See the financial measures section on page 31 for further information on the Non-GAAP financial measures of constant currency and organic constant currency.
Forward-Looking Statements
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Exchange Act of 1934, as amended, (each a "forward-looking statement"). Statements made in this quarterly report that are not statements of historical fact are forward-looking statements. In addition, from time to time, we and our representatives may make statements that are forward-looking. Forward-looking statements are based on management's current assumptions and expectations and are subject to risks and uncertainties that are beyond our control and may cause actual results to differ materially from those contained in the forward-looking statements. Forward-looking statements can be identified by words such as "expect," "anticipate," "intend," "plan," "may," "believe," "seek," "estimate," and other similar expressions. Important factors that could cause our actual results to differ materially from those contained in the forward-looking statements include, among others, the risk factors discussed in Item 1A - Risk Factors in our annual report on Form 10-K for the year-endedDecember 31, 2021 , which information is incorporated herein by reference. Such risks and uncertainties include, but are not limited to, the impacts of the COVID-19 pandemic and related economic conditions and the Company's efforts to respond to such impacts; volatile, negative or uncertain economic conditions, including as a result of the Russia-Ukraine War, any sanction, supply chain disruptions or increased economic uncertainty related to the ongoing conflict; changes in labor and tax legislation in places we do business; failure to implement strategic technology investments; and other factors that may be disclosed from time to time in ourSEC filings or otherwise. We caution that any forward-looking statement reflects only our belief at the time the statement is made. We undertake no obligation to update any forward-looking statements to reflect subsequent events or circumstances.
Business Overview
Our business is cyclical in nature and is sensitive to macroeconomic conditions generally. Client demand for workforce solutions and services is dependent on the overall strength of the labor market and secular trends toward greater workforce flexibility within each of the segments where we operate. Improving economic growth typically results in increasing demand for labor, resulting in greater demand for our staffing services while demand for our outplacement services typically declines. During periods of increased demand, as we experienced in the first quarter of 2022, we are generally able to improve our profitability and operating leverage as our cost base can support some increase in business without a similar increase in selling and administrative expenses. By contrast, during periods of decreased demand, our operating profit is generally impacted unfavorably as we experience a deleveraging of selling and administrative expenses, which may not decline at the same pace as revenues. During the first quarter of 2022, changes in the foreign currency exchange rates had a 5.4% unfavorable impact on revenues from services and an approximately$0.10 per share unfavorable impact on net earnings per share - diluted in the quarter. Substantially all of our subsidiaries derive revenues from services and incur expenses within the same currency and generally do not have cross-currency transactions, and therefore, changes in foreign currency exchange rates primarily impact reported earnings and not our actual cash flow unless earnings are repatriated. To understand the performance of our underlying business, we utilize constant currency or organic constant currency variances for our consolidated and segment results. During the first quarter of 2022, we experienced a 24.8% revenue increase in theAmericas , primarily driven by our acquisition of the ettain group inthe United States in the fourth quarter of 2021, which now operates as part of our Experis brand, and increased demand for our staffing/interim services. We refer to the ettain group acquisition as the "Experis acquisition." During the first quarter of 2022 compared to the first quarter of 2021, revenues increased 1.6% inSouthern Europe due to increased demand inItaly ,Switzerland andIsrael . In the first quarter of 2022 compared to the first quarter of 2021, we experienced a 3.5% revenue decrease inNorthern Europe , primarily due to unfavorable exchange rates. We experienced a 1.5% revenue decrease in APME in the first quarter of 2022 primarily due to the unfavorable currency exchange rate impact, partially offset by the increase in our Manpower staffing/interim and Experis business. 23 -------------------------------------------------------------------------------- From a brand perspective, we experienced revenue decreases in Manpower, and revenue increases in Experis and Talent Solutions during the three months endedMarch 31, 2022 compared to 2021. The revenue decrease in our Manpower brand was due to unfavorable currency exchange rates. On a constant currency basis, Manpower brand experienced improved demand for staffing services and an increase in our permanent recruitment business. In our Experis brand, the revenue increase was primarily due to the Experis acquisition inthe United States , improved demand for our interim services and an increase in our permanent recruitment business. On an overall basis, the revenue increase in our Talent Solutions brand, which includes Recruitment Process Outsourcing (RPO),TAPFIN - Managed Service Provider (MSP) and our Right Management offerings, was driven mostly by increased demand for our RPO and MSP services. Our gross profit margin improved in the first quarter of 2022 compared to the first quarter of 2021 primarily due to a favorable change in business mix and growth in higher margin offerings. This is primarily driven by an increase in our permanent recruitment business of 48.3% (54.8% in constant currency and 51.8% in organic constant currency) during the quarter as a result of stronger hiring activity during the first quarter of 2022 compared to the first quarter of 2021.The increase in gross profit margin was also due to the improvement in our Manpower staffing margins and a higher percentage of revenue mix coming from our higher-margin consulting and MSP services. These increases were partially offset by a lower mix of revenues coming from our higher-margin Right Management career transition business. We recorded a net loss on the sale of ourRussia business of$8.0 million , which was comprised of a$9.7 million loss in selling and administrative expenses, offset by a$1.7 million gain in interest and other expenses. We also incurred acquisition integration costs of$3.7 million in the first quarter of 2022 relating to our Experis acquisition, which closed in the fourth quarter of 2021. Our operating profit increased 40.9% in the first quarter of 2022 while our operating profit margin increased 70 basis points compared to the first quarter of 2021. Excluding the loss of$9.7 million in selling and administrative expenses from the disposition of ourRussia business and acquisition integration costs of$3.7 incurred in the first quarter of 2022, our operating profit was up 54.6% while operating profit margin was up 100 basis points compared to the first quarter of 2021. The operating profit margin increased due to the improvement in our gross profit margin. We continue to monitor expenses closely to ensure we maintain the benefit of our efforts to optimize our organizational and cost structures, while investing appropriately to support the ability of the business to grow in the future and enhance our productivity, technology and digital capabilities. We are focused on managing costs as efficiently as possible in the short-term while continuing to progress transformational actions aligned with our strategic priorities. 24 --------------------------------------------------------------------------------
Operating Results - Three Months Ended
The following table presents selected consolidated financial data for the three
months ended
Constant
Currency
(in millions, except per share data) 2022 2021 Variance Variance Revenues from services$ 5,143.3 $ 4,924.4 4.4 % 9.8 % Cost of services 4,246.2 4,156.3 2.2 % 7.6 % Gross profit 897.1 768.1 16.8 % 22.2 % Gross profit margin 17.4 % 15.6 %
Selling and administrative expenses 758.4 669.7 13.2 % 18.2 % Operating profit
138.7 98.4 40.9 % 49.3 % Operating profit margin 2.7 % 2.0 % Interest and other expenses, net 2.7 5.4 (50.8 )% Earnings before income taxes 136.0 93.0 46.3 % 54.7 % Provision for income taxes 44.4 31.0 43.2 % Effective income tax rate 32.6 % 33.3 % Net earnings$ 91.6 $ 62.0 47.8 % 56.3 % Net earnings per share - diluted$ 1.68 $ 1.11 51.4 % 60.4 % Weighted average shares - diluted 54.4 55.7
(2.3 )%
The year-over-year increase in revenues from services of 4.4% (9.8% in constant currency and 6.5% in organic constant currency) was attributed to:
•
a revenue increase inthe United States of 46.1% (15.2% on an organic basis) primarily driven by our Experis acquisition in the fourth quarter of 2021, increased demand for our staffing/interim services, an increase in our permanent recruitment business of 89.4% (78.0% on an organic basis), including our RPO offering, and increased demand for our MSP offering; and
•
a revenue increase inSouthern Europe of 1.6% (8.4% in constant currency).France , the largest market inSouthern Europe , experienced a revenue increase of 0.3% (7.7% in constant currency), which was primarily due to the increased demand for our Manpower staffing services and a 29.7% increase (39.3% in constant currency) in the permanent recruitment business.Italy , also part ofSouthern Europe , experienced a revenue increase of 10.5% (18.6% in constant currency), which was primarily due to the increased demand for our Manpower staffing services and Experis interim services and a 38.7% increase (49.0% in constant currency) in the permanent recruitment business; partially offset by
•
a revenue decrease inNorthern Europe of 3.5% (increase of 2.0% in constant currency), primarily due to the unfavorable impact of foreign currency exchange rates and the disposition of ourRussia business, partially offset by the 50.9% increase (59.8% in constant currency) in the permanent recruitment business. We experienced revenue decreases in theUnited Kingdom ,Germany andthe Netherlands of 3.1%, 10.1% and 9.1%, respectively (-0.3%, -3.5% and -2.4%, respectively, in constant currency). The decreases were partially offset by revenue increases in the Nordics andBelgium of 8.0% and 0.1%, respectively (15.9% and 7.5%, respectively, in constant currency);
•
a revenue decrease in APME of 1.5% (increase of 6.0% in constant currency) primarily due to the increased demand for our staffing/interim services and a 10.2% increase (17.9% in constant currency) in our permanent recruitment business, partially offset by the unfavorable impact of change in currency exchange rates and the unfavorable impact of approximately one fewer billing day; and
•
a 5.4% decrease due to the impact of changes in currency exchange rates.
25 --------------------------------------------------------------------------------
The year-over-year 180 basis point increase in gross profit margin was primarily attributed to:
•
a 90 basis point favorable change in business mix as the higher-margin permanent recruitment business represented a higher percentage of the revenue mix;
•
a 40 basis point favorable impact from the improvement in the staffing/interim margins;
•
a 30 basis point favorable impact from the Experis acquisition in
•
a 20 basis point favorable impact from the margin improvement in the non-staffing portion of our Experis business; and
•
a 10 basis point favorable impact from direct cost adjustments in
•
a 20 basis point unfavorable change in business mix as the higher-margin Right Management career transition business represented a lower percentage of the revenue mix.
The 13.2% increase in selling and administrative expenses in the first quarter of 2022 (18.2% in constant currency; 13.6% in organic constant currency) was primarily attributed to:
•
a 13.6% increase (18.5% in constant currency and 14.3% in organic constant currency) in personnel costs due to the increase in salary costs related to additional headcount as we invested in incremental recruiters and sales talent to support revenue growth. The increase in salary costs was also due to an increase in variable incentive costs as a result of increased profitability in most markets;
•
a 5.3% increase (10.3% in constant currency and 7.8% in organic constant
currency) in non-personnel related costs, excluding acquisition integration
costs and loss on the sale of our
•
a loss on disposition of our
•
the
•
a 5.0% increase due to the impact of changes in currency exchange rates.
Selling and administrative expenses as a percent of revenues increased 110 basis points in the first quarter of 2022 compared to the first quarter of 2021 due primarily to:
•
a 70 basis point unfavorable impact as personnel costs increased, due to the investment in incremental recruiters and sales talent based on increased market activity, without a similar rate of increase in revenues;
•
a 20 basis point unfavorable impact from the loss on disposition of our
•
a 10 basis point unfavorable impact from the Experis acquisition integration costs incurred in the first quarter of 2022.
26 -------------------------------------------------------------------------------- Interest and other expenses, net is comprised of interest, foreign exchange gains and losses and other miscellaneous non-operating income and expenses, including noncontrolling interests. Interest and other expenses, net was$2.7 million in the first quarter of 2022 compared to$5.4 million in the first quarter of 2021. Miscellaneous income increased to$6.7 million in the first quarter of 2022 from$4.2 million in the first quarter of 2021 primarily due to a translation gain from the sale of a subsidiary and increase in the returns on pension plan assets. We recorded income tax expense at an effective rate of 32.6% for the three months endedMarch 31, 2022 , as compared to an effective rate of 33.3% for the three months endedMarch 31, 2021 . The 2022 rate was favorably impacted by the scheduled reduction in the French corporate tax rate to 25% and a higher level of pre-tax earnings with a more beneficial mix diluting the impact of the French business tax. The 32.6% effective tax rate in the first quarter of 2022 was higher than the United States Federal statutory rate of 21% primarily due to the French business tax, tax losses in certain countries for which we did not recognize a corresponding tax benefit due to valuation allowances, and the overall mix of earnings. Net earnings per share - diluted was$1.68 in the first quarter of 2022 compared to$1.11 in the first quarter of 2021. Foreign currency exchange rates unfavorably impacted net earnings per share - diluted by approximately$0.10 per share in the first quarter of 2022. The net loss from the disposition of ourRussia business in the first quarter of 2022 negatively impacted net earnings per share - diluted by approximately$0.15 in the first quarter of 2022. The acquisition integration costs in the first quarter of 2022 negatively impacted net earnings per share - diluted by approximately$0.05 , net of tax. Weighted average shares - diluted decreased to 54.4 million in the first quarter of 2022 from 55.7 million in the first quarter of 2021. This decrease was due to the impact of share repurchases completed since the first quarter of 2021, partially offset by shares issued as a result of exercises and vesting of share-based awards. 27 --------------------------------------------------------------------------------
Segment Operating ResultsAmericas In theAmericas , revenues from services increased 24.8% (25.7% in constant currency and 6.9% in organic constant currency) in the first quarter of 2022 compared to the first quarter of 2021. Inthe United States (which represents 71% of the America's revenues), revenues from services increased 46.1% (15.2% on an organic basis) in the first quarter of 2022 compared to the first quarter of 2021, primarily driven by the Experis acquisition inthe United States in the fourth quarter of 2021, increased demand for our staffing/interim services, an increase in our permanent recruitment business of 89.4% (78.0% on an organic basis), including our RPO offering, and increased demand for our MSP offering. In Other Americas, revenues from services decreased 8.2% (-5.9% in constant currency) in the first quarter of 2022 compared to the first quarter of 2021 primarily due to decreased demand for our Manpower staffing services and the unfavorable impact of currency exchange rates, partially offset by the increase in our permanent recruitment business of 83.6% (89.5% in constant currency). This decline was driven by a decrease inMexico of 61.6% (61.3% in constant currency) due to labor legislation implemented in the third quarter of 2021 that prohibits the provision of traditional temporary staffing services, only allowing outsourced worker assignments for specialized services outside of the client's core business. Although we believe the new labor legislation will continue to result in significant comparative revenue reductions inMexico over the next two quarters, we believe the shift will improve the margins of ourMexico business over time. OurMexico operations generated approximately 1.9% of our consolidated global revenues for the year endedDecember 31, 2021 . The decline was partially offset by increases inCanada ,Colombia ,Argentina ,Peru andChile of 23.4%, 20.4%, 14.2%, 11.1% and 42.6%, respectively (23.5%, 32.3%, 18.0%, 15.5% and 59.2%, respectively, in constant currency). Gross profit margin increased in the first quarter 2022 compared to the first quarter 2021 primarily due to the Experis acquisition, improvements in the staffing/interim margins, increases in our permanent recruitment business and increases in revenues from our higher-margin MSP and RPO offerings inthe United States . These increases were partially offset by the unfavorable changes in business mix as the higher-margin Right Management career transition business represented a lower percentage of the revenue mix. In the first quarter of 2022, selling and administrative expenses increased 35.6% (36.2% in constant currency and 20.3% in organic constant currency), primarily due to the Experis acquisition, an increase in salary-related costs as a result of a higher headcount as we invested in incremental recruiters and sales talent based on increased market activity. The increase in salary-related costs was also due to an increase in variable incentive costs as a result of increased profitability in certain markets. The increase was also due to acquisition integration costs of$3.7 million incurred in the first quarter of 2022 and an increase in consulting costs related to certain technology initiatives. Operating Unit Profit ("OUP") margin in theAmericas was 5.8% and 4.4% for the first quarter of 2022 and 2021, respectively. Inthe United States , OUP margin increased to 6.6% in the first quarter of 2022 from 4.8% in the first quarter of 2021 primarily due to the Experis acquisition, increased operating leverage, an increase in the gross profit margin and an increase in salary-related costs due to higher headcount, partially offset by the acquisition integration costs incurred in the first quarter of 2022. Other Americas OUP margin increased to 4.0% in the first quarter of 2022 from 3.8% in the first quarter of 2021 primarily due to the gross profit margin improvement. 28 --------------------------------------------------------------------------------
InSouthern Europe , revenues from services increased 1.6% (8.4% in constant currency) in the first quarter of 2022 compared to the first quarter of 2021. In the first quarter of 2022, revenues from services increased 0.3% (7.7% in constant currency) inFrance (which represents 54% ofSouthern Europe's revenues) and increased 10.5% (18.6% in constant currency) inItaly (which represents 20% ofSouthern Europe's revenues). The increase inFrance is primarily due to the increased demand for our Manpower staffing services, although supply chain constraints impacted the demand for our services from our automotive clients, a 29.7% increase (39.3% in constant currency) in the permanent recruitment business, partially offset by the unfavorable impact of changes in currency exchange rates. The increase inItaly was primarily due to the increased demand for our Manpower staffing services and Experis interim services and a 38.7% increase (49.0% in constant currency) in the permanent recruitment business, partially offset by the unfavorable impact of changes in currency exchange rates. In Other Southern Europe, revenues from services decreased 2.1% (2.7% increase in constant currency) during the first quarter of 2022 compared to the first quarter of 2021, due to the unfavorable impact of changes in currency exchange rates, partially offset by increased demand for our Manpower staffing services and an increase in our permanent recruitment business of 37.2% (45.3% in constant currency). Gross profit margin increased in the first quarter of 2022 compared to the first quarter of 2021. The increase was primarily due to the increase in our staffing/interim margins in several markets and the increase of 34.8% (44.1% in constant currency) in the permanent recruitment business. Selling and administrative expenses increased 1.0% (7.8% in constant currency) during the first quarter of 2022 compared to the first quarter of 2021 primarily due to the increase in salary-related costs due to higher headcount to support an increase in revenues in the quarter, and an increase in variable incentive costs as a result of increased profitability in certain markets. The increase is also due to the higher non-personnel related costs to support the growth in revenues and the unfavorable impact of changes in currency exchange rates. OUP margin inSouthern Europe was 4.3% for the first quarter of 2022 compared to 3.4% for the first quarter of 2021. InFrance , the OUP margin was 4.2% for the first quarter of 2022 compared to 3.6% for the first quarter of 2021. The increase inFrance was primarily due to our ability to increase revenues without a similar increase in expenses and the increase in the gross profit margin. InItaly , the OUP margin increased to 6.5% for the first quarter of 2022 from 4.8% for the first quarter of 2021 primarily due to our ability to increase revenues without a similar increase in expenses and the increase in the gross profit margin. OtherSouthern Europe's OUP margin increased to 3.0% in the first quarter of 2022 from 2.0% in the first quarter of 2021, primarily due to the increase in the gross profit margin.
InNorthern Europe , the largest country operations include theUnited Kingdom , the Nordics,Germany ,the Netherlands andBelgium (comprising 38%, 23%, 13%, 10%, and 7%, respectively, ofNorthern Europe's revenues), revenues from services decreased 3.5% (2.0% increase in constant currency and 3.8% in organic constant currency) in the first quarter of 2022 compared to the first quarter of 2021. We experienced revenue decreases in theUnited Kingdom ,Germany andthe Netherlands of 3.1%, 10.1% and 9.1%, respectively (-0.3%, -3.5% and -2.4%, respectively, in constant currency). The decreases were partially offset by revenue increases in the Nordics andBelgium of 8.0% and 0.1%, respectively (15.9% and 7.5%, respectively, in constant currency). The revenue decrease inNorthern Europe was primarily due to the unfavorable impact of changes in currency exchange rates and the sale of ourRussia business, partially offset by increased demand for our Experis staffing services and the 50.9% increase (59.8% in constant currency) in the permanent recruitment business. Gross profit margin increased in the first quarter of 2022 compared to the first quarter of 2021 primarily due to increases in our staffing/interim margins, a direct cost adjustment and the increases in our permanent recruitment business. Selling and administrative expenses increased 10.0% (16.8% in constant currency) in the first quarter of 2022 compared to the first quarter of 2021. The increase is primarily due to the increase in salary-related costs due to higher headcount, the loss on the sale of ourRussia business, and the increases in non-personnel related costs to support the increase in revenues. 29 -------------------------------------------------------------------------------- OUP margin forNorthern Europe decreased to 0.3% in the first quarter of 2022 from 0.4% in the first quarter of 2021.The decrease was primarily due to the loss on the sale of ourRussia business, partially offset by the increase in gross profit margin. APME Revenues from services decreased 1.5% (6.0% increase in constant currency) in the first quarter of 2022 compared to the first quarter of 2021. InJapan (which represents 47% of APME's revenues), revenues from services increased 2.5% (12.5% in constant currency) due to the increase in our Experis business, increased demand for our Manpower staffing services and a 26.0% increase (38.1% in constant currency) in our permanent recruitment business, partially offset by the unfavorable impact of currency exchange rates. InAustralia (which represents 12% of APME's revenues), revenues from services decreased 31.7% (27.1% in constant currency) due to the exit of a low margin client arrangement in the second quarter of 2021. The revenue increase in the remaining markets in APME is primarily due the increased demand for our staffing/interim services and a 10.2% increase (17.9% in constant currency) in our permanent recruitment business, partially offset by the unfavorable impact of change in currency exchange rates and the unfavorable impact of approximately one fewer billing day. Gross profit margin increased in the first quarter 2022 compared to the first quarter 2021 primarily due to the increase in our staffing/interim margins and the increase of 10.2% (17.9% in constant currency, respectively) in our permanent recruitment business. Selling and administrative expenses increased 3.6% (11.3% in constant currency) in the first quarter of 2022 compared to the first quarter of 2021. The increase is primarily due to the increase in salary-related costs due to higher headcount to support an increase in revenues and increase in variable incentive costs as a result of increase in profitability in certain markets, and the increases in non-personnel related costs to support the increases in revenues.
OUP margin for APME increased to 3.1% in the first quarter of 2022 from 3.0% in the first quarter of 2021 due to the increase in the gross profit margin.
30 --------------------------------------------------------------------------------
Financial Measures
Constant Currency and Organic Constant Currency Reconciliation
Changes in our financial results include the impact of changes in foreign currency exchange rates, acquisitions, and dispositions. We provide "constant currency" and "organic constant currency" calculations in this report to remove the impact of these items. We express year-over-year variances that are calculated in constant currency and organic constant currency as a percentage. When we use the term "constant currency," it means that we have translated financial data for a period intoUnited States dollars using the same foreign currency exchange rates that we used to translate financial data for the previous period. We believe that this calculation is a useful measure, indicating the actual growth or decline of our operations. We use constant currency results in our analysis of subsidiary or segment performance. We also use constant currency when analyzing our performance against that of our competitors. Substantially all of our subsidiaries derive revenues and incur expenses within a single country and, consequently, do not generally incur currency risks in connection with the conduct of their normal business operations. Changes in foreign currency exchange rates primarily impact reported earnings and not our actual cash flow unless earnings are repatriated. When we use the term "organic constant currency," it means that we have further removed the impact of acquisitions in the current period and dispositions from the prior period from our constant currency calculation. We believe that this calculation is useful because it allows us to show the actual growth or decline of our ongoing business. The constant currency and organic constant currency financial measures are used to supplement those measures that are in accordance with United States Generally Accepted Accounting Principles ("GAAP"). These Non-GAAP financial measures may not provide information that is directly comparable to that provided by other companies in our industry, as other companies may calculate such financial results differently. These Non-GAAP financial measures are not measurements of financial performance under GAAP, and should not be considered as alternatives to measures presented in accordance with GAAP. Constant currency and organic constant currency percent variances, along with a reconciliation of these amounts to certain of our reported results, are provided below: Three Months Ended March 31, 2022 Compared to 2021 Impact of Acquisitions Organic Constant and Dispositions Constant Reported Reported Impact of Currency (In Constant Currency Amount(a) Variance Currency Variance Currency) Variance
Revenues from services:Americas : United States 889.4 46.1 % - 46.1 % 30.9 % 15.2 % Other Americas 361.8 (8.2 )% (2.3 )% (5.9 )% - (5.9 )% 1,251.2 24.8 % (0.9 )% 25.7 % 18.8 % 6.9 %Southern Europe : France 1,192.4 0.3 % (7.4 )% 7.7 % - 7.7 % Italy 445.0 10.5 % (8.1 )% 18.6 % - 18.6 % Other Southern Europe 556.5 (2.1 )% (4.8 )% 2.7 % - 2.7 % 2,193.9 1.6 % (6.8 )% 8.4 % - 8.4 % Northern Europe 1,094.5 (3.5 )% (5.5 )% 2.0 % (1.8 )% 3.8 % APME 618.2 (1.5 )% (7.5 )% 6.0 % - 6.0 % 5,157.8 Intercompany Eliminations (14.5 ) Consolidated 5,143.3 4.4 % (5.4 )% 9.8 % 3.3 % 6.5 % Gross Profit 897.1 16.8 % (5.4 )% 22.2 % 5.6 % 16.6 % Selling and Administrative Expenses 758.4 13.2 % (5.0 )% 18.2 % 4.6 % 13.6 % Operating Profit 138.7 40.9 % (8.4 )% 49.3 % 12.9 % 36.4 % (a)
In millions for the three months ended
31 --------------------------------------------------------------------------------
Liquidity and Capital Resources
Cash used to fund our operations is primarily generated through operating activities and provided by our existing credit facilities. We believe our available cash and existing credit facilities are sufficient to cover our cash needs for the foreseeable future. We assess and monitor our liquidity and capital resources globally. We use a global cash pooling arrangement, intercompany borrowing, and some local credit lines to meet funding needs and allocate our capital resources among our various entities. As ofMarch 31, 2022 , we had$703.0 million of cash held by foreign subsidiaries. We have historically made and anticipate future cash repatriations tothe United States from certain foreign subsidiaries to fund domestic operations. Cash provided by operating activities was$70.6 million and$140.9 million during the three months endedMarch 31, 2022 and 2021, respectively. Changes in operating assets and liabilities utilized$66.1 million of cash during the three months endedMarch 31, 2022 compared to$58.9 million generated during the three months endedMarch 31, 2021 . These changes were primarily attributable to the decrease in accounts payable due to timing. Accounts receivable decreased to$5,440.0 million as ofMarch 31, 2022 from$5,448.2 million as ofDecember 31, 2021 due to the impact of changes in currency exchange rates. Days Sales Outstanding ("DSO") increased by two days to 57 days as ofMarch 31, 2022 fromDecember 31, 2021 due to higher activity levels and to unfavorable mix changes, with higher growth in countries with a higher average DSO. The nature of our operations is such that our most significant current asset is accounts receivable and our most significant current liabilities are payroll related costs, which are generally paid either weekly or monthly. As the demand for our services increases, as we experienced during the three months endedMarch 31, 2022 , we generally experience an increase in our working capital needs, as we continue to pay our associates on a weekly or monthly basis while the related accounts receivable is outstanding for much longer, which may result in a decline in operating cash flows. Conversely, as the demand for our services declines, we generally experience a decrease in our working capital needs, as the existing accounts receivable are collected and not replaced at the same level, resulting in a decline of our accounts receivable balance, with less of an effect on current liabilities due to the shorter cycle time of the payroll related items. This may result in an increase in our operating cash flows; however, any such increase would not be expected to be sustained in the event that an economic downturn continued for an extended period. Capital expenditures were$19.4 million for the three months endedMarch 31, 2022 compared to$12.7 million for the three months endedMarch 31, 2021 . These expenditures were primarily comprised of purchases of computer equipment, office furniture and other costs related to office openings and refurbishments, as well as capitalized software costs. The higher expenditures in 2022 compared to 2021 are primarily due to additional technology investments and the timing of capital expenditures. From time to time, we acquire and invest in companies throughout the world, including franchises. No cash consideration was paid during the three months endedMarch 31, 2022 . For the three months endedMarch 31, 2021 , the total cash consideration paid for acquisitions, net of cash acquired, was$12.9 million , which represents consideration payments for franchises inthe United States and contingent consideration payments related to previous acquisitions. Occasionally, we dispose of parts of our operations based on risk considerations and to optimize our global strategic and geographic footprint and overall efficiency. OnJanuary 17, 2022 , we disposed of ourRussia business in ourNorthern Europe segment for cash proceeds of$3.2 million and simultaneously entered into a franchise agreement with the new owner of theRussia business. In connection with the disposition, we recognized a one-time net loss on disposition of$8.0 million . 32 -------------------------------------------------------------------------------- Net debt payments were$28.0 million in the three months endedMarch 31, 2022 , as compared to net debt borrowings of$2.8 million in the three months endedMarch 31, 2021 . The 2022 payments include a$25.0 million repayment into our revolving debt facility, against which we had outstanding borrowings of$75.0 million as ofDecember 31, 2021 related to the Experis acquisition. We intend to repay the remaining$50.0 million over the next six months. Our €500.0 million notes and €400.0 million notes are dueJune 2026 andSeptember 2022 , respectively. We plan to refinance the €400.0 million notes. When the €500.0 million notes mature, we plan to either repay the amounts with available cash or borrowings under our$600.0 million revolving credit facility or a new borrowing. The credit terms, including interest rate and facility fees, of any replacement borrowings will be dependent upon the condition of the credit markets at that time. We currently do not anticipate any problems accessing the credit markets upon replacement of either the €500.0 million or €400.0 million notes. As ofMarch 31, 2022 , we had$50.0 million borrowings and letters of credit of$0.4 million issued under our$600.0 million revolving credit facility. Additional borrowings of$549.6 million were available to us under the facility as ofMarch 31, 2022 . The$600.0 million revolving credit agreement requires that we comply with a leverage ratio (Net Debt-to-Net Earnings before interest and other expenses, provision for income taxes, intangible asset amortization expense, depreciation and amortization expense ("EBITDA")) of not greater than 3.5 to 1 and a fixed charge coverage ratio of not less than 1.5 to 1. As defined in the agreement, we had a Net Debt-to-EBITDA ratio of 0.92 to 1 and a fixed charge coverage ratio of 5.56 to 1 as ofMarch 31, 2022 . Based on our current forecast, we expect to be in compliance with our financial covenants for the next 12 months. In addition to the previously mentioned facilities, we maintain separate bank credit lines with financial institutions to meet working capital needs of our subsidiary operations. As ofMarch 31, 2022 , such uncommitted credit lines totaled$340.9 million , of which$319.7 million was unused. Under the Credit Agreement, total subsidiary borrowings cannot exceed$300.0 million in the first, second and fourth quarters, and$600.0 million in the third quarter of each year. Due to these limitations, additional borrowings of$278.8 million could have been made under these lines as ofMarch 31, 2022 . We have assessed our liquidity position as ofMarch 31, 2022 and for the near future. As ofMarch 31, 2022 , our cash and cash equivalents balance was$777.3 million . We also have access to the previously mentioned revolving credit facility that could have immediately provided us with up to$600.0 million of additional cash, of which just$50.0 million was used as ofMarch 31, 2022 , and we have an option to request an increase to the total availability under the revolving credit facility by an additional$200.0 million and each lender may participate in the requested increase at their discretion. In addition, we have access to the previously mentioned credit lines of up to$300.0 million ($600.0 million in the third quarter) to meet the working capital needs of our subsidiaries, of which$278.8 million was available to use as ofMarch 31, 2022 . Our €500.0 million notes and €400.0 million notes that total$992.7 million as ofMarch 31, 2022 mature inJune 2026 andSeptember 2022 , and we plan to refinance the €400.0 million note in 2022. Based on the above, we believe we have sufficient liquidity and capital resources to satisfy future requirements and meet our obligations currently and in the near future. The Board of Directors declared a semi-annual dividend of$1.36 and$1.26 per share, respectively, onMay 6, 2022 andMay 7, 2021 , respectively. The 2022 dividends are payable onJune 15, 2022 to shareholders of record as ofJune 1, 2022 . The 2021 dividends were paid onJune 15, 2021 to shareholders of record as ofJune 1, 2021 . InAugust 2021 , the Board of Directors authorized the repurchase of 4.0 million shares of our common stock, with terms consistent with the previous authorizations. This authorization was in addition to theAugust 2019 Board authorization to purchase 6.0 million shares of our common stock. Share repurchases may be made from time to time through a variety of methods, including open market purchases, block transactions, privately negotiated transactions or similar facilities. During the first quarter of 2022, we repurchased a total of 0.6 million shares under the 2019 authorization at a cost of$59.9 million . During the first quarter of 2021, we repurchased a total of 1.1 million shares under the 2019 authorization at a cost of$100.1 million . As ofMarch 31, 2022 , there were 4.0 million and 0.6 million shares remaining authorized for repurchase under the 2021 authorization and 2019 authorization, respectively. We had aggregate commitments of$2,061.7 million as ofMarch 31, 2022 related to debt, operating leases, severances and office closure costs, transition tax resulting from the Tax Act and certain other commitments compared to$2,156.7 million as ofDecember 31, 2021 . 33 -------------------------------------------------------------------------------- We also have entered into guarantee contracts and stand-by letters of credit totaling$766.4 million and$769.3 million as ofMarch 31, 2022 andDecember 31, 2021 , respectively ($718.8 million and$717.7 million for guarantees, respectively, and$47.6 million and$51.6 million for stand-by letters of credit as ofMarch 31, 2022 andDecember 31, 2021 , respectively). The guarantees primarily relate to staffing license requirements, operating leases and indebtedness. The stand-by letters of credit mainly relate to workers' compensation inthe United States . If certain conditions were met under these arrangements, we would be required to satisfy our obligations in cash. Due to the nature of these arrangements and our historical experience, we do not expect any significant payments under these arrangements. Therefore, they have been excluded from our aggregate commitments. The cost of these guarantees and letters of credit was$0.4 million and$0.5 million for the three months endedMarch 31, 2022 and 2021, respectively. We did not record any restructuring costs during the three months endedMarch 31, 2022 or 2021. During the three months endedMarch 31, 2022 , we made payments of$3.2 million out of our restructuring reserve, which is used for severances and office closures and consolidations in multiple countries and territories. We expect a majority of the remaining$20.1 million reserve will be paid by the end of 2022. 34
--------------------------------------------------------------------------------
Recently Issued Accounting Standards
See Note 2 to the Consolidated Financial Statements.
© Edgar Online, source