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spk02: Hello, and welcome to the Manpower Group first quarter 2024 earnings call. At this time, all participants are in listen-only mode. After the speaker's remarks, there will be a question and answer session. To ask a question at that time, please press star 1-1. As a reminder, this call is being recorded. I would like to turn the call over to Jonas Friesing, Chairman and CEO. Please go ahead.
spk12: Welcome, and thank you for joining us for our first quarter 2024 conference call. Our Chief Financial Officer, Jack McGinnis, is with me today. And 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 first quarter, and then Jack will go through the results and guidance in more detail. And I'll 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 concerning economic and geopolitical uncertainty, 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. Last quarter, we stated that though the economy remains resilient in many markets, uncertainty around the outlook persists, leading employers to be cautious in their hiring, pausing non-critical spend, and deferring projects until more clarity emerges. One quarter in, we see a continuation of this trend. Labor markets are cooling in North America and in Europe, yet remain strong. In our most recent Manpower Group Employment Outlook Survey, employers reported increased caution in their hiring due to economic uncertainty. At the same time, as they look beyond the current period of economic uncertainty, business leaders feel optimistic about the future, and they are clear that skilled talent is the cornerstone to success, and are holding on to their existing workforces today. That's how demand remains strong for some skilled workers and talent shortages persist despite a cooling broader environment. Our industry remains on the leading edge of labor market trends, and the impact of the softening environment has been felt here first. Demand for temporary staffing has been running at lower levels in most markets in North America and in Europe. We have, however, seen continued stabilization in various key markets, most notably in the US, the UK, but now also in some other European markets, albeit at low levels. Permanent recruitment activity also continues to trend at stable levels over the last three quarters. With that said, although stabilization is often an encouraging first step towards growth, at this point, it is still too early to call out an inflection in improving demand. We continue to navigate the current environment with agility and dexterity, driving increased sales activities to generate demand and maintaining focus on strategic initiatives that position us to capture growth and greater productivity when market conditions improve. Turning to our financial results, in the first quarter, revenue was $4.4 billion, down 5% year-over-year in constant currency, or down 6% as adjusted. A reported EBITDA for the first quarter was $74 million. Adjusting for a runoff for Serbia business in Germany and a minor loss for Argentina-related currency translated losses, EBITDA was $80 million, representing a decrease of 38% in constant currency year-over-year. Reported EBITDA margin was 1.7%, and adjusted EBITDA margin was 1.8%. Earnings per diluted share was 81 cents on a reported basis, while earnings per diluted share was 94 cents on an adjusted basis. Adjusted earnings per share decreased 39% year-over-year in constant currency. In the first quarter, I spent time with our teams in Europe, Asia Pacific, Latin America, and North America. The global labor market is diverse, and disparities exist across regions, industries, and demographic groups. But some sectors have experienced job losses and economic downturns. Others have seen growth and expansion, and this corresponds with the shifts we're seeing. Demand in Latin America and Asia Pacific remains solid, while in North America and in Europe we continue to see subdued demand for resourcing and, except for our placement, workforce solutions. At the same time, we expect the digital transformation across industries, the rise of AI, and the strength of the green transition will create new opportunities as demand for specialist talent grows. Amid these shifts, The ability to build a workforce that can adapt at pace as transformation accelerates is critical, and we believe Manpower Group has a big role to play in filling these needs for our clients in the future. I will now turn it over to Jack to take you through the results in more detail. Thanks, Jonas. Revenues in the first quarter came in at the midpoint of our constant currency guidance range. As adjusted, gross profit margin came in above our guidance range and was at the midpoint of our range on a reported basis. As adjusted, EBITDA was $80 million, representing a 38% decrease in constant currency compared to the prior year period. As adjusted, EBITDA margin was 1.8% and came in at the midpoint of our guidance range, representing 100 basis points of decline year over year. During the quarter, year-over-year foreign currency movements had an impact on our results. Foreign currency translation drove a 2% unfavorable impact to the U.S. dollar reported revenue trend compared to the constant currency decrease of 5% or 6% as adjusted. Organic days adjusted constant currency revenue decreased 4% in the quarter, slightly better than our guidance. Turning to the EPS bridge on slide four, reported net earnings per share was 81 cents which included $0.13 related to the runoff of our ProServia managed service business in Germany, and a minor non-cash foreign currency loss related to the translation of our hyperinflationary Argentina business. Excluding these items, adjusted EPS was $0.94. Walking from our guidance midpoint, our results included a stronger operational performance of $0.01, lower weighted average shares due to shareholder purchases in the quarter, which had a positive impact of $0.01, foreign currency impact that was $0.02 worse than our guidance, and a tax rate which had a positive impact of $0.04, and interest and other expenses had a negative impact of $0.03. Next, let's review our revenue by business line. Year over year, on an organic constant currency basis, the Manpower brand declined by 3% in the quarter. The Experis brand declined by 11%, and the Talent Solutions brand had a revenue decline of 11%. Within Talent Solutions, our RPO business experienced a year-over-year revenue decline in line with the trend from the fourth quarter. Our MSP business revenues were basically flat compared to the prior year period, reflecting sequential improvement from the fourth quarter, while White Management experienced solid year-over-year revenue growth on higher outplacement volumes in the quarter. Looking at our gross profit margin in detail, our gross margin came in at 17.5% for the quarter after adjusting for the runoff of our Germany pro servia business. Staffing margin contributed a 50 basis point reduction due to mix shifts and lower volumes while pricing remained solid. Permanent recruitment, including Talent Solutions RPO, contributed a 50 basis point GP margin reduction as permanent hiring activity in the first quarter remained stable at lower levels consistent with recent quarter trends. Right management career transition within Town Solutions contributed 20 basis points of improvement as outplacing activity continued to be solid in the first quarter. Other items resulted in a 10 basis point margin increase. Moving on to our gross profit by business line, during the quarter, the Manpower brand comprised 58% of gross profit. Our experienced professional business comprised 25% and Talent Solutions comprised 17%. During the quarter, our consolidated gross profit decreased by 9% on an organic constant currency basis year over year, representing a slight decrease from the 8% decrease in the fourth quarter. Our Manpower brand reported an organic gross profit decrease of 6% in constant currency year over year, representing a mixed-related additional decline from the 4% decline in the fourth quarter. Gross profit in our experience brand decreased 16% in organic constant currency year-over-year, representing a slight additional decline from the 15% decrease in the fourth quarter, driven by continental Europe. Gross profit in talent solutions decreased 11% in organic constant currency year-over-year, representing an improved sequential trend from the 14% decline in the fourth quarter. Although RPO volumes were relatively stable from the fourth quarter, the year-over-year GP decrease improved slightly. MSP experienced an improved GP trend from the fourth quarter, while right management continued to experience solid outplacement activity. Report of SG&A expense in the quarter was $698 million. Excluding the runoff of our Germany pro servia business, SG&A was 5% lower year over year on a constant currency basis, representing a further decrease from the 4% decline in the fourth quarter on an adjusted basis. This reflects organic headcount reductions of 10% year-over-year. Our digitization strategy focused on transforming back office functions will drive further cost efficiencies, and our corporate expenses reflect this investment. These strategic investments are progressing nicely and are expected to drive medium and long-term productivity and efficiency enhancements across our technology and finance functions worldwide through shared service centers leveraging leading global technology platforms. The underlying year-over-year SG&A decreases largely consisted of operational costs of $32 million and currency changes of $9 million. Adjusted SG&A expenses as a percentage of revenue represented 15.7% in constant currency in the first quarter. The proservia Germany runoff expense represented $2 million. I'm pleased to note there were no restructuring charges during the quarter. The America segment comprised 23% of consolidated revenue. Revenue in the quarter was $1 billion, representing a decrease of 1% compared to the prior year period on accounts of currency basis. OUP was 26 million, and OUP margin was 2.5%. The US is the largest country in the America segment, comprising 66% of segment revenues. Revenue in the US was 680 million during the quarter, representing an 8% days adjusted decrease compared to the prior year. OUP for our U.S. business was 12 million in the quarter, representing a decrease of 61% after adjusting the prior year for minor restructuring costs. OUP margin was 1.8%. Within the U.S., the Manpower brand comprised 22% of gross profit during the quarter. Revenue for the Manpower brand in the U.S. decreased 13% during the quarter, which was stable from the decrease in the fourth quarter. The experience brand in the U.S. comprised 45% of gross profit in the quarter. Within experience in the U.S., IT skills comprised approximately 90% of revenues. Experience U.S. revenue decreased 6% during the quarter, an improvement from the 13% decline in the fourth quarter, and reflects increased short-duration healthcare IT project activity and other items benefiting the first quarter. Account solutions in the U.S. contributed 33% of gross profit and experienced a revenue decline of 2% in the quarter, an improvement from the 14% decline in the fourth quarter. RPO revenue declines in the U.S. reflect relatively stable level of permanent hiring programs in the first quarter compared to the fourth quarter. The U.S. MSP business saw a slight revenue decline representing an improvement from the fourth quarter. while outplacement activity within our right management business drove strong year-over-year revenue increases. In the second quarter of 2024, we expect a slightly improved revenue decline for our overall U.S. business as compared to the first quarter decline as we continue to anniversary the more significant pullback in demand in the year-ago period. Southern Europe revenue comprised 45% of consolidated revenue in the quarter. Revenue in Southern Europe was 2 billion, representing a 5% decrease in constant currency. OUP for our Southern Europe business was 70 million in the quarter, and OUP margin was 3.5%. France revenue comprised 56% of Southern Europe segment in the quarter, and decreased 5% in days adjusted constant currency. OUP for our France business was 33 million in the quarter, representing a decrease of 27% on the constant currency basis. OUP margin was 3%. Activity to date in April 2024 is consistent with trends experienced in the first quarter. We are estimating the year-over-year constant currency revenue trend in the second quarter for France to be consistent with the first quarter trend. Revenue in Italy equaled $404 million in the first quarter, reflecting a decrease of 6% on a days-adjusted constant currency basis. OUP equaled $27 million and OUP margin was 6.8%. We estimate that Italy will also have a slightly improved revenue trend in the second quarter compared to the first quarter in constant currency. Our Northern Europe segment comprised 20% of consolidated revenue in the quarter. Revenue of $870 million represented a 12% decline in constant currency. As adjusted to exclude the runoff pro-Soviet Germany business, OUP was $6 million, and OUP margin was 0.7%. Our largest market in the Northern Europe segment is the UK, which represented 35% of segment revenues in the quarter. During the quarter, UK revenues decreased 13% on a days-adjusted constant currency basis. This reflects the stable trend from the rate of decline in the fourth quarter on the same basis. We estimate a similar year-over-year revenue trend in the second quarter compared to the first quarter. In Germany, adjusted revenues decreased 8% in days adjusted counts of currency in the quarter. As previously reported, the wind-down of our pro servio managed services business in Germany was substantially completed in the previous quarter and the final runoff of client activity will be completed in the second quarter of 2024. In the second quarter, we are expecting a slightly increased year-over-year revenue decline compared to the first quarter. The Asia Pacific Middle East segment comprises 12% of total company revenue. In the quarter, revenues equaled $535 million, representing a decrease of 4% in organic constant currency. OUP was $20 million, and OUP margin was 3.7%. Our largest market in the APME segment is Japan, which represented 51% of segment revenues in the quarter. Revenue in Japan grew 10% on a days-adjusted constant currency basis. We remain very pleased with the consistent performance of our Japan business, and we expect continued strong revenue growth in the second quarter. I'll now turn to cash flow and balance sheet. In the first quarter, free cash flow was strong and represented 104 million during the quarter and compares to 111 million in the prior year. At quarter end, day sales outstanding decreased about a day and a half to 55 days. During the first quarter, capital expenditures represented 12 million. During the first quarter, we purchased 665,000 shares of stock for $50 million. As of March 31st, we have 3.9 million shares remaining for repurchase under the share program approved in August of 2023. Our balance sheet ended the quarter with cash of 605 million and total debt of 985 million. Net debt equaled 380 million at quarter end. Our debt ratios at quarter end reflect total gross debt to trailing 12 months adjusted EBITDA of 1.98, and total debt to total capitalization at 31%. Our debt and credit facilities remain unchanged during the quarter as displayed in the appendix of the presentation. Next, I'll review our outlook for the second quarter of 2024. Based on trends in the first quarter and April activity to date, our forecast anticipates that the second quarter will continue to be challenging in North America and Europe. Our forecast for Q2 also anticipates ongoing stable but low levels of permanent recruitment activity. With that said, we are forecasting earnings per share for the second quarter to be in the range of $1.24 to $1.34, which excludes a forecasted unfavorable impact of $0.08 related to the final quarter impact of the runoff of the pro-Soviet Germany business. Guidance range also includes an unfavorable foreign currency impact of $0.07 per share, and our foreign currency translation rate estimates are disclosed at the bottom of the guidance slide, which includes the Argentine peso, which is impactful. Our constant currency revenue guidance range is between a decrease of 2% and 6%, and at the midpoint is a 4% decrease. Although the impact of net dispositions is minor, there are slightly more working days in the second quarter this year contributing to about half a percentage additional decrease on an organic days adjusted constant currency basis. And this still rounds to a 4% decrease at the midpoint. This represents a similar rate of decrease compared to the first quarter trend on the same basis. Excluding the Germany pro servio runoff business impact on the second quarter of 2024, Adjusted EBITDA margin is projected to be down 20 basis points at the midpoint compared to the prior year. We estimate that the effective tax rate for the second quarter will be 32.5% on an adjusted basis, which reflects the overall mixed effect of lower earnings from lower tax geographies in the current environment. As usual, our guidance does not incorporate restructuring charges or additional share repurchases, and we estimate our weighted average shares to be 48.7 million. Our guidance also does not include the impact of the non-cash hyperinflationary balance sheet related currency translation adjustment for our Argentina business, and we will report that separately. I will now turn it back to Jonas. Thanks, Jack. History shows that investing in operational improvements during economic uncertainty can lead to greater resilience and faster growth in more favorable conditions. So the external environment remains dynamic. Our commitment to digital transformation and executing our diversification, digitization, and innovation strategy remains steadfast. The continued diversification of our services and product offerings and our global footprint has enabled us to capture new opportunities to help offset softening demand in certain regions and verticals. In Q1, our experienced business saw increased demand in healthcare IT in the U.S., and our manpower business saw solid demand in automotive and transportation in various European markets. In talent solutions, our career transition business in rights management performed well, but our cap-fin MSP business delivered improved trends from the prior quarter. In our Manpower business, clients continue to focus on hiring specialist skills at the intersection of technology and production. We're well equipped to meet this growing need. Through our Manpower MyPath program, our experience academies, and a worldwide network of dedicated talent agents and recruiters, we mentor, coach, and guide hundreds of thousands of people to upskill and move up in their careers. In my recent travels, I saw those dynamics play out in a very tight labor market like Japan, where the value of our upskilling services is a very important part of our value creation for our client companies and our ability to attract talent to the opportunities in the market. On digitization, we continue to make good progress in our technology roadmap and are proud to lead the industry through the deployment of PowerSuite, our global cloud-based platforms for front and back office. In the first quarter, we reached a significant milestone with the opening of our global business services center in Porto, Portugal, a regional finance center to serve all of Europe, and a central component of our global strategy to standardize, centralize, and transform finance service delivery. This follows our successful, mature finance shared service center in Mexico City, serving Latin America. For 75 years, Manpower Group has been committed to doing business the right way for our people, our clients, and the communities in which we operate. We know these high standards are valued by all who work with us. As AI advances, we're guided by our people-first approach. We have established a multifunctional ethical AI committee that helps us stay in front of AI-related risks while enabling us to innovate and pilot new approaches that create value for our people and our clients. In March, our ethical leadership was once again recognized by Ethisphere as we were named a world's most ethical company for the 15th time. And I'd like to thank our teams around the world who live our standards, create value for our clients and candidates, and help propel our strong ethical culture each day. Now I'd like to open the line to Q&A. Operator?
spk02: Thank you. If you'd like to ask a question, please press star 1-1. If your question hasn't answered and you'd like to remove yourself from the queue, please press star 1-1 again. Again, to ask a question, that's star 11. One moment for questions. And our first question comes from Jeff Silber with BMO Capital Markets. Your line is open.
spk07: Thanks so much. I was wondering if you can give us a little bit more color on intra-quarter trends. And I know it's early in April, but anything you can tell us about what's been going on in the current quarter would be great.
spk12: Sure, Jeff. This is Jack. I'd be happy to talk about that. So I think as we've talked about in some of our larger markets, activity levels in April so far are pretty much aligned with what we've seen in the first quarter. And you see that in France with our guide there, pretty much in line with where we ended up in the first quarter overall. We've talked a lot about the U.S. in our prepared remarks, and I'd say in the U.S. you see the benefit of anniversaring and lapping the prior year declines, but I'd say on an underlying basis, stable activity levels as you look at the manpower and experience results as well. In April, I'd say that's the main thing. I'd say there's a little bit of an Easter impact March over April in some markets like Italy as well and in Northern Europe as well. And I'd say over the course of the first quarter, I think what we saw in many of our markets were stable trends. And I'd say the month of March is a little tricky because of the Easter timing this year, year over year, but I'd say... If you step back from that and take that a bit out of the equation, I think what we saw was a lot of stable trends. We knew France was going to step down in the first quarter from the fourth quarter on an overall basis. That came in in line with our expectations. And when we looked at activity levels during the course of the quarter, I think we're ending the quarter pretty much in line with where we were on a full quarter basis overall. That's a little color on our largest markets. I'd say maybe one more would be the U.K., which was pretty stable as well. U.K. has been stable for a few quarters now. And as we look into activity levels into the second quarter, we're seeing a similar expectation as well.
spk07: All right. That's really helpful. If I could step back and maybe more of a macro question. It looks like in the U.S., the Fed is probably going to keep interest rates higher for longer, but if we look at the ECB, they seem to be closer to making cuts. If that does happen, how do you think that would impact your businesses in those different geographies?
spk12: Well, it's hard to say, Jeff, but of course, if the central banks are deciding to lower the interest rates, they're acknowledging that the cooling effects of the higher interest rates is coming to bear faster. onto those economies. And I think we are seeing that play out in Europe, where economic activity is slowing down, labor markets are cooling, and they're cooling slightly faster than they are cooling here in the US. So the idea then, of course, with dropping interest rates would be to make sure that the economy lands softer or starts accelerating again. And when that happens, our business, of course, will start to see the effects of that in improving demand.
spk07: All right, great. Thanks for the call. Thanks, Jeff.
spk02: Thank you. Our next question comes from Trevor Romeo with William Blair. Your line is open.
spk06: Hi, good morning. Thanks so much for taking the questions. First one I had was just on the U.S. experience business. I'm thinking about the overall labor market for IT talent. What are you seeing now as far as kind of the supply and demand or the tightness of that labor market? Has there been any kind of additional slack coming in as the downturn has continued? Just kind of trying to get a sense for how quickly that business could snap back once client confidence improves.
spk12: Thanks, Trevor. The market for IT skills in the U.S. remains strong. but it's not as tight as it was and, of course, not even close to as tight as it was immediately post-pandemic. What we're seeing is continued weakness on the enterprise or large tech companies still being cautious in terms of their overall hiring and coming off a pandemic hiring boom. But convenience demand looks reasonable. It is still weak. But it's stronger than the demand that we see from enterprise tech clients or enterprise clients at large. And just as Jack just mentioned, what we've observed is a stabilization sequentially, which we take as an encouraging first sign. Companies are looking for more specialized skills. And we believe that as the outlook firms up and employers feel better about the economic outlook and see less uncertainty, that those trends are going to continue to improve.
spk06: Okay, thanks, Jonas. That's helpful. And then for a follow-up, just kind of curious on the level of, I guess, competition across some of your major markets at some of these lower levels of demand, is the competitive environment still generally Rational, are you seeing competitors try to grab share at all by undercutting on pricing? I guess generally, does it feel like you're gaining, maintaining, or losing share in some of your key markets?
spk12: Overall, I think we would gauge ourselves as being with markets, and competition remains intense but rational. And I think you can see this come through also in our staffing margin and our overall GP margins. which are holding up well despite the headwinds that we're seeing in particular in Europe and in North America. So it is always a competitive environment, but the underlying reason for that stability and the rational part is that labor markets continue to be strong. There's no doubt that labor markets are cooling both in Europe and in North America, But they're still tight from a historical perspective. And that means it's still not easy to find the talent that you need. You may be more judicious, more surgical in your hiring. You may be more cautious in terms of how many people you want to bring on. But employers are still looking for talent. And you can also see that in our talent shortage surveys that we do on a regular basis, that employers are still finding it difficult to find exact skill sets that they want exactly when they want them. So overall, it's rational, and I think it remains competitive, but we can see pricing stability across all of our markets, and that's reflected in our staffing and overall GP margins.
spk06: Great. Thank you very much.
spk02: Thank you. Our next question comes from Mark Marcon with Baird. Your line is open.
spk11: Hey, good morning, and thanks for taking my questions. A few different questions. One really quick one. This term as a total percentage of GP, including RPO, where did that come in, Jack?
spk12: Mark, that came in at 16.8% in the first quarter for us. So I know we've talked about that in the previous quarter where it came down a bit. What you're seeing in the first quarter, Mark, is seasonally it's a lower percentage staffing quarter for us just in terms of GP dollars typically. So it's PERM actually sequentially actually improved very, very slightly in a dollars perspective. So you're seeing a little bit of a higher mix work in at that ratio of 16.8%. Okay, great.
spk11: And then just a couple of very short numbers questions, just with regards to experience in terms of the trend. To what extent, how much were the IT healthcare projects and particularly in the US and, you know, if we strip that out, how did things look? And would you expect things to still be stable to improving if we strip out those IT staffing projects, unless those are sustainable and a new promising line of business?
spk12: No, thanks, Mark. I think on the U.S. experience business, yeah, we did call out that healthcare IT. We did see a good deal of work in the first quarter. I would attribute that to some of those, you know, those go-live works in the hospital system were deferred during 2023. So we did see a spurt of that activity in the first quarter. And we did call it out as a bit project-related because I wouldn't anticipate that that level of activity will continue in that specific space in future quarters here. A bit of that was considered catch-up, if you will. But what I would say, maybe broader to your point, is I think we are seeing generally relatively stable trends. in the U.S. experience business at lower levels, of course, based on what we experienced last year. And I think to Jonas' point, I think when we look at enterprise tech, still very sluggish in terms of demand, but convenience holding up a bit better. So, you know, as we step back and we look forward, I would expect, you know, the underlying stable trends that we talked about will continue. We're not seeing a big step up. in enterprise, and we're seeing convenience kind of continuing at current levels. And as we go forward, we start the anniversary. The second quarter of last year was the biggest decline of the year, and so we will anniversary that, and that will help a bit on the year-over-year trend as we go into the second quarter. That's how I would say it at this point, kind of in line with what Jonas said. No inflection point at this point, but we are seeing stability.
spk11: Great. Jonas, if I could ask a couple of kind of bigger picture questions. One, with regards to just kind of the U.S., predominantly the manpower business, when we think about what's happened with regards to you know, higher wage rates, particularly in certain states that have come through. And then thinking about, you know, all the various gig opportunities that are out there that are available to individuals. What are you seeing just in terms of, you know, the quality of the people that you can place? And what is their, what's the productivity level or how are How are clients responding to these higher wage rates? What are your thoughts there?
spk12: So, Mark, I think what we're seeing in the manpower business is clearly the headwinds from a manufacturing sector that's had a tough time now, frankly, for a number of years. And we've seen that reflected in PMI. But from a Demand perspective, what we see playing out in the U.S. is really still an effect of the pandemic and the post-pandemic. So the dislocation in the U.S. market during the COVID pandemic was much bigger than it was in any other place across the world. And so lots of workers left their workplaces. Then they came back, and employers were really faced with shortages that were scrambling In some cases, such as in the tech sector, they really engaged in a pandemic boom, but every category of employer was struggling really hard to find the talent that they needed to recover and then take advantage of the post-pandemic demand surge for products and services. What we're seeing now, though, is that employers are still holding on to their workforce and They're much more surgical in their hiring of temporary staff. And as an industry, we're at the leading edge of a cooling labor market. What's unusual in this cycle is the length between the decline in the temporary staffing industry and a more rapid cooling to a limited degree, we still believe, of the broader labor market. And we can just reflect on the very strong labor market numbers we saw at the end of March. But we still think that is going to play out. So employers are cautious now. They are still navigating an uncertain environment, high inflation. But in terms of wages, the labor markets are still so tight that employers understand they are having to pay those wages, which of course benefits workers that have real wage increases, which in turn continues to drive good consumption in the U.S. economy, which also then may fuel some additional inflation, but above all provides purchasing power to the consumers. So all in all, I would say we think this is playing out as we would normally expect during a cycle, but with the post-pandemic anomaly of a slow-motion move of a cooling labor market But the overall trend with an evolution of technology is always moving towards a higher skilled workforce and expectations then of increasing productivity levels of that highest skilled workforce. And I think that's a general trend that we've seen over a number of years and now it's not really any different.
spk11: Great. You've talked about your AI initiatives. Can you talk just a little bit more about like, you know, now that we've, you know, had, you know, basically a year anniversary in terms of chat GPT, you've been exploring it. When you think out two to three years, how much more efficient can your operations become Not just in terms of the shared services, but also in the field from a recruiting, placement, matching perspective.
spk12: That is actually one of the things we are quite excited about. Because as you know, we've been on a multi-year journey of digital transformation. And although I'm certainly not an expert in AI, I'm learning as much as I can. And what I have learned is that you cannot apply unless you have a modern technology infrastructure. And we believe that we have a very modern technology infrastructure that we've implemented and continue to implement in this year as well that is able to leverage not only back office and shared services efficiencies using automation for repetitive tasks, but also providing our recruiters and our salespeople with the best tools that they need to do their jobs better, as well as providing superior candidate experiences to the people that we're recruiting in manpower, people we're recruiting in experience, or in talent solutions. So we think the impact of AI can be quite substantial. I would say it's early days yet, and despite everything that we read in the papers, the actual effects of AI are yet to manifest themselves In a business environment, as an anecdote, the highest level of recruitment of AI skills, counterintuitively maybe, but maybe not, is coming from the financial services sector, which of course is a massive user of technology and continuing to make significant investments. So AI will give us great opportunities and we think we in particular are extremely well placed because we are the only company or industry that is leveraging global platforms across all of our major geographies, one instance platforms. So once we have AI applied to a particular geography we can quickly transfer
spk05: those learnings into other geographies because we're all operating in the same system appreciate the answers thank you thanks mark thank you our next question comes from josh chan with ubs your line is open hi good morning jonas and jack thanks for taking my questions um you mentioned that there's no restructuring charge in the quarter which i think it's the first time in a while and so Is that timing related or should we read that to suggest that you're satisfied with your organizational structure for the first time in a number of quarters? Thank you.
spk12: Thanks, Josh. Yeah, I'd be happy to give a little more color on that. No, we were pleased not to have restructuring charges. We look at restructuring charges very seriously. And when we do restructuring charges, they have to have sustainable permanent savings as part of the business case for those actions. And, you know, following 2023, we talked a lot about that, and certainly we've taken significant actions in 23. And at this stage, you know, really I think we feel like we've got the right balance I think as we reflect on activity levels, you've heard us talk a lot about stability. We're not seeing further dramatic step-downs in any of our major markets. And so with that, I think we feel like we have made appropriate adjustments based on these current trends. And we'll continue to monitor that going forward. So if the environment changes significantly, then of course we will take action and we'll do what we need to do to preserve margin. But we are very, very focused on being ready for the upturn. And I think we feel that we've made the appropriate adjustments and I think we've balanced that. We're very focused on ensuring we have the right sales capabilities in the markets currently, and that will be the way we continue to look at this going forward. So, you know, and I think the other item in terms of, you know, what we did ring fence was pro servia Germany. You know, as we said, that actually is going in line with our expectations, slightly better actually in the first quarter, a little bit lower than we anticipated in terms of those charges. And you can see in the second quarter, we're estimating actually a lower impact on that runoff as we go into the second quarter, and then it will be completed. So that will be – and you can see that in the GP margin trend that I gave as well, the benefits starting to come through as that business fully exits. And so I'd say that's a way to think about restructuring and some of the one-off items that we've talked about.
spk05: Perfect. Yeah, that's encouraging. Thank you, Jack. And then I just wanted to ask about your confidence behind the improving rate of decline in the U.S. I guess, how much does that depend on experience, recognizing that there were some projects in Q1 perhaps, but just wanted to get some color in terms of your confidence around trends continuing to get better in the U.S. Thank you.
spk12: Overall, we think the market appears to be stabilizing not only in experience, but across all of our brands. So the same for manpower and in talent solutions, we've seen RPO stabilize at a lower level. We've seen our TAP and MSP business in talent solutions actually improve a bit. And of course, right management without placement is tracking well. although not accelerating. So that gives us an idea that, you know, as an industry and from our perspective, looking at where we're positioned, that if things stay the way they are, the trends should remain stable, and that's what we've guided to in the second quarter.
spk05: Great. Thank you, Jonas, and thank you both for your time. Good luck in the second quarter. Thanks.
spk02: Thank you. Our next question comes from Manav Patnik with Barclays. Your line is open.
spk09: Hi, this is Princey on for Manav. Thanks for taking my question, Jack and Jonas. I wanted to just see, you mentioned on the call that you have continued diversification going on within your services and products offerings, and that would help offset softening demand in certain regions and verticals. I wanted to just get a gauge on what specific verticals and regions you're seeing softening demand in.
spk12: Francie, you broke up a little bit in the question, but I think I got the gist of your question is you've highlighted some areas in your prepared remarks where you're seeing some strength, and that's helping offset some of the broader weakness elsewhere. It sounds like from a sector perspective, Where do we have weakness? And what I'd say there is, you know, to Jonas' earlier comments, you know, I'd say manufacturing continues to be very sluggish. X automotive in Europe. So automotive in Europe has been solid. We've talked about that previously in Germany and holding up in France as well and in Italy in some of those markets. But I'd say when you take auto aside, manufacturing continues to be very, very sluggish. So that's a big one. I'd say the other big one that we've talked a lot about is enterprise tech. Enterprise tech continues to be very sluggish, very cautious in terms of ongoing demand, and not really seeing much of a big inflection point there. And I think maybe the last one I'd just call out is finance. finance, the financial sector was a strength in the first half of 2023. What we've seen really starting in the second half of last year and into the first quarter, it's just more cautious buying behavior in the financial sector for staffing services. And that continues. So that's a little color in terms of where we're seeing some of that offset to some of the areas Well, we have seen strength, and again, on the strength, aerospace has been strong for us, particularly in France. Construction in certain markets has actually been okay for us as well. And as I mentioned earlier, healthcare IT, we did see some good activity in the first quarter, some project-related activity in the first quarter in the U.S., Got it.
spk09: Thank you. And I wanted to ask as a follow-up, what kind of demand are you seeing currently for AI-related skills and roles? I know you mentioned that it's still early in English.
spk12: I think that was what kind of demand are you seeing in AI skills? Right. And I addressed that just previously that we're seeing... an increase in demand for AI skills, but I would also say that in the grand scheme of things, the volumes are very small. Interestingly, though, what I found, what we look at when we see the job ads and which industry is looking for AI skills, the financial services sector is the one where we see posting the most ads and posting the most orders for those skill sets. which might be, you know, one might think that this comes from the technology sector, but in fact what we're seeing is that it's coming primarily from the financial services sector, which of course is running massive technology platforms, and they are looking for the AI skills. But I would position that, though, within the context of from an overall demand perspective, although these are difficult skills to find and they're increasing at a fast rate, the overall size of the demand is still small.
spk10: Thank you.
spk02: Thank you. Our next question comes from Toby Summer with Truist Securities. Your line is open.
spk12: Thanks. I wanted to ask you about your productivity improvements and investment initiatives and the impact on SG&A percentages, demand rebounds. Maybe you could Think about it in the context of, would you be able to achieve a different SG&A percentage at the recent peak in revenue in 2021, around 21 billion? Any change in complexion of those two pieces?
spk08: Again, I'm thinking out several years when demand rebounds and we get back there.
spk12: Yes. Thanks, Toby, for that question. I'd be happy to talk to that. The answer is definitely we would expect to see some really good improvements in our efficiency ratio. So whether you're looking at SG&A as a percentage of GP or revenues, but I'd say GP probably is the most relevant one. When you look at pre-pandemic levels of efficiency and certainly where we've been in recent years, you've seen the deleveraging play out. But based on the work we're doing, and to your point, we have, and we talked a bit about it in our prepared remarks, we are progressing quite nicely in our transformation programs. We talked a bit about the Shared Service Center, the Global Business Center that we're opening up. We have opened up in the first quarter in Porto, Portugal. These type of things with our cloud-enabled financial structure are going to be driving significant efficiencies in our cost structure going forward. And that's on the heels of already significant progress in the front office power suite implementations that will come through in a more meaningful way when volumes return from a recruiter productivity perspective. So when you add those together, we would expect a significant improvement in SG&A as a percentage of GP when you see those programs really start to kick in when volumes return back to previous levels to your point. and ongoing efficiency. So that will drive meaningful improvement in those ratios. And you'll see that drop down to EBITDA margin as well. And we've talked about that in the past. So there'll be a bit of a double impact. You'll see the fall off of some of that investment spend as we continue through these programs. But then you'll see the efficiencies come through, which will be meaningful as well. And all of that will help us improve our EBITDA. One of the key of our roadmap to EBITDA margin improvement, and you'll see that come through in the ratios as those programs continue. Thanks. I was hoping you could comment on your capital deployment strategy because we're a couple years into softening demand, and historically when you kind of as a management team who has gotten signs that the coast is clear and demand signals are improving, you typically deploy a little bit more capital at that time in the form of acquisitions. Is that still the playbook? And what areas or criteria may you use to select acquisitions? Yeah, Toby, I think, great question. I'd say overall, I think the main punchline is our strategy has not changed. And you're right, we have been very careful. But where we have made acquisitions has been on the IT resourcing side. And that's worked out very well for us as we think about the acquisition we did in 2021. That is performing very well. Jonas talked about the convenience component of experience in the U.S., so performing better than the enterprise sector. So that continues to be an area for us as we look forward. And in the current environment, you're right, the current environment has not been very conducive to acquisitions, candidly, and what you've seen us do in the meantime is return excess cash via our share repurchase program, and the dividend continues to be a high priority for us as well. You should expect that approach to continue. And again, we are very careful when it comes to acquisitions, so we do a very, very detailed analysis. We look at many different filters, most importantly cultural fit and those type of items. But I would say that is something that more realistically would be something to think about as the environment starts to improve going forward. But I'd say that's kind of where we are currently. Thank you.
spk02: Thank you. Our next question comes from Andrew Steinerman with J.P. Morgan. Your line is open.
spk01: Hi. Good morning. This is Stephanie stepping in for Andrew. We wanted to ask, so not surprised or, you know, obviously the U.S. temporary help in the BLS figures have been declining for about two years now, which is rather unusual. I guess, what do you think the shape of the recovery will be for manpower U.S. and the staffing industry in the U.S. given this unusual dynamic?
spk12: Thanks, Stephanie. As you say, we agree that 17 consecutive months of temp worker declines in the U.S., without a recession or a significantly cooling economy is frankly unprecedented. And if you add the preceding six months of declining growth, that's 23 months of declining growth in our industry in the US. So as I mentioned earlier, we believe that there is a lag effect that is distorted this time by the pandemic and the post-pandemic hiring where employers today are really holding on to their workforces. They are absorbing and creating the flexibility by reducing the use of temporary staff, increasing, as you saw on the BLS numbers of last month, the use of part-time work. So they are pulling just about every measure that they can to improve the flexibility without touching the permanent payrolls. in a more significant way. But given the strength of the economy and if we assume that there is not a full-blown recession, it's likely that employers will continue to remain cautious until they feel that the uncertainties that they are cautious about clear up to some degree. And at that point, we believe we'll see a very good return to the use of temporary staff. Because temporary staff is a fantastic way to provide flexibility for any employer across industries, and especially in an uncertain environment. And many of those workers, you know, in various skill levels then also become integrated into, you know, the employer's payrolls through conversions over time. And we've seen strong conversion levels occur today. The strength of that rebound, of course, Stephanie, is very difficult to estimate because it's really a question of what's going to happen to the overall economy and what is the snapback. Right now, the global growth scenario is highly dependent on U.S. economic growth, which is one of the highest in the world, and, of course, being the major economy, that's sort of setting the tone for everyone else. So we are pulling along the growth at a global level right now. But we think when the clouds lift, and in particular for us, from a manpower perspective, the manufacturing sector starts to get some more traction. The enterprise on the tech side really starts to activate the postponed and delayed technology transformation projects. We think both from a manpower perspective and experience perspective, and then also from a talent solutions perspective, that we'll see very good evolution of those services. It's just that right now our industry is bearing the brunt of the slowing and you can't really see it in the broader BLS numbers. But essentially we feel this is a cyclical downturn distorted by anomalies created by the pandemic and eventually this will sort of flatten out and we're therefore pleased to see the stabilization not only in the US and UK, now several more countries Our two other big operations, France and Italy, we estimate will also stabilize into our second quarter. And that gives us the platform to hope for a recovery that will then manifest itself to increase demand and improve numbers for all of our brands.
spk01: Okay, great. I really appreciate the perspective. Thank you.
spk12: Thanks, Stephanie.
spk02: Thank you. Our next question comes from Stephanie Moore with Jefferies. Your line is open.
spk03: Hi, good morning. Thank you. Actually, this might be a good follow-up to even the last question. Maybe kind of digging into that a little bit further. So effectively, from your clearly pretty extensive knowledge of past cycles and also the conversations you're having with customers, So I guess I'm just trying to kind of to be a little bit more specific here. So in your opinion, you know, what needs to happen broadly to go from this period of admittedly stabilization to the inflection to the positive side? So effectively what you're saying is we do need to see that unemployment rise first and the economy kind of take a step down. Or could this be different, you know, this cycle different from prior? Love your thoughts there.
spk12: I think it's already different, Stephanie, in terms of we've not seen the cool-down that we would normally associate with our industry being on the leading edge and then subsequently followed by the cool-down in the broader labor markets. But we'd expect that to happen. But at this point, depending on who you ask, we don't think that cooling is going to be that significant, but significant enough to create some slack and really to start the growth cycle from moving forward again as far as our industry is concerned. The areas, of course, that could kick-start this evolution is a lowering of interest rates, very important. Cooling of geopolitical tensions, equally important. This could be another trigger and a number of other events. Right now, frankly, we feel that the euro is following a more traditional cycle. The economy is cooling. It's likely that the ECB will lower interest rates, maybe even before the Fed lowers interest rates. And that will be a good signal that now comes the time to start to gear up and generate more economic growth in Europe. And we would then hope to see improving PMIs in Europe. And since we have such a big part of our business in Europe, we would see that as a very good as a very good sign. So we don't know when we should see and expect either of those to happen, either in Europe or in the U.S., but we expect that that is how it would happen. But the trigger point for when it turns around, I think, is really going to come very closely related to lowering of interest rates and inflation levels dropping. Right now, our inflation rates are higher and they're moving in the wrong direction, and that needs to cool off further before everything can get going the way we would expect it to do.
spk10: Got it. Thank you so much. Thank you.
spk02: Thank you. Our next question comes from George Tong with Goldman Sachs. Your line is open.
spk08: Hi, thanks. Good morning. You mentioned trends in France and Italy were beginning to stabilize, which is an improvement from past quarters. You touched on the auto sector, but can you elaborate a little bit more on what you're seeing in the labor markets in these countries and what's helping to drive that stabilization?
spk12: The labor markets in both Italy and in France have cooled somewhat. The Italian economy is actually doing very well overall, and a lot of that comes from EU funds that are being channeled and deployed across Italy as part of the Recovery Act in Europe. And France has seen a cooling of the labor market, a cooling of economic growth. But I think since we are an industry that is concurrent with economic trends, that we've seen the step-downs that have occurred over a number of quarters as we look at the economy and the labor markets overall, that the trends within our industry should lead to a stabilization with continued headwinds. So let's remember that these are still markets that are well below where they were pre-pandemic, but that we are starting to see that stabilization as we have seen in the UK, in the US, now also in the Netherlands, in other parts of Europe as well. So it's really been a progression of countries where our business has reached a point and then appears to be moving sideways sequentially after that point. And we expect that to happen in France and Italy as well.
spk08: Got it. That's helpful. And then I wanted to dive further into your productivity initiatives and cost-cutting efforts. Can you talk a little bit more about where you are in your journey to achieve improved productivity and right-side headcount?
spk12: I think, as you've seen, George, of course, during an environment like this, we're deleveraging, so productivity is moving down. We are adjusting to Jack's point. our SG&A and our head count, being very careful and balanced in our approach because we want to mitigate the near-term effects of the headwinds that we're seeing in particular in Europe and in North America, but at the same time retain enough resources to make sure that when the rebound happens that we're extremely well positioned to take advantage of that. And it's at that point that we're going to see the productivity improvements on our business flow through to the bottom line. And you can see some improvement, of course, occurring in terms of our bottom line between the first quarter and the second quarter. As Jack mentioned, our first quarter is a weak quarter due to the start of the year, the resetting of taxes in a number of countries. We move into the second quarter, it improves. But the real improvement, of course, is going to come when our volumes and associates and consultants for experience starts to move up and we can leverage the investments we've made in technology as well as regaining the productivity we lost during the cyclical downturn.
spk08: Very helpful. Thank you.
spk10: Thanks, George.
spk02: Thank you. And our last question comes from Heather Balski with Bank of America. Your line is open.
spk04: Hi, this is Emily Margo on for Heather Balski. I'm wondering if you could give any additional color into the pricing environment. I believe you called out the staffing had solid pricing you've seen, but I'm wondering if you could give any additional color there.
spk12: Yeah, I would say really there isn't a whole lot of additional color to give. I think the headline really is pricing has been stable. It's been holding up. I think one of the previous questions was really asking along the same lines. Despite volumes being at lower levels, there really hasn't been much of an impact on pricing. And I think that story remains the same. I think that really is the takeaway here. And although our staffing margin has come down year over year, that's really just mix, just mix of the businesses that is having that effect. On an underlying basis, pricing remains strong, and we think the market's quite rational.
spk10: Thank you. Thank you.
spk02: Thank you. There are no further questions. Please proceed with any closing remarks.
spk12: Excellent. Thank you very much for attending our Q1 earnings call, and we look forward to speaking with you again in July for our second quarter earnings call. Until then, thanks very much, and we look forward to speaking with you again soon.
spk02: Thank you for your participation. This does conclude the program, and you may now disconnect. Everyone, have a great day.
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