Welcome to the ManpowerGroup Third Quarter Earnings Results Conference Call. [Operator Instructions] This call will be recorded. If you have any objections, please disconnect at this time. And now I will turn the call over to ManpowerGroup Chairman and CEO, Jonas Prising. Sir, you may begin.

Welcome to the third quarter conference call for 2022. Our Chief Financial Officer, Jack McGinnis is with me today. For your convenience, we have included our prepared remarks within the Investor Relations section of our website at manpowergroup.com. I will start by going through some of the highlights of the quarter, and Jack will go through the third quarter results and guidance for the fourth quarter of 2022. 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. Just last month, we brought together our Top 100 ManpowerGroup global leaders for the first time since before the pandemic. We spent an energizing time with our leadership team, with global clients and thought leaders on talent shortages, customer innovation and tech disruption, providing us with an energizing outside and inside out perspective. The headline conclusion was that human capital and skill talent is at the forefront of every business leader's agenda and likely to remain so as they navigate rapid technology transformation and an uncertain economic outlook. It would also be remiss of me here in Milwaukee this morning not to mention that our leadership event also included an inspiring contribution from the Milwaukee Bucks leadership team. They shared their growth and innovation strategy, culminating in their NBA championship a couple of years ago, and maybe another one this season, which starts tonight. Go Bucks . I'll share more on what we're hearing from our leaders and our clients a little later when I cover our perspective on the labor market. Turning to our financial results. In the third quarter, revenue was $4.8 billion, up 5% year-over-year in constant currency or 2% in organic constant currency. Our EBITA for the quarter was $171 million, Adjusting for the U.S. acquisition integration costs, EBITA was $176 million, reflecting growth of 21% in constant currency year-over-year. Reported EBITA margin was 3.6% and adjusted EBITA margin was 3.7%. Earnings per diluted share was $2.13 on a reported basis and $2.21 on an adjusted basis. Adjusted earnings per share increased 32% year-over-year in constant currency. What I hear from our leaders and talk to our clients, they confirm that labor markets are still holding up well despite the increasing economic headwinds. Our own quarterly forward-looking ManpowerGroup Employment Outlook Survey and other indicators,…

Thanks, Jonas. Revenues in the third quarter came in just below the midpoint of our constant currency guidance range. Gross profit margin came in above our guidance range. As adjusted, EBITA was $176 million, representing a 21% increase in constant currency from the prior year period or a 9% increase on an organic constant currency basis. As adjusted, EBITA margin was 3.7% and came in at the lower end of our guidance range, representing 50 basis points of year-over-year improvement or 20 basis points organically. Due to the significant strengthening of the dollar, particularly against the euro, year-over-year foreign currency movements continued to have a significant impact on our results. It is important to note that our businesses operate in local currencies. And as a result, foreign currency translation does not impact cash flow activity within our businesses, and the result is largely an accounting item based on reporting translation into U.S. dollars. Our currency translation drove a 12% swing between the U.S. dollar reported revenue trend and the constant currency related growth rates. After adjusting for the negative impact of foreign exchange rates, our constant currency revenue increased 5%. Due to the impact of net acquisitions, increasing revenue about 3% and slightly more billing days, the organic days adjusted revenue increase was about 2% compared to our guidance of 3% at the midpoint. The slightly lower revenue trend was a result of more modest growth than anticipated in the Manpower brand particularly in Northern Europe. Turning to the EPS Bridge. Reported earnings per share was $2.13, which included $0.08 related to the Experis U.S. acquisition integration costs. Excluding the integration costs, adjusted EPS was $2.21. Walking from our guidance midpoint, our results included a softer operational performance of $0.08, slightly lower weighted average shares due to share repurchases in…

Thanks, Jack. Our last call, we focused on the digitization component of our Digitized, Diversified and Innovate strategy. Today, I will share progress around our diversification. Our business mix continues to shift towards our higher-value brands with our higher-margin businesses, Experis and Talent Solutions, representing 44% of our gross profit, up from 35% in 2019. Our Manpower brand, it is also seeing good opportunities to diversify towards specialized skill sets, both in perm and temporary staffing and reflected in improved gross margins for that brand as well. Experis is a key part of our diversification strategy. And earlier this month, we celebrated one year since our acquisition of the Attain Group in the U.S. We are very pleased with the excellent contributions of the team and integration into Experis strengthening our offerings in digital workspace, business transformation, enterprise applications and cloud infrastructure and Experis has provided an all-time high contribution of 27% of ManpowerGroup gross profit year-to-date. Experis is now positioned as one of the largest IT resourcing and solutions provider in both the global market and in the U.S. Those strong capabilities in the IT resourcing and solution space have also been recognized by leading industry analysts. Experis was recently named a leader and star performer in Everest Group's U.S. contingent staffing services PEAK Matrix Assessment, which highlighted our delivery capabilities, our proprietary AI-enabled tools that charge personalized career path for IT professionals as well as the breadth of our upskilling offerings, including Experis Career Accelerator and Experis Academy. In addition to our leading Experis business, we continue to accelerate our diversification strategy with the growth of our Talent Solutions brand. [indiscernible] global offerings have recently been recognized with our Talent Solutions TAPFIN-Managed Service Provider, MSP, once again achieving global leader and star performer acknowledgment in Everest Group's PEAK…

[Operator Instructions] Our first question is coming from the line of Andrew Steinerman of JPMorgan. Your line is open.

Hi, good morning. This is Stephanie sitting in for Andrew. Our question is, if we have a garden variety type of recession in the U.S. in 2023, in your view, do you think labor will stay relatively tight? And if so, does that hold back a strong economic recovery post-recession?

Good morning, Stephanie. The labor markets in the U.S. remain very tight even at this point. And if we see some slowdown in the economy, most economists predict a loosening of this tightness, but it moves from very tight to maybe tight at 4.5% to 5% if you look at the various ranges of - those estimates. And we think that, that will be enough to bring wage inflation down further from where it is today. We believe wage inflation in the U.S. has peaked earlier in the year, but it's not come down as quickly as we would have expected. And the main reason for that is the lack of supply. Workforce participation rate is still significantly lower than it was pre-pandemic. And if you were to count the influx of people into the labor market that should have occurred, that hasn't happened either. So we are having a shortfall in supply, and that's what's keeping the wage inflation and the tightness of the labor market in the U.S. at the same level. So, we still think that this softening of the labor market would be a very good environment for our business as companies navigate uncertainty. They want operational strategic flexibility. So we think it is - if that is what happens, it is something that we're well equipped to manage.

Great, thank you.

Thank you, Steph.

Thank you. Our next question is coming from the line of Jeff Silber of BMO Capital Markets. Your line is open.

Thank you so much. In the press release, you talked about taking some necessary cost actions in parts of your business that are experiencing slower market demand. I know in your prepared remarks, you talked a little bit about Germany, but I'm just wondering if this is something you're doing in any other regions? Maybe you can give us a little bit of color in terms of the type of actions you're taking? Thanks.

Thanks for the question, Jeff. This is Jack. I'd be happy to talk to that. So really what that reflects is a bit of a balancing. So while there continue to be great opportunities and we talked a lot about Experis U.S. performance in the U.S., we're certainly investing in producers there and continuing to capture that market growth. On the flip side, as you know, in some of those markets, so we did note that Northern Europe was a bit softer during the quarter. We are balancing that so where demand has softened. And certainly, you heard us talk about automotive as well. We are taking actions in those parts of the business to balance that. And as we've talked about in the past, people are about two-thirds of our overall cost. So that means making sure that we're rightsizing the workforce against those sectors that we deliver into. So we are doing that. We will continue to do that. We'll monitor the trends very closely. Now with that being said there's, still some very, very good opportunities for us in Manpower, and we're seeing that across a lot of our European markets. So acknowledging parts of the sectors that are slowing a bit, taking the actions we need to, to make sure we're balancing that appropriately with the workforce. And then also in areas where we have been investing in specializations, perm continues to be a great area of investment for us. We're seeing really good returns on as well. So it will continue to be a balance in this environment that is getting a bit tricky as we see some areas of softness, but still good opportunities. So it's just getting that balance right so that we can preserve margin in the parts of the business that are seeing a bit softer trends.

Okay, that's really helpful. If I could shift over to capital allocation I know M&A is not the top priority of this company, but you have done some selective M&A in the past. Are you seeing expectations from potential sellers in terms of valuation multiples come back a little bit as we've seen the correction in the public company multiples?

I'd say, Jeff. As we've said in the past, I like the way you frame that. We prefer organic growth. It's certainly been our strength. But we - as we showed with Attain, there are circumstances where if there is a good opportunity, and we think it's a great cultural fit that could be a really good addition to our existing Experis business. And as we speak today, we're anniversarying that acquisition. It's been 12 months, and that's worked upgrade, as you heard in our prepared remarks. I'd say in terms of the environment, I'd say it's probably a little too early to tell, Jeff, whether we're seeing valuation changes out there in - the professional staffing market. I think if you look at the trends and if you just look at our Experis business, 16% organic growth in the U.S., holding up very, very well. So demand is still out there. It's still quite strong. So I think it's a little too early to tell whether there's going to be any significant valuation changes in that sector.

Okay, appreciate the color. Thanks so much.

Thank you. Our next question is from the line of Manav Patnaik of Barclays. Your line is open.

Hi good morning, thank you for taking the questions. It is actually Ronan Kennedy up for Manav. May I ask, usually uncertainty is good for temp staffing. But then on the other end of that, too much potentially could be bad. Just wanted to get your assessment as to where we are now and how we should think about the risks given the current macro backdrop and outlook?

The prepared remarks really covered our observations that we see continued solid demand and good growth across all of our brands in Q3, but that the macroeconomic backdrop has certainly worsened. But what you're referring to is really uncertainty in an environment of good demand is good for us. And I think our results in the third quarter and outlook into the fourth quarter really illustrates that point because we are looking into the fourth quarter with continued solid demand and expect the business to perform well, and we're not really seeing any changes from what we've seen in Q3.

Okay, thank you for that. And a follow-up, if I may. What kind of - so cognizant in the comments in the prepared remarks in response to the question just now. What are leading indicators if we look out into 2023 and what is the visibility like what could we expect to see should there be a deterioration in demand or otherwise?

For a lot of our business, PMI is a good indicator that you can look at. And the - whilst we've seen some softening in PMI, both in the U.S. and Europe, both of them - both of those regions are hovering around the 50% mark, slightly below in Europe, slightly above here in the U.S. So that is an indicator one could look at. We tend to be concurrent with the economic cycle ahead of any labor market changes. But at this point, and I emphasize at this point, there is no sign of a material slowdown in our business, as you can tell from our outlook going into the fourth quarter. We know that things can change very rapidly as we saw during the pandemic but at this point, we're not seeing any signs beyond the concerns or some hesitation on the part of some employers in some skills and/or in some market segments. But overall, demand remains solid, and we're not seeing any indications of a rapid downturn in our business, at least into the fourth quarter.

Thank you very much. Appreciate it.

Thank you. Our next question is from the line of Mark Marcon of Baird. Your line is open.

Hi, good morning. Wanted to ask a short-term question and a long-term question, with regards to the short-term question, the guidance for Southern Europe, up 3% constant currency Northern Europe flat constant currency I'm wondering. Can you talk a little bit about like what the exit rates were in September and going into early October? And to what extent do you have a high level of confidence that there won't be any further deterioration in some of those markets that would enable Southern Europe to continue to be up 3% or any areas that you actually might be seeing some improvement, because as Jack knows a lot of investors are really worried about the European macro environment?

Sure, I'd be happy to take that, Mark. So that's - you're starting with the short- term. And yes, I'd say on Southern Europe, to give you a little more color on how we exited the quarter, I think very much in line with the quarter overall for the most part. So starting with France, we talked about the 3% growth rate for the quarter overall. I think as we exited really right in line with that same level of 3%. So -- and as we -- to your other part of the question regarding what we're seeing in October, similar trends. It's still early, but I'd say in the first half of October is running pretty much in line with what we were seeing in the second half of September. So very consistent and our guide for the fourth quarter at basically 3% for France, saying in line with the same trend from the third quarter really reflects just a stable environment. And as we mentioned, it really was good to see France stabilize in the third quarter. We did see a declining revenue rate in the first half of the year pretty progressively. And that stopped, which was good, and it leveled out beginning in June, which looked like the low point, and we've seen some nice increases since then. So it's been holding at that level, and that's what we're using for the guide. I'd say Italy, pretty similar story. I think we always know that August is a bit of a tricky month with the summer holidays. But when we look at the overall -- quarter overall, 3% was our days adjusted growth for the quarter overall, we exited the quarter maybe just a tad higher than that, which was good. And I'd say as we look into October, pretty much in line with what we guided for, just to be down slightly from the second -- third quarter level just based on the anniversary some very significant growth in the year ago period. So Italy, we feel good about Italy. It's performing well. Just anniversarying some very significant growth. So I'd say those are the two big businesses for us in Southern Europe that moved the needle and that would give you a bit of a color on the overall trend into the fourth quarter.

Great. And then you mentioned that the U.K. might actually improve. That would be different than what a lot of people would expect over on this side of the pond. What are some of the key areas of improvement within the U.K. just to stay on the short term?

Yes. So you're right, Mark, U.K. certainly is in the headlines even this morning as we speak. I would say the item that has been a very good development in our U.K. business is the amount of public sector work the business does overall. It's about one-third of the book overall. As you know, that's a very resilient part of a sector to be providing into. And that's a big part of the equation for us that gives us confidence in the U.K. business. I'd say -- going into the fourth quarter, seasonally, there's a good uptick in business in the U.K. as well. And as Jonas said, based on demand at the moment, that continues to be pretty strong. And I know there are some questions about 2023 overall. As you know, we get pretty good visibility in our order books for the next three months, and that's how we do our forecast for the next quarter going ahead. And I'd say on that basis, I think we feel pretty good that the U.K. will have a pretty good fourth quarter. I think the other item that's been strong in the U.K. is perm. They had a very strong quarter in the third quarter on perm recruitment, as well. So I think on an overall basis, we feel pretty good about that. We have talked about the U.K. adjusting the book of the business a bit, and that has impacted the growth rate. And again, that's backing away from some lower-margin arrangements and replacing them with some higher-margin arrangements. And that's had a bit of an impact on the growth rate, and we expect a bit of that to start to anniversary in the fourth quarter as well.

That's great. And then a longer-term question. Between Experis and Talent Solutions becoming an ever-increasing percentage of the gross profit, the DDI initiatives. I'm wondering how should we think about it? Obviously, there's a lot of concerns from a very short-term perspective in terms of a macro downturn. But in terms of the next up cycle, how could -- how would Manpower look in terms of kind of the mix in terms of gross profit coming from some of your higher-margin areas? And then when we factor in DDI and some of the efficiency initiatives there, what are the longer-term implications as it relates to longer-term margin objectives?

Yes. Sure, Mark. I'd be happy to talk to that as well. So as Jonas has talked about in the prepared remarks, Experis and Talent Solutions now at 44% of our gross profit. Experis is at an all-time high at 27%. I think what that means as we go forward, and that's going to continue to impact our overall opportunity to continue to expand EBITA margin. And I think you're seeing it in the results today and the year-over-year 50 basis points EBITA margin improvement, organically 20. And I think as that business continues to grow, and if I -- even if you look at the last couple of quarters, Experis and Talent Solutions have had the highest growth overall. And we expect that to continue for Experis. Certainly, Experis. The market remains very strong. And is that, as they grow faster, that will continue to improve that business max. So -- as we go forward, you should expect that, that 44% will continue to edge up and become a bigger part of the overall pie and that will help our margins, and we'll continue to make the business more resilient as we go forward as well. So I'd say those are some of the key aspects. You talked about DDI and technology, and we did indicate in the prepared remarks, we're starting to see some of the benefits of those. So that's been a great accomplishment for us with all of the implementations we've done of our new cloud-based power suite front office system, from substantially all the business is on it now, and we're starting to see some great benefits. So that, combined with the mix shift, we'll start to see greater and we are seeing it recruiter productivity in some of the large markets we've implemented. And that will also be a bit of a tailwind on GP margin and overall efficiency on an overall basis. So all of those equate to what you should expect to be a stronger margin profile in a recovery as we come out of the downturn -- for the next downturn.

Great. Thank you so much.

Our next question is from the line of Tobey Sommer of Truist Securities. Your line is open.

Hi, good morning. This is Jasper Bibb on for Tobey. Looks like another strong quarter for perm. I guess curious, are you seeing the perm orders holding up through October? And maybe you could frame your overall expectations for perm in the fourth quarter guide?

We're still seeing good demand for perm. And we are now anniversarying some extremely strong prior year quarters in the third and the fourth quarter. But still, we're seeing very good perm demand coming across all of our brands. And we are expecting this to come down a little bit into the fourth quarter. But overall, the levels of demand are still well above the pre-pandemic levels. Some of the investments that we are making that Jack talked about earlier is to continue on our perm activities across the brands. So, we expect to see slightly lower growth next quarter, but still very good performance for all of our perm activities.

Thanks. And then on Experis U.S., I wanted to ask how clients are managing IT spend in the current environment. There's, been some headlines around tech companies pulling in on hiring. I was curious if you're seeing any impact there?

We work with all kinds of companies. And one of the great strengths of our Experis operation here in the U.S. is a very strong presence in convenience. As you're well aware, the shortage of IT skills in the market means that the talent that leaves larger organizations is very quickly picked up by the market and smaller organization that's delighted to find more talent. So we actually think that right now, what you're reading in the headlines gets absorbed very quickly into the market, because demand for IT talent is still very strong.

Thanks for taking the questions guys.

Thank you. Our next question is from the line of Heather Balsky of Bank of America. Your line is open.

Hi good morning, thank you for taking my question. Can you talk a little bit about your guide for 4Q with regards to the Manpower brand and you talked about slightly slower growth, I think, in the quarter. Just curious what you're seeing there? And then a second question on Europe, just kind of the - love to hear kind of where you're still seeing - what industries where you're seeing strength and where you may have seen some softening in Southern Europe? Thanks.

Thanks, Heather, for the question. Yes, so I'd say we don't really give guidance by brand. But what I would say is if you look at Europe, as we've talked about in the past, Europe certainly is majority Manpower business. So as you look at the guide for Europe, that's a pretty good read-through of what we're expecting. So I'd say on an overall basis, Southern Europe, we're looking, as we've talked about a little bit earlier, fairly stable. So France is looking stable, as we've talked about previously. And I'd say, Italy, we still feel good about Italy is still expanding associates on assignment out, but we're anniversarying some very large growth. So Italy had very strong OUP margin in the quarter. We expect Italy to have a very strong fourth quarter as well. So I'd say on that side that continues to look fairly stable to strength in the fourth quarter. I think on the flip side, as we've talked about - I'd say some of the bench countries, Germany and Netherlands, there continues to be a bit more softness, and you can see that in the revenue trend. So I'd say on an overall basis, we would expect those businesses to continue to show revenue decline in the fourth quarter. But I think as we anniversary the prior year period, there's some opportunity for a slightly improved level of decline in those businesses as we get to the year-end and based on some year-end seasonal work as well. And I think we had a good discussion on the U.K. earlier, which is a big part of Northern Europe segment overall. And we feel good about the composition of the book there with the sectors they're focused on. U.K. does not have large exposures to automotive like we have in Germany and France. So U.K., I think, has an opportunity to show slight improvement from the third quarter trend into the year-end period. So - and maybe the last one that we haven't really talked too much about are the Nordics. And the Nordics, our two large businesses in the Nordics are Norway and Sweden and combined good 6% growth in the third quarter. And I'd say more of the same into the fourth quarter. Those businesses typically have a strong fourth quarter, that is making its way into the overall region overall. So you should expect mid-single-digit revenue performance from them as well. So - that kind of gives you a bit of a flavor of some of the bigger European businesses with manpower exposure.

Yes, I appreciate that. I guess - and I apologize. I was curious - in prior quarters, you talked a little bit about autos and construction and how those sort of verticals are trending. I was curious about that? Thank you. Sorry about that.

So Heather, we're not seeing really any material improvement in automotive at this point. Construction is still a challenge in some of the markets across Europe. But the manufacturing demand remains solid. So there is no real change to what we've seen in this quarter and as we project into the fourth quarter. So the same sectors where we saw weakness in prior quarters and really that had driven the weakness all the way through the year, notably automotive in some of our markets, some logistic weakness as commercial - sorry, as e-commerce appears to be waning somewhat compared to the pandemic that is also noticeable in some markets. But broadly speaking, most industries and segments are showing solid demand also into the fourth quarter.

Thank you, appreciate that.

Thank you. We will take one more question from George Tong of Goldman Sachs. Your line is open.

Hi thanks, good morning. Supply chain disruptions are continuing to weigh on the automotive, construction and logistics sectors in France. You mentioned a stable outlook. What factors could drive upside and downside to your stable outlook?

So there could be a number of things working in our favor should they occur. The first one, obviously, would be a cessation of hostilities between Ukraine and Russia, which seems very unlikely a significant drop in energy and food prices, which, of course, is also related to the first. So those will be clear upsides. And really the reverse of that would be the continued conflict, worsening energy and the food prices and difficulty for the central banks to get inflation rates. And we're talking about nominal inflation here down to a more manageable level fast enough. And if they don't see that happening, I'm sure that many economists are saying they will increase the rates and the risk of a hard landing becomes much greater. So those would be the both the opportunities, what would change the picture and what could make it worse. But I should note, though, that at this point, the labor markets are still very resilient. And all of them are below pre-pandemic levels in terms of their unemployment rates. So employers are looking for talent. They keep on hiring, and that is what you see reflected in our outlook both in our results for the third quarter as well as our outlook into the fourth quarter.

Very helpful. You mentioned that Germany is being negatively impacted by regulations affecting the management of the bench workforce. Can you discuss the regulations and quantify the impact to Manpower?

We can't really quantify it, but I would say the regulations have been there for a number of years, and it just makes Germany a very complex market to navigate. We have our own issues that we're working on addressing. We have a heavy reliance on automotive, which used to be a very good sector for us, and it's now clearly a drag and has been for some time. So we need to rebalance our business mix and we're pulling all the levers you would expect us to do to turn that business around. But as Jack mentioned as well, even the markets where you have bench models where the employees, the temporary staff are our permanent employees is more susceptible to higher margin pressure due to sickness, absenteeism and there as well, the legislation changes that have occurred over the past couple of years, it just makes it more challenging. It makes - it takes us longer to turn that business around. But we have - we have market issues, but we also have our own issues that we're addressing, and we will keep making progress on that business.

Very helpful. Thank you.

Thank you. At this time, speakers, we do not have any further questions on queue.

All right, thanks, everyone. And thanks for all your questions, and that concludes our third quarter earnings call, and we look forward to speaking with you on our fourth quarter earnings call in a few months. Thanks, everyone.

Thank you for participating in today's conference. You may now disconnect.