Q4 2023 ManpowerGroup Inc Earnings Call
Yeah.
Welcome to manpower group fourth quarter 2023 earnings call you will be put into listen only mode until the question and answer time begins this call is being recorded if you care to Dropbox now please do so I would like now.
Turn the conference over to manpower group, Chairman and CEO, Mr. Jonas Prising, Sir you may begin.
Jonas Prising: Welcome and thank you for joining us for our fourth quarter 2023 conference call.
Jonas Prising: <unk> Financial Officer, Jack Mcginnis is with me today.
Jonas Prising: For your convenience we have included our prepared remarks within the Investor Relations section of our website at manpower.
Jonas Prising: I will start by going through some of the highlights of the quarter on the full year.
John T. McGinnis: Jack will go through the fourth quarter results and guidance for the first quarter of 2024.
John T. McGinnis: I will then share some concluding thoughts before we start our Q&A session. Jack will now cover the Safe Harbor language.
John T. McGinnis: Good morning, everyone. This conference call includes forward looking statements, including statements concerning economic and geopolitical uncertainty, which are subject to known and unknown risks and uncertainties. These statements are based on management's current expectations or beliefs actual results might differ materially from those projected in the forward looking statements, but assume no obligation to update or revise any forward looking.
John T. McGinnis: Statements.
Two of our earnings release presentation further identify as forward looking statements made in this call and factors that may cause our actual results to differ materially information regarding reconciliation of non-GAAP measures.
Speaker Change: Thank you Jack.
Speaker Change: Weeks ago I attended the World Economic Forum annual meeting and doubles, Switzerland.
Speaker Change: Things from the meeting centered on the uncertain outlook for 2024 caused by increasing geopolitical tensions and slowing economic growth in many parts of the world at the same time.
Speaker Change: <unk> was a major discussion topic with many believing we are entering a new era of accelerated digital transformation with developments in AI holding the promise of accelerating productivity and growth.
Speaker Change: Most organizations are just at the beginning of their AI journey, we are committed to responsible adoption of AI throughout their enterprise.
Speaker Change: Yet they know they need data quality and infrastructure, along with the skilled workforce to truly maximize its impact.
Speaker Change: One recent data finds 58% of employers believe AI will have a positive impact on their organizations head count in the next two years.
Speaker Change: And more than 70% site training staff, finding qualified talent and redefining roles as the top challenges to fully leverage the technology we have.
Speaker Change: We're committed to being a partner of choice for companies and people.
Speaker Change: Navigate the significant transformation with a digital transition will require a skills transition at speed and scale.
Speaker Change: Looking at our real time data and research and following discussions with our teams around the world during our annual strategic road shows it is clear the outlook, we have been predicting and tracking for the last few quarters continues to play out.
Speaker Change: Employers, particularly in large enterprise organizations remain cautious pausing on noncritical investments and postponing projects until more clarity on the outlook emerges.
Speaker Change: Our industry is always the first to feel the impact of economic softening and this cycle is no different.
Speaker Change: As we have seen employers reduced our temporary and permanent hiring while lowering their project spend appetite.
Speaker Change: This is most noticeable in Europe and in North America, and we haven't seen any inflection point yet of improving demand for our services and solutions in those regions.
Speaker Change: It is important to note that at the same time, we have seen signs of stabilization of activity at lower levels in certain markets and offerings.
Speaker Change: We have taken significant cost reduction actions to adjust our resources to the current environment in many markets, while maintaining the talent, we need to take advantage of the market turnaround when it happens.
Operator: Welcome to Manpower Group's fourth quarter 2023 earnings call. You will be put into listen-only mode until the question and answer time begins.
Speaker Change: Our confidence in our ability to navigate this kind of environment and ensure that we are well positioned for profitable growth when demand improves.
Operator: This call is being recorded. If you care to drop off now, please do so. I would like now to turn the conference over to Manpower Group Chairman and CEO, Mr. Jonas. Sir, you may begin. Welcome and thank you for joining us for our fourth quarter 2023 conference call. Our Chief Financial Officer, Jack McGinnis, is with me today.
Speaker Change: Turning to our financial results for the fourth quarter revenue was $4 6 billion.
Speaker Change: Down 5% year over year in constant currency.
Speaker Change: Reported EBITA for the quarter was $24 million adjusting for restructuring costs noncash impairment charges and other special items, which we'll cover in the financial review EBITA was $160 million, representing a decrease of 30% in constant currency year over year.
Jonas Prising: For your convenience, we have included our prepared remarks in the investor relations section of our website at manpowergroup.com. I will start by going through some of the highlights of the quarter and the full year. Jack will then go through the fourth quarter results and guidance for the first quarter of 2020. I will then share some concluding thoughts before we start our Q&A. Jack will now cover the safe harbor line. Good morning, everyone.
Speaker Change: Reported EBITA margin was 0.5% and adjusted EBITA margin was two 5% losses per diluted share was $1 73.
On a reported basis, while earnings per diluted share was $1 45 on an adjusted basis.
Speaker Change: Adjusted earnings per share decreased 30% year over year in constant currency in the fourth quarter staffing gross profit margins remained resilient in a challenging environment from a geographic perspective, we saw the continuation of a challenging environment in North America and Europe during the quarter our demand for our services.
This conference call includes forward-looking statements, including statements concerning economic and geopolitical uncertainty, which are subject to known and unknown risks and uncertainties. Such statements are based on management's current expectations or beliefs. Actual results might differ materially from those projected in the forward-looking statement. I assume no obligation to update or revise any forward-looking statement. 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 from information regarding reconciliation of non-GAAP. Thank you, guys.
Speaker Change: And Latam and <unk> remained solid.
Speaker Change: Turning to the full year results for a few moments reported earnings per share for the year was $1 76.
Speaker Change: As adjusted earnings per share was $6 <unk> and represented a constant currency decrease of 28%.
Jonas Prising: Two weeks ago, I attended the World Economic Forum Annual Meeting in Davos, Switzerland. The themes from the meeting centered on the uncertain outlook for 2024 caused by increasing geopolitical tensions and slowing economic growth in many parts of the world. At the same time, AI was a major discussion topic, with many believing we are entering a new era of accelerated digital transformation, with developments in AI holding the promise of accelerating productivity and growth. However, most organizations are just at the beginning of their AI journey.
Speaker Change: Revenues for the year decreased 4% in constant currency to $18 9 billion and reported EBITA was $346 million.
Speaker Change: Adjusted EBITDA was 497 million, which represented a 27% constant currency decrease year over year.
Speaker Change: Although no one can predict when conditions will improve.
Speaker Change: Certain that are skilled and agile workforce remains at the heart of an organization's ability to adapt and grow as they execute their business strategy.
Jonas Prising: They are committed to the responsible adoption of AI throughout their enterprise, yet they know they need data quality and infrastructure along with a skilled workforce to truly maximize its impact. Our own recent data finds 58% of employers believe AI will have a positive impact on their organization's headcount in the next two years. And more than 70% cite training staff, finding qualified talent, and redefining roles as the top challenges to fully leverage the technology.
Speaker Change: Companies also remember the difficulties they experienced trying to hire post pandemic.
Speaker Change: They know they are not immune to demographic challenges presented by aging populations and persistent talent shortages.
Speaker Change: <unk> focused on helping them overcome these obstacles by finding the best talent in the market today and into the future.
Speaker Change: I will now turn it over to Jack to take you through the results in more detail. Thanks.
Jonas Prising: We are committed to being a partner of choice for companies and people to navigate the significant transformation where the digital transition will require a skills transition at speed. Based on our real-time data and research, and following discussions with our teams around the world during our annual Strategic Roadshow, it is clear the outlook we have been predicting and tracking for the last few quarters continues to play out. Employers, particularly in large enterprise organizations, remain cautious, pausing on non-critical investments and postponing projects until more clarity on the outlook emerges. Our industry is always the first to feel the impact of economic softening, and this cycle is no different. As we have seen, employers are reducing their temporary and permanent hiring while lowering their project spend. This is most noticeable in Europe and in North America.
John T. McGinnis: Thanks Jonas.
John T. McGinnis: Going back to the quarterly results on slide three revenues in the fourth quarter came in slightly above the midpoint of our constant currency guidance range gross profit margin came in at the high end of our guidance range.
John T. McGinnis: As adjusted EBITDA was $116 million, representing a 30% decrease in constant currency compared to the prior year period.
John T. McGinnis: As adjusted EBITDA margin was two 5% and came in at the high end of our guidance range, representing a 100 basis points declined year over year.
John T. McGinnis: During the quarter year over year foreign currency movements had an impact on our results.
Currency translation drove a 1% favorable impact to the U S dollar reported revenue trend compared to the constant currency decrease of 5%.
Organic days adjusted constant currency revenue also decreased 5% in the quarter.
Turning to the EPS bridge on slide five.
John T. McGinnis: <unk> losses per share was $1 73, which included $3 18 related to restructuring costs are noncash goodwill impairment charge and other items exclude.
Jonas Prising: We haven't seen any inflection point yet of improving demand for our services and solutions in those regions. However, it is important to note that, at the same time, we have seen signs of stabilization of activity at lower levels in certain markets and options. We have taken significant cost-reduction actions to adjust our resources to the current environment in many markets while maintaining the talent we need to take advantage of the market's turnaround when it happens. We are confident in our ability to navigate this kind of environment and ensure that we are well positioned for profitable growth when it is demanded. Turning to our financial results, in the fourth quarter, revenue was $4.6 billion, down 5% year-over-year in constant currency. The reported EBITDA for the quarter was $24 million.
John T. McGinnis: Excluding these costs adjusted EPS was $1 45.
John T. McGinnis: Walking from our guidance midpoint, our results included a stronger operational performance with 10.
John T. McGinnis: Slightly lower weighted average shares due to share repurchases in the quarter, which had a positive impact of <unk>, our foreign currency impact that was <unk> <unk> better than our guidance due to the strengthening of the euro and the pound during the quarter and other expenses had a positive <unk> 11 impact.
Speaker Change: Next let's review our revenue by business line.
Speaker Change: Year over year on an organic constant currency basis, the manpower brand declined by 3% in the quarter experienced brand declined by 11% and a talent solutions brand had a revenue decline of 14%.
Speaker Change: Within talent solutions, our <unk> business experienced a year over year revenue decline in line with the trend from the third quarter.
Jonas Prising: Adjusting for restructuring costs, non-cash impairment charges, and other special items, which we will cover in the financial review, EBITDA was $116 million, representing a decrease of 30% in constant currency year-over-year. The reported EBITDA margin was 0.5%, and the adjusted EBITDA margin was 2.5%. Losses per diluted share were $1.73 cents on a reported basis, while earnings per diluted share was $1.45 cent Adjusted earnings per share decreased 30% year-over-year.
Speaker Change: <unk> business also experienced revenue declines in the quarter as we continued to reduce certain lower margin activity, while right management experienced year over year revenue growth on higher outplacement volumes in the quarter.
Speaker Change: Looking at our gross profit margin in detail our gross margin came in at 17, 5% for the quarter staffing margin contributed 10 basis point reduction due to mix shifts as margins remained strong.
Speaker Change: Permanent recruitment, including talent solutions, our Po contributed 60 basis point GP margin reduction as permanent hiring activity in the fourth quarter remained stable at lower levels consistent with the third quarter trends.
Jonas Prising: In the fourth quarter, staff and gross profit margins remained resilient in a challenging environment. From a geographic perspective, we saw the continuation of a challenging environment in North America and Europe during the quarter, while demand for our services in LATAM and APME remained solid. Turning to the full year results for a few moments, reported earnings per share for the year were $1.76.
Right management career transition within talent solutions contributed 20 basis points of improvement as outplacement activity continued to be solid in the fourth quarter.
Speaker Change: Other items resulted in 20 basis point margin decrease.
Moving on to our gross profit by business line.
Speaker Change: During the quarter the manpower brand comprised 60% of gross profit our experienced professional business comprised 24% and talent solutions comprised 16%.
Jonas Prising: As adjusted, earnings per share was $6.04 and represented a constant currency decrease of 28%. Revenues for the year decreased 4% in constant currency to $18.9 billion, and reported EBITDA was $346 million. As adjusted, EBITDA was $497 million, which represented a 27% constant currency decrease year-over-year.
Speaker Change: During the quarter, our consolidated gross profit decreased by 8% on an organic constant currency basis year over year, representing a slight improvement from the 9% decline.
Speaker Change: In the third quarter our.
Speaker Change: Our manpower brand reported an organic gross profit decrease of 4% in constant currency year over year, representing a slight improvement from the 5% decline in the third quarter.
Speaker Change: Gross profit in our experienced brand decreased 15% and organic constant currency year over year, representing a slight additional decline from the 14% decrease in the third quarter driven by Continental Europe grew.
Jonas Prising: Be certain that a skilled and agile workforce remains at the heart of an organization's ability to adapt and grow as it executes its business strategy. Companies also remember the difficulties they experienced trying to hire post-pandemic, and they know they are not immune to demographic challenges presented by aging populations and persistent talent. We are focused on helping them overcome these obstacles by finding the best talent in the market today and into the future. I will now turn it over to Jack to take you through the results in more detail. Thanks, Jonas.
Speaker Change: Profit and talent solutions decreased 14% and organic constant currency year over year, representing a slight improvement from the 15% decline in the third quarter.
Year over year decreases in <unk>, and MSP were partially offset by REIT management and increased outplacement activity.
Speaker Change: Part of the SG&A expense in the quarter was $850 million.
Speaker Change: Excluding restructuring costs goodwill impairment and other items SG&A was 4% lower year over year on a constant currency basis, representing sequential improvement from the 2% decline in the third quarter on the same basis.
This reflects additional cost actions, resulting in further organic head count reduction of 3% in the quarter and a year over year organic reduction at year end of 9%.
Going back to the quarterly results on slide three, revenues in the fourth quarter came in slightly above the midpoint of our concert currency guidance, and profit margin came in at the high end of our guidance. As adjusted, EBITDA was $116 million, representing a 30% decrease in constant currency compared to the prior year period. As adjusted, EBITDA margin was 2.5% and came in at the high end of our guidance, 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 1% favorable impact on the U.S. dollar reported revenue trend compared to the constant currency decrease of 5%. Organic days adjusted constant currency revenue also decreased 5% in the. Turning to the EPS bridge on slide 5, reported losses per share were $1.73, which included $3.18 related to restructuring costs, a non-cash goodwill impairment charge, and other items. Excluding these costs, adjusted EPS was $1.45.
At the same time, our corporate expense reflects our progression of the next phase of our Digitization strategy focused on back office functions.
These strategic investments are expected to drive medium 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 SG&A decreases largely consisted of operational cost was $24 million offset by currency changes of 11 million.
Speaker Change: Adjusted SG&A expenses as a percentage of revenue represented 15, 2% in constant currency in the fourth quarter.
Speaker Change: Restructuring cost and other items totaled $92 million with the largest component related to the wind down of our <unk> business in Germany.
Speaker Change: The goodwill impairment relates to our Netherlands business, which experienced further market declines in recent quarters.
Speaker Change: The Americas segment comprised 23% of consolidated revenue revenue in the quarter was $1 1 billion, representing a decrease of 4% compared to the prior year period on a constant currency basis.
Blocking from our guidance midpoint, our results included a stronger operational performance of 10 cents, slightly lower weighted average shares due to share purchases in the quarter, which had a positive impact of one cent, a foreign currency impact that was one cent better than our guidance due to the strengthening of the euro in the pound during the quarter, and other expenses had a positive 11 cent impact. 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 Experience brand declined by 11%, and the Talent Solutions brand had a revenue decline of 14%. With InTown Solutions, our RPO business experienced a year-over-year revenue decline in line with the trend from the third quarter.
Speaker Change: Adjusted <unk> was $40 million and OUP margin was three 7%.
Speaker Change: The U S is the largest country in the Americas segment, comprising 65% of segment revenues.
Speaker Change: Revenue in the U S was $702 million during the quarter, representing a 14% days adjusted decrease compared to the prior year.
Speaker Change: As adjusted to exclude restructuring costs OUP for our U S business was $21 million in the quarter, representing a decrease of 54%.
Speaker Change: As adjusted OUP margin was 3%.
Speaker Change: Within the U S demand power brand comprised 25% of gross profit during the quarter revenue for the manpower brand in the U S decreased 16% on a days adjusted basis during the quarter, which was a stable trend from the 16% decrease in the third quarter on the same basis. The experience brand in the U S comprised 45% of gross profit in the <unk>.
Our MSP business also experienced revenue declines in the quarter as we continue to reduce certain lower-margin activity, while right management experienced 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. Staffing margin contributed a 10 basis point reduction due to mixed shifts as margins remained strong. Permanent recruitment, including Talent Solutions RPO, contributed a 60 basis point GP margin reduction as permanent hiring activity in the fourth quarter remains stable at lower levels, consistent with the third quarter trend. Wright Management's Career Transition within Town Solutions contributed 20 basis points of improvement.
Speaker Change: Order with an experienced in the U S. It skills comprised approximately 90% of revenues on.
Speaker Change: On a days adjusted basis experienced U S revenue decreased 13% during the quarter, a slight improvement from the 15% decline on the same basis in the third quarter.
Speaker Change: Talent solutions in the U S contributed 30% of gross profit and experienced revenue decline of 14% in the quarter. This was an improvement from the 18% decline in the third quarter.
Speaker Change: Our apio revenue declines in the U S reflect ongoing lower levels of permanent hiring programs in the fourth quarter.
U S. MSP business saw revenue declines, we continued to reduce some lower margin activity, while outplacement activity within our right management business drove strong revenue increases.
Its outplacement activity continued to be solid in the fourth quarter, but other items resulted in a 20 basis point margin decrease. Moving on to our gross profit by business line, during the quarter, the Manpower brand contributed 60% of gross profit.
Speaker Change: In the U S. Our <unk> MSP experienced an improved sequential rate of decline.
Right management in the U S experienced a stable level of revenues sequentially from the third quarter.
Our experienced professional business comprised 24%, and talent solutions comprised 16%. During the quarter, our consolidated gross profit decreased by 8% on an organic constant currency basis year-over-year, representing a slight improvement from the 9% decline in the third quarter. Our Manpower brand reported an organic gross profit decrease of 4% in constant currency year over year, representing a slight improvement from the 5% decline in the third quarter. Gross profit in our Xperia brand decreased 15% in constant currency year over year, representing a slight additional decline from the 14% decrease in the third quarter, driven by continental Europe.
In the first quarter of 2024, we expect a smaller year over year revenue decline for our U S business overall as compared to the fourth quarter decline in the U S. As we begin to anniversary the more significant pullback in demand in the year ago period.
Speaker Change: Southern Europe revenue comprised 46% of consolidated revenue in the quarter revenue in Southern Europe was $2 1 billion, representing a 4% decrease in constant currency as.
As adjusted OUP for our southern Europe business was $94 million in the quarter and OUP margin was four 5%.
Speaker Change: France revenue comprised 57% of the southern Europe segment in the quarter and decreased 4% and days adjusted constant currency as adjusted OUP for our France business was $48 million in the quarter, representing a decrease of 24% as adjusted OUP margin was three 9%.
Speaker Change: The business in France experienced an additional softening of revenues during the fourth quarter.
Activity to date in January 2024 indicates a slight further decrease.
Gross profit and talent solutions decreased 14% in organic constant currency year-over-year, representing a slight improvement from the 15% decline in the third quarter. The year-over-year decreases in RPO and MSP were partially offset by right management and increased outplacement equity. The reported SG&A expense in the quarter was $850 million.
We are estimating the year over year constant currency revenue trend in the first quarter for France to be down slightly from the fourth quarter trend based on January activity trends.
Speaker Change: Revenue in Italy, equaled $415 million in the quarter, reflecting a decrease of 3% on a days adjusted constant currency basis.
Speaker Change: As adjusted OUP equaled $32 million and OUP margin was seven 8%.
Speaker Change: We estimate that Italy will also have a slightly lower constant currency year over year revenue trend in the first quarter compared to the fourth quarter.
Excluding restructuring costs, goodwill impairment, and other items, SG&A was 4% lower year-over-year on a constant currency basis, representing a sequential improvement from the 2% decline in the third quarter on this same basis. This reflects additional cost actions resulting in further organic headcount reduction of 3% in the quarter and a year-over-year organic reduction of 9% at year-end. At the same time, our corporate expense reflects the progression of the next phase of our digitization strategy, focused on back-office functions. These strategic investments are expected to drive medium 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 SG&A decrease is largely composed of operational costs of $24 million offset by currency changes of $11 million.
Speaker Change: Our northern Europe segment COVID-19% of consolidated revenue in the quarter.
Speaker Change: Revenue of $914 million represented a 10% decline in constant currency.
Speaker Change: After excluding restructuring costs and the goodwill impairment of our Netherlands business, adjusted OUP was $4 million and OUP margin was 0.4%.
Speaker Change: The largest component of our restructuring charges in the region are driven by Germany, which I will discuss on the next slide.
Speaker Change: Our largest market in northern Europe segment is the UK, which represented 35% of segment revenues in the quarter.
During the quarter UK revenues decreased 13% on a days adjusted constant currency basis.
Speaker Change: This reflects a slight improvement from the rate of decline from the third quarter, we expect a similar year over year revenue trend in the first quarter compared to the fourth quarter.
In Germany revenues increased 4% and days adjusted constant currency in the quarter driven by our manpower business. The previously announced wind down of our <unk> managed services business in Germany is largely complete having substantially agreed terms with applicable workers counsels and impacted client during the second half of 2020.
Adjusted SG&A expenses as a percentage of revenue represented 15.2% in constant currency in the fourth quarter. Restructuring costs and other items totaled $92 million, with the largest component related to the wind-down of our proservative business in Germany. Goodwill and impairment relates to our Netherlands business, which experienced further market declines in recent quarters. The Americas segment comprised 23% of consolidated revenue.
Right.
Speaker Change: The restructuring costs recorded in the quarter largely concludes the wind down related one off costs for our <unk> business.
Speaker Change: We have some final client transition activity running off in the first half of 2024, which will generate operating losses, which we will carve out separately for this discontinued business, which I will discuss in our guidance.
Speaker Change: The wind down of our <unk> business removes a significant drag on our Germany operations and represents a significant step in strengthening the business for the future.
Revenue in the quarter was $1.1 billion, representing a decrease of 4% compared to the prior year period on a constant currency basis. As adjusted, OUP was $40 million, and OUP margin was $3.7 billion. The U.S. is the largest country in the Americas segment, comprising 65% of segment revenue. Revenue in the U.S. was $702 million during the quarter, representing a 14% days-adjusted decrease compared to the prior year. As adjusted to exclude restructuring costs, OUP for our U.S. business was $21 million in the quarter, representing a decrease of 54 percent.
Speaker Change: In the first quarter, we are expecting a year over year revenue decline as certain automotive clients experienced isolated supply chain related production slowdowns.
Speaker Change: In the Netherlands revenue decreased 8% on a days adjusted constant currency basis, and this represented a further rate of decline from the third quarter on the same basis.
Speaker Change: As previously referenced based on the deteriorating market conditions in the Netherlands in recent quarters, we updated our goodwill impairment assessment at year end and recorded a noncash impairment charge of $55 million.
Speaker Change: We continue to monitor our Netherlands business closely and are taking various actions to improve profitability.
Speaker Change: The Asia Pacific Middle East segment comprises 12% of total company revenue in.
Speaker Change: In the quarter revenue was down 1% and organic constant currency to $552 million.
As adjusted, OUP margin was 3%. 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 16% on a days-adjusted basis during the quarter, which was a stable trend from a 16% decrease in the third quarter on the same basis. The experience brand in the U.S. comprised 45% of gross profit during the
Speaker Change: <unk> was $22 million OUP margin was three 9% flat year over year.
Speaker Change: The largest market in the <unk> segment is Japan, which represented 51% of segment revenues in the quarter.
Speaker Change: Revenue in Japan grew 10% in constant currency or 8% on a days adjusted basis.
Speaker Change: We remain very pleased with the consistent performance of our Japan business and we expect continued strong revenue growth in the first quarter.
I'll now turn to cash flow and balance sheet and.
Speaker Change: And full year 2023, free cash flow equaled $270 million compared to $348 million in prior year.
With inexperience in the U.S., IT skills comprise approximately 90% of revenue. On a days-adjusted basis, experienced U.S. revenue decreased 13% during the quarter, a slight improvement from the 15% decline on the same basis in the third quarter. Town Solutions in the U.S. contributed 30% of gross profit and experienced a revenue decline of 14% in the quarter.
In the fourth quarter free cash flow represented $91 million compared to $115 million in the prior year.
Speaker Change: At year end days sales outstanding decreased by the Dana five to 54 days.
Speaker Change: During the fourth quarter capital expenditures represented $23 million.
Speaker Change: During the fourth quarter, we repurchased 695000 shares of stock for $50 million.
Speaker Change: As of December 31, we have $4 6 million shares remaining for purchase under the share program approved in August of 2023.
This was an improvement from the 18% decline in the third quarter. RPO revenue declines in the U.S. reflect ongoing lower levels of permanent hiring programs in the fourth quarter. The U.S. MSP business saw revenue declines as we continue to reduce some lower margin activity, while outplacement activity within our right management business drove strong revenue increases. In the U.S., RPO and MST experienced an improved sequential rate of decline. Right management in the U.S. experienced a stable level of revenues sequentially from the third quarter. In the first quarter of 2024, we expect a smaller year-over-year revenue decline for our U.S. business overall as compared to the fourth quarter decline in the U.S. as we begin to anniversary the more significant pullback in demand in the year-ago period.
Speaker Change: Our balance sheet ended the year with cash of $581 million and total debt of $1 billion net.
Speaker Change: Net debt equaled $421 million at year end, our debt ratios at year end reflect total gross debt to trailing 12 months adjusted EBITDA of $1 83, and total debt to total capitalization at 31%.
Speaker Change: Our debt and credit facilities remained unchanged during the quarter.
Speaker Change: Next I'll review our outlook for the first quarter of 2024.
Based on trends in the fourth quarter and January activity to date, our forecast is cautious and anticipates that the first quarter will continue to be challenging with further declines in our businesses in Europe, which include expected lower seasonal bench utilization in the first quarter in certain markets such as the Nordics.
Our forecast for Q1 also anticipates ongoing low levels of permanent recruitment activity.
Speaker Change: It is also important to note that there is typically a meaningful seasonal sequential decrease in earnings from the fourth quarter to the first quarter.
Speaker Change: With that said, we are forecasting earnings per share for the first quarter to be in the range of 88 to 98.
Southern Europe revenue comprised 46% of consolidated revenue in the quarter. Revenue in Southern Europe was $2.1 billion, representing a 4% decrease in constant currency. As adjusted, OUP for our Southern Europe business was 94 million in the quarter, and OUP margin was 4.5%. France revenue comprised 57% of the Southern Europe segment in the quarter and decreased 4% in days adjusted constant current.
Speaker Change: This excludes a forecasted unfavorable impact of 14th.
Speaker Change: Relates to the run off of the discontinued <unk>, Germany business, which will cease activity after the second quarter.
Speaker Change: The guidance range also includes an unfavorable foreign currency impact of <unk> <unk> per share and our foreign currency translation rate estimates are disclosed at the bottom of the guidance slide.
Our constant currency revenue guidance range is between a decrease of 4% and 8% and.
Speaker Change: And at the midpoint represents a 6% decrease.
Speaker Change: The impact of net dispositions and less working days contributes to an organic days adjusted constant currency revenue trend of about a 5% decrease at the midpoint.
As adjusted, OUP for our France business was $48 million in the quarter, representing a decrease of 24%. As adjusted, OUP's margin was 3.9%. Business in France experienced an additional softening of revenues during the fourth quarter, and activity to date in January 2024 indicates a slight further. We are estimating the year-over-year constant currency revenue trend in the first quarter for France to be down slightly from the fourth quarter trend based on January activity. Revenue in Italy equaled $415 million in the quarter, reflecting a decrease of 3% on a days-adjusted constant-currency basis.
Speaker Change: This represents a similar rate of decrease from the fourth quarter trend on the same basis.
Speaker Change: Excluding the discontinued pro Serbia runoff business impact on the first quarter of 2020 for EBIT margin is projected to be down 100 basis points at the midpoint.
Speaker Change: We estimate that the effective tax rate for the first quarter will be 31%, which reflects the mix effect of lower earnings from lower tax geographies and the current environment with some expected offsetting tax items.
Speaker Change: We expect the full year 2024 effective tax rate to be approximately 32, 5%.
Speaker Change: Which incorporates a modest reduction in the French business tax as discussed last quarter and the current mix of earnings trends.
Speaker Change: In business and our lower rate geographies begin to improve we expect the tax rate will begin to return to the lower underlying rates.
As adjusted, OUP equaled $32 million, and OUP margin was 7.8%. We estimate that Italy will also have a slightly lower constant currency year over year revenue trend in the first quarter compared to the fourth. A Northern Europe segment comprised 19% of consolidated revenue in the quarter. Revenue of $914 million represented a 10% decline in constant currency.
Speaker Change: As usual our guidance does not incorporate restructuring charges or additional share repurchases and we estimate our weighted average shares to be $49 2 million. Our guidance also does not include the impact of the noncash currency translation adjustment for our Hyperinflationary, Argentina business and we will also report that separately I will now.
Speaker Change: Turn it back to you on this.
Thank you Jack we have taken decisive actions to manage costs and improve our business and are accelerating our transformation roadmap to simplify our operations to drive sustainable efficiencies.
Speaker Change: The actions, we have taken within our Germany preserve your managed services business simplify our Germany business and position it for success.
After excluding restructuring costs and the goodwill impairment of our Netherlands business, adjusted OUP was $4 million, and the OUP margin was 0.4%. The largest component of our restructuring charges in the region are driven by Germany, which I will discuss on the next slide. Our largest market in the Northern Europe segment is the U.K., which represented 35% of segment revenues in the quarter. During the quarter, UK revenues decreased 13 percent on a days-adjusted constant currency balance.
We remain confident in our diversification digitization and innovation DDI strategy and are making strong progress across many key pillars of our plan.
Speaker Change: Diversification is how we accelerate growth of higher margin business in all our brands.
Speaker Change: The manpower brand as our history, and our future and the diverse clients, we serve across verticals as enabled us to pivot to opportunities as economic uncertainty has impacted some sectors to a greater extent than others and some geographies more than others as well.
This reflects a slight improvement from the rate of decline from the third quarter. We expect a similar year-over-year revenue trend in the first quarter compared to the fourth. In Germany, revenues increased 4% in days adjusted to constant currency in the quarter, driven by our manpower. The previously announced wind-down of our pro servia managed service business in Germany is largely complete, having substantially agreed terms with applicable workers' councils and impacted clients during the second half of 2023. The restructuring costs reported in the quarter largely conclude the wind-down-related one-off costs for our pro servia business.
Speaker Change: Last quarter, we saw solid demand in automotive public sector and logistics in several markets.
Offsetting pressures and other manufacturing verticals across our portfolio.
Speaker Change: We also continue to strengthen the flexibility of our delivery models to our teams serve our clients in ways that best work for them.
Speaker Change: The growing demand for integrated onsite solutions with our clients strengthening our relationships, while we achieved increased productivity and revenues.
Focus on specialized skills is also beginning to deliver profitability improvements as we continued to boost skills and employability with our manpower My pet program.
Speaker Change: Creating talent at scale in response to skill shortages and demographic trends.
We have some final client transition activity running off in the first half of 2024, which will generate operating losses which we will carve out separately for this discontinued business, which I will discuss in our guide. The wind-down of our pro-Soviet business removes a significant drag on our German operations and represents a significant step in strengthening the business for the future. In the first quarter, we are expecting a year-over-year revenue decline as certain automotive clients experience isolated supply chain-related production slowdowns. In the Netherlands, revenue decreased 8% on today's adjusted constant currency basis, and this represented a further rate of decline from the third quarter on this same basis.
Speaker Change: A day every company is a tech enabled company to meet the varied needs of our clients, we're diversifying delivering our experienced resourcing and services brand with offshore and near shore solutions, including our it talent hub in India that is fostering enterprise client fulfillment at the same time <unk>.
Speaker Change: Paris academies continues to develop talent for growth roles in our key practice areas.
Speaker Change: As workforce complexity growth.
Speaker Change: Lions valued the brightcove offerings within our talent solutions brand.
Speaker Change: Our right management recruitment process outsourcing and taps and managed service provider offerings have all been recognized as global leaders in 2023.
Speaker Change: Talent acquisition development and transformation.
Speaker Change: Continue to be key priorities for our enterprise clients as economic uncertainty persists, we have seen good growth in our right management business as companies seek to rightsize, our organization, which has helped offset the reduction in recruitment activities impacting other offerings in the current environment.
As previously referenced, based on the deteriorating market conditions in the Netherlands in recent quarters, we updated our goodwill impairment assessment at year-end and recorded a non-cash impairment charge of $55 million. We continue to monitor our Netherlands business closely and are taking various actions to improve profitability. The Asia Pacific and Middle East segment comprises 12% of total company revenue. In the quarter, revenue was down 1% in constant currency to $552 million. OUP's revenue was $22 million.
Speaker Change: Turning to Digitization.
Speaker Change: We've made great progress on our technology roadmap during 2023, and we are proud to be leading the global industry through the deployment of power suite, our global cloud based platforms for front and back office and I am pleased with the work that we're doing to align our data using these platforms across our operations globally by.
Speaker Change: By the end of 2023, the majority of our global revenues were using the power suite front office and by the end of 2020 for substantially all of our revenues will be running two common technology front office and web platforms.
Speaker Change: We also continued to make very good progress on our back office platform, but significant country implementations in progress, including major businesses, such as France, and the U S. Innovation is how we future proof our organization accelerating the deployment of our AI recruitment tools and leveraging machine learning to enhance recruiter productivity.
OUP margin was 3.9% flat year-over-year. The largest market in the APME segment is Japan, which represented 51% of segment revenues in the quarter. Revenue in Japan grew 10% in constant currency or 8% on a day's adjustment. We remain very pleased with the consistent performance of our Japan business, and we expect continued strong revenue growth in the first quarter. I'll now turn to cash flow and balance. In full year 2023, free cash flow equaled $270 million compared to $348 million in the prior year. In the fourth quarter, free cash flow represented $91 million, compared to $115 million in the prior year. At year-end, day sales outstanding decreased about a day and a half to 54 days. During the fourth quarter, capital expenditures represented $23 million. During the fourth quarter, we repurchased 695,000 shares of stock for $50 million.
Speaker Change: We continue to make progress with scalable pilots in key markets are.
Speaker Change: Our leading global technology infrastructure positions us very well for deploying AI, driven innovations and recruiter productivity tools at scale and speed.
Speaker Change: Each year, we provide an update on our sustainability progress and were proud of our ongoing commitment to people and the planet.
Speaker Change: November released our third annual working to change the World report.
<unk> continued progress in Upskilling people for in demand rolls and leading the way and ethical AI governance developing best practice.
Speaker Change: To help us and the clients we serve navigate this new space.
A recent survey of 38000 global hiring manager also found 70% of employers are urgently recruiting or planning to recruit green talent.
Speaker Change: So at the highest demand in renewable energy manufacturing operations and it.
Speaker Change: We are committed to taking a pragmatic industry specific approach green jobs, and we're pleased to partner with our clients at the World Economic Forum and doubles to hydro site, the new skills and jobs that will be created as companies seek to compete better and become greener and more sustainable.
As of December 31st, we have 4.6 million shares remaining for purchase under the share program approved in August of 2020. Our balance sheet ended the year with cash of $581 million and total debt of $1 billion. Net debt equaled $421 million at year-end.
Speaker Change: Our DDI strategy is positioning us for profitable growth and winning in the market and we're making good progress in a challenging environment.
Speaker Change: Times of Great change our teams are passionate about bringing people along as we shape the future of work and the future for workers are.
Our debt ratios at year-end reflect total gross debt to trailing 12 months adjusted EBITDA of $1.83 and total debt to total capitalization at 31%. Our debt and credit facilities remained unchanged during the quarter. Next, I'll review our outlook for the first quarter of 2024. Based on trends in the fourth quarter and January activity to date, our forecast is cautious and anticipates that the first quarter will continue to be challenging with further declines in our businesses in Europe, which include expected lower seasonal bench utilization in the first quarter in certain markets such as the Nordics. Our forecast for Q1 also anticipates ongoing low levels of permanent recruitment activity. It is also important to note that there is typically a meaningful seasonal sequential decrease in earnings from the fourth quarter to the first quarter. With that said, we are forecasting earnings per share for the first quarter to be in the range of $0.88 to $0.98, which excludes a forecasted unfavorable impact of 14 cents related to the runoff of the discontinued pro-Soviet Germany business, which will cease activity after the second quarter.
Speaker Change: Our talented colleagues around the world are dedicated to providing practical solutions to optical people for success and providing companies with resilient adaptable talent. So they can flex and strengthen their workforces to deliver on their business strategy I'd now like to open the line to Q&A operator.
Speaker Change: Thank you if you would like to ask a question. Please press star one on your telephone. If your question has been answered and we'd like to remove yourself from the queue. Please press star one again please.
Speaker Change: Please standby, while we compile the Q&A roster.
Speaker Change: The first question comes from Andrew <unk> with JP Morgan. Your line is now open.
Andrew: Good morning.
Andrew: It does seem more likely that the fed will walk a straighter soft landing here in the U S and obviously the stock market has received that favorably.
Andrew: Obviously, a soft landing still needs to be executed and that would be slowing GDP and rising unemployment rate.
Andrew: So I wanted to note about your first quarter Guide I know you used the word questions, but it does include a more narrow year over year revenue decline in the U S compared to the fourth quarter.
Speaker Change: Is that only about.
Speaker Change: The year over year comps or do you feel like that the early effect of a soft landing as well and I'm only talking about the U S.
The guidance range also includes an unfavorable foreign currency impact of two cents per share, and our foreign currency translation rate estimates are disclosed at the bottom of the guidance. Our constant currency revenue guidance range is between a decrease of 4% and 8%, and at the midpoint, represents a 6% decline. The impact of net dispositions and fewer working days contributes to an organic, days-adjusted, constant currency revenue trend of about a 5% decrease at the mid-term.
Speaker Change: Good morning, Andrew I would say that our first quarter guide reflects.
Andrew: Because what we've seen and I mentioned this in our prepared remarks in the in a number of markets, including the U S. We've seen stabilization.
Andrew: In terms of our trends at the lower level for our brands as well as for the various offerings such as Perm, So that stabilization carries us through into the first quarter and that means the.
Andrew: The comparable decline of course lessons, so thats why youre seeing the improvement so comps do play a role but also the fact that we are seeing sequential stabilization across brands and offerings in the U S. In a number of other countries as well.
This represents a similar rate of decrease from the fourth quarter trend on the same basis. Including the discontinued ProServia runoff business impact in the first quarter of 2024, EBITDA margin is projected to be down 100 basis points at the mid-term. We estimate that the effective tax rate for the first quarter will be 31 percent, which reflects the mixed effect of lower earnings from lower tax geographies in the current environment, with some expected offsetting tax items. We expect the full-year 2024 effective tax rate to be approximately 32.5%, which incorporates a modest reduction in the French business tax, as discussed last quarter and the current mix of earnings trends.
Okay could you.
Andrew: Just to add a little bit more about how a soft landing in the U S would affect GAAP manpower to U S business.
Andrew: Well, if we if we see that the economy improves then what will drive the biggest difference to our business is that employer confidence broadly.
Andrew: Improves that will clearly mean that we could reach than the inflection point and see an upturn in demand for our services across all of our brands and I think that is of course.
Will be welcome us when it happens as we mentioned in our prepared remarks wind up seeing that inflection point, yet, but a soft landing in the U S would of course be very welcome.
Jonas Prising: When business in our lower-rate geographies begins to improve, we expect the tax rate will begin to return to the lower underlying rate. As usual, our guidance does not incorporate restructuring charges or additional share repurchases, and we estimate our weighted average shares to be $49.2 million. Our guidance also does not include the impact of the non-cash currency translation adjustment for our hyperinflationary Argentina business, and we will also report that separately. I will now turn it back to Jonas.
Speaker Change: Thank you very much.
Speaker Change: Okay.
Speaker Change: The next question comes from Jeff Silber with BMO. Your line is now open.
Jeffrey Marc Silber: Thanks, So much just a follow up from Andrew's question, maybe if I can ask the same thing about Europe, obviously trends there are a little bit weaker, but what do you think will take to get that either economy, moving again or your business moving again in that region.
Jonas Prising: Thank you, Jack. We have taken decisive actions to manage costs and improve our business and are accelerating our transformation roadmap to simplify our operations to drive sustainable growth. The actions we have taken within our Germany-Proservia Managed Services business simplify our German business and position it for growth. We remain confident in our diversification, digitization, and innovation DDI strategy and are making strong progress across many key pillars of our. Diversification is how we accelerate growth of higher-margin business for all of us. The Manpower brand is our history and our future, and the diverse clients we serve across verticals has enabled Last quarter, we saw solid demand for automotive, public sector, and logistics in several markets, offsetting pressures in other manufacturing verticals across our portfolio. We also continue to strengthen the flexibility of our delivery models. So our teams serve our clients in ways that best work for them.
Speaker Change: Good morning, Jeff So as you might have seen this morning, the economic trends in Europe are noticeably weaker.
Speaker Change: And they just declared across the eurozone a no growth environment for Q4.
Speaker Change: But some of the reasons behind that lack of economic growth are higher energy costs less government stimulus.
Speaker Change: But I think what is clear from speaking to clients in Europe as they consider the environment tough outlook uncertain, but the headwinds manageable so they still have a.
Speaker Change: Constructive outlook.
Speaker Change: They look into 2024 and they are clearly telling us we're not seeing the upturn yet, but we expect things to improve as the economy improves if you look at the distribution of where the economic pain is the greatest I think it's clear that northern Europe and drove many in particular.
Speaker Change: Faces major economic headwinds in other parts of northern Europe, as well, Netherlands, Scandinavia, and we can see that reflected in our business and then we had the southern Europe with France, getting it getting a little bit softer, but Italy, and Spain actually.
Jonas Prising: The growing demand for integrated on-site solutions with our clients is strengthening our relationships while we achieve increased productivity and revenue. Our focus on specialized skills is also beginning to deliver profitability improvements as we continue to boost skills and employability with our Manpower MiPAP program, creating talent at scale in response to skill shortages and demographics. Today, every company is a tech-enabled company.
Speaker Change: Still being relatively strong from an economic growth perspective. So all of this to say Europe is lagging the U S in terms of economic growth.
Speaker Change: Which could also mean that as we think about a softer landing the U S could come back sooner and quicker than Europe potentially.
So the likelihood of a major step down today as we look out and we talk to the companies that we serve appears to be more focused on black Swan like events related to geopolitical events that are very hard to predict other than that their outlook is construct.
Jonas Prising: To meet the varied needs of our clients, we're diversifying delivery of our experienced IT resourcing and services. Offshore and Nearshore Solutions, including our IT Talent Hub in India that is fostering enterprise client fulfillment. At the same time, our experienced academies continue to develop IT talent for growth roles in our key practice areas. As workforce complexity grows, clients value the breadth of offerings within our talent solution. Our Right Management, Recruitment Process Outsourcing, and TAPFIN Managed Services Provider offerings have all been recognized as global leaders in 2021. Talent acquisition, development, and transformation continue to be key priorities for enterprise clients. As economic uncertainty persists, we have seen good growth in our right management business as companies seek to right-size their organizations, which has helped offset the reduction in recruitment activities impacting other offerings in the current environment. Turning to digitization,
It is into a recovering economy. So they believe it will they just don't know when.
Speaker Change: Okay. That's helpful.
Speaker Change: If I could go more broadly and we can talk about billing rates and spreads I know every region is different but can you give us some high level color in terms of what's going on there that I'd appreciate it. Thank you.
Speaker Change: Yes sure. This is Jack yes, I'd be happy to talk to that.
I'll talk more generally since we don't publish specific billing rates due to the number of major markets, we're in but what I would say and this aligns very.
John T. McGinnis: Much to what you saw in the GP margin walk is staffing is holding up very very well so we're seeing stable.
John T. McGinnis: Margins on the staffing side and Thats coming through in terms of bill rates.
John T. McGinnis: I'd say pretty stable overall for the fourth quarter and as you think about our guide into the first quarter. We expect that to continue our guide does reflect on the on the staffing margin and the gross profit margin side, a little more pressure in northern Europe, we do expect to see a little more sickness and some of the <unk>.
Jonas Prising: We've made great progress on our technology roadmap here in 2023, and we're proud to be leading the global industry through the deployment of PowerSuite, a global cloud-based platform for front and backup. And I'm pleased with the work that we're doing to align our data using these platforms across our operations globally. By the end of 2023, the majority of our global revenues will be used in the PowerSuite front office, and by the end of 2024, substantially all of our revenues will be running through common technology, front office, and web platforms. We also continue to make very good progress on our back office platform, with significant country implementations in progress, including major businesses such as France and the U.S. Innovation is how we future-proof our organization, accelerating the deployment of our AI recruitment tools and leveraging machine learning to enhance recruiter productivity.
John T. McGinnis: Bench countries based on what we're seeing in January.
John T. McGinnis: Nothing that we would say would be a concern as we get through the first after the first quarter, but we do expect a little bit, but that's really more an impact on utilization, but so far I would say spreads and bill rates are holding up and are actually have been quite resilient.
Speaker Change: Okay, great. Thanks, so much.
Speaker Change: Please standby for the next question.
Speaker Change: The next question comes from Josh Chan with UBS. Your line is open.
Joshua K. Chan: Hi, good morning, Giannis and Jack.
I guess my first question is on margins.
Joshua K. Chan: Could you talk about in Q4, what transpired to be slightly better than you'd expected on the margin front and then if you roll over into Q1, how much of that sequential margin decline from Q4 to Q1, it's just reflective of typical normal seasonality and how much of the change is anything structural or dinner.
Speaker Change: Unrelated thank you.
Speaker Change: Yeah sure I'd be happy to talk to that so yes, we did come in at the higher end of our GP margin range, which was great.
Jonas Prising: We continue to make progress with scalable pilots and key markets. Our leading global technology infrastructure positions us very well for deploying AI-driven innovations and recruiter productivity tools at scale and speed. Each year, we provide an update on our sustainability progress, and we're proud of our ongoing commitment to people and the planet. In November, we released our third annual Working to Change the World report.
Speaker Change: The way I would explain that and you saw the year over year bridge on the margin, but generally as we looked at the guide France came in a bit better. We did say that we had a bit of a cautious guide on France in the fourth quarter, So France came in a bit better and those higher.
Speaker Change: Levels of activity at higher margin year over year in France came through which helps.
Jonas Prising: Citing continued progress in upskilling people for in-demand roles and leading the way in ethical AI governance, developing best practice guardrails to help us and the clients we serve navigate this new world, a recent survey of 38,000 global hiring managers also found 70% of employers are urgently recruiting or planning to recruit green talent, of the highest demand in renewable energy, manufacturing, operations, and IT. We're committed to taking a pragmatic, industry-specific approach to green jobs, and we're pleased to partner with our clients at the World Economic Forum in Davos to highlight the new skills and jobs that will be created by companies seeking to compete better and become greener and more sustainable. Our GDI strategy is positioning us for profitable growth and success in the markets, and we're making good progress in a challenging environment.
Speaker Change: The staffing margin a bit and I'd say perm came in very close to what we were expecting so what youre starting to see and I know you inquired on this last quarter is the Perm peak in previous quarters at that minus 70 basis points year over year, you're looking at Q4 ECS.
Speaker Change: To minus 30.
Speaker Change: And to your question on Q1 expectations, we continue to see that.
Speaker Change: That anniversary impact on Perm, having a lesser impact year over year on the GP margin trend. So we would expect that trend to continue it will be a less year over year decline into the first quarter and as you look at the gross profit margin for Q1 at that $17 three at the mid.
Jonas Prising: There are times of great change. Our teams are passionate about bringing people along as we shape the future of work and the future for workers. Our talented colleagues around the world are dedicated to providing practical solutions to upskill people for success and providing companies with resilient, adaptable talent so they can flex and strengthen their workforces to deliver on their business. Operator.
Point.
Speaker Change: Really that reflects continued stable staffing margins as I mentioned with a little pressure in northern Europe on some utilization issues, but I would say that's isolated and interim continues at stable activity levels as we talked about and I think the.
Speaker Change: The other item with Q1 is as I mentioned in my prepared remarks. It is typically our smallest quarter and they get hit by some seasonal trends at all that impact the margin a bit as well when you look sequentially from Q4 into Q1 so.
Operator: Thank you. If you would like to ask a question, please press star 11 on your telephone. If your question has been answered, and you would like to remove yourself from the queue, please press star 11 again.
I'd say that's those are the main considerations as you think about GP margin.
Operator: Please stand by while we compile the Q&A roster. The first question comes from Andrew Steinerman with J.P. Morgan. Your line is now open. Good morning, Jonas.
Speaker Change: Okay. That's really helpful. Thank you and then on the on the U S. Could you just comment on how youre seeing the seasonal ramp up in this in the staffing business usually.
Jonas Prising: It does seem more likely that the Fed will orchestrate a soft landing here in the U.S., and obviously, the stock market has received that favorably. Obviously, a soft landing still needs to be executed, and that would be slowing GDP and rising unemployment rates. So I wanted to note something about your first quarter guide. I know you use the word cautious, but this does include a more narrow year-over-year revenue decline in the U.S. compared to the fourth quarter. Is that only about... year-over-year comps, or do you feel like that's the early effect of a soft landing as well, and I'm only talking about it? Good morning, Andrew. I'd say that our first quarter guide reflects both because what we've seen, and I mentioned this in our prepared remarks, in a number of markets, including the U.S., we've seen stabilization, in terms of our trends at the lower level, for our brands, as well as for the various offerings, such as PERM.
Speaker Change: You ramp up starting in Jan one and kind of progresses through the next couple of months. So just any comment on the pace of that ramp up versus normal and then if you can have any final color on how much better the Americas declined in Q1 would be versus Q4 that would be helpful. Thank you.
Speaker Change: So I'll take the first question part of your question, Josh and then I'll hop.
Speaker Change: Jack jump in on the second part so the seasonal ramp that we expected that we expect to see in.
At the beginning of the year is a little bit slower than you would normally expect which is not surprising given the economic headwinds that we're seeing across Europe, and the U S and Canada, specifically so it is incorporated in our guide and it's a little bit slower of course.
We're early in the quarter. So this may all change, but that's what we're seeing right now.
And Josh I would just say on your question on the guide for the Americas for Q1. So you can see Americas overall at the midpoint at that minus 1% in constant currency breaking that down between North America, and Latin America, what that really means for the U S. The U S. Just completed a pretty stable trend in the second half of <unk>.
Jonas Prising: So, that stabilization carries us through into the first quarter, and that means the comparable decline, of course, lessens. So, that's why you're seeing the improvement. So, comps do play a role, but also the fact that we're seeing sequential stabilization across brands and offerings in the U.S. and a number of other countries, as well. Could you just say a little bit more about how a soft landing in the U.S. would affect manpower?
Speaker Change: 23 down 14% days adjusted in Q3 and Q4.
Speaker Change: And we see pretty.
Speaker Change: Distant levels of activity at lower lower levels as we walk into Q1 that means from a year over year perspective, the U S will be high single digit decline.
Jonas Prising: Well, if we see that the economy improves, then what will drive the biggest difference to our business is that employer confidence broadly improves. That will clearly mean that we could reach the inflection point and see an upturn in demand for our services across all of our brands. And I think that, of course, will be welcome news when it happens. As we mentioned in our prepared remarks, we're not seeing that inflection point yet, but a soft landing in the U.S. would, of course, be very welcome. Thank you very much.
Speaker Change: Improving but.
Speaker Change: Again, and this came up earlier.
Speaker Change: A big part of that is the comparable from the prior year, where the U S did step down in the first quarter, but I think the main takeaway as activity levels remained relatively stable.
Speaker Change: And I'd say, it's very similar for Canada. We don't we don't talk a lot about Canada, but Canada has been performing very well on a margin perspective, but experiencing declines not dissimilar to what we've been seeing in the U S market as well so.
Jonas Prising: The next question comes from Jeff Silber with BMO. Your line is now. Thanks so much. Just to follow up on Andrew's question, maybe if I can ask the same thing about Europe, obviously, trends there are a little bit weaker, but what do you think will take to get that either the economy moving again or your business moving again in that? Morning, Jeff.
Speaker Change: And thats pretty consistent in the second half of the year and into the first quarter and then Latin America continues to do very well. So we anticipate growth again, thats whats driving that only minus one for the region overall and Latin America has been performing quite well, it's good to see Mexico back to double digit growth.
Speaker Change: In the fourth quarter, and we anticipate the first quarter will be a good environment for Latin America from a revenue perspective.
Jonas Prising: Yes, as you might have seen this morning, the economic trends in Europe are noticeably weaker, and they just declared a no-growth environment for Q4. But some of the reasons behind that lack of economic growth are higher energy costs and less government stimulus. But I think what is clear from speaking to clients in Europe is that they consider the environment tough, the outlook uncertain, but the headwinds manageable. So they still have a constructive outlook as they look into 2024. And they are clearly telling us we're not seeing the upturn yet, but we expect things to improve as the economy improves. If you look at the distribution of where the economic pain is the greatest, I think it's clear that Northern Europe and Germany in particular face major economic headwinds, and other parts of Northern Europe as well, such as the Netherlands and Scandinavia.
Speaker Change: Okay.
Speaker Change: Thank you both for the color on the time.
Speaker Change: Please standby for the next question.
The next question comes from Mark Marcon with Baird. Your line is open.
Mark S. Marcon: Good morning, Jack and I was wondering with regards to upturn what percentage of Gpus is perm currently running yet.
Mark S. Marcon: Yes, Mark Thanks for that Perm is currently at 15, 3% and I know you enquired on this last quarter as well it has stepped down a little bit last quarter. It was about 16 and a half and I think that just reflects the continued stabilization.
Jonas Prising: And we can see that reflected in our business. And then we have southern Europe with France, you know, getting a little bit softer, but Italy and Spain actually still being relatively strong from an economic growth perspective. So all of this to say Europe is lagging the US in terms of economic growth, which could also mean that as we think about a softer landing, the US could come back sooner and quicker than Europe, potentially. So, the likelihood of a major step down today, as we look out and we talk to the companies that we serve, appears to be more focused on Black Swan-like events related to geopolitical events that are very hard to predict. Other than that, their outlook is constructed around a recovering economy, so they believe it will, they just don't know when. Okay, that's helpful.
Speaker Change: Year over year, the rate and Perm decline year over year was about the same and we're just seeing that kind of work its way in so.
Speaker Change: That reflects I think we commented a little bit on this last quarter as well I think that reflects a range thats in line with where we were pre pandemic. So perm has.
Speaker Change: Stabilized quite a bit and as more of a typical mix of our GP on an overall basis.
Speaker Change: That's great and then you've got a number of.
Speaker Change: <unk> see initiatives in place I'm wondering do you have any updates with regards to <unk>.
Speaker Change: We think about the unwinding of the pro serve your business.
Speaker Change: What that would end up doing with regards to <unk>.
Um, if I could go more broadly, and we could talk about billing rates and spread. I know every region is different, but it can give us some high-level color in terms of what's going on there. Jeff, sure. This is Jack.
Speaker Change: German margins, all things being equal and then the illness, you mentioned a number of.
Speaker Change: The initiatives that you've put in place including.
Speaker Change: We've got to deployment of power suite.
Speaker Change: We've got some new AI initiatives in place.
Speaker Change: Like as we go out say six months to a year from now how much more efficient could could manpower be.
Yeah, I'd be happy to talk about that. I mean, I'll talk more generally since we don't publish specific billing rates due to the number of major markets we're in. But what I would say, and this aligns very much to what you saw in the GP margin walk, is staffing is holding up very, very well. So we're seeing stable margins on the staffing side, and that's coming through in terms of bill rates. I'd say pretty stable overall for the fourth quarter.
Speaker Change: So I'll start that Mark was your question on Germany, specifically and.
Speaker Change: Yes, I think the wind down of pro Serbia is a major step forward in improving the profitability of Germany. It was a very complex wind down we're very happy with the way that was conducted and as I mentioned in our prepared remarks, we've substantially concluded all the one off actions related to that.
And as you think about our guide into the first quarter, we expect that to continue. Our guide does reflect a little more pressure in Northern Europe, and we do expect to see a little more sickness in some of the base countries based on what we're seeing in January. Nothing that we would say would be a concern as we get through the first after the first quarter, but we do expect a little bit, but that's really more an impact on utilization. But so far, I'd say spreads and bill rates are holding up and are actually quite resilient. Okay, great. Thanks so much.
Speaker Change: So where we are now is just we're down to the final run off of client contracts through the first half of next year.
In My guide, we don't disclose profitability outside the major markets, but what I will say.
Speaker Change: Directionally to to answer your question in my guide I do carve out the run off impact of <unk>.
Speaker Change: <unk> for the first quarter, So I said that Thats about 20 basis points on the margin.
Speaker Change: If you were to include it if you do the math that would indicate a loss of about $7 million at the midpoint.
Stand by for the next question. The next question comes from Josh Chan with UBS. Your line is open. Hi, good morning, Jonas and Jack.
Speaker Change: For that business. So I think directionally that gives you a bit of an idea that will run off after the second quarter and that will be removed from the run rate.
I guess my first question is on margins. Could you talk about Q4, what transpired to be slightly better than you expected on a margin front? And then, if you roll over into Q1, how much of that sequential margin decline from Q4 to Q1 is just reflective of typical normal seasonality? And how much of the changes is anything structural or demand related? Yeah, sure, I'd be happy to talk about that.
Speaker Change: So that will have a significant impact in improving Germany's profitability. Once we get to the mid mid <unk> mid point of 2024. So it gives you a little bit of an idea of the improvement and we feel very good about the progress we've made on the manpower side as you've seen from the revenue growth rates in Germany, and and that will.
So, yeah, we did come in at the higher end of our GP margin range, which was great. The way I would explain that, and we saw the year over year bridge on the margin, but generally, as we looked at the guide, France came in a bit better. We did say that we had a bit of a cautious guide on France in the fourth quarter, and so France came in a bit better, and those higher levels of activity at higher margins year over year in France came through, which helped help the staffing margin a bit. And I'd say PERM came in very close to what we were expecting.
Be very good for us in the second half of the year.
Mark: And mark to talk a bit about the efficiencies that a good starting point just probably DDI. So our diversification strategy is all about improving our margin mix within and between our brands. So that we move into higher margin businesses and I think we've made some excellent progress and as we noted in our.
Mark: Our prepared remarks, our margins our GP margin has been.
So what you're starting to see, and I know you inquired about this last quarter, is, you know, did PERM peak in previous quarters at that minus 70 basis points year over year? You look at Q4, and you see us go to minus 30. And to your question on Q1 expectations, we continue to see that anniversary impact on PERM having a lesser impact year over year on the GP margin trend. So we would expect that trend to continue. It will be a less year over year decline into the first quarter. And as you look at the gross profit margin for Q1 at that 17.3 at the midpoint, really, that reflects continued stable staffing margins, as I mentioned, with a little pressure in Northern Europe on some utilization issues, but I would say that's isolated, and INFIRM continues to have stable activity levels as we talked about.
Mark: A resilient.
Speaker Change: And that's really great to see.
Some of that comes of course from an improved business mix within our brands as well as between our brands.
The digitization.
Speaker Change: Efforts that we've been working on almost for four years now have really established us at the forefront of our industry because we are deploying.
Speaker Change: Common global platforms for our front end and back office and web properties.
Speaker Change: And we are implementing now the last big operations and as I mentioned in the prepared remarks by the end of this year substantially all of our revenues will run through the same web and front office platforms and that's what we're really excited about because we think that there are.
Speaker Change: Clearly efficiencies and productivity initiatives that we can now drive not only in each country, but across geographies and implemented at speed and scale in a way we were never able to do before.
And I think the other item with Q1 is, you know, as I mentioned in my prepared remarks, it is typically our smallest quarter, and they get hit by some seasonal trends that impact the margin a bit as well when you look sequentially from Q4 into Q1. So I'd say those are the main considerations as you think about GP margins. Okay, that's really helpful, thank you.
But it also means that we can improve recruiter productivity and drive fill rates up in a way as we transfer best practices and we implement new tools to support our recruiters become even more successful and productive at a ski at scale and speed that we've never been able to do before but as I also mentioned during my prepared remarks.
Speaker Change: One of the things that I've learned as it relates to AI in general and generative AI in particular.
Jonas Prising: And then on the U.S., could you just comment on how you're seeing the seasonal ramp-up in the staffing business? Usually, you ramp up starting in January one and kind of progress through the next couple of months. So just any comment on the pace of that ramp up versus normal, and then if you can have any finer color on how much better America's decline in Q1 would be versus Q4, that would be helpful. So, I'll take the first question, part of your question, Josh, and then I'll have Jack jump in on the second part.
Speaker Change: To take advantage of these new technologies, which look immensely promising in so many areas.
Speaker Change: <unk>.
Speaker Change: Big requirement to be able to take advantage of those is to have a modern technology infrastructure.
Speaker Change: And of course, that's exactly what we had been building for a number of years. So it's too early to talk about the impact of large language models in general to the AI.
Speaker Change: Now, but the promise they hold.
We think is immensely exciting and we feel very good about how we are positioned to take advantage of those improvements as they come to market because we have a global platform, but we can deploy them across all of our global organization.
So, the seasonal ramp that we expect to see in the beginning of the year is a little bit slower than you would normally expect, which is not surprising given the economic headwinds that we're seeing across Europe and the U.S. and Canada specifically. So, it is incorporated in our guide, and it's a little bit slower. Of course, you know, we're early in the quarter, so this may all change, but that's what we're seeing right now. And Josh, I would just answer your question on the guide for the Americas for Q1, so you can see America overall at the midpoint at that minus 1% in constant currency. Breaking that down between North America and Latin America, what that really means for the US, the US just completed a pretty stable trend in the second half of 2023, down 14% days adjusted in Q3 and Q4. And we see, you know, pretty consistent levels of activity at lower levels.
At the same time and that is exactly what we're working on as we look ahead into the future.
Speaker Change: Thanks for that.
Speaker Change: And then you're going to see <unk>.
Obviously get talked to lots of European leaders, while you're there as well as your own people.
Speaker Change: How are your clients in Europe thinking about the economic environment unfolding for this year you mentioned that.
Speaker Change: <unk> the U S but.
Speaker Change: Theres, obviously supply chain constraints that might be.
Speaker Change: E mail impacted by what's occurring geopolitically at this point in time.
Speaker Change: Fuel prices continue to be high and then you've got farmers that are revolting.
As we walk into Q1, that means from a year-over-year perspective, the U.S. will have a high single-digit decline and improve, but, you know, again, and this came up earlier, a big part of that is the comparison to the prior year, when the U.S. did step down in the first quarter. But I think the main takeaway is that activity levels remain relatively stable. And I'd say it's very
How what's what's the general sense there in terms of.
How far along are we in terms of this.
Speaker Change: Period of softness.
When we might see an inflection I know.
Speaker Change: You're hesitant to say when the inflection could occur, but just does it feel like it's getting worse or is it stabilizing.
Speaker Change: Well I think it depends on which country, where you and mark, but if I step back and you think about what happened during and after the pandemic. We came out of the pandemic in 'twenty, one with tremendous supply chain shortages.
We don't talk a lot about Canada, but Canada's been performing very well on a margin perspective but experiencing declines not dissimilar to what we've been seeing in the U.S. market as well. So, you know, and that was pretty consistent in the second half of the year and into the first quarter. And then Latin America continues to do very well. So, we anticipate growth. Again, that's what's driving that only minus one for the region overall.
Speaker Change: And companies ordering anything at all the products and services they could get in the pipeline that dates largely started to start consuming and see a return to normal supply chain functioning sometime end of 'twenty, two and all the way through 'twenty.
And Latin America has been performing quite well. It's good to see Mexico back to double-digit growth in the fourth quarter. And we anticipate the first quarter will be a good environment for Latin America from a revenue perspective. Thanks.
Speaker Change: Three they had been working off the inventories that they've been getting and as they look ahead.
Speaker Change: They are constructive on the outlook.
Speaker Change: Because they know that the uncertainty exists primarily due to geopolitical.
Please stand by for the next question. The next question comes from Mark Marcon, with Bayard. Your line is, Good morning, Jonas and Jack. I was wondering, with regard to PERM, what percentage of GP is PERM currently at? Yeah, Mark, thanks for that. PERM is currently at 15.3%.
Speaker Change: Events, but the economic news are actually quite encouraging labor markets remained strong inflation is coming down energy prices have stabilized and they are supply chain issues has normalized post pandemic. So from an economic perspective as you look at.
And I know you inquired about this last quarter as well. It stepped down a little bit last quarter; it was about 16 and a half. And I think that just reflects, you know, the continued stabilization. I think year over year, the rate of PERM decline year over year was about the same. And we're just seeing that kind of work its way in. So I think that reflects, and I think we commented a little bit on this last quarter as well, that reflects a range that's in line with where we were pre-pandemic. So PERM has stabilized quite a bit and is more of a typical mix of our GP on an overall basis. Great.
Speaker Change: Many of the European business leaders, we spoke with we're quite upbeat in terms of their outlook for 2024. They note that geopolitical uncertainties could impact that but that is nothing they control so within the things they control they felt constructive about 'twenty.
Speaker Change: For but they note we don't know when it's going to be improving we don't know when interest rates are going to come down but.
Speaker Change: But overall they are probably.
Speaker Change: Very much thinking that this is a environment that is tough.
Speaker Change: <unk> headwinds in a number of industries, but they can see the elements of a recovery are there and until then they're waiting they're holding but they are getting ready for the recovery that's my sense.
Jonas Prising: And then you've got a number of, you know, efficiency initiatives in place. I'm wondering, do you have any updates with regard to, as you know, as we think about the unwinding of the ProServia business? You know, what that would end up doing with regard to German margins, all things being equal.
Speaker Change: Terrific. Thank you.
Speaker Change: Please standby for the next question.
The next question comes from Kartik Mehta with Northcoast Research Your line is open.
And then, Jonas, you mentioned a number of initiatives that you put in place, including, you know, we've got the deployment of PowerSuite, we've got some new AI initiatives in place. How, like, as we go out, say, six months to a year from now, how much more efficient could manpower be? So I'll start that, Mark, with your question on Germany specifically. And yes, I think the winding down of ProServia is a major step forward in improving Germany's profitability. It was a very complex wind down.
Manav Patnaik: Thank you Hey, good morning, Jack I wanted to go back to a take when you made by bill rate spread and then holding fairly stable and so im assuming competition Hasnt picked up and if that's an accurate statement are you at all surprised considering what's going on with revenue trend the competition Hasnt picked up.
John T. McGinnis: Well I would say on that Kartik really.
John T. McGinnis: If you look at the labor markets.
John T. McGinnis: <unk> earlier comments the.
John T. McGinnis: <unk> dropped to all of this is the labor market is still relatively tight.
Jonas Prising: We're very happy with the way that was conducted, and as I mentioned in our prepared remarks, we've substantially concluded all the one-off actions related to that. So where we are now is just we're down to the final runoff of client contracts through the first half of next year. In my guide, we don't disclose profitability outside the major markets.
John T. McGinnis: It's been incredibly resilient and as a result, it's still relatively hard to get quality workers. So our clients are willing to continue to.
John T. McGinnis: Hey.
John T. McGinnis: I'd say stable.
John T. McGinnis: Bill rates and margins have been holding for that reason, even though demand has been down I think the backdrop of the labor market is still being relatively tight is a big part of the equation that's holding.
But what I will say directionally to answer your question in my guide, I do carve out the runoff impact of ProServia for the first quarter. So I said that that's about 20 basis points on the margin. If you were to include it, if you do the math, that would indicate a loss of about $7 million at the midpoint for that business. So I think directionally that gives you a bit of an idea that that will run off after the second quarter, and that will be removed from the run rate. And so that will have a significant impact on improving Germany's profitability once we get to the mid-middle midpoint of 2024. It gives you a little bit of an idea of the improvement. And we feel very good about the progress we've made on the manpower side, as you can see from the revenue growth rates in Germany. And that will be very good for us in the second half. Mark, to talk a bit about efficiencies, a good starting point is probably DDI.
John T. McGinnis: Staffing margins to where they are and and I would say it isn't broad brush there are.
John T. McGinnis: We said there was a lot of markets that are actually not seeing the same degree of pressure that we're seeing in some of North America and some of the European markets.
And that's been that's been a positive as well I think in terms of.
Stronger demand in certain markets.
John T. McGinnis: If you take a step back and you look at markets like Italy, only down low single digits right. So it's really in the markets, where you're seeing the bigger declines.
John T. McGinnis: Declines.
John T. McGinnis: That I think it is a fair question to ask why are you seeing a little more pressure, but I think if you look at the labor markets in those countries.
John T. McGinnis: That's really the reason why it's been holding up quite well.
John T. McGinnis: And then I wanted to get your perspective year over year and this is prospective on right management.
John T. McGinnis: Here at least in the headlines more layoffs more companies.
John T. McGinnis: Right sizing their labor force and I'm wondering.
As you just the outlook on that business.
Jonas Prising: So our diversification strategy is all about improving our margin mix within and between our brands so that we move into higher margin businesses. And I think we've made some excellent progress. And as we've noted in our prepared remarks, our margins, our GP margin, have been resilient. And that's really great to see.
So I think what we have seen is an increased demand for the service was up bright management, but I think we need to put that within the context of what we are seeing employers doing overall.
John T. McGinnis: So whilst they are trimming some are trimming their workforces.
John T. McGinnis: Most employers are still holding on to their workforce and any reduction in workforce for now has been really mostly felt by our industry and other indeed.
Jonas Prising: And some of that comes, of course, from an improved business mix within our brands as well as between our brands. The digitization efforts that we've been working on for almost four years now have really established us at the forefront of our industry because we're deploying common global platforms for front and back offices and web properties. And we are implementing the last big operations now, and as I mentioned in the prepared remarks, by the end of this year, substantially all of our revenues will run through the same web and front office platforms.
John T. McGinnis: Indicators of.
John T. McGinnis: Labor market flexibility it doesn't touch their specific workforce clearly you've seen the tech company. The large enterprise Tech companies do this early and 23 and resize their workforce and you now have other organizations that are also trimming their workforces for various reasons.
John T. McGinnis: But as we look into the first quarter, but we're estimating is that we'll continue to see good demand for rights management resources, but not an accelerated demand for those offerings and that would indicate that the employer attitude is still by and large hold onto our.
Jonas Prising: And that's what we're really excited about because we think that there are clearly efficiencies and productivity initiatives that we can now drive, not only in each country but across geographies and implement them at speed and scale in a way we were never able to do before. But it also means that we can improve recruiter productivity and drive fill rates in a way as we transfer best practices, and we implement new tools to support our recruiters to become even more successful and productive at a scale and speed that we've never been able to do before. But as I also mentioned during my prepared remarks, one of the things that I've learned as it relates to AI in general and generative AI in particular, is that to take advantage of these new technologies, which look immensely promising in so many areas, the requirement to be able to take advantage of them is to have a modern technology infrastructure.
John T. McGinnis: Workforce and wait for the economic conditions.
John T. McGinnis: To come back employer confidence to increase as opposed to preparing for larger scale.
John T. McGinnis: Layoffs that would indicate a much stronger growth in right management. So thats why we would think about it.
Speaker Change: Thank you very much appreciate it.
Speaker Change: Please standby for the next question.
Speaker Change: The next question comes from mine of Patnaik with Barclays. Your line is open.
Patnaik: Thank you good morning.
Units apologies. If this is the over generalization, but what environment. I guess is is perfect for you guys. So in the USA suppose if there's a soft landing.
Jonas Prising: And, of course, that's exactly what we have been building for a number of years. So it's too early to talk about the impact of large language models and generative AI now, but the promise they hold, we think, is immensely exciting, and we feel very good about how we are positioned to take advantage of those improvements as they come to market, because we have a global platform where we can deploy them across all of our global organization at the same time, and that is exactly what we're working on as we look ahead into the future. Thanks for that, Jonas.
And job growth is still moderating perhaps.
Patnaik: There's more Tam and permanent hiring activity because of that and then in Europe, if things things seem to be voice not along the same line. So is that just bad debt. There is no hiring Tampa all permanent just trying to appreciate what the right mixes.
Patnaik: Well, none of the perfect environment for US is global demand for our services and solutions is booming, but that is not the case for our industry in this moment at least.
Patnaik: But I would say when we think about the demand for our services. This is an economic cycle that is increasingly looking similar to many other cycles that we have seen as we discussed in our last quarter earnings call from what we're seeing whilst our industry is a <unk>.
Jonas Prising: And then, Jonas, you were at Davos, you, you know, obviously get to talk to lots of European leaders while you're there, as well as your own people. How, how are your clients in Europe thinking about the economic environment unfolding for this year? You mentioned that, you know, it lags the US, but, you know, there's obviously supply chain constraints that might be impacted by what's occurring geopolitically at this point in time. And, you know, fuel prices continue to be high. And then you've got farmers that are revolting.
Patnaik: <unk> being a.
Patnaik: Lessening of demand taking within our historical context. This is still within the realms of a softer economy, whether it's a soft landing or a light lighter recession.
Patnaik: For others to say.
Patnaik: But there the stabilization of Perm recruitment across a number of quarters now in the context of a strong labor market means that companies are still hiring people. They are just being much more deliberate much more cautious and much more precise and what kind of talent there.
Jonas Prising: What's the general sense there in terms of, you know, how far along are we in terms of this? You know, the period of softness and when we might see an inflection. You're hesitant to say when the inflection could occur, but does it feel like it's getting worse or is it stabilized?
Patnaik: Bringing in and I'd say the same thing applies for temporary staffing, yes, we've seen a drop in demand in particular from an enterprise client perspective and in certain sectors, but overall, both geographically in Latam and Asia Pacific as well as in other parts of Europe, you can see that there is.
Jonas Prising: Well, I think it depends on which country you're in, Mark, but if I step back and you think about what happened during and after the pandemic, We came out of the pandemic in 21 with tremendous supply chain shortages and companies ordering anything and all the products and services they could get in a pipeline that they largely started to start consuming and see a return to normal supply chain functioning sometime at the end of 22 and all the way through 23. They've been working off the inventories that they've been getting, and as they look ahead, they are constructive about the outlook because they note that uncertainty exists primarily due to geopolitical events, but the economic news is actually quite encouraging. Labor markets remain strong.
Patnaik: Still demand for temporary staffing and our experienced consultants with the skills and specialization that they had.
Patnaik: So what we believe is going to be an important turning point is when employers caution moves into employer confidence in an improved outlook and as we've seen in past recoveries.
Patnaik: The time when employers are more confident but not fully confident in the recovery is when we see a big move upwards in demand for our services and solutions across our brands because a lot of companies needs of course are reducing their own hiring the talent acquisitions teens.
Patnaik: Our either gone or are reduced and that means they need additional capacity to ramp up the workforce they need to be able to compete and to prepare.
Jonas Prising: Inflation is coming down. Energy prices have stabilized, and their supply chain issues have normalized post-pandemic. So from an economic perspective, as you can see, many of the European business leaders we spoke with were quite upbeat in terms of, you know, their outlook for 2024. They know that geopolitical uncertainties could, you know, impact that, but that's nothing they can control. So within the things they control, they felt constructive about 2024, but they know we don't know when things are going to be improving. We don't know when interest rates are going to come down. But overall, they are probably, you know, very much thinking that this is an environment that is tough, challenging headwinds in a number of industries, but they can see that the elements of a recovery are there, and until then, they're waiting, they're holding, but they are getting ready for the recovery. That's my Terrific.
Patnaik: To execute and continue their business strategy and Thats I think where we are right now employers are more cautious.
Patnaik: They have they think it's manageable and you can see that in our overall numbers.
Patnaik: But when they get more confident and they feel the turning point is here. That's when we will see it in our business both in the U S as well as in Europe.
Speaker Change: Got it and just as a quick follow up I mean, given a lot of this as you've described as kind of an economic cycle. When you. When you review your businesses like in Germany for Sofia, and then even Netherlands or whatever like.
At what point do you decide it's more like how do you decide it's more than just the economic cycle and you need to get out of those businesses like what are some of the common traits that lead you to that decision.
Well I think the.
Speaker Change: The Germany example, with preserve yet is really a unique one off situation with a specific business that we took over from a client.
Jonas Prising: Thank you. Please stand by for the next question. The next question comes from Karthik Mehta with North Coast Research. Your line is open. Thank you.
It ran very well for a number of years have been structural issues within that business have proven to be very difficult for us to turn around and at this point and with the German economy being the state that it is we feel and we feel that it's time to make a significant change which is what you saw is doing.
Good morning, Jack. I wanted to go back to a statement you made about bill rate spreads and them holding fairly stable. And so I'm assuming competition hasn't picked up. And if that's an accurate statement, are you at all surprised considering what's going on with revenue trends that competition hasn't picked up? Well, you know, I would say on that, Kartik, really, if you look at the labor markets, as Jonas's earlier comments, you know, the backdrop to all of this is the labor market still relatively tight. It's been incredibly resilient.
Speaker Change: The other aspect of the <unk> business. It's also non core to our strategies. So it is really a unique situation in Germany and Thats why we made the change the situation in Netherlands is not at all of the same.
Speaker Change: At that level. It is a it's a market that's struggling and where we felt that this was a good time to make.
Speaker Change: This adjustment, but overall, we expect to compete and do well in Netherlands over time, just as we expect and feel really good about the German market.
And as a result, it's still relatively hard to get quality workers. So our clients are willing to continue to pay, you know, I'd say, stable bill rates, and margins have been holding for that reason. Even though demand has been down, I think the backdrop of labor markets still being relatively tight is a big part of the equation that's holding staffing margins to where they are. And, and I would say, you know, it isn't a broad brush, there are, you know, as we said, there are a lot of markets that are actually not seeing the same degree of pressure that we're seeing in some of North America and some of the
Got it thank you.
Please standby for the next question.
The next question comes from Tobey Sommer with true with Securities. Your line is open.
Tobey Sommer: Thanks, I wanted to touch on something you just mentioned we've heard that large companies in general have not reduced their own internal recruiting capacity as much as might be.
Normal in his by historic terms and slowdown could you talk about what youre seeing in terms of internal recruiting capacity at customers and what that may imply for demand for staffing Perm IPO for example in a recovery.
And that's been a positive as well, I think, in terms of, you know, stronger demand in certain markets. If you take a step back, and you look at markets like Italy, only down low single digits, right. So it's really in the markets where you've seen the bigger declines. That I think it is a fair question to ask, you know, well, why aren't you seeing a little more pressure?
Speaker Change: Tobey I think.
Tobey Sommer: What we're hearing is that the team since since there's not a lot of hiring going on in many in many sectors. Those individuals have been reallocated and as you look at two other functions <unk> had less and not doing or doing different things. So in our conversations as it relates to for instance opera.
Jonas Prising: But I think if you look at the labor markets in those countries, that's really the reason why it's been holding up quite well. And then I wanted to get your perspective, your unit's perspective on good management. You know, we're here, at least in the headlines, more layoffs, more companies kind of right-siding their labor force. And I'm wondering, like you, just the outlook on that business. What we have seen is an increased demand for the services of right management, but I think we need to put that within the context of what we're seeing employers doing overall. So while some are trimming their workforces, most employers are still holding on to their workforce, and any reduction in the workforce for now has been really mostly felt by our industry and other indicators of labor market flexibility. It doesn't touch their specific workforce.
Tobey Sommer: <unk> within our Apio many of our customers are getting ready for an upturn are asking us to prepare they are not ready to pull the trigger yet.
But they are clearly thinking about the recovery and what they need to be doing.
Tobey Sommer: When they are confident that the market is coming back for their products and services. So we really expect this to play out more or less the same way that we've seen other.
Tobey Sommer: Other returns.
Tobey Sommer: Bounce backs as far as the industry is concerned both here in the U S and across the World frankly.
Tobey Sommer: Okay. So it sounds like internal recruiting capacity corporations is being drawn down great.
Tobey Sommer: What have you.
<unk> domestic it staffing demand and in particular I was wondering if you could comment on that.
Jonas Prising: Clearly, you've seen the large enterprise tech companies do this early in 2023 and resize their workforce, and you now have other organizations that are also trimming their workforces for various reasons. But as we look into the first quarter, what we're estimating is that we'll continue to see good demand for rights management resources, but not an accelerated demand for those offerings. And that would indicate that the employer attitude is still, by and large, to hold on to our workforce and wait for the economic conditions to come back, employer confidence to increase, as opposed to preparing for larger-scale layoffs that would indicate a much stronger growth in right management. So that's how we would think about it. Thank you very much.
Tobey Sommer: The financial services vertical and.
Tobey Sommer: In tech, including global Tech. Thanks.
Tobey Sommer: As we mentioned in a couple of calls ago. The first pulled down really came from it came from enterprise Tech and <unk>.
And then what we've seen there is a stabilization at the lower level convenience clients are holding up much better than enterprise tech and they are actually significantly better.
Tobey Sommer: Because of the skill shortage is still prevalent in that market. So I would say the tech demand has stabilized at a lower level better for convenience than for large enterprise organization.
Tobey Sommer: Banking in the finance sector is now feeling a bit more a bit more headwind, but I would characterize it as manageable and you saw our outlook for experienced overall is sequentially stable.
Jonas Prising: I appreciate it. Please stand by for the next question. The next question comes from Manav Patnaik with Barclays. Your line is open. Good morning.
Tobey Sommer: To slightly improved in the U S looking into the first quarter.
Jonas Prising: Jonas, apologies if this is an overgeneralization, but what environment is perfect for you guys? So in the US, I suppose if there's a soft landing, and job growth is still moderating, perhaps, you know, there's more temporary than permanent hiring activity because of that. And then in Europe, you know, if things seem to be, you know, worse, not along the same lines. So is that just bad that there's no hiring temp or permanent just trying to, you know, appreciate what the right mix is? Well, one of the perfect environments for us is that global demand for our services and solutions is booming. But that is not the case for our industry at this moment, at least.
Speaker Change: Thank you very much.
Speaker Change: Please standby for the next question.
Speaker Change: Yeah.
Speaker Change: The next question comes from Trevor Romeo with William Blair. Your line is open.
Trevor Romeo: Hi, good morning, Thanks, so much for taking the questions.
Trevor Romeo: Just one maybe on Japan, which might get lost in the shuffle a bit given all the focus on Europe, but I think it's been a real bright spot.
Trevor Romeo: The performance there has been strong and consistent so could you maybe just talk about the drivers behind the strength there in Japan, what kind of outlook you have there in the near term.
Speaker Change: Well, thanks for bringing that up Trevor it's the 37th consecutive quarter of growth in Japan, and I think Japan is a really interesting example of a country that is struggling demographically.
Jonas Prising: But I would say, you know, when we think about the demand for services, this is an economic cycle that is increasingly looking similar to many other cycles that we have seen. As we discussed in our last quarter earnings call, from what we're seeing, whilst our industry is absorbing a lessening of demand, taking within a historical context, you know, this is still within the realms of a softer economy. Whether it's a soft landing or a light, a lighter recession, that's for others to say. But the stabilization of permanent recruitment across a number of quarters now, in the context of a strong labor market, means that companies are still hiring people. They are just being much more deliberate, much more cautious, and much more precise in what kind of talent they're bringing in.
And has a shortage of labor, but where we've managed to position ourselves both from a manpower and experience perspective as really the experts at finding and creating talent at scale.
Speaker Change: And that's really been one of the key factors of how we've made progress in Japan is of course excellent recruitment and delivery capabilities, but each of our brands also has a very strong.
Speaker Change: Reskilling and Upskilling arm of that brand. So we are generating a lot of talent with marketable skills at scale in Japan and that is really a main factor of.
Speaker Change: The progress that we've seen we've also moved into some interesting.
Speaker Change: Healthcare areas elder care as well as childcare.
Given the aging population, we see that as a very good opportunity and that's been an investment that we've made over a number of years and that is starting to take hold.
Jonas Prising: And I'd say the same thing applies for temporary staffing. Yes, we've seen a drop in demand, in particular, from an enterprise client perspective and in certain sectors, but overall, both geographically in Latin America and Asia Pacific, as well as in other parts of Europe, you can see that there is still demand for temporary staffing and our experienced consultants with the IT skills and specializations that they have. So what we believe is going to be an important turning point is when employers' caution turns into employer confidence with an improved outlook. And as we've seen in past recoveries... The time when employers are more confident but not fully confident in the recovery is when we see a big move upwards in demand for our services and solutions across our brands. Because a lot of companies, of course, are reducing their own hiring, their talent acquisition teams are either gone or are reduced, and that means they need additional capacity to ramp up the workforce they need to be able to compete and to prepare to execute and continue their business strategy.
Speaker Change: And we think that will continue to be an important part of our business. So the team in Japan has done an excellent job really finding the opportunities that exist in a market, where you have an aging demographic a shrinking in the workforce and being seen as a <unk>.
Speaker Change: Solutions provider by not only finding great talent, but creating talent that scale and thats exactly what we intend to do as we see similar trends play out both in Europe and in the U S. So our experienced academy as well as our manpower my path programs, making sure that we are known as the company that.
Great ability to find but also to create the needed talent for our clients, which helps us deliver the best talent in the market.
Speaker Change: In time and at speed.
Speaker Change: And Trevor I would just say for the first quarter guide for Japan, Japan has been running at days adjusted just about double digits to high single digits, and we anticipate that for the first quarter, maybe closer to the very high single digit stays adjusted so very strong outlook for the first quarter for Japan.
Jonas Prising: And that's, I think, where we are. Right now, employers are more cautious. They think it's manageable, and you can see that in our overall numbers. But when they get more confident and they feel the turning point is here, that's when we will see it in our business, both in the U.S. as well as in Europe.
Okay. That's great. Thank you both and then just quickly on the SG&A I guess, where do you think you are in terms of cost management. It sounds like you took some additional head count reductions this quarter.
Jonas Prising: And just as a quick follow-up, I mean, given, you know, a lot of this, as you've described, is kind of an economic cycle when you when you review your businesses, like in Germany, Preservia, and then in the Netherlands, or whatever, at what point do you decide it's more like, how do you decide it's more than just an economic cycle? And you need to get out of those businesses? Like, what are some of the common traits that led you to that decision?
How much room do you think you have for additional reductions whether it be headcount or other avenues at the sluggish macro kind of continues.
Speaker Change: Sure I'd be happy to talk to that very quickly.
Speaker Change: So I think we feel good about the actions we've taken we did we talked about the additional head count down.
Jonas Prising: Well, I think the Germany example with ProServia is really a unique one-off situation. With a specific business that we took over from a client, it ran very well for a number of years, but then structural issues within that business have proven to be very difficult for us to turn around. And at this point, and with the German economy being the state that it is, we feel that it's time to make a significant change, which is what you saw us doing. And the other aspect of the ProServia business is also non-core to our strategies. So it is really a unique situation in Germany, and that's why we made the change.
Speaker Change: <unk>.
Personnel costs are about two thirds of our overall costs. So as we end the year were down 9%, we moved another 3% down in the fourth quarter. So I think we feel that we've taken the necessary actions for the most part based on the current environment certainly we've talked a lot about Germany.
Speaker Change: <unk> and the change in improving the trend for that business. Once we conclude the pro survey here, but I think we feel pretty good but at the same time continuing to balance that so as Jonas said.
Speaker Change: We want to be prepared for.
Jonas Prising: The situation in the Netherlands is not at all on the same level; at that level, it's a market that's struggling and where we felt that this was a good time to make this adjustment. But overall, we expect to compete and do well in the Netherlands over time, just as we expect and feel really good about the German market.
Speaker Change: The upturn when it happens so it's a balance and we want to make sure. We have the right sales personnel and the right producers for when that when that happens and so we are balancing that carefully but you did see additional cost take out in the fourth quarter and we expect that trend to continue into the first quarter on a trending basis.
Speaker Change: Okay. Thanks, so much.
Jonas Prising: Thank you. Please stand by for the next question. The next question comes from Tobey Sommer with Truist Securities. Your line is open.
Please standby for the next question.
Speaker Change: The next question comes from Heather <unk> with Bank of America. Your line is open.
Jonas Prising: Thanks. I wanted to touch on something you just mentioned. We've heard that large companies, in general, have not reduced their own internal recruiting capacity as much as might be normal in this situation based on historic terms and slowdowns. Could you talk about what you're seeing in terms of internal recruiting capacity at customers and what that may imply for demand for staffing perm RPO, for example, in a recovery? Tobey, I think what we're hearing is that the team, since there's not a lot of hiring going on in many sectors, those individuals have been reallocated, and, you know, as you look at other functions and or have left and are doing different things. So, in our conversations, as it relates to, for instance, opportunities within RPO, many of our customers are getting ready for an upturn and are asking us to prepare.
Heather: Hi, Good morning, Thank you for taking my question.
Heather: Can you talk with the first question in the Q&A about the U S and some of the signs of stabilization.
I'm curious if you can elaborate further which market.
Heather: Beyond the U S. You had a feel like things have stabilized.
And then a little bit more color on what youre looking at to get confidence in and things stabilizing just given all the macro challenges that we see right. Now is it is it data out there is that what youre seeing in the underlying debt that through January and then what you're hearing from your customers just helpful to get your thought process.
Speaker Change: Sure Heather I'll talk to that very quickly so I think.
Speaker Change: You are right you asked is our second biggest business, we did see that stabilized in the second half of the year I think the other big one number for business for US is the U K U K went from minus 15% days adjusted to minus 13% in Q4, so slight improvement.
Jonas Prising: They are not ready to pull the trigger yet, but they are clearly thinking about the recovery and what they need to be doing when they are confident that the market is coming back for their products and services. So we really expect this to play out more or less the same way that we've seen other returns and bouncebacks as far as the industry is concerned, both here in the U.S. and across the world, frankly. Okay, so it sounds like internal recruiting capacity at corporations is being drained. Great
Speaker Change: Seeing underlying stabilization and we expect that to continue based on the guide that we gave into the first quarter. So I'd say of the bigger markets. Those are the two big ones that we've seen good stabilization.
Speaker Change: In the second half of 2023, and as I would say on activity levels going into the first quarter I will say not quite.
Jonas Prising: What are you experiencing in domestic IT staffing demand? And, in particular, I was wondering if you could comment on the financial services vertical and in tech, including global tech? Thanks.
Speaker Change: In that same camp, a little bit further decline would be France, and Italy, but very modest so we're not talking about those markets.
Jonas Prising: As we mentioned on a couple of calls ago, the first holddown really came from enterprise tech, and what we've seen there is a stabilization at the lower level. Convenience clients are holding up much better than enterprise tech, and they are actually significantly better because of the skills shortages still prevalent in that market.
Speaker Change: Seeing significant pullbacks, we're seeing more gradual easing and so that's in our guide that that takes France from the minus four in Q4 to minus five in Italy moves.
Speaker Change: Moves from that minus three days' adjusted to a little bit bigger of a decline into the first quarter as well so.
Those are the main those are the main countries when I think about stabilization of the big the bigger countries. We're in.
Jonas Prising: I would say the tech demand has stabilized at a lower level, better for convenience than for large enterprise organizations. The banking and finance sector is now feeling a bit more headwind, but I would characterize it as manageable, and you saw our outlook for experience overall is sequentially stable to slightly improved in the U.S. Looking into the first quarter. Thank you very much.
Speaker Change: Yeah.
Speaker Change: And then to your point I think the second part of your question was what type of data points would be good to monitor as we look at that potentially changing I think on the manpower businesses manufacturing PMI are always a pretty good read through in terms of demand.
And so I would say continuing to look at that as we sit here today.
Jonas Prising: Please stand by for the next question. The next question comes from Trevor Romeo with William Blair. Your line is open. Hi, good morning.
Speaker Change: Europe continues to be in the 43 to 44 range. So quite below the 50 in the U S. As well so I would say that that is important and then I think on the professional side, it's really going to come down to <unk> earlier comments on employer confidence with restarting.
Jonas Prising: Thanks so much for taking the questions. Just one on Japan, which, you know, might get lost in the shuffle a bit given all the focus on Europe, but I think it's been a real bright spot. You know, the performance there has been strong and consistent. So could you maybe just talk about the drivers behind the strength in Japan? What kind of outlook do you have there in the near term? Well, thanks for bringing that up, Trevor.
Speaker Change: It projects and related spend so that's going to come down too.
<unk>.
Speaker Change: Elimination of.
Deferred projects and moving more into scheduling those projects moving forward. So.
Speaker Change: And as you mentioned earlier.
Jonas Prising: It's the 37th consecutive quarter of growth in Japan, and I think Japan is a really interesting example of a country that is struggling demographically and has a shortage of labor but where we've managed to position ourselves both from a manpower and experience perspective as really the experts in finding and creating talent at scale. And that's really been one of the key factors of how we've made progress in Japan. Of course, excellent recruitment and delivery capabilities, but each of our brands also has a very strong reskilling and upskilling arm of that brand. So we are generating a lot of talent with marketable skills at scale in Japan, and that is really a main factor of the progress that we've seen. We've also moved into some interesting health care areas, such as elder care, as well as child care in Japan.
Some of that is going to be predicated based on overall events in the economy and interest rates and other factors that give employers the confidence that we're moving into a.
Speaker Change: A more predictable environment.
Speaker Change: Thank you that's helpful and just as a follow up question is something we're paying attention to what's going on in the Red Sea in Panama Canal.
Just curious of your customer started talking about that at all or.
Any any sense of concern or is it still too early.
Speaker Change: All of them for all they have their I'd say, it's still a bit early there had been well publicized.
Speaker Change: The circumstances around some of the automotive industry and.
That that is well known and so that may have an impact.
Speaker Change: But.
Speaker Change: And primarily in that case from our perspective, Germany.
Jonas Prising: Given the aging population, we see that as a very good opportunity, and that's been an investment that we've made over a number of years, and that is starting to take hold, and we think that will continue to be an important part of our business. So the team in Japan has done an excellent job really finding the opportunities that exist in a market where you have an aging demographic, a shrinking workforce, and being seen as a solutions provider by not only finding great talent but creating talent at scale. And that's exactly what we intend to do as we see similar trends play out both in Europe and in the U.S. through our Experience Academy, as well as our Manpower MyPath programs, making sure that we are known as the company that has a great ability to find but also to create the needed talent for our clients, which helps us deliver the best talent in the market in time and at speed.
Speaker Change: But other than other than that I think it's a little bit early still Heather.
Speaker Change: I appreciate that thank you so much.
Speaker Change: Please standby for the next question.
Speaker Change: We will take our last question from George Tong with Goldman Sachs. Your line is open.
George Tong: Alright, thanks, good morning.
George Tong: Mid point of your revenue guide points to a widening of constant currency decline and you talked about weaker economic trends in Europe relative to the U S based on business trends you've seen so far in <unk> can you elaborate on which regions in Europe, we're seeing the most amount of incremental softening in revenue.
Yes, George I'd be happy to talk to that so you're right on a constant currency basis, we do step down from minus five in Q4 to minus six but I would say days are a big factor in Q1, so when you adjust for billing days.
Jonas Prising: And Trevor, I would just say for the first quarter guide for Japan, Japan has been running at days adjusted, just about double digits to high single digits. And we anticipate that for the first quarter, maybe closer to the very high single digits, days adjusted. So, very strong outlook for the first quarter for Japan. Okay, that's great. Thank you both.
We're actually running very close to the same trend. So days adjusted organic days adjusted we were at minus 5% in Q4, and we're also at minus 5% in Q1, but there are puts and takes in that to your point. So the way the way I would.
George Tong: Look at it is the <unk>.
And then just quickly on SG&A, I guess, where do you think you are in terms of cost management? It sounds like you took some additional headcount reductions this quarter. How much room do you think you have for additional reductions?
George Tong: Rate of decline improves in the U S. As we've talked about earlier.
George Tong: Largely due to the fact that we start to anniversary a bit of a step down in the year ago activity levels relatively stable.
George Tong: And I would say the UK similar I would say similar activity levels into Q1, a little more pressure in France, and Italy into.
whether the ad count or other avenues that the sluggish macro is targeting, Sure, I'd be happy to talk to that very quickly. So I think we feel good about the actions we've taken. We did, we talked about the additional headcount down, you know, personnel costs are about two-thirds of overall costs. So as we end the year, we're down 9%, and we moved another 3% down in the fourth quarter. So I think we feel that we've taken the necessary actions for the most part based on the current environment. Certainly, we've talked a lot about Germany and the change and improving the trend for that business once we conclude the pro servia here. But I think we feel pretty good.
Into Q1, I think if you offset that against.
George Tong: The favorable trends in <unk>, and Latam that kind of gets you to an overall days adjusted organic constant currency in line with what we just completed so a bit of puts and takes.
George Tong: And then I'd say the other area, where we're seeing a little more pressures northern Europe that we talked about in the Nordics and the Netherlands market that we talked about earlier on the call, but that's a bit of the run down.
George Tong: On the progression from Q4 to Q1.
But at the same time, continuing to balance that. So, as Jonas said, we want to be prepared for the upturn when it happens. So it's a balance.
Speaker Change: Got it that's helpful and you mentioned, it's difficult to pinpoint one an inflection will happen with revenue.
Jonas Prising: And we want to make sure we have the right sales personnel and the right producers for when that happens. And so we are balancing that carefully. But you did see additional cost takeout in the fourth quarter. And we expect that trend to continue into the first quarter on a trending basis. Thanks so much.
What are the.
Speaker Change: The elements are there how do you think about when operating margins will potentially inflect.
Yes, I would say very much in line with the revenue trends so I.
Speaker Change: <unk>.
Speaker Change: We've done a lot of work on cost actions in the second half of 'twenty three.
Speaker Change: We feel good that that's going to work its way through and preserving margin as we go forward here.
Operator: Please stand by for the next question. The next question comes from Heather Balski with Bank of America. Your line is open. Hi, good morning.
Speaker Change: As you think about those inflection points on revenue Perm is going to be part of the equation, we talked about <unk> when hiring programs commence again.
Jonas Prising: Thank you for taking my question. You talked about the U.S. and some of the signs of stabilization. I'm curious if you can elaborate further on which markets, beyond the U.S., you kind of feel like things have stabilized, and then a little bit more color on what you're looking at to get confidence in things stabilizing, just given all the macro challenges we see right now. Is there any data out there?
Speaker Change: In a bigger way we will see.
Speaker Change: We'd expect to see more our Po activity. The good news is we continue to have.
Speaker Change: Very strong global <unk> clients, when demand and hiring requisitions recommence, we will see a surge in that business when that occurs and as the operational leverage comes back into the business, you'll see us expand our EBITDA margins accordingly, with that so I would say moving very much in line with with revenue too.
Jonas Prising: Is that what you're seeing in the underlying business through January? Is that what you're hearing from your customers? Just helpful to get your thought process. Sure.
Heather, I'll talk to you about that very quickly. So I think you're right. The US is our second biggest business. We did see that stabilize in the second half of the year. I think the other big one, number four business for us, is the UK. The UK went from minus 15% days adjusted to minus 13% in Q4. So slight improvements, and we see underlying stabilization. We expect that to continue based on the guidance that we gave for the first quarter. So I'd say of the bigger markets, those are the two big ones that we saw good stabilization in the second half of 2023. And as I would say on activity levels going into the first quarter, I would say not quite in that same camp, a little bit further decline would be France and Italy, but very modest.
Speaker Change: Trends as we move forward.
Speaker Change: Great. Thanks very much.
Speaker Change: Thanks, everyone and that brings us to the.
Speaker Change: And all of our earnings call for the fourth quarter, we look forward to speaking with all of you again as we report our first quarter results sometime in May until then thanks, everyone.
Speaker Change: This concludes today's conference call. Thank you for participating you may now disconnect.
Okay.
Speaker Change: [music].
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: [music].
So we're not talking about those markets seeing significant pullbacks; we're seeing more gradual easing. And so that's, you know, in our guide that takes France from minus four in Q4 to minus five in Italy and moves from, you know, that minus three days adjusted to a little bit bigger of a decline into the first quarter as well. So those are the main countries when I think about stabilizing the bigger countries we're in. And to your point, I think the second part of your question was about what type of data points would be good to monitor as we look at that potentially changing. I think for the manpower businesses, manufacturing PMIs are always a pretty good read through in terms of demand.
Okay.
Okay.
Speaker Change: Okay.
Speaker Change: [music].
Speaker Change: Yes.
Speaker Change: Yes.
Speaker Change: [music].
Speaker Change: Okay.
And so I'd say, you know, continuing to look at that as we sit here today, Europe continues to be in the 43 to 44 range, so quite below the 50 in the US as well. So I would say that that is important. And then I think on the professional side, it's really going to come down to Jonas's earlier comments on employer confidence in restarting IT projects and related spend. So that's going to come down to, you know, elimination of deferring projects and moving more into scheduling those projects moving forward. So, and as you mentioned earlier, some of that's going to be predicated on overall events in the economy and interest rates and other factors that give employers confidence that we're moving into a more predictable environment. Thank you, it's helpful.
Okay.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Okay.
Jonas Prising: And just as a follow-up question, if something we're at BofA paying attention to is what's going on in the Red Sea and Panama Canal, I'm just curious, have your customers started talking about that at all? Is there any sense of concern, or is it still too early? Overall, Heather, I'd say it's still a bit early. There have been well-publicized circumstances around some of the automotive industry.
And that is well-known, and so that may have an impact. But we'll, and primarily in that case, from our perspective, Germany. But other than that, I think it's a little bit early still, Heather. I appreciate that. Thank you so much.
Jonas Prising: Please stand by for the next question. We will take our last question from George Tong with Goldman Sachs. Your line is open. Hi, thanks. Good morning.
The midpoint of your revenue guide points to a widening rate of constant currency decline, and you talked about weaker economic trends in Europe relative to the U.S. Based on business trends you've seen so far in 1Q, can you elaborate on which regions in Europe are seeing the most amount of incremental softening in revenue? Yeah, George, I'd be happy to talk about that. So, you know, you're right. On a constant currency basis, we do step down from minus five in Q4 to minus six. But I would say days are a big factor in Q1. So when you adjust for billing days, we're actually running very close to the same trend. So days adjusted, organic days adjusted, we were at minus 5% in Q4.
Speaker Change: [music].
Speaker Change: Yeah.
Speaker Change: [music].
Speaker Change: Yes.
And we're also at minus 5% in Q1. But there are puts and takes, and that to your point. So the way I would look at it is the rate of decline improves in the US, as we've talked about earlier, largely due to the fact that we start the anniversary with a bit of a step down from the year before, activity levels relatively stable. And I would say the UK, similar, I would say, similar activity.
Speaker Change: Yes.
Activity levels into Q1, a little more pressure in France and Italy into Q1. I think if you offset that against, you know, favorable trends in APME and LATAM, that kind of gets you to an overall days adjusted, organic, constant currency in line with what we just completed. So a bit of puts and takes. And then I'd say that, you know, the other area where we're seeing a little more pressure is Northern Europe, which we talked about in the Nordics and the Netherlands market that we talked about earlier on the call. But that's a bit of the rundown on the progression from Q4 to Q1. Got it.
That's helpful. And you mentioned it's difficult to pinpoint when an inflection will happen with revenue. What one of the but is that the elements are there.
How do you think about when operating margins will potentially be, Yeah, I would say very much in line with the revenue trend. So, I think. We've done a lot of work on cost actions in the second half of 23. We feel good that that's going to work its way through and preserve margin as we go forward here. As you think about those inflection points on revenue, PERM is going to be part of the equation. We talked about RPO when hiring programs commence again. In a bigger way, we'll see, you know; we would expect to see more RPO activity. The good news is that we continue to have it. Very strong global RPO clients.
When demand and hiring requisitions recommence, we will see a surge in that business when that occurs. And as the operational leverage comes back into the business, you'll see us expand our EBITDA margins accordingly with that. So I would say we are moving very much in line with revenue trends as we move forward.
Great, thanks very much. Thanks, everyone. That brings us to the end of our earnings call for the fourth quarter. We look forward to speaking with all of you again as we report our first quarter results sometime in May. Until then, thanks, everyone. This concludes today's conference call. Thank you for participating. You may now disconnect. Thanks for watching!