ManpowerGroup

Welcome to Manpower Group's third quarter earnings results conference call. You'll be put in listen-only mode until the question and answer time begins. This call is being recorded. If you care to drop off now, please do so. I would now like to turn the call over to Manpower Group's Chairman and CEO, Mr. Jonas Priesing. Sir, you may begin.

Welcome, and thank you for joining us for our third quarter 2024 conference call. Our Chief Financial Officer, Jack McInnes, is with me today. For your convenience, we have included our prepared remarks within the investor relations sections of our website at manpowergroup.com. I will start by going through some of the highlights of the quarter, then Jack will go through the third quarter results and guidance for the fourth quarter of 2024. 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 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 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 and information regarding reconciliation of non-GAAP measures. Thanks, Jack.

I recently returned from visits with our teams and clients in Europe, including spending two days with country managers from across our key markets. And as market experts, each of them speaks with CEOs and business leaders every day. So central to our discussions was the broader economic environment and what we're hearing from our clients on the ground. Right now, we see a continuation of the cautious employer approach we've been talking about for some time, particularly in Europe and North America, while the situation is good in Latin America and Asia-Pacific. In essence, there hasn't been a significant tone change in the conversations we've been having with employers over the past 12 months. They remain focused on managing the macroeconomic and geopolitical challenges impacting their businesses. Most are optimistic, yet cautious, about market conditions improving, and they are largely maintaining their current workforce. Since the timing of any improvement is not certain, they're still hesitant to increase their spend and expand their workforce without a significant step change in economic outlook. Looking at labor markets broadly, We continue to see resilient top-line trends, with unemployment holding relatively steady in many places and little indication of widespread layoffs. In our Q3 earnings call last year, we spoke about our industry being at the leading edge, the first to feel the impact going into downturn and the first to benefit from improving outlooks on the other side. While we're not seeing signals of significant improvement, we're also not seeing signs of significantly weaker environment ahead. Our most recent MAMPA Group Employment Outlook Survey of 38,000 employers, published in September, found employers report cautious yet steady hiring intentions for the three months ahead. with many prioritizing retaining and attracting workers with specialized, flexible skills and an adaptable mindset to adjust to the evolving requirements. We believe this growing demand for specialized and flexible skill sets will serve as well. Despite new hiring remaining at lower levels in many places, labor markets remain historically tight as demand and supply mismatches persist. Companies are seeking deeper pools of expert talent in new ways the skill and reskilled talent, as well as the increased mobility within their own organization, particularly as advances in AI transform roles and increase the value of soft skills. Now turning to our results, in the third quarter, revenue was $4.5 billion, down 2% year-over-year in constant currency. Our reported EBITDA for the quarter was $79 million. Adjusting for restructuring, EBITDA was $117 million, representing an increase of 2% in constant currency year over year. Reported EBITDA margin was 1.7%, and adjusted EBITDA margin was 2.6%. Earnings per diluted share was $0.47 on a reported basis, while adjusted earnings per diluted share was $1.29. Adjusted earnings per share decreased 8% year-over-year in constant currency. Regardless of the environment we find ourselves in, we are focused on maximizing the opportunity to deliver services today while being well-positioned to capitalize more broadly when market conditions improve. The diversity of our geographic and client industry vertical mix, from IT to healthcare and life sciences, industrials, consumer goods, and public sector, is serving us well, and our data is enabling us to provide real-time assessments of which are experiencing headwinds and tailwinds by market. We currently see encouraging signs in healthcare and life sciences and select pockets within industrials who are stepping up our sales activity accordingly. We're also seeing improvement in the manpower sales pipeline, but both the number of opportunities and the pipeline size has grown throughout 2024. I'll now turn it over to Jack to take you through the results in more detail.

Thanks, Jonas. Revenues in the third quarter came in at the midpoint of our constant currency guidance range. Gross profit margin came in at the low end of our guidance range. As adjusted, EBITDA was 117 million, representing a 2% increase in constant currency compared to the prior year period. As adjusted, EBITDA margin was 2.6% and came in at the high end of our guidance range, representing 10 basis points of improvement year-over-year. During the quarter, year-over-year foreign currency movements had an impact on our results. Foreign currency translation drove a 1% unfavorable impact to the U.S. dollar reported revenue trend in addition to the constant currency decrease of 2%. Organic days adjusted constant currency revenue also decreased 2% in the quarter, slightly better than our guidance. Turning to the EPS bridge, reported net earnings per share was 47 cents. Adjusted EPS was $1.29 and came in very close to the midpoint of our guidance range. Walking from our guidance midpoint of $1.30, our results included a stronger operational performance of 4 cents, a lower weighted average share count due to share repurchases in the quarter, which had a positive impact of 1 cent, a higher tax rate on country mix, which had a negative impact of 4 cents, a foreign currency impact that was 2 cents better than our guidance, and interest in other expenses had a negative impact of 4 cents. Restructuring costs and the discrete tax charge represented 82 cents, resulting in the reported EPS of 47 cents. Next, let's review our revenue by business line. Year-over-year, on an organic constant currency basis, the Manpower brand revenue trend was flat in the quarter. The Experience brand declined by 10%, and Talent Solutions brand had a revenue increase of 7%. Within Talent Solutions, our RPO business experienced a year-over-year revenue decline, which was a slight improvement from the trend in the second quarter. Our NSP business revenues increased compared to the prior year, while Wright Management experienced a year-over-year revenue growth on higher outplacement volumes in the quarter. I'll give more color on the trends from the previous quarter when I cover gross profit trends. Looking at our gross profit margin in detail, our gross margin came in at 17.3% for the quarter. Staffing margin contributed a 10 basis point reduction due to mix shifts and lower volumes, while pricing remained solid. Permanent recruitment, including Talent Solutions RPO, contributed 20 basis point GP margin reduction as permanent hiring activity in the third quarter decreased year over year. Bright management career transition within Talent Solutions contributed 10 basis points of improvement as outplacing activity was solid in the third quarter. Other items resulted in a 10 basis point margin decrease. Moving on to our gross profit by business line, during the quarter, the Manpower brand comprised 60% of gross profit, our experienced professional business comprised 24%, and Talent Solutions comprised 16%. During the quarter, our consolidated gross profit decreased by 4% on an organic constant currency basis year over year, representing an improvement from the 6% decline in the second quarter. Our manpower brand reported an organic gross profit decrease of 2% in constant currency year over year, an improvement from the 4% decline in the second quarter. Gross profit in our experience brand decreased 12% in organic constant currency year over year, a decline from the 7% decrease in the second quarter, reflecting the continuation of a challenging professional staffing environment. Gross profit in talent solutions increased 9% in organic constant currency year over year, representing an improvement from the second quarter decrease of 11%. All brands within talent solutions achieved gross profit growth in the quarter as RPO and MST volumes were slightly higher in the third quarter compared to the previous quarter, and right management volumes also increased sequentially, driven by increased activity in France and the U.K. Reported SG&A expense in the quarter was $711 million. Excluding restructuring costs, SG&A as adjusted was down 5% year-over-year on a constant currency basis. The year-over-year SG&A decreases largely consisted of reductions in operational costs of $32 million. During the quarter, corporate expenses were reduced for incentive and certain other health plan trends, and we would expect corporate costs to return to prior quarter run rate trends next quarter. Underlying corporate costs continue to include our back office transformation spend, and these programs are progressing well with expected medium and long-term efficiencies. Currency changes also contributed to a $7 million decrease. Adjusted SG&A expenses as a percentage of revenue represented 14.8% in constant currency in the quarter. Restructuring costs in the third quarter totaled $38 million. The America segment comprised 23% of consolidated revenue. Revenue quarter was 1.1 billion, representing an increase of 2% compared to the prior year period on a currency basis. As adjusted, OUP was 41 million and OUP margin was 3.9%. Restructuring charges of 5 million included the largest actions in the U.S. with modest amounts in Argentina and Canada. The U.S. is the largest country in the America segment, comprising 66% of segment revenues. Revenue in the U.S. was $697 million during the quarter, representing a 4% days-adjusted decrease compared to the prior year. This represents a slight additional decrease from the 2% decline in the second quarter, as manpower and talent solutions partially offset the non-recurrence of experienced healthcare IT projects. As adjusted, OUP for our U.S. business was $26 million in the quarter. As adjusted, OUP margin was 3.7%. Within the U.S., the Manpower brand comprised 24% of gross profit during the quarter. Revenue for the Manpower brand in the U.S. crossed back over to growth, increasing 1% days adjusted during the quarter, which was a step up from the slight decline in the second quarter. The Experis brand in the U.S. comprised 42% of gross profit in the quarter. Within Experis in the U.S., IT skills comprised approximately 90% of revenues. Experience U.S. revenue decreased 11% on a days-adjusted basis during the quarter, compared to the 3% decline in the second quarter due to the expected non-recurrence of healthcare IT go-live projects in the third quarter. Talent Solutions in the U.S. contributed 34% of gross profit and also crossed over to growth during the quarter with a revenue increase of 10%, an improvement from the 2% decline in the second quarter. RPO revenue increased in the U.S., reflecting increased activity in select client programs. The U.S. MSP business executed well during the quarter, posting strong revenue increases, while outplacement activity within our right management business leveled off year over year. In the fourth quarter of 2024, we expect the rate of revenue to be similar to the third quarter trend for our overall U.S. business. Southern Europe revenue comprised 46% of consolidated revenue in the quarter. Revenue in Southern Europe was $2.1 billion, representing a 1% decrease in constant currency. As adjusted, OUP for our Southern Europe business was $81 million in the quarter, and OUP margin was 3.9%. Restructuring charges of $5 million represented actions in our France, Spain, and regional head office. France revenue comprised 56% of the Southern Europe segment in the quarter and decreased 5% on a days-adjusted constant currency basis. As adjusted, OUP for our French business was 44 million in the quarter. Adjusted OUP margin was 3.7%. The Olympics provided a modest boost in activity in the middle of the quarter, and the month of September experienced a slight further decrease in line with activity levels in the second quarter. Activity to date in October is largely consistent with the trends experienced in September, and we are estimating a fourth quarter trend to reflect a slight further decline from the third quarter trend. Revenue in Italy equaled 419 million in the third quarter, reflecting a decrease of 1% on a days-adjusted constant currency basis. OUP equaled 27 million, and OUP margin was 6.5%. We estimate that Italy will have a slightly improved revenue trend in the fourth quarter compared to the third quarter. Our Northern Europe segment comprised 19% of the consolidated revenue in the quarter. Revenue of 828 million represented an 11% decline in constant currency. As adjusted, OUP was flat. This was the most challenged part of our business, subject to the lowest economic growth rates with many markets operating a bench model, which creates higher financial and operational pressures than we see in other markets. The restructuring charges of 26 million represented 11 million in the Nordics, 9 million in Germany, with modest additional charges in the UK, the Netherlands, Belgium, and regional head office. Our largest market in Northern Europe segment is the UK, which represented 35% of segment revenues in the quarter. During the quarter, UK revenues decreased 12% on a days-adjusted constant currency basis. The UK market continues to be very challenging, and we expect the rate of revenue decline to worsen in the fourth quarter compared to the third quarter based on reduced seasonal holiday and lower public sector demand. In Germany, revenues decreased 16% in days adjusted constant currency in the quarter. Germany manufacturing trends have been weak, driving further declines. In the fourth quarter, we are expecting a similar to slightly worse year-over-year revenue decline compared to the third quarter trend. The Nordics continue to experience very difficult market conditions, with revenues decreasing 19% in days adjusted constant currency in the quarter. Within the Nordics, Sweden is experiencing the largest declines based on a weak manufacturing and auto environment. The Swedish market was also impacted by the introduction of new temporary worker term limits beginning in October of 2024, where many more clients than we expected converted our manpower temporary staff to their permanent payrolls ahead of this change. We believe temporary worker demand impacts from the shortened term limits to two years will normalize in the quarters ahead, as it has in many other European markets that have instituted similar adjustments in the past. The Asia-Pacific Middle East segment comprises 12% of our total company revenue. In the quarter, revenues equaled $563 million, representing an increase of 3% in organic constant currency. As adjusted, OUP was $25 million, and OUP margin was 4.5%. Restructuring charges of $2 million relate to actions taken in our Australia business. Our largest market in the APME segment is Japan, which represented 52% of segment revenues in the quarter. Revenue in Japan grew 9% 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 fourth quarter. As part of our ongoing strategy to optimize our mix of businesses and geo footprint, We have recently agreed to sell our South Korea business, which will operate as a manpower franchise in the future. We expect this transaction to close at the end of October, which will be reflected in my guidance for the fourth quarter. I'll now turn to cash flow and balance sheet. In the third quarter, free cash flow represented $67 million and compares to $245 million in the prior year. One-time restructuring-related payments on the wind-down of our Germany ProServia business decreased our free cash flow during 2024. At quarter end, day sales outstanding decreased by about two days to 57 days. During the third quarter, capital expenditures represented $16 million. During the third quarter, we repurchased 415,000 shares of stock for $29 million. As of September 30th, we have 3.1 million shares remaining for a purchase under the share program approved in August of 2023. Our balance sheet ended the quarter with cash of $411 million and total debt of $1 billion. Net debt equaled $614 million at quarter end. Our debt ratios at quarter end reflect total gross debt to trailing 12 months adjusted EBITDA of 2.1 and total debt to total capitalization at 32%. our debt and credit facility arrangements remain unchanged during the quarter as displayed in the appendix of the presentation. Next, I'll review our outlook for the fourth quarter of 2024. Based on trends in the third quarter and October activity to date, our forecast is cautious and anticipates that the fourth quarter will continue to be challenging in North America and Europe. Within Europe, Northern Europe continues to experience the most challenging conditions, and we anticipate lower seasonal holiday activity and extended year-end plant closures. As I mentioned, we expect the sale of our South Korea business to close at the end of October, and accordingly, our guidance only reflects one month of South Korea operations, and we have provided organic variances to show like-for-like revenue trends. With that said, we are forecasting earnings per share for the fourth quarter to be in the range of $0.98 to $1.08, The guidance range also includes an unfavorable foreign currency impact of one cent per share, and our foreign currency translation rate estimates are disclosed at the bottom of the guidance slide. Our constant currency revenue guidance range is between a decrease of 1% and 5%, and at the midpoint is a 3% decrease. The impact of the South Korea disposition is about 1% of the decrease, and there is about one more working day in the fourth quarter. In summary, Our organic days adjusted constant currency revenue decrease represents 4% at the midpoint. This represents a slight decrease compared to the third quarter trend on this same basis. Even the margin for the fourth quarter is projected to be down 30 basis points at the midpoint compared to the prior year. We estimate the effective tax rate for the fourth quarter will be 37.5%, which reflects the overall mixed effect of lower earnings from lower tax geographies in the current environment as well as the impact of valuation allowances in certain markets, which will reverse in the future when those markets rebound. The government of France very recently published the preliminary budget for 2025. Although the preliminary budget currently includes provisions that would increase our corporate tax rate in France temporarily in 2024 and 2025, we will wait to quantify this potential impact along with other possible provisions until the budget review by all the appropriate stakeholders in the French government is further along. In addition, as usual, our guidance does not incorporate restructuring charges or additional share repurchases, and we estimate our weighted average shares to be 48.1 million. We will carve out the gain-loss impact on a sale of our South Korea business separately in our fourth quarter results. 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 also report that separately if it is a meaningful amount. I will now turn it back to Jonas.

Thank you, Jack. We are steadfast in being front of mind with our clients and our talented teams of experts across our strong and distinct brands, Manpower, Experis, and Talent Solutions, Building deep relationships, a specialist partners with the data, insight, solutions, and seamless execution to earn the loyalty and trust for the long term. We have expanded visibility with our clients this year, with in-person and virtual touch points showing strong increases. And our data reveals we are improving our win rates quarter on quarter and year on year as we continue building client loyalty. We know. Data analysis becomes insights that drive better outcomes for our clients, associates, and candidates. We are convinced the data-centric commercial muscle we are building is positioning us to win in the market. AI-enabled dashboards sourced from our global data platforms ensure our teams focus on the activities that create the most value for our clients and our prospects. As you've seen in our actions this quarter, while we've taken a surgical approach to analyzing demand signals across our verticals and client segments, we're also being laser focused on how we manage costs. We strive to optimize profitability, ensure that we have the talent, innovation, and digital platforms to capture growth. We remain committed to our diversification, digitization, and innovation strategy, and to find new ways of creating value for our clients and our candidates. Our Manpower brand is our history and our future. We're intent on strengthening our positioning for candidates as an employer of choice, stands by their side to build skills and offer great opportunities throughout their career journey. That's why one of our priorities is finding new ways to meet our candidates where they are. We're delighted to have recently opened job hubs in several Walmart locations across the US, offering one-stop convenience and breaking down barriers for local job seekers. We're proud to have led the US industry with this model and to continuously improve how we attract top talent and create exceptional opportunities for both job seekers and employers. We're also delighted to have again been honored with multiple leadership recognitions in Everest Group's 2024 Peak Matrix Assessments, including Talent Solutions being named as Global Leader in Contingent Workforce Management for the 11th consecutive year, Experis as a Leader in IT Contingent Talent and Strategic Solutions in both the U.S. and U.K., and Manpower as a Leader in U.K. Business and Professionals Contingent Talent and Strategic Solutions. In closing, we are committed to creating shareholder value by building a sustainable company that takes care of all of our stakeholders, employees, clients, candidates, and the communities in which we operate. We're proud of our ongoing commitment to people and planet. And at New York Climate Week in September, we released our fourth annual Working to Change the World report. tracking our progress in building a skilled global workforce to leverage innovation and emerging technologies for a better, greener tomorrow. We cannot underestimate the impact on work or workers of the transformative changes taking place in AI and the global green transition. This report shares the many ways we are guiding both employers and workers through this moment of transformation, building partnerships with clients to address skill gaps, and developing in-demand talent pools with our Manpower MyPath and Experience Academy training programs. We know this work energizes our people, and we're pleased to have been named a Forbes World's Best Employer, recognizing our commitment to talent development. I would like to close by thanking our teams around the world for their considerable efforts to build the future of work and to our clients and candidates for trusting us to be their guides on this journey. Operator, please open the line for Q&A.

Thank you. If you would like to ask a question, please press star 1-1. If your question has been answered and you'd like to remove yourself from the queue, please press star 1-1 again. Our first question comes from Karthik Mehta with North Coast Research. Your line is open.

Thanks. Jack, maybe just your – I know you talked a little about the trends that were happening, at least in September and maybe into October for some of the geographies. I'm just wondering, as you looked at the entire quarter, what you saw in the business, and if there was any change even month by month,

Thanks for the question, Kartik. Yeah, I'd be happy to talk about what we saw during the course of the quarter. I'd say maybe starting with France, as we talked about in the prepared remarks, you know, France, we did see that boost from the Olympics in the middle of the quarter, so that flattered their results a bit, and we anticipated that. As we moved into September, we did see a step down, and we have them You know, here in early October, very similar rates. Just saw the last weekly this morning as well. And so, you know, basically as we ended about, you know, we had them at about minus 6% from a revenue trend. So that's what we've incorporated into the guide for the fourth quarter for France in line with recent activity in both September and October at this stage. And I'd say, you know, if we go to the U.S., as I mentioned, U.S., you know, for the most part, performed on an overall basis very well in line with our expectations. And I'd say it was pretty even over the course of the quarter, you know, from a mid-single-digit perspective, as you saw kind of what we posted there in terms of percentage declines. And it was really good to see that manpower and talent solutions in the U.S. actually helped offset some of the pressure we continue to see on the professional side. So, I'd say that was pretty even on an overall basis over the course of the quarter in the U.S. And then in Italy, I'd say also similar story. Italy came in slightly better than we anticipated. And if you look at the pace during the course of the quarter, sequential improvements from the previous second quarter into the third quarter, And I'd say that ran most of the quarter. I'd say August was a little bit better on a days adjusted basis. But all in all, I think Italy coming in at that, you know, minus 1% days adjusted, very close to flat year over year. We anticipate Italy will continue that trend into the fourth quarter with slight improvement. So Italy has been one of the more resilient markets in Europe. And that certainly is part of our outlook into Q4. And maybe lastly, in terms of the bigger countries, just the UK. You know, as we said, UK was difficult, seeing some of the most pressure among our largest countries and certainly We talked about Northern Europe seeing, you know, some of the most significant pressure. That was pretty constant over the entire quarter, running, you know, very close to that quarterly average that we talked about at minus 12% for the entire quarter. Pretty constant the entire way July, August, and September. And as I said, we expect that to step down a bit further. based on the fact that we expect December, which is always a sensitive month when we look at the fourth quarter, to be a little softer on the logistics side, transportation, as well as public sector demand pulling back a bit more in the fourth quarter. So that's a bit of the puts and takes from the biggest markets.

That's really helpful, Jack. And just You know, you've done a good job in managing the SG&A costs, and it sounds like you're going to manage it even further. But, you know, as the business stands now, what do you think the incremental margins will be going forward compared to where they were considering some of the efficiency costs and some of the other processes you've been able to put in place?

Thanks, Karthik. I'd say you're right. We, you know, as we said previously, we've been making adjustments. You saw us make some adjustments pretty significantly at the end of last year in 2023. And that was predicated on what we anticipated to be a softer first half of this year. That certainly played out. And here we are now in the second half of this year. with conditions continuing, right? And so we leaned in and we made additional adjustments this quarter. You can see that in our restructuring charges. And that's all to preserve bottom line margin in this current environment, which is continuing. So what I would say is that will help us preserve margin in as, you know, the environment continues in the demand appetite currently. But as we go forward, I think The real good news here is we're making really good progress advancing our transformation agenda. We've talked about that in the prepared remarks. And we see that on the front office side with, you know, the progress we made with PowerSuite front office, and that's going to help recruiter efficiency. That'll come through more meaningfully when we have more operational leverage. And we're doing the same thing on the back office side with very good progress in the implementation of our PowerSuite back office. That will drive savings for us as we complete those migrations. So, as I've talked about in the past, you know, I would expect that to be in the range of 25 basis points improvements in our EBITDA margin as we get through and complete those transformations on the back office side. And that will come through in efficiencies as we move forward. When we get operational leverage back in the business, when we start to see the markets rebound, then, of course, we'll start to get back to more historical EBITDA margin ranges, and then we'd add those savings to that level on top of that from the transformation.

Perfect. Thank you so much. I really appreciate it.

Thank you. Our next question comes from Trevor Romeo with William Blair. Your line is open.

Hi, good morning. Thanks so much for taking the questions. The first one I had was kind of just on manpower brand versus experience, maybe seeing a little bit of a growing divergence in performance between the two. It looked like manpower was kind of flat in the quarter. Experience was down, I think, 10% globally year over year. Just what would you attribute the difference in demand trends between the two? You know, is it just a question of kind of timing of when each one started to decline and each one's at a different point in the cycle now? Or are there other fundamental factors you'd call out there?

Good morning, Trevor. No, great question. So, if you think back during the pandemic, there was a big hiring bubble. of IT and other professional resources, especially within the tech sector, but I would say it was pretty broad, broad increases in hiring. And as we are looking at an environment where many organizations are now looking to manage their costs based on the headwinds, economic headwinds, and maintain the workforces that they had, clearly the professional resourcing side is seeing more significant headwinds. than we've seen in the manpower business. And we've been very pleased with how manpower has held up. Frankly, the cyclicality of what we're seeing today we think can be explained by the post-pandemic anomalies that we saw both leading into, during, and then afterwards as companies were adjusting their payrolls. Having said that, though, I think the outlook for professional resourcing and the need in our case or IT skills will continue to be very strong over the medium to long term. Everything that you read about, everything that every organization talks about is to make investments in the digital space. And to do that, they need projects, they need resources with the skills, they need the solutions that we can provide in Xperia. So I think our outlook is very good in terms of what we see Xperia is being able to do for us. and how it can perform, but right now you can see that there is a bit of a gap between how manpower and experience is progressing. We think it's temporary. No pun intended.

Thanks, Jonas. That was helpful. And then just a quick follow-up on the South Korea divestiture. I was just curious, you know, why you decided to sell that business and transition to the franchise model and anything you could say about kind of the financial impact or the proceeds received from the sale would be helpful. Thanks.

Well, Trevor, I'll start with the strategic areas around our portfolio. And over the past years, you have seen us look at certain geographies, where we feel they could be better served and managed within a franchise model in terms of their ability to drive growth at a faster rate and take market share at a faster rate. They tend to be markets that are more complex, lower margin markets, maybe with a higher risk profile than we think is suitable for a company of our statute to manage directly as wholly owned subsidiaries. So we've been pruning our portfolio of geographies and transitioning those operations and those markets into franchise models, which we think will make us more successful from a manpower group perspective, but also make the franchise holder more successful in terms of being able to unleash their abilities, maybe with lower margins, gaining greater share at a faster pace than would be consistent with the targets that we have from a financial and operating margin perspective.

And Trevor, in terms of your question on the financial details, we'll disclose that after we close the transaction. As I said, we expect to close it at the end of this month, very beginning of next month. And we'll have more to say on that in the fourth quarter. But I would say for modeling purposes, Think of it as running generally about $80 million a quarter. So as you think about the impact from a revenue trend perspective, and as I said, we have one month in the guide for the month of October, that would give you a pretty good idea. I think the main punchline for the fourth quarter is it doesn't have a significant impact in terms of the loss of those two months on our bottom line EPS. And we'll talk more about that after we close the transaction.

Okay. Thank you both. Appreciate the time. Thanks, Trevor.

Thank you. Our next question comes from Mark Marcon with Baird. Your line is open.

Good morning, and thanks for taking my questions, Jonas and Jack. Jonas, you know, at the beginning of your commentary, you cited that, you know, conditions aren't really changing that much. And, you know, when we take a look, particularly at Northern Europe, you know, it doesn't look like things have changed. Well, they've changed, but they've gotten worse. I'm wondering, you know, how are you thinking about, you know, what would be the catalyst, you know, to lead to improvement? you know, in the overall economic environment, but specifically in Northern Europe? And, you know, how long do you think that would take to come about? And if it doesn't come about, you know, anytime soon, you know, are there additional steps that we could take to, you know, improve the profitability level there?

Thanks, Mark. As I mentioned in my prepared remarks, Northern Europe is our most challenged region and has been for quite some time. And as you've seen, we've taken significant actions to right the business and adjust what is the most challenging market conditions across the world. If you look at the economic growth outlook for Germany, it is the weakest economy in Europe so The Nordics are seeing significant economic headwinds, and mostly everybody in that region is seeing the pressures, both the macroeconomic pressures really coming to bear. And that is, of course, something that's reflected in the performance of our industry and specifically for our company as well. Having said that, you know, we are confident that at some point when the market turns back, these are great places to be and these are important markets for us to operate. They also happen to be markets where we primarily have bench models, and they are harder to manage in a downturn because the associates are part of our permanent payroll, so it takes us some time to make and take the required actions to right-size the business when the demand drops. So we would never rule any further actions out in terms of what we need to do to adjust to the market conditions. But we also want to make sure that we maintain the strength in what we think are good markets in a more normalized environment. As you saw maybe this morning, Mark, the ECB once again for the second time in five weeks lowered their interest rates down to 3.25% by 25%. basis points. So I think that is going to be positive from encouraging businesses to start to invest more. And I think as you look at the inflation rate has come down as well. And, you know, we continue to monitor this. Last year, you heard us take action in Germany specifically and wind down our Preservia business, which is an important decision for us, which I think puts us in a very good position as those markets improve.

Great. I mean, aside from the rates coming down, are there any other things that you're, you know, that you would expect to see, you know, in the not too distant future that would, you know, positively impact growth in Northern Europe?

You know, I think a lot of it, Mark, depends on the macroeconomic circumstances. Of course, as we talked about in our prepared remarks. We've increased our sales activities. There are industry verticals that are positive where we are seeing increases in our pipeline. So we're doing everything that you'd expect us to do, manage demand and increase the pressure on demand to try and get some good results out of that, being very focused on our cost structure, and then keep on investing into the kind of digital transformation that Jack mentioned earlier that we think is going to improve our efficiency and our productivity both from a recruiter and frontline perspective as well as from a back office perspective. So those are the things that we can control that we are working on and we are very, very determined to make sure that we get Northern Europe back to where it needs to be. This is certainly a pressure point for us as a company, but it is also a pressure point from an industry perspective. We can see the markets being tough for us and for most everyone in our industry as well.

Yeah, we've certainly seen that. One last question, if I can squeeze one in. And, Jack, I know you wanted to defer until – you know, the final rulings come out and all the interested parties comment. But as we take a look at the French tax proposals, you know, how would you suggest investors think about, you know, based on the most likely scenarios and what's been out in the press, you know, how to think about tax rates, you know, as we look out?

Yeah, thanks, Mark, for the question. So, yeah, I'm a little hesitant to talk to it because it's still very preliminary, and particularly when you think about where the government is right now. So, it's a bit unprecedented. You know, we're used to a preliminary budget that's, you know, very far along within parliament that usually is adjusted very lightly as it gets finalized. And we'll see how this one advances. through, you know, the various factions of parliament in the discussions. But specific to your question on the tax rate, you know, I think the way investors should think about it is the way the government's talked about it is a temporary increase on the tax rate is what they're looking at. That's what's proposed. And it's being applied to the largest companies. We fall into that bucket, of course, based on the size of our French business. And it would really only be for 2024 and 2025. And it is a measure to help them shore up this deficit that they have today. But everything we understand is they're still committed to their long-term tax reform that they put in place that took their rate down. And this would just be a temporary measure. So, we'll see how this advances here through the end of the year. And, you know, we'll have a lot more to say about that at year end. And I think the last thing is, again, it's just 2024 and 2025. 24 would be hit a bit harder in terms of the increase, the way it's drafted, and 25 would be a lesser increase. And, you know, we'll have more to say on that at your end. But again, I'd say the main takeaway is temporary and still committed to making France more competitive for corporates and their longer-term tax reform and getting back to where they were.

Great. Thanks for the comments. Appreciate it.

Thank you. Our next question comes from George Tong with Goldman Sachs. Your line is open.

Hi, thanks. Good morning. Can you talk about behavioral changes among employers that you're seeing in the temp space this cycle compared to prior cycles? It seems like temp staffing trends are lagging perm trends and wondering if hiring managers are bypassing temp hiring this cycle and going straight to perm hiring.

Good morning, George. You know, looking at this, I would say it's now for the last 12 months roughly playing out as we would expect it to play out and as we have seen it play out in the past with one important difference. And that is that employers have been holding on to their workforce for much longer with economic headwinds than we have seen in the past. And we think this comes from the pandemic experience of the difficulty of finding talent. And, you know, we can see that employers are being very surgical in their hiring at this stage. But I don't really see any difference in behavior or preferring permanent hiring over temporary hiring. In fact, our temporary staffing business is doing much better than our permanent hiring Recruitment is both within the brands of experience and manpower as well as in talent solutions RPO. So I wouldn't read any different – I don't see any difference in employer behavior with the exception of they are holding on to their workforces. They are not ready to invest in new workforce from a temporary or contingent perspective to the degree that we saw, of course, in better economic times. but we fully expect them to revert back to tapping into those resources as the economic conditions improve in their respective industries, as we would expect our current recruitment also to come back and be as strong as we've seen in the past, because certainly our ability as a business and within our brands of manpower, experience, and talent solutions to satisfy permanent recruitment needs have really become much, much stronger, and it's a very important part of our business. And we'd expect that to come back in the same way once conditions improve as well.

Got it. That's helpful. And you talked earlier about taking additional cost actions based on the extended duration of the current operating environment. Can you elaborate a little bit more on where these cost actions are concentrated?

George, I'd be happy to do that. I think... In line with the discussion we just had on Northern Europe, the biggest part of it is in Northern Europe. So, you know, of the total restructuring that we took of the 37.6 million, Germany was about 9 million. Sweden was about 7 million. Norway was just about 4 million. We did have a bit in France as well, much more modest. And in the U.S., we also had about $3.5 million as well. So I'd say those were some of the bigger moving pieces. But, you know, think about it the way we talked about it. I think the most pressure right now is in some of the bench countries. That kind of follows where we've taken some of the restructuring. but also where we haven't seen demand pick up the way we were originally anticipating earlier in the year. So we've done some right sizing to adjust that. We've been very focused on, you know, more of the overhead, the back office, the functions, the regional head offices, and as, you know, as you heard Jonas say, trying to preserve sales strength. So we've been very careful and surgical, as you've heard, based on our prepared comments. Thanks.

Very helpful. Thank you.

Thank you. Our next question comes from Manav Patnik with Barclays. Your line is open.

Hi, good morning. This is Princey on for Manav. I just wanted to ask around your prepared remarks where you were saying that you're seeing improvements in the manpower sales pipeline where I wanted to just see if you can expand on that, or is that with mainly new clients? Any color that you can provide would be great.

Yeah, we see some very nice improvements in our pipeline, both for our existing customer base, but primarily on our new business and new client base. And this is the result of our increased focus over the last 12 months to really make sure that we are increasing our demand-generating activities, that we're being very focused on the industry verticals that we think can be fruitful, and that we're leveraging the technologies that we've implemented so that we spend our time on the opportunities that we think can be yield better results and faster growth for us going forward. And that's why we're pleased to see that the pipeline is increasing. In an environment like this, having an increasing pipeline means the conversion rate and the monetization rate, the timing of that is extended because whilst we're winning more deals, the size of the deals tends to be smaller and the speed to monetization tends to be slower. But regardless of that, having won these deals is going to be beneficial for us in the short term, but certainly also in the medium to long term when the market conditions improve and those deals start to come to their full monetization potential and generate greater amounts of revenue growth for Manpower as well as for experience and talent solutions.

Right. And can you speak a little bit to what you're seeing in terms of competitive dynamics?

Our industry has always been a competitive industry. But as we mentioned in our prepared remarks, pricing is also competitive, but rational. So the pricing levels, as you can see from our gross profit margins, are stable. The changes that we saw quarter over quarter are primarily driven by Business mix and geomix changes, not by pricing pressure. The demand for skilled talent is still strong, and our customers know that it's difficult to find people with the right skills. And I think that is what we're seeing reflected in the dynamics of our industry. But it's always going to be a competitive industry. But at this stage, we're seeing the pricing being solid and behavior rational.

Thanks, Jonah.

Thank you.

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. I wanted to ask about the conversations you're having with your customers. I think for a while now we've heard that customers are being cautious because of high interest rates and global elections. But as you mentioned, the ECB has started to cut rates. The Fed has started to cut rates. Elections are progressing, I guess, globally. So as all of these play out, how do you see demand being catalyzed in the upcoming quarters? Do you expect some resolution or do you expect kind of this continuous sluggishness to persist even though some of these events are kind of transpiring? Thank you.

But as you heard from our outlook, we certainly think that this kind of environment that, frankly, we've seen now almost for the full year will continue into Q4. So when we're together again at year end, you know, we'll see if any of those changes items that you mentioned have started to move the needle. Ultimately, we do believe that those are exactly the kind of elements that will start to move the needle, give employers greater confidence that the worst is over, start looking ahead, starting to activate the projects and the developments that they've been planning for. The environment still maybe being a little bit uncertain means they will turn to contingent and flexible workforce first, accelerate the digital investments that they've done, which should show us some good improvement in demand for our experience resources. So we think the actions that are being taken and where we are is clearly going to be improving. The question is when. And what we're saying is that we didn't see anything materially change in the third quarter. We don't expect to see anything materially change into the fourth quarter. And then when we get together again at the end of, then we talk about our year-end results, you know, we'll update that view and see if anything has changed then. But the kinds of actions that we're seeing on lower inflation, actions by central banks to lower interest rates, stimulate demand, I think are exactly the kind of, and getting past elections in many of the countries, solidified budgets and things like that to provide for greater certainty and create a more dynamic business environment.

Thanks for that call, Jonas. That certainly makes sense. I guess as you think about your margin progression going from Q3 to Q4, I think typically Q3 and Q4 margins are relatively slow, but according to your guidance, there's a bigger step down this Q4 than what seems to be normal. Could you talk about what's driving that sequential margin decline? Thank you.

Josh, yeah, this is Jack. I'd be happy to talk to that. I think, you know, the main takeaway on that is, you know, in our – sequentially in our Q3 results in the SG&A, I did talk about the fact that, you know, we were – we had some favorability in corporate costs that I carved out and I talked about that with incentives and some of the health care plan related charges being more favorable this quarter. And we expect that Q4 will kind of return to the run rate we saw in previous quarters for corporate. So that's part of it sequentially. And that's part of the reason we were slightly better on EBITDA than the midpoint of our guide in Q3. But I'd say the other part is really kind of what I was referring to in terms of December being a sensitive month for the fourth quarter. And so, December, if December is really strong with holiday-related activity and volumes, and we don't see plant closures, extended plant closures, like you typically see in a softer environment, then it could be a stronger environment, but we're not anticipating that at the moment. So, I think we're anticipating a kind of a continuation of some of the caution we've seen out there. That means when you get to December, you know, some IT projects will probably be paused around the holidays for an extra week or so. than they normally would and plants may decide to close for an extra week or so. So, that's really the main item that we're looking at. We don't see it as a permanent step change by any means, but we do anticipate December will likely be a bit softer. So, that's why this year, sequentially, you're not seeing us able to hold the same level of margin. But like I said, I think it's a bit unique based on the way we're just seeing December at this stage.

Great. Thanks for the call, Jack, and thank you both for your time.

Thanks, Jack.

Thank you. Our next question comes from Jeff Silber with BMO Capital Markets. Your line is open.

Hey, good morning. This is Ryan on for Jeff. Just looking at the talent solutions business, it looks like it had a pretty notable change from 2Q just on a year-over-year basis. I know you called out the right management in MSP. driving some of the strength, but was wondering if you could give any more color on some of the diverging trends between Talent Solutions and the other business lines. Thank you.

Thanks for the question, Ryan. Yeah, I think real very quickly on that, I think, you know, what we are seeing is some improving trends. It was really great to see all three offerings have GP growth in the quarter. So, you know, that's good. That's a nice step in the right direction. RPOs, we said on an overall basis, is seeing an improved trend sequentially from the last quarter. And, you know, as we talked about, RPO in the U.S. actually grew. And we are seeing in select programs, some good activity. So it's not broad-based yet, but it's a start, so it's somewhat encouraging, but we'll wait and see whether that continues to be a nice trend going into the fourth quarter and whether we see that spread into other programs. MSP has been very, very strong for us, so really nice growth in the quarter. That business has been executing very well, and we've seen that actually continue to grow at higher rates as we progress through the year. And like we said, Wright was very strong in France and the UK, and that was really the big driver there. So I'd say that's kind of the wrap-up on talent solutions. It's a good step in the right direction, and we'll continue to monitor that as we go forward. Thanks.

Understood. Thank you. And then can you talk a little bit more about the Walmart Job Hub, just what the business rationale there is and what you expect from that partnership?

You're right. Yeah, no, we're excited about that. It's a very nice innovation. As we think about a market that is more candidate-restrained as part of our innovation initiatives, we want to meet candidates in new ways and in different places. Of course, a lot of those encounters are going to be enabled by digital platforms, but they're also going to be in new physical spaces. And that's why we think this partnership with Walmart for us in the U.S. is a very, very exciting opportunity. We'll see how it evolves over time, but it's the kind of initiatives that we're taking as part of, you know, how we're navigating this environment, making sure that we invest in sales and create demand, making sure that we manage our costs appropriately but still maintaining the strength and the investments into products and innovations that excite customers as well as excite our candidates and makes it easier for them to access meaningful and sustainable employment aligned with our purpose. And therefore, we're excited to monitor and see how this progresses and continue to drive this kind of innovation in the U.S. as well as in many other markets across the world.

Great.

Thank you so much.

Thank you. Our next question comes from Toby Summer with Chewist. Your line is open.

Thank you. I wanted to ask you what kind of growth the industry and the company could achieve if we get to some sort of recovery in recruiting? Because this is a different scenario. In prior recoveries, there's generally been a recession or GDP that hasn't grown or other sort of more obvious telltale signs that aren't idiosyncratic to the industry. And following those periods, yourselves, Manpower, and the industry have grown double digits at the top line. How do you envision this perhaps being different, given that your customers are retaining permanent talent and might have more capacity headed into a rebound than is typical?

Well, Toby, I don't think from our perspective it's a question of if. It's a question of when the recovery starts to happen. And as far as the shape of the recovery is concerned, that's actually quite hard to predict. Now, when you think back about, you know, where we are in the world, you know, Latin America and Asia Pacific continue to perform very well. The economic headwinds in terms of low economic growth, zero growth in the Eurozone clearly indicates that this is an economic cycle where our industry is, you know, really feeling the effects in this economic cycle like we felt the effects in past economic cycles. So then we come to the U.S., and we look at the U.S., and I think the anomalies that you might be referring to are very visible here. We have good economic growth, yet our industry has really been operating as if it was a recession for the better part of two years. The way we think about it, at least, is that the first year of those two years was We're driven by pandemic anomalies where companies starting to feel headwinds. They're adjusting. They're monitoring the cost very carefully. And the brunt of that need for cost cuts came, as it relates to workforce, came into our industry. But what we're seeing over the last 12 months is really a cooling economy, a cooling labor market, and our industry really, the dynamics of the industry playing out the way we've seen it play out in the past. If you look at the penetration rate of our industry here in the U.S., it really shows us that we have some really good growth opportunities as we look ahead. The question is going to be what kind of economic confidence are we going to be seeing in the manufacturing sector? The manufacturing sector in the U.S., the PMI has been below 50. for 23 months out of 24 with a brief blip, you know, at the beginning of this year and then below 50 again. So that, you know, seeing that turnaround from a manufacturing perspective is going to be important. And then I also think it's very important to look at the employment and labor market and realize that most of the growth that we've seen in employment and the strength of the labor market in the U.S. in particular is driven by versions of public sector hiring, be it in healthcare, healthcare being more private here in the U.S., but the same is true also for Europe. Private sector hiring is lagging public sector hiring. So government spending and driven employment is a big factor. Healthcare is a big factor. And then hospitality, leisure, restaurant spend, that's where the growth has been from the workforce. But if you look at manufacturing employment, you look at many other sectors, industry verticals in the US that traditionally are the sectors that are driving growth and demand for our industry. And as far as we're concerned, growth and demand for services and manpower and experience and intelligence solutions, those have been weak for quite some time and we would expect them to rebound. But as to the shape and the timing of that curve, that's very difficult to predict.

Thank you, Jonas. Within the experience business in the U.S., could you speak to the – offer some more color on the IT and tech exposure and differences you may be seeing between convenience and your larger customers and to the extent you have exposure in managed services and more sort of project consulting-related work? Thank you.

Sure. No, we have a very strong presence in IT resourcing as well as in solutions. And most of our customers are big enterprise users of those services. And we continue to see pretty strong headwinds and low demand for larger enterprise clients. They're pausing projects. They are reallocating resources from traditional IT projects into projects AI spend, cyber spend, that's where the demand is still strong. But on a volume and on a scale basis, those are relatively small opportunities for experience in terms of what moves the needle on the larger project. So we are very strong on the solution side. As we mentioned in our prepared notes, we can see a better performance from the convenience side of the business on experience. But you are seeing headwinds there as well. Companies are a little bit more – smaller companies a little bit more cautious in terms of starting the projects. But as you step back from all of that and you think about what's happening with all corporations, large and small, the investments that they are thinking about doing and are executing today – in terms of their plans for digital transformation means that in terms of demand outlook, you know, the timing being uncertain, but in terms of it coming back and coming back strong, we feel really good about that. And our business is very well positioned to take advantage of the market coming back when it does.

Thank you.

Thanks, everyone, for participating in the Q3 earnings call, and we look forward to speaking with you again when we discuss our year-end results in a few months. Thanks, everyone. Have a great rest of the week.

Thank you for your participation. You may now disconnect. Everyone, have a great day.