Welcome to ManpowerGroup’s first quarter earnings results conference call. At this time, all participants are in a listen-only mode until the Q&A session of today’s conference. This call will be recorded. If you have any objections, please disconnect at this time. Now I will turn the call over to ManpowerGroup Chairman and CEO, Jonas Prising. Sir, you may begin.

Welcome to the first 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 first quarter results and guidance for the second quarter of 2023. I will then share some concluding thoughts before we start our Q&A session. Jack will now cover the Safe Harbor language.

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. In our previous earnings call, we reported that organizations remained focused on maintaining and augmenting headcount for essential talent, though we were also seeing softening of demand for staffing services due to increased economic uncertainty. This softening trend continued into the first quarter of this year with demand for staffing services slowing further, most notably in the U.S. Europe continued to experience a modest decrease in demand in most major markets during the quarter, following a trend that started early in 2022. After months of a remarkably strong U.S. labor market, we are now seeing more companies across various industries recalibrating their workforces after a period of bullish hiring, shifting their focus towards more intentional hiring for specialist skills and in-demand roles, delaying hiring decisions and reducing their demand for contingent workforce in line with dynamics we have seen in past economic slowdowns. Although this cautious environment is resulting in lower volumes of staffing activity in the U.S. and Europe, we continue to support our clients by delivering the in-demand specialist resources they need in this environment and are also playing a big role in replenishing their permanent workforce in critical parts of their businesses. It is important to note that business trends in Asia Pacific, the Middle East, and Latin America continued to be quite robust and helped offset the more challenging environment in the U.S. and Europe, illustrating the advantage of our geographically diversified market presence. I just finished business review meetings on the ground in our Asia and Latin America businesses, and I’ll talk more about that later. Turning to our financial results, in the first quarter the revenue was $4.8 billion, down 2% year-over-year in constant currency. Our reported EBITA for the quarter was $127 million. Adjusting for restructuring costs, EBITA was $133 million, representing an 11% decrease in constant currency year-over-year. Reported EBITA margin was 2.7% and adjusted EBITA margin was 2.8%. Earnings per diluted share were $1.51 on a reported basis and $1.61 on an adjusted basis. Adjusted earnings per share were down 7% year-over-year in constant currency. Our clients have indicated that despite the slowing environment, core business transformation must continue, underscoring the need for different and more advanced skills. Our own quarterly ManpowerGroup Employment Survey data shows employers plan to continue hiring mission critical talent given shortages for in-demand roles are at record levels. This demand for talent is evidenced by ongoing strong growth in permanent recruitment in many of our largest markets, including the U.K., France, Italy, Japan, Spain, and the Nordics, among others. I will now pass to Jack to share more details on the financials.

Thanks Jonas. Revenues in the first quarter came in between the low end and the midpoint of our constant currency guidance range. Gross profit margin came in at the high end of our guidance range. As adjusted, EBITA was $133 million, representing an 11% decrease in constant currency compared to the prior year period. As adjusted, EBITA margin was 2.8% and came in at the midpoint of our guidance range, representing a 30 basis points of decline year-over-year. Due to the strengthening of the dollar, year-over-year foreign currency movements continued to have a significant impact on our results. It is important to note that our businesses operate in local currencies and, as a result, foreign currency translation does not impact cash flow activity within our businesses and is largely an accounting item based on reporting translation into U.S. dollars. Foreign currency translation drove about a 5.5% 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 2%. Organic days-adjusted revenue decreased 4% in the quarter compared to our guidance of minus-2.5% at the midpoint. The lower revenue trend reflected a deteriorating environment during the first quarter, particularly across the U.S. and Europe. Turning to the EPS bridge on Slide 4, reported earnings per share was $1.51, which included $0.10 related to restructuring costs. Excluding restructuring costs, adjusted EPS was $1.61. Walking from our guidance midpoint, our results included a softer operational performance of $0.04, a lower effective tax rate which had a positive impact of $0.01, a foreign currency impact that was $0.01 better than our guidance due to the strengthening of the euro and the pound during the quarter, and other expenses, which included increased pension plan related interest costs, 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 5%, and the Talent Solutions brand reported a revenue decline of 1%. The Experis decline was driven by lower volumes from enterprise clients as we anniversaried significant growth in the prior year. Within Talent Solutions, we saw a modest year-over-year revenue decline in RPO as we anniversaried exceptional 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 low levels in the prior year. Looking at our gross profit margin in detail, our gross margin came in at 18.2%. Staffing margin contributed to a 40 basis point increase as Experis and Manpower both experienced staffing margin expansion. Permanent recruitment, including Talent Solutions RPO contributed a 10 basis point GP margin reduction as permanent hiring demand continued at reduced levels from the exceptional activity in the prior year period. Favorable direct cost adjustments, primarily in the U.S., contributed 10 basis points in the quarter. Right Management career transition within Talent Solutions contributed 20 basis points of improvement, and other items represented a positive 20 basis points. Moving onto our gross profit by business line, during the quarter the Manpower brand comprised 56% of gross profit, our Experis professional business comprised 27%, and Talent Solutions comprised 17%. During the quarter, our consolidated gross profit increased 1% on an organic constant currency basis year-over-year. Our Manpower brand reported an organic gross profit increase of 2% in constant currency year-over-year. Organic gross profit in our Experis brand decreased 2% in constant currency year-over-year. Organic gross profit in Talent Solutions increased 1% in constant currency year over year. This was driven by significant growth in Right Management. Gross Profit in RPO decreased in the mid to high single digit percentage range in the quarter as we anniversaried 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 $745 million. Excluding restructuring costs, SG&A was 3% higher year-over-year on an organic constant currency basis, down from the 4% growth in the fourth 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 $25 million, incremental costs related to net acquisitions and dispositions of businesses of $3 million, offset by currency changes of $35 million. Adjusted SG&A expenses as a percentage of revenue represented 15.4% in constant currency in the first quarter, reflecting lowered operational leverage on the revenue decline. Restructuring costs totaled $7 million. The Americas segment comprised 24% of consolidated revenue. Revenue in the quarter was $1.1 billion, representing a decrease of 6% compared to the prior year period on a constant currency basis. Reported OUP was $49 million and includes $1 million of restructuring costs. As adjusted, OUP was $50 million and OUP margin was 4.4%. The U.S. is the largest country in the Americas segment, comprising 68% of segment revenues. Revenue in the U.S. was $770 million during the quarter, representing a 13% days-adjusted decrease compared to the prior year. As adjusted to exclude restructuring costs, OUP for our U.S. business was $32 million in the quarter, representing a decrease of 49%. As adjusted, OUP margin was 4.1%. Within the U.S., the Manpower brand comprised 25% of gross profit during the quarter. Revenue for the Manpower brand in the U.S. decreased 15% on a days-adjusted basis during the quarter, representing a decline from the 8% decrease in the fourth quarter. Manufacturing PMI in the U.S. continued to decline during the first quarter from the 48 range in December to the 46 range in March. Our U.S. Manpower business experienced a progressive pull back in demand during the course of the 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. On a days-adjusted basis, Experis U.S. revenue decreased 12% as we anniversaried peak 2022 growth of 33% organically in the year ago period. As referenced earlier, the year ago period experienced dramatic growth from enterprise clients, for which activity levels are lower in the current period. Talent Solutions in the U.S. contributed 30% of gross profit and experienced revenue decline of 15% 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 first quarter as we anniversaried exceptional growth in the prior year. Although RPO activity is lower in the current environment, first quarter RPO revenues were well above pre-pandemic levels. The U.S. MSP business saw revenue decline as we reduced some lower margin activity, while outplacement activity within our Right Management business drove significant revenue increases. In the second quarter of 2023, we expect a similar to slightly higher rate of year-over-year revenue decline compared to the first quarter trend in the U.S.

Southern Europe revenue comprised 43% of consolidated revenue in the quarter. Revenue in southern Europe came in at $2.1 billion, representing a 2% decrease in organic constant currency. OUP for our southern Europe business was $90 million during the quarter, representing an OUP margin of 4.4% excluding some minor restructuring. France revenue comprised 57% of the southern Europe segment in the quarter and revenue equaled $1.2 billion in the quarter and was flat on a days-adjusted organic constant currency basis. OUP for our France business was $45 million in the quarter, representing an organic decrease of 8% in constant currency. OUP margin was 3.8%. We are estimating the year-over-year constant currency revenue trend in the second quarter for France to be a slight decrease year-over-year.

Revenue in Italy equaled $422 million in the quarter, reflecting a decrease of 3% on a days-adjusted constant currency basis. OUP equaled $31 million and OUP margin was 7.3%. We estimate in constant currency that Italy will have a flat to slight growth revenue trend year-over-year in the second quarter. Our northern Europe segment comprised 20% of consolidated revenue in the quarter. Revenue of $968 million represented a 3% decline in organic constant currency. After excluding restructuring costs, adjusted OUP was $8 million and OUP margin was 0.8%. 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 12% on a days-adjusted constant currency basis. This reflects a higher rate of decline from the fourth quarter decrease of 6% on the same basis. We expect a slightly lower rate of revenue decline in the second quarter compared to the first quarter.

In Germany, revenues increased 1% in days-adjusted constant currency in the quarter, representing two consecutive quarters of improvement driven by our Manpower business. Our Germany managed services Proservia business continues to require significant management attention and actions to improve performance. We are in the process of performing a detailed evaluation of the Proservia business and will provide a further update in future periods. Overall, in the second quarter, we are expecting slightly improved year-over-year revenue growth compared to the first quarter trend.

The Asia Pacific-Middle East segment comprises 13% of total company revenue. In the quarter, revenue grew 7% in constant currency to $606 million. As adjusted to exclude restructuring, OUP was $24 million and OUP margin was 3.9%. Restructuring charges of $2.5 million related to our Australia business. Our largest market in the APME segment is Japan, which represented 47% of segment revenues in the quarter. Revenue in Japan grew 13% in constant currency or 11% 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 second quarter.

I’ll now turn to cash flow and balance sheet. In the first quarter, free cash flow equaled $111 million compared to $52 million in the prior year. At the end of the first quarter, days sales outstanding decreased about half a day to 56 days. During the first quarter, capital expenditures represented $13 million. During the first quarter, we repurchased 369,000 shares of stock for $30 million. As of March 31, we have 1.6 million shares remaining for repurchase under the share program approved in August of 2021. Our balance sheet ended the quarter with cash of $707 million and total debt of $989 million. Net debt equaled $282 million at quarter end. Our debt ratios at quarter end reflect total adjusted gross debt to trailing 12 months adjusted EBITDA of 1.38 and total debt to total capitalization at 28%. Our debt and credit facilities remained unchanged during the quarter. After successfully lengthening our debt duration profile with the Euro Note executed in mid 2022, we exit the quarter with a very strong balance sheet.

Next, I'll review our outlook for the second quarter of 2023. Based on trends in the first quarter and April activity to date, our forecast is cautious and anticipates that the second quarter will continue to be challenging in the U.S. and Europe. We are forecasting underlying earnings per share for the second quarter to be in the range of $1.58 to $1.68, which includes an unfavorable foreign currency impact of $0.03 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 5% and 1% and at the midpoint represents a 3% decrease. The impact of net acquisitions and less billing days year-over-year is slight and the organic days-adjusted constant currency revenue trend is the same 3% decrease at the midpoint. This is slightly lower than the 4% decrease in the first quarter on this same basis as the comparable growth rate stepped down from Q1 to Q2 last year. We expect our EBITA margin during the second quarter to be down 100 basis points at the midpoint compared to the prior year. We estimate that the effective tax rate for the second 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 51.3 million.

Thanks Jack. Although the environment is becoming more challenging, we are doubling down on our strategic initiatives within the pillars of diversification, digitization, and innovation to strengthen our capabilities and make progress on shifting our business mix to higher value services supported by a market leading technology platform strategy in all our brands. We continue to make strong progress on diversifying our business, with our higher margin brands Experis and Talent Solutions making up 44% of gross profit dollars. This together with our industry-leading geographic footprint and strong balance sheet leaves us well prepared to weather economic cycles. Within Talent Solutions, although activity levels in RPO and MSP are down from the peaks in the prior year period, gross profit levels remain well above pre-pandemic levels while our countercyclical Right Management business is currently experiencing significant gross profit growth. As I mentioned, I recently spent time with clients and our leaders in Asia and Latin America, where the economic outlook in both regions continues to be strong. Business conditions are especially conducive to an increased demand for our temporary staffing services. This is very evident across most of our Latin America businesses, where just last week I had the pleasure of celebrating the 60th anniversary of our very successful business in Chile. As global supply chains normalize and China reopens, the growth outlook in the APME regions is also very bright. Japan, our largest business in the APME region and fifth largest globally, has been extremely resilient post-pandemic and our business is continuing a strong track record of revenue and profit growth. In fact, our Japan business has had 34 consecutive quarters of constant currency growth, which is remarkable. Congratulations to the Japanese leadership team, who have been laser focused on the growth sectors based on the data and trends we have been predicting and tracking for many years.

Specific to digitization, in Q1 we further expanded our global PowerSuite technology platform with the launch of PowerSuite Next for Right Management in the U.S., Canada, U.K., and Australia, with all main Right Management operations planning to be on-boarded by the end of 2023. This B2C platform provides talent career development and outplacement services with personalized virtual coaching, curated self-help resources, upskilling, and job matching. Furthermore, we’re delighted that Right Management was named a Global Leader and Star Performer in Everest Group’s recent Outplacement and Career Transition Services PEAK Matrix Assessment, scoring highly for investments in internal transitions and redeployment offerings and the creation of a strategic roadmap for the digital delivery of its services.

This year, 2023, we celebrate our 75th anniversary, and throughout our history we have been at the forefront of innovation helping businesses and workers adapt to new technologies, economic shifts and social trends. We have never hesitated to move quickly to take advantage of new opportunities. Our experienced leadership team is poised to pivot to where growth lies, and our breadth of diversified solutions across geographic markets will continue to set us apart and help our clients and candidates win in the changing world of work. Our belief that meaningful and sustainable employment has the power to change the world remains central to all we do. In March, we were recognized as one of the World's Most Ethical Companies by Ethisphere for the 14th time, the only firm in the industry to be recognized for more than a decade for playing a critical role in driving positive change in societies and communities around the world. As always, we know that a key driver of our success is our great team that doubles down on our priorities and remains focused on the path forward, and I’d like to close by thanking our entire ManpowerGroup employee base for their efforts and contributions. Our DDI strategy and our purpose remain our north star, and being disciplined in our execution is how we will continue to strengthen our capabilities and lay the foundation to create long-term sustainable value for our shareholders. I would now like to open the line for Q&A.

Thank you. We will now begin the Q&A session. Our first question comes from Mark Marcon from Baird. Your line is now open.

Good morning Jonas and Jack. Two big questions. One, can you just describe the pace of change as the quarter unfolded, just to what extent was March worse than, say, February, particularly in the markets that ended up showing weakness, like the U.S. or the U.K.? That’s the first question.

Good morning Mark. Well, we saw U.S. catch up to the European declines we’ve seen really over the last five quarters quite quickly, frankly. The U.S. had the biggest step down during the quarter, followed closely by the U.K., and most of that quick step down came from our enterprise client segments, so larger businesses in the U.S. and the U.K. pulling back, and that’s what we saw evolve during the quarter. But maybe Jack, do you want to give a little bit more color on specifics?

Yes, sure, be happy to. Specifically on the U.S., we saw a gradual deterioration over the course of the quarter that was building through the end of the quarter, so I’d say if you look at that average rate for the quarter of minus-13, we ended the quarter slightly, slightly higher than that, and as I talked about the guide, we expect a similar trend into the second quarter. It might be a tad bit higher as we take that higher rate, so that was the U.S. I think the U.K. - you know, fairly constant throughout the quarter. I think the quarter started a little softer and that just carried through the entire way, so when you look at that average for the U.K. for the quarter, it was pretty even throughout the entire quarter. As we look forward for the U.K. for next quarter, we see it being really kind of stable to perhaps maybe just slightly up or down half a percent as we kind of look at that trend. I’d say maybe just on the third biggest market for us would be Italy, and Italy actually on the flipside strengthened over the course of the quarter. We saw Italy actually exit the quarter closer to flattish, which was good, and we take that into our second quarter forecast, where we think Italy will likely do a bit better than the trend from the first quarter.

Great, and then with regards to the U.S., obviously you mentioned Experis and the enterprise clients pulling back from what were really high comparison periods a year ago. How broad-based was that pull back in terms of the Experis business, either within the U.S. or even globally, and what are your expectations on a go-forward basis with regards to Experis in terms of how that could unfold over the second and potentially even third quarters?

Well as you mention, Mark, the pull back that we’re seeing in the U.S. comes after very high growth rates in the prior year period, and it is focused on enterprise clients. Our convenience business for Experis is holding up much better, and although seeing some declines, it’s substantially lower declines than what we’re seeing on the enterprise side, so we feel good about the business in Experis in the U.S. The other market that saw the same step down from an enterprise perspective was the U.K. Excluding those two markets, Experis showed good growth everywhere else globally, so we continue to feel extremely good about the opportunities for Experis as a brand going forward, because we see that clients, although pulling back from their very strong investments in technology around digital transformation, they still are going to be undergoing significant digital efforts, which is benefiting and will continue to benefit Experis going forward. What we’re seeing here in the U.S. in particular and, to a lesser degree also in the U.K., is really businesses pulling back from the very strong spending they had a year ago, but we feel good about the prospects of Experis and we feel very good about our convenience business as well, Mark.

Okay.

I want to provide a bit more context. Overall, Experis was down only 2% in gross profit dollars, as shown in the GP chart in the slides. While we did see some significant decreases in the U.S. and U.K., driven by enterprise factors, the global business is actually holding up well with only a modest decline overall. As Jonas mentioned, our convenience sector is performing strongly, including the ettain acquisition, which is also doing well. We're experiencing good growth in specific areas, particularly in financial services, so I wanted to add that context.

Great, if I could ask one last question about the overall guidance, the revenue and gross profit guidance align with our expectations, but the EBIT guidance is significantly lower. What is causing this drop in EBIT, given that gross profit is stable? Is it primarily due to SG&A deleveraging, or are there additional investments being made?

Thank you for that question, Mark. The context here is the deleveraging we've been experiencing. We are observing a decline in revenue on a constant currency basis as we move into the second quarter. On a positive note, our gross profit margin remains stable at 18% at the midpoint. However, selling, general and administrative expenses are decreasing, as mentioned in our prepared remarks. Organically, SG&A saw a 3% growth rate, down from 4% in the fourth quarter, and we expect this growth rate to continue to decrease in line with our guidance for the second quarter. It's important to note that this reduction is not uniform across all areas of our business. As evidenced by the gross profit dollar trends, various segments are still performing well, and we are continuing to invest. You can anticipate that gross profit dollars will decline in the second quarter compared to the first quarter trend due to revenue shifts, yet some areas are still witnessing robust investment opportunities. We highlighted Experis and certain business parts that are experiencing solid growth, particularly in financial services. We remain committed to investing in digitization and our technology platform, which we consider a strategic advantage. Our technology platform is leading globally, and our focus extends beyond just front office operations to include back office as well. This commitment translates to ongoing consistent investment in digitization. As a result, even though we expect the SG&A trend to improve in the second quarter, we are not implementing broad, drastic reductions, given that the market remains strong in specific segments.

Great, thank you.

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

Thank you so much. You’ve given us some color by geography and by client size. I’m wondering if we can get a little bit more color by industry vertical specifically in the U.K. and Europe.

As you heard in our prepared remarks, Jeff, we feel very good about our business in Latin America and Asia Pacific - they’re continuing to grow, and having just visited Asia as well as Latin America recently, our clients are still looking for talent. The labor markets are tight and the opportunities are plentiful. When it comes to Europe and the U.S., as you heard us talk about in our prepared remarks, Europe started to decline in the first quarter of 2022 and has really been on a path of modest decreases in demand overall, and that’s a continuation of a trend that we see now into the first as well as in our projections into the second quarter as well. The U.S. is the part of the geography that made the biggest step down, and as you’ve just heard us discuss, a lot of that comes from enterprise clients deciding that the economic outlook is uncertain. They are holding onto their workforces, which is why you see our perm numbers still looking very strong, and frankly, we’re having very good perm growth in the U.K., France, Italy, Japan, Spain, Nordics amongst others, but they are pulling back on contingent staffing demand because they are preparing for worsening economic times, so very similar to what we would expect and what we have seen in past economic slowdowns. That’s really the story. The U.S. caught up to Europe at a faster pace, which is also something we would expect as the U.S. is a much more dynamic labor market and tends to react quicker to shifts in the economic cycle.

Yes, and Jeff, I would just add.

I’m sorry. Please go ahead, Jeff.

No Jeff, since you specifically mentioned the U.K., I would just add from an industry vertical perspective, public sector is big in the U.K. - that’s about a third of the business. That’s holding up fairly well, but as you know, the U.K. is a big enterprise market. A lot of enterprise clients in the U.K., and that’s really the pressure we’re seeing. We talked about Experis - it is the second biggest Experis market, and that’s where the pressure has been, more on the Enterprise side and within the verticals probably a bit more on the technology side, in terms of technology enterprise clients. I would just add that.

That’s helpful, and can we get that kind of color in the U.S. and Europe as well? That was actually my question.

Yes, I’d say in the U.S., similar. I think we’re seeing the pressures on the enterprise side, as we’ve talked, and I’d say very similar story for Experis. I think on the technology enterprise clients, that’s where there’s more cautious behavior in terms of demand. I think as we looked across financial services, we’re seeing very strong trends, and that’s in both enterprise and convenience, and I’d say other verticals that are seeing strength would be, on the manufacturing side, food continues to be fairly stable. Auto - we’re not big in auto in the U.S. specifically, but auto across Europe and the large markets there - France, Germany, and the Nordics, is actually coming back, so we’re seeing improving trends in auto. Then I’d say more globally in terms of areas where we’re seeing more pressure, consistent with what we said last quarter, it’s going to be logistics, transportation, construction, and generally I’d say enterprise manufacturing that are not auto and not food related are generally seeing pressure, and that correlates to what Jonas talked about in terms of the PMI trends as well.

Okay, that’s really helpful. Thanks so much, Jeff.

Thank you. Our next question comes from Kartik Mehta from Northcoast Research. Your line is open.

Thank you. Good morning. Jack, as you indicated, you’ve done a good job in maintaining the gross margin, gross profit dollars especially. I’m thinking as we go forward and if the trends continue this way throughout the year, your ability to kind of maintain gross margin, and then just what you think might happen on the SG&A side as you think about if you need to right-size the business at all.

Thank you, Kartik. The positive news is that staffing margins have remained stable despite the decrease in demand, and this trend is ongoing. We discussed this extensively last quarter, and it's evident in the GP margin analysis, which shows we feel confident about this. You can also see it reflected in our guidance for Q2 regarding GP margin. Considering GP margin, one significant factor will be permanent placements, which, as Jonas mentioned, are still quite strong, although there are some variations in U.S. trends. In the U.S., we're simply comparing to exceptional growth previously, but overall, things are very good. Permanent placements remain robust in many of our European and Asian markets, and we anticipate this trend to persist. This strength is a result of our investments in permanent placements in those regions, which are currently yielding positive results. As we continue to compare to record levels from last year, it's expected that permanent placements will show some decline in year-over-year performance, yet they still play a considerable role in our overall GP calculations. Looking ahead, as we examine staffing margins, the mix of clients will be a key factor. We've noted increased pressure from enterprise clients, which means that the convenience segment is becoming a larger part of our overall strategy, positively impacting staffing margins. We'll need to keep a close watch on this. The encouraging news is, as Jonas pointed out, the overall labor market remains strong, which aids in talent acquisition and pricing, so we feel fairly optimistic about staffing margins, even as pressures continue to emerge.

And then on SG&A, Jack, could you share your thoughts? I know you've mentioned that it should continue to decelerate, and I'm curious about your outlook as you assess the business and consider any necessary adjustments.

Yes, absolutely. I believe our history and approach indicate that if we experience significant declines in gross profit dollars, we will undertake more substantial cost-cutting measures. In such cases, we aim to manage the recovery ratio, targeting to offset half of any gross profit dollar declines with reductions in selling, general and administrative expenses. That said, we still recorded a 1% growth in gross profit dollars during the first quarter, as noted in our gross profit chart. While we expect a slight decrease in Q2, the overall environment across various parts of the business remains fairly balanced, so we are not yet in a situation that requires widespread reductions in SG&A. However, if conditions change significantly, we will respond as we have in the past, taking necessary steps to protect our margins as much as possible. Our response will depend on how the situation develops. We are already making adjustments in areas that have experienced more significant declines, but in segments of the business that are performing well, we are still investing. Therefore, it’s about finding the right balance, and we will adjust our actions accordingly if broader changes occur.

And just one last question, Jonas - you know, you talked about meeting with clients in Europe, and I’m wondering your thoughts on France, considering some of the unrest that they have seen and how that might be impacting the business, if at all.

Well Kartik, the unrest in France and the debate around the pension reforms and all that, as you’ve seen, has actually had very little impact so far on our business in France. The strikes have an impact in that it makes it difficult for the workers to get to their assignments, but since there haven’t been broad-based long-term strikes but rather day interruptions, the business has been able to manage it very well, and the learnings that we had from the pandemic mean that many of our workers for some assignments are able to do their work remotely as well. The French team has managed a difficult environment in a very good way, and it was very encouraging to see as well that France is generally flattish in terms of its trend following a slightly softening market demand, as you’ve seen from other data points as well. The French team is doing a good job and we’ve not really seen a major impact on those strikes in the past, and we hope that the debate now with the decision to increase the pension reform is going to calm down the protests that we’ve seen and that France can continue on its path of reasonably good growth, although pressured on PMI, but we feel with very good reforms in place, then conducive to good growth in the future.

Thank you both, appreciate it.

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

Hi, thanks. Good morning. You mentioned the pull back in hiring and delayed hiring decisions in line with dynamics you’ve seen in past economic slowdowns. From a macro perspective, can you discuss how this pull back compares with past cycles and what macro assumptions in the U.S. and EU you’re embedding into your 2Q guide?

Hey George, we couldn’t hear you perfectly, but I think you’re asking how does this slowdown in demand and softening of the markets compare to prior cycles that we’ve experienced in our now 75-year history. Is that correct?

Yes, that's right.

It's a great question. When we consider past slowdowns and recessions, such as the Great Financial Recession and those linked to the pandemic, we see they were quite severe. While we can't predict the exact nature of the current economic cycle, examining historical data suggests that we may be facing a typical recession. By this, I mean a mild economic downturn. Employers, aware of the tight labor market, are more likely to retain their employees than in the last two major recessions. They are cautious with their hiring, postponing decisions while anticipating a brief and minor slowdown. This strategy would allow them to efficiently respond to demand once growth resumes. This perspective aligns with our approach, which is why Jack is highlighting our stance on SG&A. We are deliberate about our own hiring and are prioritizing productivity while continuing to invest in potential growth areas, such as perm, Experis, and Talent Solutions. We aim to be well-positioned for future growth as the market recovers. However, we are exercising caution due to increasing economic uncertainty and the impact of reduced demand we are witnessing. I hope this provides some clarity on how we view the current environment in relation to previous economic cycles.

Yes, that’s very helpful. Thank you. On the margin front, down 100 BPs year-over-year in the second quarter. Which specific areas of the business are you scaling back spending and which areas are you maintaining or increasing levels?

George, I can talk to that. I think on the EBITDA down 100 basis points, maybe a little context for that is the other point to remember, is we had dramatic growth a year ago in EBITDA margin from Q1 to Q2, so we went up 70 basis points from Q1 to Q2. Q2 actually was our high watermark in EBITDA margin on an overall basis at 3.8% last year, so we’re anniversarying that as part of this, and we have the opposite impact from a year ago where the environment was improving and we were getting better operational leverage, and we have the opposite now where it’s declining in certain markets that we’ve talked about, offset by strength in others, but a different dynamic on an overall basis, which is why the EBITDA margin is coming off to the degree that we’re forecasting. In terms of where we’re taking actions on an overall basis, I’d say our FTE continues to go down. FTE from year end to the end of the first quarter, our headcount is down about 2%. We did talk about in the fourth quarter, about the fact that we took headcount down sequentially from the third quarter. We continued that again to a greater degree, and you should expect that trend to continue based on the actions we’ve taken. If we look at our biggest markets where we’re taking FTEs down based on the environment and the parts of the business that aren’t seeing the correlated demand, that’s going to be the U.S., that’s going to be the U.K., it’s going to be various other markets in Europe, and as you would expect in this environment of negative revenues, you should expect that in the global functions and the corporate parts of the business, we have hiring freezes going on, we’re pulling back in discretionary spend. Those are the actions we’re taking, and as I mentioned, if the environment continues to decrease further, then you should expect we’ll take further actions as well.

Very helpful, thank you.

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

Hi, good morning, how are you? This is actually Ronan Kennedy on for Manav. Thanks for taking my questions. If I may follow up to the insight provided in response to George’s question with the macro and a potential garden variety recession, last quarter you used a very helpful analogy of saying companies were beginning to tap the brakes, others had their foot hovering above the brake pedal. How would you categorize that now, and then also as a follow-up to the assessment of it being garden variety, how do you think the quarters will progress? Will there be continual gradual declines, and do you have any thoughts as to when things could potentially turn around? Then lastly, in this weakened environment, how are industry competitive dynamics? Is it more intensely competitive, pricing pressures, etc.

I'm pleased you appreciated our previous analogy. I would say that more companies are being cautious, and newer companies are being particularly careful. However, we haven't observed this to the extent seen in past economic slowdowns. Outside of the U.S., many companies are adopting a more guarded approach based on their forecasts, yet demand persists. There remains a strong need for skilled talent, and hiring continues due to tight labor markets, which keeps the environment favorable for opportunities. Our focus is on ensuring we have the resources needed. As Jack mentioned, we're considering our SG&A from a defensive angle in areas that won’t affect the business while still pursuing opportunities. Simultaneously, we're bringing on more recruiters and salespeople to maintain our market position. This reflects our overall perspective. Regarding the quarter's progression, I'll turn that over to Jack, but generally, we are taking a cautious approach as we anticipate a slight further slowdown based on what we've observed early in the second quarter. Jack, would you like to elaborate?

Yes, I would just like to briefly mention that we are seeing a slight decrease in constant currency revenues as we move into the second quarter. If we look back another quarter, we can observe a change from a decrease of 2.5% to an increase of 4% on an organic ADR basis. These shifts are relatively moderate concerning revenue changes, reflecting the current environment. Some aspects are experiencing more significant changes than others, particularly on the enterprise side, while other areas are performing well. Our European businesses are generally doing quite well, especially in Italy, despite a modest revenue decline in the quarter. Based on our current observations, we expect this trend of a lighter decrease to persist.

Thank you. May I confirm the competitive dynamics within the industry, and any particular insights by brand in kind of a weaker macro environment?

Generally, the competitive dynamics remain competitive but rational. The demand for talent that companies are hiring is strong, and labor markets are tight, resulting in a healthy pricing environment. We are experiencing good pay bill spreads, and while there is some softening in certain skill sets, this is still within the context of a tight labor market with many open jobs in the U.S., Europe, and globally. This is reflected in the Manpower Group Employer Outlook Survey for the second quarter, which shows that employers are still focused on hiring talent. Therefore, we believe the environment is solid, and while the competitive landscape is always challenging, it remains rational as well.

Thank you very much. As a quick follow-up, can you discuss working capital management, capital allocation, and business reviews like Proservia in this weakened environment? As we progress through the cycle, how should we consider these aspects?

I’ll let Jack talk about the capital allocation. You mentioned Proservia - on this note, you’ve seen in our prepared remarks, we’re pleased to see that our German business is making progress in a number of our brands, but we are working on solving our Proservia business as well, and that’s really where we’re focused. We still have some work to do in Germany to perform the way we would like, and in particular in Proservia, and that’s where our focus is right now. But Jack, maybe you’d like to go onto the capital allocation question?

Yes, and I’ll be brief - I know we have a couple of other callers that are trying to get in before we end the call. Capital allocation is fairly straightforward, Ronan. I’d say it continues, no change in strategy. You saw us do the share repurchases during the course of the quarter. Remember we are opportunistic, so you’ll see us do higher volumes when we perceive there to be very good value, and we’ll continue along those lines. The dividend continues to be our top priority and a progressive dividend is our strategy in a decent environment. We would consider this an environment where we would have a progressive dividend. Then in terms of M&A and so forth, really no change. I think as we said, we prefer organic growth, but as we’ve shown in the past, there is room for strategic M&A particularly in the higher margin parts of our business, and you saw us do that with the ettain acquisition back at the end of ’21, so continue to keep our eyes open and that’s really what I’d say on capital allocation. Thanks.

Thank you very much, appreciate it.

Thank you. Our last question comes from Tobey Sommer of Truist Securities. Your line is now open.

Hey, good morning. This is Jasper Bib on for Tobey. Just one question from me, because I know we’re short on time. On the tax rate, the first half looks a little bit higher than the prior full-year expectation at 29%. I know in some of your markets, the tax rate actually might go higher when your OUP margins are under pressure, so should we be modeling a slightly higher tax rate in the second half of the year than previously expected?

Yes, thanks Jasper for that question. No, I would say the guidance for the second quarter is 30%, which is a tad higher than the full year guidance, and we came in a little bit better in the first quarter than we anticipated. I would say you’re exactly right - one of the components of the tax rate is the country mix, and with the volatility we’ve been seeing, that’s added a little bit more volatility to the rate and the forecast for the rate. But with all that being said, we still feel pretty good about the 29% for the full year, so although Q2 is a little bit higher, there’s some timing considerations and things like that, I would continue to use 29% for the back half of the year.

Okay, that brings us to the end of our first quarter earnings call. Thanks everyone for your participation, and we look forward to speaking with you again when we announce our second quarter earnings. Thanks everyone. Have a good rest of the week.

Thank you, and that concludes today’s conference. Thank you for participating. You may now disconnect.