ManpowerGroup : Earnings Results Call - Prepared Remarks Q1 2023

ManpowerGroup

Prepared Remarks Transcript

Q1 2023 CONFERENCE CALL

SLIDE 1 - Jonas Prising

Welcome to the first quarter conference call for 2023. Our Chief Financial Officer, Jack McGinnis, is with me today. For your convenience, we have included our prepared remarks within the Investor Relations section of our website at manpowergroup.com. I will start by going through some of the highlights of the quarter, then Jack will go through the first quarter results and guidance for the second quarter of 2023. I will then share some concluding thoughts before we start our Q&A session. Jack will now cover the Safe Harbor language.

SLIDE 2 - Jack McGinnis

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.

SLIDE 3 - Jonas Prising

Thanks Jack.

In our previous earnings call, we reported that organizations remained focused on maintaining and augmenting headcount for essential talent, though we were also seeing softening of demand for staffing services due to increased economic uncertainty.

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This softening trend continued into the first quarter of this year, with demand for staffing services slowing further, most notably in the U.S. Europe continued to experience a modest decrease in demand in most major markets during the quarter, following a trend that started early in 2022.

After months of a remarkably strong U.S. labor market, we are now seeing more companies across various industries recalibrating their workforces after a period of bullish hiring, shifting their focus towards more intentional hiring for specialist skills and in-demand roles, delaying hiring decisions and reducing their demand for contingent workforce, in line with dynamics we have seen in past economic slowdowns. Although this cautious environment is resulting in lower volumes of staffing activity in the U.S. and Europe, we continue to support our clients by delivering the in-demand specialist resources they need in this environment, and are also playing a big role in replenishing their permanent workforce in critical parts of their businesses. It is important to note that business trends in Asia Pacific, the Middle East and Latin America continued to be quite robust and helped offset the more challenging environment in the U.S. and Europe, illustrating the advantage of our geographically diversified market presence. I just finished business review meetings on the ground in our Asia and Latin America businesses and I'll talk more about that later.

Turning to our financial results, in the first quarter revenue was $4.8 billion, down 2% year over year in constant currency. Our reported EBITA for the quarter was $127 million. Adjusting for restructuring costs, EBITA was $133 million, representing an 11% decrease in constant currency year over year. Reported EBITA margin was 2.7%, and adjusted EBITA margin was 2.8%. Earnings per diluted share were $1.51 on a reported basis and $1.61 on an adjusted basis. Adjusted earnings per share were down 7% year over year in constant currency.

Our clients have indicated that despite the slowing environment, core business transformation must continue, underscoring the need for different and more advanced skills. Our own quarterly ManpowerGroup Employment Survey data shows employers plan to continue hiring mission critical talent, given shortages for in-demand roles are at record levels. This demand for talent is evidenced by ongoing strong growth in permanent recruitment in many of our largest markets including the U.K., France, Italy, Japan, Spain and the Nordics, among others.

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I will now pass to Jack to share more details on the financials.

SLIDE 3 - Jack McGinnis

Thanks, Jonas.

Revenues in the first quarter came in between the low-end and the mid-point of our constant currency guidance range. Gross profit margin came in at the high-end of our guidance range. As adjusted, EBITA was $133 million, representing an 11% decrease in constant currency compared to the prior year period. As adjusted, EBITA margin was 2.8% and came in at the mid-point of our guidance range, representing 30 basis points of decline year over year.

Due to the strengthening of the dollar, year over year foreign currency movements continued to have a significant impact on our results. It is important to note that our businesses operate in local currencies and, as a result, foreign currency translation does not impact cash flow activity within our businesses and is largely an accounting item based on reporting translation into U.S. dollars. Foreign currency translation drove about a five and half percent swing between the U.S. dollar reported revenue trend and the constant currency related trend. After adjusting for the negative impact of foreign exchange rates, our constant currency revenue decreased 2%. Organic days-adjusted revenue decreased 4% in the quarter compared to our guidance of -2.5% at the midpoint. The lower revenue trend reflected a deteriorating environment during the first quarter, particularly across the U.S. and Europe.

SLIDE 4 - Jack McGinnis

Turning to the EPS bridge on slide 4, reported earnings per share were $1.51 which included $0.10 related to restructuring costs. Excluding restructuring costs, adjusted EPS was $1.61. Walking from our guidance mid-point, our results included a softer operational performance of 4 cents, a lower effective tax rate which had a positive impact of 1 cent, a foreign currency impact that was 1 cent better than our guidance due to the strengthening of the euro and the pound during the quarter, and other

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expenses, which included increased pension plan related interest costs, had a negative 3 cent impact.

SLIDE 5 - Jack McGinnis

Next, let's review our revenue by business line. Year over year, on an organic constant currency basis, the Manpower brand reported a revenue decline of 1%, the Experis brand declined by 5%, and the Talent Solutions brand reported a revenue decline of 1%. The Experis decline was driven by lower volumes from enterprise clients as we anniversaried significant growth in the prior year. Within Talent Solutions we saw modest year over year revenue decline in RPO as we anniversary exceptional levels of permanent hiring across our key markets in the prior year period. Our MSP business saw revenue declines in the quarter as we reduced certain lower margin activity, while Right Management experienced significant revenue growth on higher outplacement volumes in the quarter compared to the low levels in the prior year.

SLIDE 6 - Jack McGinnis

Looking at our gross profit margin in detail, our gross margin came in at 18.2%. Staffing margin contributed to a 40 basis point increase as Experis and Manpower both experienced staffing margin expansion. Permanent recruitment, including Talent Solutions RPO, contributed a 10 basis point GP margin reduction as permanent hiring demand continued at reduced levels from the exceptional activity in the prior year period. Favorable direct cost adjustments, primarily in the U.S., contributed 10 basis points in the quarter. Right Management career transition within Talent Solutions contributed 20 basis points of improvement and other items represented a positive 20 basis points.

SLIDE 7 - Jack McGinnis

Moving onto our gross profit by business line. During the quarter, the Manpower brand comprised 56% of gross profit, our Experis professional business comprised 27%, and Talent Solutions comprised 17%.

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During the quarter, our consolidated gross profit increased 1% on an organic constant currency basis year over year.

Our Manpower brand reported an organic gross profit increase of 2% in constant currency year over year.

Organic gross profit in our Experis brand decreased 2% in constant currency year over year.

Organic gross profit in Talent Solutions increased 1% in constant currency year over year. This was driven by significant growth in Right Management. Gross Profit in RPO decreased in the mid to high single digit percentage range in the quarter as we anniversary record-levels of permanent hiring activity in the prior year period, while MSP experienced a slight GP decline during the quarter.

SLIDE 8 - Jack McGinnis

Reported SG&A expense in the quarter was $745 million. Excluding restructuring costs, SG&A was 3% higher year over year on an organic constant currency basis, down from the 4% growth in the fourth quarter on this same basis. This reflects a balance of cost reductions in areas of slowing demand while we continue to invest in strategic digitization initiatives as well as growth opportunities, most notably including Experis, Talent Solutions, and specialty skills in Manpower. The underlying increases consisted of operational costs of $25 million, incremental costs related to net acquisitions and dispositions of businesses of $3 million, offset by currency changes of $35 million. Adjusted SG&A expenses as a percentage of revenue represented 15.4% in constant currency in the first quarter reflecting lowered operational leverage on the revenue decline. Restructuring costs totaled $7 million.

SLIDE 9 - Jack McGinnis

The Americas segment comprised 24% of consolidated revenue. Revenue in the quarter was $1.1 billion, representing a decrease of 6% compared to the prior year period on a constant currency basis. Reported

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