MAN - NYSE

Welcome to ManpowerGroup's Second Quarter Earnings Results Conference Call. [Operator Instructions] 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 ManpowerGroup's Chairman and CEO, Jonas Prising. Sir, you may begin.

Welcome to the second 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 second quarter results and guidance for the third quarter of 2023. I will then share some concluding thoughts before we start our Q&A session. And 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. I'm just back from trips through Europe which included VivaTech, one of the world's largest technology and start-up events in Paris, where we were a key partner for the seventh year, showcasing our innovation and workforce expertise in our New Human Age lab. The advancement of Generative AI and the impact on skills and jobs was a hot topic. Our panel roles and media interviews led me to reflect that we first discussed the impact of automation on jobs almost ten years ago at the World Economic Forum. And our data and experience tell us then as now that human capital augmented by tech is what will accelerate progress - companies that automate and digitize the most see the biggest productivity improvements and create the most jobs. And the biggest challenge won't be the elimination of jobs; it will be the need for new workforce skillsets at a speed and scale never seen before. Reflecting on global labor markets and economic environment - although we continue to see labor markets demonstrate resilience around the world with continued low unemployment in many markets, some signs of broader economic pressures are emerging. As I mentioned last quarter, we are seeing slower hiring trends across the board with particular impacts in certain sectors in the U.S and Europe. Large tech enterprise companies have continued to substantially reduce headcounts. A trend that began in late 2022. We are also tracking softer commercial staffing demand due to decreased production in some manufacturing activities. Our most recent ManpowerGroup Employment Outlook Survey of 40,000 employers in 30 plus countries conducted in the spring found companies plan more measured hiring for Q3 as they navigate a range of local and macro challenges from supply constraints to uneven consumer confidence and shifting purchasing priorities amid continued high inflation. Many labor market and other economic data points often lag the cautious employer trends that impact our industry first. And in this environment, we saw mixed demand for staffing and weakened demand for permanent recruitment services in the U.S. and Europe. At the same time, we continue to see growth in LATAM and APME with ongoing demand for our services. Moving on to our financial results, in the second quarter revenue was $4.9 billion, down 3% year-over-year in constant currency. Our reported EBITDA for the quarter was $116 million. Adjusting for restructuring and Argentina hyperinflationary foreign exchange charges, EBITDA was $131 million, representing a 31% decrease in constant currency year-over-year. Reported EBITDA margin was 2.4% and adjusted EBITDA margin was 2.7%. Earnings per diluted share was $1.29 on a reported basis and $1.58 on an adjusted basis. Adjusted earnings per share were down 31% year-over-year in constant currency. Although uncertainty may persist, from my conversations with clients and our teams in many countries, it is clear that people with specific skill sets continue to be in-demand and that Human Capital is and will continue to be a key driver of Corporate success, with employers focused on holding on to the talent they struggled to recruit in the last couple of years. The progress we have made to meet this demand by diversifying our business across our brands, offerings and geographies will continue to serve us well. Our progress in creating talent at scale through our MyPath and Experis Academy initiatives provide competitive strength as we create the scarce skills our clients are looking for in the talent they need. I will now turn it over to Jack to take you through the results.

Thanks, Jonas. Revenues in the second quarter came in at the midpoint of our constant currency guidance range. Gross profit margin came in just below our guidance range due to lower permanent recruitment activity. As adjusted EBITDA was $131 million, representing a 31% decrease in constant currency compared to the prior year period. As adjusted EBITDA margin was 2.7% and came in at the low-end of our guidance range, representing 110 basis points of decline year-over-year. During the quarter, year-over-year foreign currency movements had a modest impact on our results. Foreign currency translation drove about one 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 3%. Organic days-adjusted revenue decreased 3% in the quarter in line with our guidance. Turning to the EPS bridge on slide 4, reported earnings per share was $1.29 which included $0.29 related to restructuring and non-cash foreign currency charges related to our hyperinflationary translation of our Argentina business. Argentina is required to be treated as a hyperinflationary economy and the noncash currency translation losses reflect the devaluation of the Argentine peso during the quarter. This is a non-cash accounting charge as our Argentina business operates in their local currency. Excluding these charges, adjusted EPS was $1.58. Walking from our guidance mid-point, our results included a softer operational performance of $0.05, a lower weighted average share count due to share repurchases in the quarter which had a positive impact of $0.02 cents, a lower effective tax rate which had a positive impact of $0.02, a foreign currency impact that was $0.01 worse than our guidance and interest and other expenses which had a negative $0.03 impact. 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 11% and the Talent Solutions brand revenue declined by 9%. The Experis decline represented lower activity from both enterprise and convenience customer segments with enterprise clients having a much more pronounced pull-back compared to significant growth in the prior year. Within Talent Solutions we saw a significant year-over-year revenue decline in RPO as we anniversaried high 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 record-low levels of activity in the prior year period. Looking at our gross profit margin in detail, our gross margin came in at 17.8%. Staffing margin contributed a 10 basis point reduction as Manpower experienced the very slight mix related decrease in staffing margin. Permanent recruitment, including Talent Solutions RPO, contributed a 40 basis point GP margin reduction as permanent hiring demand experienced reduced levels from the record high activity in the prior year period. The reduction in permanent recruitment during the quarter was greater than expected which drove the slightly lower than guidance gross margin result. Right Management career transition within Talent Solutions contributed 30 basis points of improvement as outplacement activity increased significantly. Other items resulted in a 20 basis point margin decrease. Moving onto our gross profit by business line; during the quarter, the Manpower brand comprised 58% of gross profit, our Experis [ph] professional business comprised 25% and Talent Solutions comprised 17%. During the quarter, our consolidated gross profit decreased 6% on an organic constant currency basis year-over-year. Our Manpower brand reported an organic gross profit decrease of 3% in constant currency year-over-year. Organic gross profit in our Experis brand decreased 13% in constant currency year-over-year. Permanent recruitment decreases within Experis drove the higher rate of overall GP decrease for the brand. Organic gross profit in Talent Solutions decreased 7% in constant currency year-over-year. This was driven by declines in RPO and MSP, partially offset by significant growth in Right Management during the quarter. Gross Profit in RPO decreased in the double-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. Reported SG&A expense in the quarter was $755 million. Excluding restructuring costs, SG&A was flat year-over-year on an organic constant currency basis, down from the 3% growth in the first 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 $2 million, incremental costs related to net acquisitions of $4 million, offset by currency changes of $4 million. Adjusted SG&A expenses as a percentage of revenue represented 15.2% in constant currency in the second quarter reflecting lowered operational leverage on the revenue decline. Restructuring costs totaled $14.5 million. The Americas segment comprised 23% of consolidated revenue. Revenue in the quarter was $1.1 billion, representing a decrease of 9% compared to the prior year period on a constant currency basis. Reported OUP was $43 million and includes $1 million of restructuring costs. As adjusted, OUP was $44 million and OUP margin was 4.0%. The U.S. is the largest country in the Americas segment, comprising 67% of segment revenues. Revenue in the U.S. was $737 million during the quarter representing an 18% days-adjusted decrease compared to the prior year. As adjusted to exclude restructuring costs, OUP for our U.S. business was $27 million in the quarter representing a decrease of 60% from the prior year. As adjusted, OUP margin was 3.6%. Within the U.S., the Manpower brand comprised 26% of gross profit during the quarter. Revenue for the Manpower brand in the U.S. decreased 19% on a days-adjusted basis during the quarter, representing a further decline from the 15% decrease in the first quarter. Manufacturing PMI in the U.S. continued to decline during the second quarter from the 48 range [ph] in March to the 46 range [ph] in June. The U.S. Manpower business was seeing an improved rate of decline as we exited the quarter. The Experis brand in the U.S. comprised 46% of gross profit in the quarter. Within Experis in the U.S., IT skills comprised approximately 90% of revenues. On a days-adjusted basis, Experis U.S. revenue decreased 17% as we anniversaried significant 2022 growth of 25% organically in the year-ago period. As referenced earlier, the year ago period experienced dramatic growth from enterprise clients and this period's pull-back is most pronounced from these enterprise clients. Talent Solutions in the U.S. contributed 28% of gross profit and experienced revenue decline of 22% in the quarter. This was driven by a decrease in RPO revenues in the U.S. as permanent hiring programs continued at lower levels in the second quarter as we anniversaried record growth in the prior year. The U.S. MSP business saw revenue decline as we reduced some lower margin activity, our outplacement activity within our Right Management business drove significant revenue increases. In the third quarter of 2023, we expect a similar to slightly lower rate of year-over-year revenue decline as compared to the second quarter trend in the U.S. Southern Europe revenue comprised 46% of consolidated revenue in the quarter. Revenue in Southern Europe came in at $2.2 billion, representing a 1% decrease in organic constant currency. Reported OUP was $93 million and includes $6 million of restructuring costs which were related to our Spain Operations. As adjusted, OUP was $99 million and OUP margin was 4.4%. France revenue comprised 57% of the Southern Europe segment in the quarter and revenue equaled $1.3 billion in the quarter and was flat on a days-adjusted organic constant currency basis. OUP for our France business was $50 million in the quarter representing an organic decrease of 25% in constant currency. OUP margin was 3.9%. We are estimating the year over year constant currency revenue trend in the third quarter for France to be a very slight constant currency decrease year-over-year representing a flat days-adjusted result. Revenue in Italy equaled $458 million in the quarter and was flat on a days-adjusted constant currency basis. OUP equaled $36 million and OUP margin was 7.9%. We expect a similar rate of constant currency revenue decline in the third quarter compared to the second quarter. Our Northern Europe segment comprised 19% of consolidated revenue in the quarter. Revenue of $952 million represented a 6% decline in constant currency. After excluding restructuring costs of $8 million, adjusted OUP was a negative $2 million and OUP margin was a negative 0.2%. The restructuring costs related to our Nordics and Germany operations. Our largest market in the Northern Europe segment is the U.K. which represented 34% of segment revenues in the quarter. During the quarter, U.K. revenues decreased 12% on a days-adjusted constant currency basis. This reflects a stabilized rate of decline from the first quarter on this same basis. We expect a similar rate of constant currency revenue decline in the third quarter compared to the second quarter. In Germany, revenues increased 5% in days-adjusted constant currency in the quarter, representing three consecutive quarters of improvement driven by our Manpower business, particularly in the automotive sector. I mentioned last quarter that we were performing a detailed evaluation of our underperforming Proservia managed services business in Germany. We have concluded this evaluation and have decided to wind down this business. The wind down activities are commencing in the third quarter. I will provide further details on the expected restructuring charges associated with this wind down as part of our third quarter earnings results. This business has been a significant drag on our Germany operations and these actions will improve profitability going forward. Overall, in the third quarter we are expecting a similar rate of constant currency revenue growth compared to the second quarter trend driven by our Manpower business. In the Netherlands, revenue decreased 7% on a days-adjusted constant currency basis and this represented a stable rate of decline from the first quarter on this same basis. The Asia Pacific Middle East segment comprises 12% of total company revenue. In the quarter, revenue grew 4% in constant currency to $599 million. OUP was $26 million and OUP margin was 4.3%. Our largest market in the APME segment is Japan which represented 48% of segment revenues in the quarter. Revenue in Japan grew 12% in constant currency, or 10% on a days-adjusted basis. We remain very pleased with the consistent performance of our Japan business and we expect continued strong revenue growth in the third quarter. I'll now turn to cash flow and balance sheet. In the second quarter, free cash flow represented an outflow of $177 million compared to an outflow of $72 million in the prior year. The higher outflow in the current year was driven by timing of payables and timing of payments within our large MSP business. At the end of the second quarter, days sales outstanding was flat at 58 days. During the second quarter, capital expenditures represented $21 million. During the second quarter we repurchased 687,000 shares of stock for $50 million. As of June 30th, we have 928,000 shares remaining for repurchase under the share program approved in August of 2021. Our balance sheet ended the quarter with cash of $408 million and total debt of $1 billion. Net debt equaled $594 million at quarter-end. Our debt ratios at quarter-end reflect total adjusted gross debt to trailing twelve months Adjusted EBITDA of 1.53 [ph] and total debt to total capitalization at 29%. Our debt and credit facilities remained unchanged during the quarter. Next, I'll review our outlook for the third quarter of 2023. Based on trends in the second quarter and July activity to date, our forecast is cautious and anticipates that the third quarter will continue to be challenging in the U.S. and Europe. This anticipates further weakening of permanent recruitment activity based on developments in the second quarter partially offset by additional cost actions being taken. We are forecasting underlying earnings per share for the third quarter to be in the range of $1.32 to $1.42 which includes a favorable foreign currency impact of $0.08 per share. We have disclosed our foreign currency translation rate estimates at the bottom of the guidance slide. Our constant currency revenue guidance range is between a decrease of 7% and 3% and at the midpoint represents a 5% decrease. The impact of net acquisitions is negligible and there is about 1 less billing day this period contributing to an organic days-adjusted constant currency revenue trend of a 3.5% decrease at the mid-point. This is comparable to the decrease in the second quarter on this same basis. We expect our EBITDA margin during the third quarter to be down 120 basis points at the midpoint compared to the prior year. We estimate that the effective tax rate for the third quarter will be 30%. As usual, our guidance does not incorporate restructuring charges or additional share repurchases and we estimate our weighted average shares to be 50.5 million. As I mentioned, we do expect to have restructuring charges associated with the wind down of our Proservia managed services business in Germany and we will disclose those and any additional restructuring charges separately when we report our third quarter earnings. Our guidance also does not include the impact of the non-cash currency translation adjustment for our Hyperinflationary Argentina business and we will also report that separately. I will now turn it back to Jonas.

Thanks, Jack. To meet the demands and opportunities of the market and position us for success in the future we continue to progress a transformation agenda in support of our strategy. We feel very good about our diversification strategy, building strong brands with differentiated market positions and clear value propositions in Manpower, Experis and Talent Solutions. Our digitization strategy will be a key enabler for productivity and innovation providing data and insights our clients and candidates want. Our industry leading global technology platform PowerSuite covers substantially all of our key markets through 2023, with ongoing implementation of common applications and a leading cloud enabled back-office infrastructure across our global footprint, another strong differentiator. We believe this will enable great opportunities for accelerated growth and productivity in the future. We are also taking decisive actions within the business that are aligned with our strategy to simplify our operations, evolve our brand/geo model and prioritize our investments. Our strategy is clearer than ever and we are committed to adjusting our portfolio for business that is not core to that strategy. The decision to wind down our Proservia managed services business in Germany, though a difficult one, reinforces our discipline in focusing on IT resourcing and solutions and is a proof point that we will take the necessary actions to address businesses that do not fit our strategy or meet our profitability hurdle rates. We are very pleased to be named a Global Leader in Recruitment Process Outsourcing for the 13th year in the Everest Group PEAK Matrix Assessment recognized in North America, Asia Pacific and Europe, Middle East and Africa. Everest especially highlighted Talent Solutions' talent advisory practices in talent strategy, talent transformation and talent sustainability. Additionally, we were recognized for providing DEIB services to clients, including diverse talent sourcing and DEIB partnerships. Our commitment to integrating and including diverse talent is recognized by our clients and by our partners. In June, we reaffirmed our dedication to refugee employment in Europe by committing that we will support 45,000 refugees over the next three years, including Ukrainian refugee women. This includes working with clients and others to place 30,000 refugees into meaningful employment opportunities and providing 15,000 refugees with a mix of upskilling and training courses through our MyPath and Experis Academies. I would like to close by thanking our ManpowerGroup team around the world for another quarter of dedication to drive the business forward despite a more challenging environment in many markets. Our experienced leadership team has faced similar challenges in the past and as much as we are focused on navigating an uncertain environment we are also preparing for a strong rebound when the markets improve. And with that, I will open to Q&A. Operator?

[Operator Instructions] Our first question comes from Mark Marcon with Baird.

Wondering -- can you talk a little bit more about the trends that you're seeing in Experis and what you're hearing from some of the larger enterprise clients in terms of what their outlook is in terms of spending and the need for resources? And how would you compare and contrast that relative to the overall narratives that's -- that we see across the U.S. economy that things are holding up a little bit better.

Sure, Mark and thanks for the question. I think the trends that we're seeing today is really a continuation of what we talked about when we had our call in the first quarter. Enterprise clients had a hiring boom about this time in 2022. They started to pull back from that hiring boom as we saw in the first quarter. That trend really continued for enterprise clients and I'm here specifically talking mostly about the U.S. and the U.K. They pulled back from that and that continued into the second quarter. And I would describe our conversations with our clients in a sense that they are waiting for clearer signs of a strengthening market on a bottoming market. They continue to be very interested in specific skill sets. And as you can tell from our from our revenue trends, there are still opportunities in the market and contrast that with the convenience market with -- which is although softer, holding up much better than the enterprise market. And we feel very good, frankly, about both because we are a strong player in the enterprise market. We know when those markets get going again. They provide for great growth opportunities. And then, we have strength in the convenience market which I think is also going to service very well. So it's really a continuation of the trends that we saw in the first quarter against a backdrop of a hiring boom in a number of industries that we serve, notably, the tech industry in Experis, so that's really what we have been seeing and that's what our clients are telling us.

Along those lines, are they -- in terms of waiting for some clearer signs, do you think that those clearer signs could end up emerging by the fourth quarter or the first quarter? Or is it just staying -- does it still seem pretty murky from their perspective?

I think from a client perspective and I'm sure for many of us, there are so many conflicting signals about the economy that it's hard to tell when something would turn around. But from our perspective, if you look at our data, as an industry and as a business, we are already operating in an environment that is indicative of what we would call the garden variety recession level for now a number of quarters in the U.S. and more quarters in Europe. And if you look at the overall indicators on the labor market in the U.S., you see our industry is coming down to a lower level. You've seen hours worked coming down. You've seen more part-time people looking for full-time work. So the indicators are all there for a slightly worsening labor market. Although it hasn't transpired yet into the broader economy or, frankly, into the broader labor market which is still very resilient but our view is that to tamper inflation wage inflation will have to come down which means policymakers will continue to try and cool off the labor market in their battle against rising inflation. And that means we can expect some further weakening of the labor markets and that's exactly what you see us talk about in our outlook. And that's why whilst we saw a significant step down on perm in the second quarter and we continue to see it. It's entirely consistent with that expectation.

Yes. And that's consistent with what we were expecting as well. Can -- just shifting over to Northern Europe. Obviously, you telegraphed the move with regards to Proservia last quarter. When you think about Northern Europe from a longer-term perspective, maybe 3 to 5 years out, what sort of margin expectations should investors have with regards to Northern Europe, Jonas?

I think as you look at the Northern Europe business, Mark, you have a couple of things. This is where we have most of our bench countries. So when you see a decline in revenue, this is the region that takes the biggest hit on the decline in margins because we keep our bench there. You have one of our biggest countries, the U.K. which has been also sensitive to the enterprise exposure we talked about, both on the Manpower and the Experis side and that saw some weakness as well. And then, we have a business in Germany that we've been working on turning around. And I have to say we're pleased with the progress that we're making on our staffing side and we're seeing a good evolution here on revenues with more work to do but we do have a business that we need to address. And that is exactly what we're signaling in today's earnings call. But you've heard us talk about this over the last couple of quarters already that we're working on the turnaround. But I would say there is no reason not to expect Northern Europe to come back to our target profitability levels as a region on the whole. Right now, it's a little bit of a perfect storm but we are confident that with the actions that we're taking today and into the future, that we will get Northern Europe back on track by some decisive actions and you have heard us talk about one of those decisive actions as it relates to our Proservia business in Germany on this call.

Our next question comes from George Tong with Goldman Sachs.

You touched on some of the factors driving the declines in Experis. Can you elaborate on some of the trends in Talent Solutions, specifically, how trends are performing with RPO and the MSP business?

Sure. The RPO business is clearly feeling the effects of the slowing hiring environment from a permanent recruitment perspective. And of course, RPO is an enterprise business. It has very limited convenience activities. So it really is exactly in the crosshairs of both enterprise and perm slowdown right now, had fantastic performance and really benefited from the hiring boom. We have a very strong position in RPO, we're the global leaders. We feel very good about that business. But right now, we're going through the economic cycle and we can see the reduction both in enterprise spend as evidenced in reductions in permanent recruitment. So RPO is having a tougher time in this quarter. MSP is really starting to stabilize, we believe and is really seeing some of the actions that we're taking on rebalancing our client mix there. And finally, of course, as part of Talent Solutions, we're seeing very strong activity and growth in Right Management in this quarter. So on the whole, it's a mixed picture with RPO feeling the effects of permanent recruitment. MSP, you really reflecting the levels that we're seeing in our staffing businesses overall, so aligned and then a strong Right Management performance.

Okay, that's helpful. You talked about taking decisive actions in the business to better align the strategy, the core to simplify the operations and Proservia was a great example of that. Are there additional areas of the business that you see opportunity or potential for further streamlining?

I think there might be areas that we're going to be looking at in terms of what we can do. Over time, you've seen us look at our geographic portfolio. You've seen us address a number of areas, where we think we can do better and be more focused and I think you should expect us to continue to do that. But when we have something particularly important, we tell you in advance. And now we've made the decisions, we're proceeding with Proservia. But I think, Jack, maybe in this environment, clearly, we are also looking at the cost and SG&A very closely. So maybe you'd like to elaborate on this a little bit as well.

Sure. Thanks, Jonas. Yes. And George, other examples where we have taken some actions, we did have some modest restructuring during Q2. Spain was part of that, probably the bigger part of that. The Nordics, Jonas talked about Northern Europe. Those are bench countries. We've done some streamlining there as well. And then, of course, Germany that we've talked about, where we have the Proservia wind-down commencing. So we are in line with what we said previous quarter. We are looking at parts of the business that are seeing more significant slowing and acting and taking actions but broader than that, we're also pulling back on broader discretionary spend, looking at corporate functions, looking at country headquarter functions as well and making adjustments. And the one area you won't hear us talk about cutting will be sales. We're very focused on continuing to be positioned for the upturn when it comes and we're very focused on producer counts. So we're keeping a very close eye on that and being very careful. But I would say, outside of producers and sales, you should expect that we're taking a very close look and taking actions and pulling back on costs in those specific areas. And as Jonas said, we'll talk a lot more about Proservia next quarter. We're right in the middle of it right now, working with the workers' councils and clients, as you would expect and we'll give a further update next quarter.

Our next question comes from Josh Chan with UBS.

I guess -- I was wondering if you could talk about the relative resilience in Southern Europe versus kind of like the U.S. It sounds like that will continue into the next quarter. So I guess -- just curious your thoughts on the sustainability of that difference in performance and whether you think that could continue as we kind of go into this next part of the economic cycle?

Thanks, Josh. Yes. And I would say that historically, the U.S. labor market is much more dynamic than the European labor markets. They are more rigid in their structures in the U.S. contracts that we have in both Experis as well as in Manpower are short term in nature, so you can change the length of that assignment as quickly as you would like, whereas in Europe, you have more extended contracts that have to run to their scheduled end. And also don't forget Jeff, that the downturn in Europe started in 2022. And notably on France, France never really saw a comeback from the pandemic back to the 2019 numbers that we saw, Josh. So that's sort of the explanation and we're very pleased to see the stability in France. We think the Italian market is one of the underpenetrated markets, where you could see continued increases in penetration rates. And we think that is a fantastic opportunity for us to continue to see some very profitable growth. And the U.S. market goes up and comes down faster and that is exactly what we're seeing in this cycle as well. And when the U.S. economy rebounds and we get to the end of this, we would expect to see good opportunities for a rebound here that we would also expect to be faster on the upbound than what we would expect to see in Europe.

Okay, that's great. And then I guess for my follow-up, I wanted to ask about the Manpower business within the U.S. I think you guys mentioned that it saw some improvement and then seemingly softened again in Q2. Could you just talk about what you're seeing there. We're a little surprised by kind of that trajectory compared to kind of the data points that, that might be out there. So curious any color on that business?

Josh, yes, I'd be happy to talk to that. And maybe just to talk about that trend. So as we exited Q1, we talked about Manpower in the U.S. running at about minus 12%. And the first quarter was the big quarter where we talked about the catch-up that the U.S. was seeing compared to what Europe was seeing much earlier in 2022. So that definitely came through very strong in the first quarter, aligned with exactly what we were seeing in manufacturing PMIs that we talked about in our prepared remarks as well. So what's happened since then? So ending the first quarter with manufacturing PMIs in the high-40s, we continue to take down and we're ending here June with a 46.0%. So the manufacturing environment continues to worsen into Q2 and we see that in those trends. And we did expect to see Manpower to reflect that into the second quarter. So we did expect to see that minus 12%, to see some additional decrease and that's how we ended up at the minus 17%. Now with that being said, we did highlight the fact that when you look at that minus 17%, it was most heaviest at the beginning of the quarter. And as we ended the quarter, we were starting to see some improvement in that rate of decline. So we'll see as we look forward to the third quarter, you can see from the guide for the U.S. overall. We're seeing for the most part, a continuation of the current trends. It might be a bit better, so we might see that on the Manpower side. But that's the way we're looking at it right now. And as we did say, we are being cautious for all the reasons that Jonas talked about with some of the dynamics that are playing out in the U.S. market right now, that does reflect our cautious stance going into the third quarter.

Our next question comes from Jeff Silber with BMO Capital Markets.

You talked a little bit about intra-quarter trends in the U.S. Can we get some similar comments on intra-quarter trends in some of your other major markets?

Sure, Jeff. I'd be happy to talk to that. So if you look at France, I'd say the story is that our biggest revenue country, relatively stable during the quarter. So -- and that reflects a stable trend from quarter 1 to quarter 2 as well. And intra-quarter, it was about similar about that 1% organic days adjusted rate. May is always a tricky month, particularly in Europe due to the holidays. So a little lower but I wouldn't read too much into that. I think it's mostly the holiday effect. But other than that, pretty stable. I'd say with Italy, I'd say similar, we saw maybe a little bit the year-over-year is coming into play a little bit, where maybe May and June were a tad, softer than on a days adjusted basis than what we saw in April. But overall, I'd say generally pretty consistent. Talked about the U.S. and I'd say on the U.K., the U.K. on an overall basis, we're coming in on a quarter-over-quarter, very similar at that minus 12% versus Q1. During the course of the second quarter, we did see a little bit more of a pullback in the month of June compared to that overall rate. But days had a big impact which I think once you adjust for the days element there, generally running pretty consistent, I'd say. So -- and when you look at our guidance to Q3, it's really predicting more of the same for the U.K. So there could be and again, a bit of a cautious view. It could be a slight bit better and we'll just have to see how that turns out.

Okay, that's helpful. And if we can switch over to gross margins; I think you stated it was a little bit weaker than you expected but it was mostly because of a lower perm. Can we focus just on the temp business from a gross margin perspective? If you could talk about bill rates and spreads; and I'm just curious, are you seeing any pushback on pricing either from competitors or from clients?

Overall, Jeff, I would say that pricing remains competitive but rational. And the overall pricing environment, as you can tell from our staffing margin essentially holding stable is good. And I think that reflects a continued, although softer, still a continued demand for our services in the tight labor market and where companies are still looking for great talent. And I think we are seeing that as a positive indicator of about the quality of our service, the level of skill sets that we're placing with our clients and we feel good about the pricing environment at this time.

Our next question comes from Tobey Sommer with Truist Securities.

And I wanted to ask a question about your outsourcing businesses, RPO, MSP, et cetera. Are you -- are clients responding from this slower economic period in the same way they have in the past to sort of look at their internal cost structures and maybe choose to outsource more. I understand that sales may not be great right now because hiring activity is lower. But in terms of sort of the sales and revenue opportunity, maybe you could speak to that.

Well, I think what tends to happen is when things are going well for a long time, companies consider in-sourcing and taking things back in-house and then you have an economic cycle that evolves and all of the recruiters they thought they needed for their own needs, suddenly are a lot less productive. And that is clearly the value proposition that our RPO offering addresses. So whilst we're seeing the activity today getting impacted by the hiring levels from the perm recruitment side on the RPO side, from a business model and value proposition perspective, we feel very good about the opportunities that we have in RPO because when hiring starts up again and you need to increase your recruiters from 10 to 100, we can do that very, very quickly. And our customers appreciate the flexibility, both operational and strategic flexibility that provides to them in one particular country or in our case across the world to one organization. And really, the same is true from an MSP perspective. We feel very good about our offering there. And the evolution that we've seen with our clients in our MSP business is really the value of the insights that we derive from the significant data sets that we look at and advise our clients on how they should think about their workforce. And if you look at the expansion of our offerings beyond temporary staffing or IT resourcing into statement of work and beyond from there, you can really see that our clients are leaning into this offering and we are able to expand our products and services that we provide within the MSP umbrella. So in both of these cases, we feel really good that we can address non-core activities for many corporations in a better way than they can themselves and that we provide them with the operational and strategic flexibility to boot. So it is a tougher time for the RPO business today as we would expect but we feel really good about the opportunity that lies ahead once the market stabilizes and starts to go the other way.

And if I could ask a question about Right Management; what do your most forward-looking KPIs tell you? And how do they inform you on the risk of further or more widespread layoffs?

I would say that at the current time, the industry verticals that we're seeing pressure on from an enterprise perspective in our Experis and in Manpower are the same industry verticals, where we're seeing the opportunities in Right Management. So I would not characterize our outplacement business to be strong because of broad-based layoffs. That is not the case; it is industry specific. It is in certain geographies and that is what we're seeing from a Right Management business. And remember that last year, amongst the hiring boom is, of course, also when we saw very low Right Management or placement activity. So the strength that we're seeing today is really from the same sectors that are feeling the pressure on the enterprise side for Manpower and Experis and notably in the U.S. and the U.K. but it's not broad-based.

Our next question comes from Kartik Mehta with Northcoast Research.

I think you obviously talked about kind of pricing what it's doing now and it seems to be behaving -- everybody seems to be behaving fairly well. I'm wondering when you look at previous downturns or previous contractions, when does pricing become an issue? Do you see your competitors waiting until we're fairly into the contraction? I'm just wondering how in the past it's played out?

Well, I think it very much depends on the depth of any economic cycle. And as we mentioned early on, in this call as well as in our last quarter call, all of the data that we're looking at inside our company and the industry data is indicative of a -- but we will characterize as a garden variety recession but we're not economists. It could be a technical recession. It could be an economic slowdown. Whatever it is, our industry is operating at a moderate economic downturn level. And if you combine that with very strong and resilient labor markets that so far haven't shown any sign from a broad perspective of softening in a material way, we feel very good about our ability to maintain pricing levels because access to talent is so important and labor markets are tight and talent shortages abound. And if there was a deeper recession, that would, of course, be a time when you could think about whether pricing would be impacted as the market would contract significantly and then competitors would try to maintain share and compete on price. But we're certainly not seeing that today. The fundamental drivers of the strength of the labor market, if you look at demographics, if you look at technological change, if you look at our move up into higher skill sets, both in Experis and in Manpower through our specialization initiatives tend to -- it go for profiles that are in demand today and will be an even greater demand into the future and that should provide us with additional pricing strength that could offset any other pricing pressure. But at this point, as I mentioned earlier, we believe that pricing is rational but it is always a very competitive market. So we are competing for every deal but the overall demand is still positive from a pricing perspective.

And then, Jack, on the French business tax, I think when we've talked in the past or you stated that kind of the next data point is September of this year, is that still accurate? Or has anything changed for that?

Yes, Kartik. Yes, that's still accurate. I think at this point and when we see the preliminary budget for next year, that usually comes out mid-September, that's when we expect to see more color. We do know that President Macron continues to have very strong feelings that the French business tax, the repeal of the French business tax, this final component is very important to the future of the competitiveness of France. So that makes us feel good that there's a very good chance that, that will go through as planned. But we really won't know until to confirm it until we see it in the preliminary budget. And so we'll know in a couple of months. And as we said before, when that happens, that is a significant benefit for us that will improve our global effective rate by another 1.5% downwards. So we're looking forward to that and look forward to giving an update on that on our next earnings call.

Our next question comes from Stephanie Moore with Jefferies.

I was sort of wondering maybe talk a little bit about what you're saying in your Asia Pacific segment or Asia Pacific, Middle East, it seems to be one area, where there's a little bit more strength compared to the other regions. So any color there would be helpful?

Yes. Sure, Stephanie. Yes, we are seeing some strength, both in Asia Pac and also in Latin America. They are regions where we have very strong market positions. The labor markets are also resilient in those areas. And if we specifically talked about Asia Pacific; in Japan, our business there has just concluded the 35th consecutive quarter of strong growth. We feel very good about our Japanese business. And the next 2 businesses in terms of size, India and Australia are also performing well. We're rebalancing our client mix there to some degree but we are seeing good profitability levels there in those markets. So we feel very good about our footprint in Asia Pac and frankly, also in Latin America, where we have very strong positions in markets that are demographically strong. They are great locations for near-shoring as it relates to North American activities. And of course, Asia and India, in particular, has a very strong position in terms of IT resources, both onshore but also offshore resources that we benefit from an experience perspective. So we're very pleased with the performance that we have in Asia Pac and in Latin America, given the broader picture.

Stephanie, I would just add on the guide for APME, you can see -- on the revenue side, based on what Jonas mentioned and some of the mix-related changes we're making in some of the tighter margin staffing margin countries like India and Australia, that's impacting the revenue trend. But the bottom line is still very strong for APME and we expect that to continue to be a stable contributor on OUP dollars into the third quarter.

Great. And then, just lastly for me; as you look at your third quarter outlook, could you maybe talk a little bit about some of the puts and takes embedded within your gross margin guidance?

I'd be happy to, Stephanie. So I think it's actually pretty straightforward, when you consider what happened in the second quarter. So I think in our prepared comments and in our walk, you can see that perm recruitments really was the big swing factor in the second quarter. So perm came off a bit more than we expected in the second quarter. That's why we had a bit more pressure on the GP margin. With that being said, 17.8% is still holding up fairly well in the current environment, so down 40 bps going into the third quarter, it's really that continuation of perm. So we are taking a bit of a cautious stance anticipating that perm came off a little bit more than we expected in Q2. So we're anticipating that perm is going to continue to come off a bit more into Q3. That's really what's driving the margin change. So sequentially, we go from that 17.8% to 17.4% at the midpoint. And that really is just perm continuing to run off. We can -- just based on the conversation we just had and Jonas gave a lot of color on staffing margin, staffing margin is continuing to hold up very well and that is in our forecast for the third quarter. And I think the one item that's been helpful to offset the pressure on perm is Right Management. So we are seeing that. You can see it in the GP bridge and we expect Right Management to continue to have positive trends into the third quarter as well which will help offset -- partially offset some of that perm pressure that we're anticipating.

Our next question comes from Manav Patnaik with Barclays.

This is Princy Thomas [ph] on for Manav. Can you assess where you are in regards to the investments made to date around digitization, the impact on the business and what's to come. Specifically, I know PowerSuite cloud back office is supposed to accelerate growth and productivity. I want to just get ideas of impacts around Gen AI and how Man is positioned to benefit with the New Human Age lab?

Sure. Yes. No, as we mentioned in our prepared remarks, towards the end of this year, we will have substantially all of our major markets on our global PowerSuite platform. And so where that brings us in our digitization strategy is that we have common websites across the world in all of our major markets. We have the same front office platform in all of our major markets. We're working on back-office cloud-enabled applications as well, so that we are creating a global back office infrastructure also. And those are investments that we've been making over a number of years and the implementations have gone very well. It's difficult in the service business, where you operate in so many different countries and operating environments to implement one application suite that is then being deployed at scale. We feel very good about the work that we've done here. But most importantly, we feel very good about the opportunities that this gives us both to generate data and insights to drive accelerated innovation but driving growth initiatives as well as driving productivity through recruiter efficiency and having the best-of-breed tools for our recruiters and our frontline people should really give us some very good growth opportunities going forward. But Jack, maybe you want to give a little bit more color in terms of the size of the investments and where we are in the cycle of those investments.

Yes. No, we'd be happy to. Yes, Princy, I would say we feel really good about how those investments are paying off for us so far. So there is -- we've been talking about the front office implementation for the last couple of years in those markets, where we've implemented early. We then move into adoption of the recruiters, where we look at the adoption KPIs and we feel really good about the progress we're making and we know that's going to increase our recruiter productivity and we're seeing that in the markets where we've implemented early. So we feel good about the return on that investment. You'll see that clearly in a more pronounced way when we get more operational volume and operational leverage back into the business. And typically, as Jonas said on that front office, we're at the very end of that process by the end of 2023 with 75% majority of our business on that front office system. As we look at across, we're also doing implementations in other parts of the business. The back office is something you've heard me talk about in the past as well, another cloud-enabled industry-leading platform that we're in the process of putting in, going live on 5 countries. We continue very phased rollouts there. And we feel really good about the additional efficiency that, that's going to give us into the future as well. So that will continue for this year and we're going to move more from the front office to more waves of back office which will continue through '24 and '25. And we'll start to see the benefit of that really come through nicely in our operational efficiency as we get into '24 and move forward. And you'll see it in the front office more immediately but you'll see it in the back office metrics as we move more from the end of '24 into '25; so a little color on timing there. And I think that covers the main area that you were looking for.

Yes, it does. And then for my follow-up, can you provide what you're seeing is the keep up and takes for your regional performance and outlook, specifically France. But can you also unpack by month for the quarter and what you've been seeing for the first 3 weeks of July?

Yes. So what I'd say, Princy, we're a little short on time. We're actually trying to get to a couple of other quick questions. What I would say is, I think I talked to the intra-quarter previously from one of the earlier questions and we covered that off. I think in terms of the guide overall, I think the main takeaway is pretty consistent from a revenue trend perspective. We talked about that organic days adjusted trend into Q3 being at minus 3.5%, pretty much in line with what we just saw, really what that reflects is the adjustment for Q2 for the U.S. market trend and the improvement in France from what we guided in Q2, continuing into the third quarter. So stable trends for the most part, across a lot of our major markets and again, we were cautious in that outlook. So I would say that's the main item. I think as you think about the third quarter to your last point, is we do know in Europe, August is always a lower activity month with the holidays and we anticipate coming out of August into September is always a bit difficult to predict, depending on how Europe comes back from the holidays from a manufacturing perspective. But right now, we're anticipating ongoing stability in that guide. Again, being cautious on an overall basis but that's a little more color on what we're expecting into the third quarter.

Our next question comes from Andrew Steinerman with JPMorgan.

This is Stephanie Yee stepping in for Andrew. I wanted to clarify your comments earlier about the staffing industry already being in a garden variety recession, I just want to clarify whether you're speaking just to perm activity as opposed to temporary staffing because temporary staffing hours are down but pricing, as you mentioned earlier, is still holding up very well. So it's supporting the overall revenue growth, I guess, for the industry and for manpower. So just clarity on whether temporary staffing is also in what you would characterize as a garden-variety recession at this point?

I would say that my statement was related to the temp data that you see from Prism [ph] in France, the U.S., the U.K., Netherlands, Sweden, there are very few markets that you can point at in Europe and in the U.S. where you're not seeing us operate in a much softer environment which would be the equivalent of what we in the past would have expected to see in this garden variety recession description that I'll -- that I'm using just to give you a sense of a more shallow economic cycle than what we've seen in the last two recessions, one generated by the pandemic, short-lived and driven by a pandemic and the other one obviously being a great recession. But in the past, when we've seen shorter or shallower economic cycle downturns, these levels of activities that the industry data is reflecting for temporary staffing would be equivalent to what was then eventually a garden variety recession, if you allow me that term. And sorry for the lack of precision on what exactly a garden-variety recession is. But it is shallower than what we've seen in the last couple of recessions, put it that way.

Okay. Okay. I appreciate that. I'm sorry, just to take that maybe just extrapolate a step further. So the U.S. economy, for example, is, I guess, we wouldn't necessarily characterize that as being in a garden-variety recession because the labor market, the unemployment rate is still very low. So if the economy or in a recession, safe to say that the staffing industry would see probably further decline?

As you know, our industry tends to be a leading indicator of what is then to come. We are often concurrent to an economic cycle, we later on find out was, in fact, an economic slowdown, although not apparent as it is the statistics and all of the rest are lagging the economy, so -- and so our labor markets for that matter. But I think your point being that we are seeing a strong resilient labor market is exactly the reason why we would expect, for instance, perm recruitment to come down a little bit further because that strong labor market is in many markets, one of the contributing factors to continued high inflation. So we would expect labor -- the broader labor market eventually to reflect what we, as a temporary staffing industry are seeing in U.S. and Europe just as we would in any normal sector. And then ultimately, we would also expect our industry to rebound before the labor market than generally rebounds because we are also a leading indicator of a rebound. So that's how we're thinking about it. And I hope I've managed to clarify how we're seeing it from our business perspective.