MAN - NYSE

Hello and welcome to the ManpowerGroup First Quarter 2024 Earnings Call. At this time all participants are in listen-only mode. After the speakers’ remarks there will be a question-and-answer session. [Operator Instructions] As a reminder, this call is being recorded. I would like to turn the call over to Jonas Prising, Chairman and CEO. Please go ahead.

Welcome and thank you for joining us for our First Quarter 2024 Conference Call. Our Chief Financial Officer, Jack McGinnis, is with me today. And for your convenience, we have included our prepared remarks within the Investor Relations section of our website at manpowergroup.com. I’ll start by going through some of the highlights of the first quarter, and then Jack will go through the results and guidance in more detail. And I’ll 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 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. Last quarter, we stated that though the economy remains resilient in many markets, uncertainty around the outlook persists, leading employers to be cautious in their hiring, pausing non-critical spend and deferring projects until more clarity emerges. One quarter in -- we see a continuation of this trend. Labor markets are cooling in North America and Europe yet remain strong. In our most recent ManpowerGroup Employment Outlook Survey, employers reported increased caution in their hiring due to economic uncertainty. At the same time, as they look beyond the current period of economic uncertainty, business leaders feel optimistic about the future, and they are clear that skilled talent is the cornerstone to success and are holding on to their existing workforces today. That's how demand remains strong for some skilled workers and talent shortages persist, despite a cooling broader environment. Our industry remains on the leading edge of labor market trends, and the impact of the softening environment has been felt here first. Demand for temporary staffing has been running at lower levels in most markets in North America and in Europe. We have however, seen continued stabilization in various key markets, most notably in the U.S., the U.K., but now also in some other European markets, albeit at low levels. Permanent recruitment activity also continues to trend at stable levels over the last three quarters. With that said, although stabilization is often an encouraging first step towards growth, at this point it is still too early to call out an inflection in improving demand. We continue to navigate the current environment with agility and dexterity, driving increased sales activities to generate demand and maintaining focus on strategic initiatives that position us to capture growth and greater productivity when market conditions improve. Turning to our financial results, in the first quarter revenue was $4.4 billion, down 5% year-over-year in constant currency, or down 6% as adjusted. Our reported EBITA for the first quarter was $74 million. Adjusting for our run-off Proservia business in Germany and a minor loss for Argentina related currency-translated losses, EBITA was $80 million, representing a decrease of 38% in constant currency year-over-year. Reported EBITA margin was 1.7%, and adjusted EBITA margin was 1.8%. Earnings per diluted share was $0.81 on a reported basis, while earnings per diluted share was $0.94 on an adjusted basis. Adjusted earnings per share decreased 39% year-over-year in constant currency. In the first quarter, I spent time with our teams in Europe, Asia Pacific, Latin America and North America. The global labor market is diverse, and disparities exist across regions, industries and demographic groups. While some sectors have experienced job losses and economic downturns, others have seen growth and expansion and this corresponds with the shifts we're seeing; demand in Latin America and Asia Pacific remains solid, while in North America and Europe, we continue to see subdued-demand for resourcing and except for outplacement, workforce solutions. At the same time, we expect the digital transformation across industries, the rise of AI and the strength of the green transition will create new opportunities as demand for specialist talent grows. Amid these shifts, the ability to build a workforce that can adapt at pace, as transformation accelerates is critical and we believe ManpowerGroup has a big role to play in filling these needs for our clients in the future. I will now turn it over to Jack to take you through the results in more detail.

Thanks, Jonas. Revenues in the first quarter came in at the mid-point of our constant currency guidance range. As adjusted, gross profit margin came in above our guidance range and was at the mid-point of our range on a reported basis. As adjusted, EBITA was $80 million, representing a 38% decrease in constant currency compared to the prior year period. As adjusted, EBITA margin was 1.8% and came in at the mid-point of our guidance range, representing 100 basis points of decline year-over-year. During the quarter, year-over-year foreign currency movements had an impact on our results. Foreign currency translation drove a 2% unfavorable impact to the U.S. dollar reported revenue trend compared to the constant currency decrease of 5%, or 6% as adjusted. Organic days adjusted constant currency revenue decreased 4% in the quarter, slightly better than our guidance. Turning to the EPS bridge on Slide 4, reported net earnings per share was $0.81, which included $0.13 related to the run-off of our Proservia managed services business in Germany and a minor non-cash foreign currency loss related to the translation of our hyperinflationary Argentina business. Excluding these items, adjusted EPS was $0.94. Walking from our guidance mid-point, our results included a stronger operational performance of $0.01, lower weighted average shares due to share repurchases in the quarter, which had a positive impact of $0.01, foreign currency impact that was $0.02 worse than our guidance, and a tax rate which had a positive impact of $0.04 and interest and other expenses had a negative impact of $0.03. Next, let's review our revenue by business-line. Year-over-year, on an organic constant currency basis, the Manpower brand declined by 3% in the quarter, the Experis brand declined by 11%, and the Talent Solutions brand had a revenue decline of 11%. Within Talent Solutions, our RPO business experienced a year-over-year revenue decline in-line with the trend from the fourth quarter. Our MSP business revenues were basically flat compared to the prior year period reflecting sequential improvement from the fourth quarter, while Right Management experienced solid year-over-year revenue growth on higher outplacement volumes in the quarter. Looking at our gross profit margin in detail. Our gross margin came in at 17.5% for the quarter after adjusting for the run-off of our Germany Proservia business. Staffing margin contributed a 50 basis point reduction due to mix shifts and lower volumes, while pricing remained solid. Permanent recruitment, including Talent Solutions RPO, contributed a 50 basis point GP margin reduction, as permanent hiring activity in the first quarter remained stable at lower levels consistent with recent quarter trends. Right Management career transition within Talent Solutions contributed 20 basis points of improvement as outplacement activity continued to be solid in the first quarter. Other items resulted in a 10 basis point margin increase. Moving onto our gross profit by business-line. During the quarter, the Manpower brand comprised 58% of gross profit, our Experis professional business comprised 25%, and Talent Solutions comprised 17%. During the quarter, our consolidated gross profit decreased by 9% on an organic constant currency basis year-over-year, representing a slight decrease from the 8% decrease in the fourth quarter. Our Manpower brand reported an organic gross profit decrease of 6% in constant currency year-over-year, representing a mix related additional decline from the 4% decline in the fourth quarter. Gross profit in our Experis brand decreased 16% in organic constant currency year-over-year, representing a slight additional decline from the 15% decrease in the fourth quarter, driven by continental Europe. Gross profit in Talent Solutions decreased 11% in organic constant currency year-over-year, representing an improved sequential trend from the 14% decline in the fourth quarter. Although RPO volumes were relatively stable from the fourth quarter, the year-over-year GP decrease improved slightly. MSP experienced an improved GP trend from the fourth quarter, while Right Management continued to experience solid outplacement activity. Reported SG&A expense in the quarter was $698 million. Excluding the run-off of our Germany Proservia business, SG&A was 5% lower year-over-year on a constant currency basis representing a further decrease from the 4% decline in the fourth quarter on an adjusted basis. This reflects organic headcount reductions of 10% year-over-year. Our digitization strategy focused on transforming back office functions will drive further cost efficiencies and our corporate expenses reflect this investment. These strategic investments are progressing nicely and are expected to drive medium-term and long-term productivity and efficiency enhancements across our technology and finance functions worldwide through shared-service centers, leveraging leading global technology platforms. The underlying year-over-year SG&A decreases largely consisted of operational costs of $32 million and currency changes of $9 million. Adjusted SG&A expenses, as a percentage of revenue represented 15.7% in constant currency in the first quarter. The Proservia Germany run-off expense represented $2 million. I'm pleased to note there were no restructuring charges during the quarter. The Americas segment comprised 23% of consolidated revenue. Revenue in the quarter was $1 billion, representing a decrease of 1% compared to the prior year period on a constant currency basis. OUP was $26 million and OUP margin was 2.5%. The U.S., is the largest country in the Americas segment, comprising 66% of segment revenues. Revenue in the U.S. was $680 million during the quarter, representing an 8% days adjusted decrease compared to the prior year. OUP for our U.S. business was $12 million in the quarter representing a decrease of 61% after adjusting the prior year for minor restructuring costs. OUP margin was 1.8%. Within the U.S., the Manpower brand comprised 22% of gross profit during the quarter. Revenue for the Manpower brand in the U.S. decreased 13% during the quarter, which was stable from the decrease in the fourth quarter. The Experis brand in the U.S. comprised 45% of gross profit in the quarter. Within Experis in the U.S., IT skills comprised approximately 90% of revenues. Experis U.S. revenue decreased 6% during the quarter, an improvement from the 13% decline in the fourth quarter and reflects increased short duration healthcare IT project activity and other items benefiting the first quarter. Talent Solutions in the U.S. contributed 33% of gross profit and experienced revenue decline of 2% in the quarter, an improvement from the 14% decline in the fourth quarter. RPO revenue declines in the U.S. reflect relatively stable level of permanent hiring programs in the first quarter compared to the fourth quarter. The U.S. MSP business saw a slight revenue decline representing an improvement from the fourth quarter, while outplacement activity within our Right Management business drove strong year-over-year revenue increases. In the second quarter of 2024, we expect a slightly improved revenue decline for our overall U.S. business, as compared to the first quarter decline, as we continue to anniversary the more significant pull back in demand in the year ago period. Southern Europe revenue comprised 45% of consolidated revenue in the quarter. Revenue in Southern Europe was $2 billion, representing a 5% decrease in constant currency. OUP for our Southern Europe business was $70 million in the quarter and OUP margin was 3.5%. France revenue comprised 56% of the Southern Europe segment in the quarter and decreased 5% in days-adjusted constant currency. OUP for our France business was $33 million in the quarter representing a decrease of 27% on a constant currency basis. OUP margin was 3%. Activity to-date in April 2024 is consistent with trends experienced in the first quarter. We are estimating the year-over-year constant currency revenue trend in the second quarter for France to be consistent with the first quarter trend. Revenue in Italy equaled $404 million in the first quarter, reflecting a decrease of 6% on a days-adjusted constant currency basis. OUP equaled $27 million and OUP margin was 6.8%. We estimate that Italy will also have a slightly improved revenue trend in the second quarter compared to the first quarter in constant currency. Our Northern Europe segment comprised 20% of consolidated revenue in the quarter. Revenue of $870 million represented a 12% decline in constant currency. As adjusted to exclude the run-off Proservia Germany business, OUP was $6 million and OUP margin was 0.7%. Our largest market in the Northern Europe segment is the U.K., which represented 35% of segment revenues in the quarter. During the quarter, U.K. revenues decreased 13% on a days-adjusted constant currency basis. This reflects a stable trend from the rate of decline in the fourth quarter on this same basis. We estimate a similar year-over-year revenue trend in the second quarter compared to the first quarter. In Germany, adjusted revenues decreased 8% in days-adjusted constant currency in the quarter. As previously reported, the wind down of our Proservia managed services business in Germany was substantially completed in the previous quarter and the final run-off of client activity will be completed in the second quarter of 2024. In the second quarter, we are expecting a slightly increased year-over-year revenue decline compared to the first quarter. The Asia Pacific Middle East segment comprises 12% of total company revenue. In the quarter, revenues equaled $535 million, representing a decrease of 4% in organic constant currency. OUP was $20 million and OUP margin was 3.7%. Our largest market in the APME segment is Japan, which represented 51% of segment revenues in the quarter. Revenue in Japan grew 10% 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 second quarter. I'll now turn to cash flow and balance sheet. In the first quarter, free cash flow was strong and represented $104 million during the quarter and compares to $111 million in the prior year. At quarter end, days sales outstanding decreased about 1.5 days to 55 days. During the first quarter, capital expenditures represented $12 million. During the first quarter, we repurchased 665,000 shares of stock for $50 million. As of March 31st, we have 3.9 million shares remaining for repurchase under the share program approved in August of 2023. Our balance sheet ended the quarter with cash of $605 million and total debt of $985 million. Net debt equaled $380 million at quarter-end. Our debt ratios at quarter-end reflect total gross debt to trailing twelve months Adjusted EBITDA of 1.98 and total debt to total capitalization at 31%. Our debt and credit facilities remained unchanged during the quarter as displayed in the appendix of the presentation. Next, I'll review our outlook for the second quarter of 2024. Based on trends in the first quarter and April activity to-date, our forecast anticipates that the second quarter will continue to be challenging in North America and Europe. Our forecast for Q2, also anticipates ongoing stable but low levels of permanent recruitment activity. With that said, we are forecasting earnings per share for the second quarter to be in the range of $1.24 to $1.34, which excludes a forecasted unfavorable impact of $0.08, related to the final quarter impact of the run-off of the Proservia Germany business. The guidance range also includes an unfavorable foreign currency impact of $0.07 per share and our foreign currency translation rate estimates are disclosed at the bottom of the guidance slide which includes the Argentine Peso which is impactful. Our constant currency revenue guidance range is between a decrease of 2% and 6% and at the midpoint is a 4% decrease. Although the impact of net dispositions is minor there are slightly more working days in the second quarter this year contributing to about 0.5 percentage additional decrease on an organic days-adjusted constant currency basis and this still rounds to a 4% decrease at the mid-point. This represents a similar rate of decrease compared to the first quarter trend on this same basis. Excluding the Germany Proservia run-off business impact on the second quarter of 2024, Adjusted EBITA margin is projected to be down 20 basis points at the midpoint compared to the prior year. We estimate that the effective tax rate for the second quarter will be 32.5% on an adjusted basis, which reflects the overall mix effect of lower earnings from lower tax geographies in the current environment. As usual, our guidance does not incorporate restructuring charges or additional share repurchases and we estimate our weighted average shares to be 48.7 million. 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 report that separately. I will now turn it back to Jonas.

Thanks Jack. History shows that investing in operational improvements during economic uncertainty, can lead to greater resilience and faster growth in more favorable conditions. Though the external environment remains dynamic, our commitment to digital transformation and executing our Diversification, Digitization and Innovation strategy remains steadfast. The continued diversification of our services and product offerings and our global footprint has enabled us to capture new opportunities to help offset softening demand in certain regions and verticals. In Q1 our Experis business saw increased demand in Healthcare IT in the U.S. and our Manpower business saw solid demand in automotive and transportation in various European markets. In Talent Solutions, our career transition business in Right Management performed well, while our TAPFIN MSP business delivered improved trends from the prior quarter. In our Manpower business, clients continue to focus on hiring specialist skills at the intersection of technology and production. We’re well equipped to meet this growing need. Through our Manpower MyPath program, our Experis Academies, and our worldwide network of dedicated Talent Agents and Recruiters, we mentor, coach and guide hundreds of thousands of people to upskill and move up in their careers. In my recent travels, I saw those dynamics play out in a very tight labor market like Japan, where the value of our upskilling services is a very important part of our value creation for our client companies and our ability to attract talent to the opportunities in the market. On digitization, we continue to make good progress in our technology roadmap and are proud to lead the industry through the deployment of PowerSuite, our global cloud-based platforms for front and back-office. In the first quarter, we reached a significant milestone with the opening of our Global Business Services center in Porto, Portugal, our regional finance center to serve all of Europe and a central component of our global strategy to standardize, centralize and transform finance service delivery. This follows our successful mature finance shared service center in Mexico City serving Latin America. For 75 years, ManpowerGroup has been committed to doing business the right way for our people, our clients, and the communities in which we operate. We know these high standards are valued by all who work with us. As AI advances, we are guided by our people-first approach. We have established a multi-functional Ethical AI Committee that helps us stay in front of AI-related risks while enabling us to innovate and pilot new approaches that create value for our people and our clients. In March, our ethical leadership was once again recognized by Ethisphere, as we were named a World's Most Ethical Company for the 15th time. And I would like to thank our teams around the world who live our standards, create value for our clients and candidates, and help propel our strong ethical culture each day. I would now like to open the line to Q&A, operator.

Thank you. [Operator Instructions] And our first question comes from Jeff Silber with BMO Capital Markets. Your line is open.

Thanks so much. I was wondering if you could give us a little bit more color on intra-quarter trends. And I know it's early in April, but anything you can tell us about what's been going on in the current quarter would be great.

Sure, Jeff. This is Jack. I'd be happy to talk about that. So I think, as we've talked about in some of our larger markets, activity levels in April so far are pretty much aligned with what we've seen in the first quarter. And you see that in France with our guide there, pretty much in-line with where we ended up in the first quarter overall. And we've talked a lot about the U.S., in our prepared remarks and I'd say, in U.S. you see the benefit of anniversary and lapping the prior-year declines, but I'd say, on an underlying basis, stable results as you look, stable activity levels as you look at the Manpower and Experis results as well. So in April, I'd say that's the main thing. I'd say, there's a little bit of an Easter impact March over April in some markets like Italy as well and in Northern Europe as well. And I'd say over the course of the first quarter, I think what we saw in many of our markets were stable trends. And I'd say, the month of March is a little tricky because of the Easter timing this year, year-over-year, but I'd say, if you step back from that and take that a bit out of the equation, I think what we saw was a lot of stable trends. We knew France was going to step down in the first quarter from the fourth quarter on an overall basis that came in -- in-line with our expectations, and when we looked at activity levels during the course of the quarter. I think we're ending the quarter pretty much in-line with where we were on a full quarter basis overall. So that's a little color on our largest markets. I'd say maybe one more would be the U.K., which was pretty stable as well. U.K. has been stable for a few quarters now. And as we look into activity levels into the second quarter, we're seeing a similar expectation as well.

All right, that's really helpful. If I could step back and maybe more of a macro question. It looks like in the U.S., the Fed is probably going to keep interest rates higher for longer, but if we look at the ECB, they seem to be closer to making cuts. If that does happen, how do you think that would impact your businesses in those different geographies?

Well, it's hard to say, Jeff, But of course, it's the central banks are deciding to lower the interest rates. They're acknowledging that the cooling effects of the higher interest rates is coming to bear onto those economies. And I think, we are seeing that play out in Europe where economic activity is slowing down, labor markets are cooling, and they are cooling slightly faster than they are cooling here in the U.S. So the idea then of course with dropping interest rates would be to make sure that the economy lands softer or starts accelerating again. And when that happens, our business, of course, will start to see the effects of that in improving demand.

All right, great. Thanks for the color.

Thanks, Jeff.

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. First one I had was just on the U.S. Experis business. Just thinking about the overall labor market for IT Talent. What are you seeing now as far as kind of the supply and demand or the tightness of that labor market? Has there been any kind of additional slack coming in as the downturn has continued? Just kind of trying to get a sense for how quickly that business could snap back once client confidence improves.

Thanks, Trevor. The market for IT skills in the U.S. remains strong, but it's not as tight as it was and of course not even close to as tight as it was immediately post-pandemic. What we're seeing is continued weakness on the enterprise [or] (ph) large tech companies, still being cautious in terms of their overall hiring and coming off a pandemic hiring boom. But convenience demand looks reasonable. It is still weak, but it's stronger than the demand that we see from enterprise tech clients or enterprise clients at large. And just as Jack just mentioned, what we've observed is a stabilization sequentially, which we take as an encouraging first sign. Companies are looking for more specialized skills. And we believe that as the outlook firms up and employers feel better about the economic outlook and see less uncertainty, that those trends are going to continue to improve.

Okay, thanks, Jonas. That's helpful. And then for a follow-up, just kind of curious on the level of -- I guess, competition across some of your major markets, at some of these lower levels of demand, is the competitive environment still generally rational? Or -- are you seeing competitors try to grab share at all by kind of undercutting on pricing? I guess generally, does it feel like you're gaining, maintaining, or losing share in some of your key markets?

Overall, I think we would gauge ourselves as being with markets and competition remains intense but rational. I think, you can see this come through also in our staffing margin and our overall GP margins which are holding up well despite the headwinds that we're seeing in particular in Europe and in North America. So it is always a competitive environment but the underlying reason for that stability and the rational part is that labor markets continue to be strong. There's no doubt that labor markets are cooling both in Europe and in North America, but they're still tight from a historical perspective. And that means it's still not easy to find the talent that you need. You may be more judicious, more surgical in your hiring. You may be more cautious in terms of how many people you want to bring on. But employers are still looking for talent. And you can also see that in our talent shortage surveys that we do on a regular basis, that employers are still finding it difficult to find exact skill sets that they want, exactly when they want them. So overall, it's rational, and I think it remains competitive, but we can see pricing stability across all of our markets and that's reflected in our staffing and overall GP margins.

Great, Thank you very much.

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

Hey, good morning and thanks for taking my questions. A few different questions. One really quick one. This term as a total percentage of GP, including RPO, where did that come in, Jack?

Mark, that came in at 16.8% in the first quarter for us. So I know we've talked about that in the previous quarter where it came down a bit. What you're seeing in the first quarter, Mark is seasonally it's a lower staffing quarter for us just in terms of GP dollars typically. So it's -- PERM actually sequentially -- actually improved very, very slightly in a dollars perspective. So you're seeing a little bit of a higher mix work in at that ratio of 16.8%.

Okay, great. And then just a couple of very short numbers questions, this with regards to Experis in terms of the trends, how much were the IT healthcare projects and particularly in the US and if we strip that out, how did things look and would you expect things to still be stable to improving if we strip out those IT staffing projects, unless those are sustainable and a new promising line of business.

Thanks Mark. I think on the US Experis business, yeah, we did call out that healthcare IT. We did see a good deal of work in the first quarter, I would attribute that to some of those, you know, those go-live works in the hospital system were deferred during 2023. So we did see a spurt of that activity in the first quarter. And we did call it out as a big project related because I wouldn't anticipate that that level of activity will continue in that specific space in future quarters here. A bit of that was considered a catch-up if you will. But what I would say, maybe broader to your point, is I think we are seeing generally relatively stable trends in the U.S. Experis business at lower levels of course, based on what we experienced last year. And I think, Jonas' point, I think when we look at enterprise tech, still very sluggish in terms of demand, but convenience holding up a bit better. So, as we step back and we look forward, I would expect the underlying stable trends that we talked about will continue. We're not seeing a big step up in enterprise, and we're seeing convenience kind of continuing at current levels. And as we go forward, you know, we start the anniversary, the second quarter of last year was, you know, the biggest decline of the year. And so we will anniversary that and that will help a bit on the year-over-year trend, as we go into the second quarter. So that's how I would say it at this point, kind of in-line with what Jonas said. No inflection point at this point, but we are seeing stability.

Right, and then, Jonas, if I could ask a couple of kind of bigger picture questions. One with regards to just kind of the US, predominantly the Manpower business, when we think about like what's happened with regards to higher wage rates, particularly in certain states that have come through, and then thinking about all the various gig opportunities that are out there that are available to individuals. What are you seeing just in terms of the quality of the people that you can place? And what is the productivity level? Or how are clients responding to these higher wage rates? What are your thoughts there?

So, Mark, I think what we're seeing in the Manpower business is clearly the headwinds from a manufacturing sector that's had a tough time now frankly, for a number of years. And we've seen that reflected in PMI. But from a demand perspective, what we see playing out in the U.S., is really still an effect of the pandemic and the post-pandemic. So the dislocation in the U.S., market during the COVID pandemic was much bigger than it was – case in any other place across the world. And so lots of workers left their workplaces, then they came back and employers were really faced with shortages that were scrambling to fill. In some cases, such as in the tech sector, they really engaged in a pandemic boom. But every category of employer was struggling really hard to find the talent that they needed to recover and then take advantage of the post-pandemic demand surge for products and services. What we're seeing now though is that employers are still holding on to their workforce. They're much more surgical in their hiring of temporary staff. And as an industry, we're at the leading edge of a cooling labor market. What's unusual in this cycle is the length between the decline in the temporary staffing industry and a more rapid cooling to a limited degree, we still believe, of the broader labor market. And we can just reflect on the very strong labor market numbers we saw at the end of March. But we still think that is going to play out. So employers are cautious now. They are still navigating an uncertain environment, high inflation. But in terms of wages, the labor markets are still so tight that employers understand they are having to pay those wages, which of course benefits workers that have real wage increases, which in turn continues to drive good consumption in the U.S., economy which also then may fuel some additional inflation but above all provides purchasing power to the consumers. So all-in-all, I would say we think this is playing out as we would normally expect during a cycle but with the post-pandemic anomaly of a slow motion move of a cooling labor market. But the overall trend with the evolution of technology is always moving towards a higher skilled workforce and expectations then of increasing productivity levels of that higher skilled workforce. And I think that's a general trend that we've seen over a number of years and now it's not really any different.

Great, and then, Jonas, you've talked about your AI initiatives. Can you talk just a little bit more about like, what's -- now that we've, you know, had -- basically a year anniversary in terms of ChatGPT, and exploring it. When you think out two years to three years, how much more efficient can your operations become, not just in terms of the shared-services, but also in the field from a recruiting, placement matching perspective?

Oh, that is actually one of the things we are quite excited about, because as you know, we've been on a multi-year journey of digital transformation, and although I'm certainly not an expert in AI, I'm learning as much as I can. And what I have learned is that you cannot apply AI unless you have a modern technology infrastructure. And we believe that we have a very modern technology infrastructure that we've implemented and continue to implement in this year as well, that is able to leverage not only back office and shared-services efficiencies using automation for repetitive tasks. But also providing our recruiters and our salespeople with the best tools that they need to do their jobs better, as well as providing superior candidate experiences to the people that we're recruiting in Manpower, people we're recruiting in Experis, or in talent solutions. So we think the impact of AI can be quite substantial. I would say, it's early days yet, and despite everything that we read in the papers, the actual effects of AI are yet to manifest themselves in a business environment. As an anecdote, the highest level of recruitment of AI skills, counterintuitively maybe, but maybe not, is coming from the financial services sector, which of course is a massive user of technology and continuing to make significant investments. So AI will give us great opportunities and we think we in particular are extremely well-placed because we are the only company or industry that is leveraging global platforms across all of our major geographies, one instance platforms. So once we have AI applied to a particular geography, we can quickly transfer those learnings into other geographies because we're all operating in the same system.

Appreciate the answers. Thank you.

Thanks, Mark.

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. You mentioned that there's no restructuring charge in the quarter, which I think is the first time in a while. And so is that timing related? Or should we read that to suggest that you're satisfied with your organizational structure for the first time in a number of quarters? Thank you.

Thanks, Josh. Yeah, I'd be happy to give a little more color on that. No -- we weren't pleased not to have restructuring charges. We look at restructuring charges very seriously. And when we do restructuring charges, they have to have sustainable permanent savings as part of the business case for those actions. And following 2023, we talked a lot about that and certainly we've taken significant actions in 2023. And at this stage, really I think we feel like we've got the right balance. I think, as we reflect on activity levels, you've heard us talk a lot about stability, we're not seeing further dramatic step-downs in any of our major markets. And so with that, I think we feel like we have made appropriate adjustments based on these current trends, and we'll continue to monitor that going forward. So if the environment changes significantly, then of course we will take action and we'll do what we need to do to preserve margin. But we are very, very focused on being ready for the upturn and I think we feel that we've made the appropriate adjustments and I think we've balanced that. We're very focused on ensuring we have the right sales capabilities in the markets currently and that will be the way we continue to look at this going forward. So you know and I think the other item in terms of what we did [ring fence] (ph) was Proservia Germany. You know, as we said, that actually is going in line with our expectations slightly better actually in the first quarter, a little bit lower than we anticipated in terms of those charges. And you can see in the second quarter we're estimating actually a lower impact on that run-off, as we go into the second quarter, and then it'll be completed. So that will be, and you can see that in the GP margin trend that I gave as well, but the benefits starting to come through as that business fully exits. And so I'd say, that's a way to think about restructuring in some of the one-off items that we've talked about.

Perfect, yeah, that's encouraging. Thank you, Jack. And then I just wanted to ask about your confidence behind the improving rate of decline in the U.S. I guess, how much does that depend on Experis recognizing that there were some projects in Q1 perhaps but just wanted to get some color in terms of your confidence around trends continuing to get better in the U.S. Thank you.

Overall we think the market appears to be stabilizing not only in Experis, but across all of our brands. So the same for Manpower and in Talent Solutions, we've seen RPO stabilize at a lower level. We've seen our TAPFIN MSP business in Talent Solutions actually improved a bit. And of course, Right Management with our placement is tracking well, although not accelerating. So that gives us an idea that as an industry and from our perspective looking at where we're positioned that if things stay the way they are, the trends should remain stable, and that's what we've guided to in the second quarter.

Great. Thank you, Jonas, and thank you both for your time. Good luck in the second quarter.

Thanks.

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

Hi, this is Princy on for Manav. Thanks for taking my question, Jack and Jonas. I wanted to just see -- you mentioned on the call that you have continued diversification going on within your services and products offerings, and that would help offset softening demand in certain regions and verticals. I wanted to just get a gauge on what specific verticals and regions you're seeing softening demand in.

But, Princy, you broke up a little bit in the question, but I think -- I got the gist of your question is you've highlighted some areas in your prepared remarks where you're seeing some strength and that's helping offset some of the broader weakness elsewhere. Where from a -- it sounds like from a sector perspective, where do we have weakness? And what I'd say there is, you know, to Jonas's earlier comments, you know, I'd say manufacturing continues to be very sluggish. Ex-automotive in Europe. So automotive in Europe has been solid. We've talked about that previously in Germany and holding up in France as well and in Italy and some of those markets. But I'd say when you take auto aside, manufacturing continues to be very, very sluggish. So that's a big one. I'd say the other big one that we've talked a lot about is enterprise tech. Enterprise tech continues to be very sluggish, very cautious in terms of ongoing demand, and not really seeing much of a big inflection point there. I think maybe the last one, I'd just call out is finance. The financial sector was a strength in the first half of 2023. What we've seen really starting in the second half of last year and into the first quarter, just more cautious buying behavior in the financial sector for staffing services, and that continues. So that's a little color in terms of, you know, where we're seeing some of that offset to some of the areas where we have seen strength. And again, on the strength, you know, aerospace has been strong for us, particularly in France. Construction in certain markets has actually been okay for us as well. And as I mentioned earlier, health care IT, we did see some good activity in the first quarter, some project-related activity in the first quarter in the US.

Thank you. And I wanted to ask a follow-up. What kind of demand are you seeing currently for AI-related skills and roles? I know you mentioned that it’s still [early innings] (ph).

I think that was what kind of demand are you seeing in AI skills? Right, and I addressed that just previously that we're seeing an increase in demand for AI skills. But I would also say that in the grand scheme of things, the volumes are very small. Interestingly though, what I found, what we look at when we see the job ads and which industry is looking for AI skills, the financial services sector is the one where we see posting the most ads and posting the most orders for those skill sets, which might be -- one might think that this comes from the technology sector, but in fact, what we're seeing is that it's coming primarily from the financial services sector, which of course is running massive technology platforms, and they are looking for the AI skills. But I would position that though within the context of from an overall demand perspective, although these are difficult skills to find and they're increasing at a fast rate, the overall size of the demand is still small.

Thank you.

Thank you. Our next question comes from Tobey Sommer with Truist Securities. Your line is open.

Thanks. I wanted to ask you about your productivity improvements and investment initiatives and the impact on SG&A percentages, demand rebounds. Maybe you could think about it in the context of would you be able to achieve a different SG&A percentage at the recent peak in revenue in 2021, around $21 billion? Any change in complexion of those two pieces? Again, I'm thinking out several years when demand rebounds [when] (ph) we get back there.

Yes, thanks Tobey for that question. I'd be happy to talk to that. So the answer is definitely we would expect to see some really good improvements in our efficiency ratio. So whether you're looking at SG&A as a percentage of GP or revenues, but I'd say, GP probably is the most relevant one. When you look at pre-pandemic levels of efficiency and certainly where we've been in recent years, you've seen the deleveraging play out. But based on the work we're doing, and to your point, we have -- and we talked a bit about it in our prepared remarks. We are progressing quite nicely in our transformation programs. We talked a bit about the Shared Service Center, the Global Business Center that we're opening up. We have opened up in the first quarter in Porto, Portugal. These type of things with our cloud-enabled financial structure are going to be driving significant efficiencies in our cost structure going forward. And that's on the heels of already significant progress in the front office PowerSuite implementations that will come through in a more meaningful way when volumes return from a recruiter productivity perspective. So when you add those together, we would expect a significant improvement in SG&A as a percentage of GP, when you see those programs really start to kick in when volumes return back to previous levels to your point and ongoing efficiency. So that will drive meaningful improvement in those ratios and you'll see that drop down to EBITA margin as well and we've talked about that in the past. So there'll be a bit of a double impact. You'll see the fall off of some of that investment spend as we continue through these programs, but then you'll see the efficiencies come through, which will be meaningful as well. And all of that will help us improve our EBITA. One of the key components of our roadmap to EBITA margin improvement. And you'll see that come through in the ratios as those programs continue.

Thanks. I was hoping you could comment on your capital deployment strategy, because we're a couple years into softening demand. And historically, when you kind of, as a management team, have gotten signs that the [coast] (ph) is clear and demand signals are improving, you typically deploy a little bit more capital at that time in the form of acquisitions. Is that still the playbook and what areas or criteria may you use to select acquisitions?

Yeah, Tobey, I think great question. I'd say overall, I think the main punch line is our strategy has not changed. And you're right, we have been very careful, but where we have made acquisitions has been on the IT resourcing side, and that's worked out very well for us, as we think about the acquisition we did in 2021, that is performing very well. Jonas talked about the convenience component of the Experis in the US, so performing better than the enterprise sector. So that continues to be an area for us as we look forward. And in the current environment, you're right -- the current environment has not been very conducive to acquisitions candidly. And what you've seen us do in the meantime is return excess cash via our share repurchase program, and the dividend continues to be a high priority for us as well. So you should expect that approach to continue. And again, we are very careful when it comes to acquisitions, so we do a very, very detailed analysis. We look at many different filters, most importantly cultural fit and those type of items. But I would say, that is something that more realistically would be something to think about as the environment starts to improve going forward. But I'd say that's kind of where we are currently.

Thank you.

Thank you. Our next question comes from Andrew Steinerman with J.P. Morgan. Your line is open.

Hi. Good morning. This is Stephanie Yee, stepping in for Andrew. We wanted to ask -- so not surprise or you know obviously the U.S. temporary help in the BLS figures have been declining for about two years now which is rather unusual. I guess what do you think the shape of the recovery will be for Manpower U.S., and the staffing industry in the U.S., given this unusual dynamic?

Thanks Stephanie. Yeah, no -- as you say, you know, we agree that 17 consecutive months of temp worker declines in the U.S., without a recession or a significantly cooling economy is frankly unprecedented. If you had the preceding six months of declining growth, That's 23 months of declining growth in our industry in the U.S. So as I mentioned earlier, we believe that there is a lag effect that is distorted this time by the pandemic and the post-pandemic hiring where employers today are really holding onto their workforces. They are absorbing and creating the flexibility by reducing the use of temporary staff, increasing as you saw in the BLS numbers of last month, the use of part-time work. So they are pulling just about every measure that they can to improve the flexibility without touching the permanent payrolls in a more significant way. But given the strength of the economy and if we assume that there is not a full blown recession, it's likely that employers will continue to remain cautious until they feel that the uncertainties that they are cautious about clear up to some degree. And at that point, we believe we'll see a very good return to the use of temporary staff. Because temporary staff is a fantastic way to provide flexibility for any employer across industries, and especially in an uncertain environment. And many of those workers, you know, in various skill levels, then also become integrated into, you know, the employers’ payrolls through conversions over time and we've seen strong conversion levels occur today. The strength of that rebound of course Stephanie is very difficult to estimate because it's really a question of what's going to happen to the overall economy and what is the snapback. Right now, the global growth scenario is highly dependent on US economic growth, which is one of the highest in the world and of course being the major economy that's sort of setting the tone for everyone else. So we are pulling along the growth at a global level right now. But we think when the clouds lift and in particular for us from a Manpower perspective, the manufacturing sector starts to get some more traction. The enterprise on the tech side really start to activate the postponed and delayed technology transformation projects, we think both from a Manpower perspective and Experis perspective, and then also from a Talent Solutions perspective that we'll see very good evolution of those services. It's just that right now, our industry is bearing the brunt all of the slowing and you can't really see it in the broader BLS numbers. But essentially we feel this is a cyclical downturn distorted by anomalies created by the pandemic And eventually this will sort of flatten out and we're therefore pleased to see the stabilization not only in the U.S. and U.K., now several more countries. Our two other big operations, France and Italy. We estimate will also stabilize into our second quarter. And that gives us the platform to hope for a recovery that will then manifest itself to increase demand and improve numbers for all of our brands.

Okay, great. I really appreciate the perspective. Thank you.

Thanks, Stephanie.

Thank you. Our next question comes from Stephanie Moore with Jefferies. Your line is open.

Hi. Good morning. Thank you. Actually, this might be a good follow-up to even the last question. I've maybe kind of digging into that a little bit further. So effectively, from your clearly -- pretty extensive knowledge of past cycles and also the conversations you're seeing -- you're having with customers. So I guess I'm just trying to kind of -- to be a little bit more specific here. So in your opinion, What needs to happen broadly to go from this period of admittedly stabilization to the inflection to the positive side? So effectively what you're saying is we do need to see that unemployment rise first and the economy kind of take a step down or could this be different, you know, this cycle different from prior? I’d love your thoughts there.

Well, it's already different, Stephanie, in terms of we've not seen the cooldown that we would normally associate with our industry being on the leading edge and then subsequently followed by the cool down in the broader labor markets. But we'd expect that to happen, but at this point, depending on who you ask, we don't think that cooling is going to be that significant, but significant enough to create some slack and really to start the growth cycle from moving forward again as far as our industry is concerned. The areas of course that could kickstart this evolution is a lowering of interest rates, very important. Cooling of geopolitical tensions, equally important. This could be another trigger in a number of other events. Right now, frankly, we feel that the Europe is following a more traditional cycle, the economy is cooling. It's likely that the ECB will lower interest rates, maybe even before the Fed lowers interest rates, and that will be a good signal that now comes the time to start to gear up and generate more economic growth in Europe, and we would then hope to see improving PMIs in Europe. And since we have such a big part of our business in Europe, we would see that as a very good sign. So we don't know when we should see and expect either of those to happen either in Europe or in the US, but we expect that -- that is how it would happen. But the trigger point for when it turns around, I think is really going to come very closely related to, you know, lowering of interest rates and inflation levels dropping. Right now our inflation rates are higher and they're moving in the wrong direction and that needs to cool off further before everything can get going the way we would expect it to do.

Got it. Thank you so much.

Thank you.

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

Hi, thanks. Good morning. You mentioned trends in France and Italy were beginning to stabilize, which is an improvement from past quarters. You touched on the auto sector, but can you elaborate a little bit more on what you're seeing in the labor markets in these countries and what's helping to drive that stabilization?

Yeah, the labor markets in both Italy and in France have cooled somewhat. The Italian economy is actually doing very well overall, and a lot of that comes from EU funds that are being channeled and deployed across Italy as part of the Recovery Act in Europe. And France has seen a cooling of the labor market, a cooling of economic growth. But I think since, we are an industry that is concurrent with economic trends that we've seen, you know, the step-downs that have occurred over a number of quarters, as we look at the economy and the labor markets overall that the trends within our industry should lead to a stabilization with continued headwinds. So let's remember that these are still markets that are well below where they were pre-pandemic, but that we are starting to see that stabilization as we have seen in the UK, in the US, now also in the Netherlands, in other parts of Europe as well. So it's really been a progression of countries where our business has reached a point and then appears to be moving sideways sequentially after that point. And we expect that to happen in France and Italy as well.

Got it. That's helpful. And then I wanted to dive further into your productivity initiatives and cost cutting efforts. Can you talk a little bit more about where you are in your journey to achieve improved productivity and right size headcount?

I think as you've seen, George, of course during an environment like this, we're deleveraging, so productivity is moving down. We are adjusting to Jack's point, our SG&A and our headcount, being very careful and balanced in our approach because we want to mitigate the near-term effects of the headwinds that we're seeing in particular in Europe and in North America, but at the same time retain enough resources to make sure that when the rebound happens that we're extremely well positioned to take advantage of that. And it's that -- and at that point that we're going to see the productivity improvements on our business flow through to the bottom-line. And you can see some improvement of course occurring in terms of our bottom-line between the first quarter and the second quarter. As Jack mentioned, our first quarter is a weak quarter due to the start of the year and the resetting of taxes in a number of countries. We move into the second quarter, it improves. But the real improvement, of course, is going to come when our volumes and associates and consultants for Experis starts to move up and we can leverage the investments we've made in technology, as well as regaining the productivity we lost during the cyclical downturn.

Very helpful. Thank you.

Thanks, George.

Thank you. And our last question comes from Heather Balsky with Bank of America. Your line is open.

Hi, this is Emily Marzo on for Heather Balsky. I'm wondering if you could give any additional color into the pricing environment. I believe you called out the staffing had solid pricing. You've seen, but I'm wondering if you could give any additional color there.

Yeah, I would say really there isn't a whole lot of additional color to give. I think the headline really is pricing has been stable. It's been holding up. I think one of the previous questions was really asking along the same lines, despite volumes being at lower levels. There really hasn't been much of an impact on pricing. And I think that story remains the same. I think that really is the takeaway. And although our staffing margin has come down year-over-year, that's really just mix, just mix of the businesses that is having that effect. On an underlying basis, pricing remains strong and we think the market is quite rational. Thank you.

Thank you.

Thank you. There are no further questions. Please proceed with any closing remarks.

Excellent. Thank you very much for attending our Q1 earnings call. We look forward to speaking with you again in July for our second quarter earnings call. Until then, thanks very much and we look forward to speaking with you again soon.