwind, slowing growth, but PMI still being expansionary, about 50, both in Europe as well as in the U.S. and elsewhere. So we still think, based on the outlook we have for the third quarter, that there are some good opportunities for us to continue growth, and that's why we guided the way we did into the third quarter.

Thank you very much. Could I just ask one quick question related to, you know, your cash deployment strategies and how it relates to the overall economy, economic outlook. In other words, year to date, I think your working capital needs have increased by about $300 million. And you've also chosen to accelerate or to conduct share buybacks in dollar terms at a pretty high level. Just given the overall economic outlook as you see it, should I interpret your cash deployment programs here as indicating your increased confidence in the company's ability to manage whatever variations in the economic and demand outlook that you see? Or are there some other aspects that I should be taking into consideration? In other words, what's driving maybe the confidence or the cash deployment strategies for the first half, which seemed to me to indicate a rising or a meaningful management confidence in your ability to manage whatever

you know scenario presents itself thank you thanks David for that question and I'll talk to that briefly I think what I'd start with is our capital allocation strategy really remains unchanged I think we have a pretty consistent track record I would agree with your statement that we are we are confident I think we are quite confident with the profile of the balance sheet with our our free cash flow opportunity and our cash collection efforts overall. So, you know, I think what you're referring to is we've been very open on our share repurchase element of our capital allocation plan that were opportunistic. And what you're really reflecting is that we were opportunistic in the second quarter. You saw a higher level of share repurchases, so we were. in the market in June, and we're able to average in some pretty good purchases at some pretty favorable price levels. So, I would say you should expect that, you know, that's going to continue to be an important element of the way we look at capital allocation overall. You know, we've always said that the dividend is a priority. You saw the nice dividend increase that our Board approved in May, And so in a good stable economic environment, you should expect progressive increases. And we were very proud of the fact that we held the dividend stable in the depth of the pandemic as well. But beyond that, if there is additional cash, you know, the first thing is if there is an acquisition that'll be devoted to the resources for the acquisition, you saw that with the attained group purchase. And if there isn't an acquisition, then you should expect that share purchases will continue to be an important part of our overall capital allocation program. So I would say that. So thank you for the comments. And I'll turn it over to Jonas.

Thank you, Jack. And that brings us to the end of our second quarter earnings call. Thank you very much for attending. Thank you for your questions. And we look forward to speaking with you on our next earnings call. Thanks everyone. Have a good rest of the summer.

Thank you speakers and that concludes today's call. Thank you all for joining. You may now disconnect.