ManpowerGroup : Earnings Results Call - Prepared Remarks Q4 2022

ManpowerGroup

Prepared Remarks Transcript

Q4 2022 CONFERENCE CALL

SLIDE 1 - Jonas Prising

Welcome to the fourth 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 fourth quarter results and guidance for the first 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.

Over the last three weeks, I spent time with our leadership teams across the world for our annual Strategic Roadshows, as well as with clients

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in Europe, before attending the World Economic Forum annual meeting in Davos, Switzerland.

From these conversations with our teams, our clients and global leaders we get insights on the current environment and near-term outlook. This complements our own real-time business data on the current environment and forward-looking research.

The economic headwinds and increased caution by employers due to an uncertain economic outlook are resulting in softening hiring behaviors. We see this through extended recruiting and sales cycles and softer order flow with employers in certain sectors, as they are exercising more caution in their demand for contingent and permanent recruitment of talent. That said, they are also focused on holding on to business-critical talent while adding headcount for in-demand skills, whether that is supply chain workers or highly skilled professional skills talent and as a result, labor markets remain strong overall and we still see good order flow and opportunities in various markets and brands.

Turning to our financial results, in the fourth quarter revenue was $4.8 billion, down 1% year over year in constant currency. Our reported EBITA for the quarter was $110 million. Adjusting for the U.S. acquisition integration costs, restructuring costs, and other special items which we will cover in the financial review, EBITA was $167 million, representing a flat trend in constant currency year over year. Reported EBITA margin was 2.3%, and adjusted EBITA margin was 3.5%. Earnings per diluted share was $0.95 on a reported basis and $2.08 on an adjusted basis. Adjusted earnings per share increased 8% year over year in constant currency.

SLIDE 4 - Jonas Prising

Turning to the full year results for a few moments, reported earnings per share for the year was $7.08. As adjusted, earnings per share was $8.52 and represented a constant currency increase of 31%. Revenues for the year increased 5% in constant currency to $19.8 billion, and reported EBITA was $619 million. As adjusted, EBITA was $698 million which represented a 22% constant currency increase year over year.

In the fourth quarter we experienced softening in demand in some sectors and markets, especially in the US and Europe. Our own quarterly

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forward-looking ManpowerGroup Employment Outlook Survey of approximately 40,000 employers in more than 40 countries (which was conducted in November) indicates that good hiring momentum is expected to continue for Q1 2023 especially in IT, Finance, Energy and Life Sciences, with softening hiring intent emerging in Europe and, to a lesser extent, in the US, both weaker in hiring intent quarter over quarter and year over year.

And while the headlines may be dominated by tech company layoffs - we see this more as a recalibration of their workforces as a result of bullish hiring post pandemic. In the wider spectrum of all industries, we are seeing more companies begin to tap the brakes while others have their foot hovering above the brake pedal.

Even in this more cautious environment, there remain areas of good demand for our services, such as IT skills within our Experis business, higher margin skills within our Manpower business, RPO, MSP and Right Management and we are focused on delivering into these market opportunities.

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

SLIDE 3 - Jack McGinnis

Thanks, Jonas.

Going back to the quarterly results on slide 3, revenues in the fourth quarter came in at the low-end of our constant currency guidance range. Gross profit margin came in at the mid-point of our guidance range. As adjusted, EBITA was $167 million, flat in constant currency compared to the prior year period. As adjusted, EBITA margin was 3.5% and came in just below our guidance range and was flat 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 a 10% swing between the U.S. dollar reported revenue trend and the constant currency

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related growth rate. After adjusting for the negative impact of foreign exchange rates, our constant currency revenue decreased 1%. Due to the impact of net dispositions decreasing revenue about half a percent and fewer billing days, organic days-adjusted revenue was flat in the quarter compared to our guidance of +2% at the midpoint. The lower revenue trend reflected a deteriorating environment during the fourth quarter, particularly across Europe and North America.

SLIDE 5 - Jack McGinnis

Turning to the EPS bridge on slide 5, reported earnings per share was $0.95 which included $1.13 related to restructuring costs, final integration costs from the U.S. Experis acquisition, and other special items consisting of a loss on sale of our Hungary business and non-cash charges consisting of goodwill impairment and pension settlement costs. Excluding the restructuring costs and other special items, adjusted EPS was $2.08. Walking from our guidance mid-point, our results included a softer operational performance of 19 cents, slightly lower weighted average shares due to share repurchases in the quarter which had a positive impact of 1 cent, a lower effective tax rate which had a positive impact of 2 cents, a foreign currency impact that was 8 cents better than our guidance due to the strengthening of the euro and the pound during the quarter, and other expenses had a positive 1 cent impact.

SLIDE 6 - 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 decline of 1%, the Experis brand was flat, and the Talent Solutions brand reported revenue growth of 7%. Within Talent Solutions we continue to see year over year revenue growth in RPO as permanent hiring trends remained solid across our key markets during the quarter. Our MSP business saw a modest revenue decline in the quarter as we reduced certain lower margin activity, while Right Management experienced a double-digit percentage revenue increase on higher outplacement volumes in the quarter compared to the extremely low levels in the prior year.

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SLIDE 7 - Jack McGinnis

Looking at our gross profit margin in detail, our gross margin came in at 18.2%. Staffing margin contributed a 30 basis point increase driven by our Manpower businesses. Permanent recruitment, including Talent Solutions RPO, contributed a 20 basis point GP margin improvement as hiring activity contributed to high single digit increases in gross profit year over year. Project and other solutions related services within Experis resulted in a 20 basis point margin increase. Right Management career transition and MSP within Talent Solutions contributed 20 basis points of improvement and other items represented a positive 10 basis points.

SLIDE 8 - 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 26%, and Talent Solutions comprised 17%.

During the quarter, our consolidated gross profit grew by 3% 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 increased 3% in constant currency year over year. This reflects strong growth in higher margin solutions as well as growth in permanent recruitment.

Organic gross profit in Talent Solutions increased 11% in constant currency year over year. This was driven by double digit GP percentage growth in both RPO and Right Management. MSP experienced solid GP growth and significant margin improvement as we improved the mix of business during the quarter.

SLIDE 9 - Jack McGinnis

Reported SG&A expense in the quarter was $775 million. Excluding restructuring costs and other special items, SG&A was 4% higher year over

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