ManpowerGroup : Earnings Results Call - Prepared Remarks Q2 2022

ManpowerGroup

Earnings Results Transcript

Q2 2022 CONFERENCE CALL

SLIDE 1 - Jonas Prising

Welcome to the second quarter conference call for 2022. 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 second quarter results and guidance for the third quarter of 2022. 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 regarding the impact of the COVID-19 pandemic and the Russia-Ukraine War, which are subject to known and unknown risks and uncertainties. These statements are based on management's current expectations or beliefs. Actual results might differ materially from those projected in the forward-looking statements. We assume no obligation to update or revise any forward-looking statements.

Slide 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.

I'm just back from extensive trips through Europe, which included the World Economic Forum's Annual Meeting in Davos, VivaTech, which is one of the world's largest technology and start-up events in Paris, and the

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Choose France Summit held just last week in Versailles. I will touch on these events as well as insights from clients during my business reviews later in the call.

Turning to our financial results, in the second quarter revenue was $5.1 billion, up 6% year over year in constant currency, or 3% in organic constant currency. Our EBITA for the quarter was $190 million. Adjusting for the U.S. acquisition integration costs, EBITA was $193 million, reflecting growth of 22% in constant currency year over year. Reported EBITA margin was 3.7%, and adjusted EBITA margin was 3.8%. Earnings per diluted share was $2.29 on a reported basis and $2.33 on an adjusted basis. Adjusted earnings per share increased 28% year over year in constant currency.

After recent meetings with clients, policy makers and our teams across markets on my travels, I'm struck by the fact that despite the clouds weighing on the outlook of the global economy, the labor markets remain strong. Although there have been, and continue to be, disruptions from supply chain shortages in specific sectors such as automotive, construction and to a lesser degree logistics, our clients continue to prioritize acquiring talent in this environment. As a result, demand for our services remains strong across many of our major markets. Our clients are particularly interested in permanent recruitment, both in our Talent Solutions RPO business as well as in our staffing businesses, in MSP within Talent Solutions, in Experis IT resourcing and solutions, and across our Manpower Specializations.

Our own quarterly, forward-looking hiring research across 40,000 employers in 40+ countries - the ManpowerGroup Employment Outlook Survey - also showed that hiring confidence has remained strong in absolute measures, with organizations experiencing talent shortages at record highs. In our most recent survey, completed in May, 75% of companies globally predicted they would not be able to find the talent they need, which is the highest in 16 years.

In summary, labor markets are very healthy, talent shortages are high and demand for our services and solutions remains strong. Having said that, the combination of the continued war in Ukraine, increasing energy and food prices driving higher inflation rates and continued supply chain issues creates a more uncertain economic outlook. This will likely create economic headwinds that may eventually spill into labor markets to a greater degree than what we have seen so far. Should that be the case we are confident in our ability, as we have in the past, to manage changes in the market

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environment and adapting quickly, leveraging our diversified business mix and experienced leadership to position our company for continued success. We have made progress in diversifying our business into specialized higher value services and solutions, digitizing our business on common global platforms and creating talent at scale through our MyPath and Experis Academy initiatives. This should position us well, even in a more turbulent environment, and create competitive strength to our advantage.

I will now turn it over to Jack to take you through the results.

SLIDE 3 - Jack McGinnis

Thanks, Jonas.

Revenues in the second quarter came in at the low end of our constant currency guidance range. Gross profit margin came in above our guidance range. As adjusted, EBITA was $193 million, representing a 22% increase in constant currency from the prior year period, or an 11% increase on an organic constant currency basis. As adjusted, EBITA margin was 3.8% and came in at the high end of our guidance, representing 50 basis points of year over year improvement, or 30 basis points organically.

Due to the significant strengthening of the dollar, particularly against the euro, year over year foreign currency movements had a much bigger impact than usual on our results. This drove an almost 10% swing between the US dollar reported revenue trend and the constant currency related growth rate. After adjusting for the negative impact of foreign exchange rates, our constant currency revenue increased 6%. Due to the impact of net acquisitions increasing revenue about three percent and slightly more billing days, the organic days-adjusted revenue increase was about 2 and half percent compared to our guidance of 5%. The softer revenue trend was the result of more modest growth than anticipated in the Manpower brand.

SLIDE 4 - Jack McGinnis

Turning to the EPS bridge, reported earnings per share was $2.29 which included 4 cents related to the Experis U.S. acquisition integration costs. Excluding the integration costs, adjusted EPS was $2.33. Walking from our guidance mid-point, our results included improved operational performance of 2 cents, slightly lower weighted average shares due to share

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repurchases in the quarter which had a positive impact of 3 cents, a slightly better effective tax rate which had a positive 1 cent impact, the foreign currency impact was 6 cents more negative than anticipated in our guidance particularly due to the euro weakness during the quarter, and other expenses had a negative 2 cents 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 revenue growth of 1%, the Experis brand reported revenue growth of 10%, and the Talent Solutions brand reported revenue growth of 13%. Within Talent Solutions we continue to see exceptional revenue growth in RPO and very strong revenue growth in MSP. As the outplacement environment continues to experience low levels of activity, Right Management saw double digit percentage revenue decreases year over year.

SLIDE 6 - Jack McGinnis

Looking at our gross profit margin in detail, our gross margin came in at 18.2%. Underlying staffing margin contributed a 30 basis point increase. The Experis U.S. acquisition added 30 basis points. Permanent recruitment contributed a 90 basis point GP margin improvement as hiring activity continued to be strong across our largest markets. Experis Solutions contributed a 30 basis point improvement which was driven by the U.S. business. This was offset by a lower mix of Right Management career transition business which resulted in 10 basis points of GP margin reduction 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 57% of gross profit, our Experis professional business comprised 27%, and Talent Solutions comprised 16%.

During the quarter, our Manpower brand reported an organic constant currency gross profit increase of 6% year over year.

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Organic gross profit in our Experis brand increased 20% in constant currency year over year. This reflects strong growth in higher margin solutions as well as permanent recruitment.

Organic gross profit in Talent Solutions increased 22% in constant currency year over year. This was driven by the performance in RPO and MSP discussed earlier which was partially offset by the decreases in Right Management due to outplacement trends.

SLIDE 8 - Jack McGinnis

Our SG&A expense in the quarter was $741 million. Excluding acquisition integration costs, SG&A was 16% higher on a constant currency basis and 11% higher on an organic constant currency basis. This reflects continued investment in the business, reflecting the addition of recruiters and sales personnel in Experis, RPO and in various growth opportunity markets in Manpower. The underlying increases consisted of operational costs of $78 million, incremental costs related to net acquired businesses of $29 million, offset by currency changes of $60 million. Adjusted SG&A expenses as a percentage of revenue represented 14.5% in the second quarter.

SLIDE 9 - Jack McGinnis

The Americas segment comprised 25% of consolidated revenue. Revenue in the quarter was $1.3 billion, an increase of 23% in constant currency or 4% on an organic constant currency basis, or 6% after adjusting for days. OUP was $81 million. As adjusted, OUP was $84 million and OUP margin was 6.6%.

SLIDE 10 - Jack McGinnis

The U.S. is the largest country in the Americas segment, comprising

72% of segment revenues. Revenue in the U.S. was $904 million, representing a 44% increase, or 12% organically, compared to the prior year.

As adjusted to exclude acquisition integration costs, OUP for our U.S. business was $67 million in the quarter representing an organic increase of 22%. As adjusted, OUP margin was 7.5%.

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