ManpowerGroup Inc. (MAN) on Q2 2021 Results - Earnings Call Transcript
Operator: Welcome to ManpowerGroup Second Quarter Earnings Results Conference Call. At this time, all participants are in a listen-only mode until the Q&A session of today's conference. This call will be recorded. If you have any objections, please disconnect at this time. And now I will turn the call over to ManpowerGroup Chairman and CEO, Jonas Prising. Sir, you may begin.
Jonas Prising: Welcome to the second quarter conference call for 2021. Our Chief Financial Officer, Jack McGinnis, is on the call with me today. And for your convenience, we have included our prepared remarks within the Investor Relations section of our website at manpowergroup.com.
Jack McGinnis: Good morning, everyone. This conference call includes forward-looking statements, including statements regarding the impact of the COVID-19 pandemic, which are subject to known and unknown risks and uncertainties. These statements are based on management's current expectations or beliefs. Actual results might differ materially from those projected in the forward-looking statements. We assume no obligation to update or revise any forward-looking statements. Slide 2 of our earnings release presentation further identifies forward-looking statements made in this forward-looking statements made in this call and factors that may cause our actual results to differ materially and information regarding reconciliation of non-GAAP measures.
Jonas Prising: Thanks, Jack. Halfway through 2021, I am increasingly optimistic about the strength of the global recovery. As vaccine rollouts gain momentum and lockdown restrictions ease, we're seeing dramatic increases in hiring optimism. The pace of the recovery is strong, with the hiring intent picking up much faster than after the previous economic downturn, and although the recent infection increases are concerning, we do not believe they will materially impact the positive recovery trajectory. I spent a considerable amount of time during the second quarter in Europe with our market leaders, teams and clients. This included time with our French team at Viva Tech, one of the world's largest technology conferences in Paris, which I will talk about later as part of our innovation update. And together with other global leaders, I also spent time with President Macron and his government at the Choose France event. I believe that the future for France looks bright as the government continues on its path to make France more competitive, and our business is very well positioned to benefit as their economy grows. It is clear from my discussions with clients that demand is coming back very strongly for our services across all of our brands. This is evidenced in temporary and permanent placement activity as well as demand for workforce solutions. Companies increasingly need our help in finding and reskilling talent to enable them to leverage the fast-improving economic recovery and accelerate the digital transformation to emerge stronger post pandemic.
Jack McGinnis: Thanks, Jonas. Revenues in the second quarter came in at the high end of our constant currency guidance range. Gross profit margin came in well above our guidance range. Operating profit was $170 million, representing a significant increase from the prior year period, which was heavily impacted by the pandemic. Operating profit margin was 3.2%, which was 80 basis points above the midpoint of our guidance. Breaking our revenue trend down into a bit more detail, after adjusting for the positive impact of currency of about 10%, our constant currency revenue increased 31%. As the impact of net dispositions and slightly more billing days was very minor, the organic days-adjusted revenue increase was also 31%. Comparing to pre-pandemic revenues, our second quarter revenues were below 2019 levels by 4% on an organic days-adjusted constant currency basis representing a 1.5% improvement from the first quarter trend on this same basis.
Jonas Prising: Thanks, Jack. We continue to invest in technology and are making great progress on our acceleration plans to Diversify, Digitize, and Innovate. Starting with diversification, we have been recognized again for our award-winning RPO business within our Talent Solutions brand, scoring highly for our strong tech ecosystem, our consulting capabilities, data- driven solutions and business intelligence. This is the 11th year we have been named a global leader in RPO in the Everest Group PEAK Matrix Assessment. We have also just been named MSP leader for the eighth consecutive year by Everest recognizing us at the top in market impact. They also recognized our global leadership and tech as well as our workforce strategies, data-driven approach and scope of solutions including Right Management and our consulting capabilities. I congratulate our Talent Solutions colleagues for our leadership in the RPO and MSP space which is an important component of our diversification strategy to grow higher margin higher value business. Next, on digitization, we continue to rapidly execute our technology and web transformation. Our PowerSuite tech stack is helping us to grow our competitive advantage, as we shift to cloud platforms improving our customer experience while streamlining our candidate management. Our approach ensures we are always current, able to plug in with the best tech and the capability to scale, while turning our data into a key asset. We continue to move at speed. 19 market deployments have been completed and another 16 are in flight. We look forward to providing a further update on this at year end. We are also making great progress in Innovation. In June, we joined the biggest names in tech at the world-famous Viva Technology conference in Paris. As the conference’s only HR partner since its launch five years ago, this is a great opportunity for us to showcase our newest innovation and work with more than 30 HR start- ups on how we’re using AI, machine learning and data-driven predictive performance tools, together with our human expertise to upskill people at speed and scale and match people to jobs with better accuracy and speed than either humans or machines could do on their own. Building a better, brighter future of work requires bold, disruptive ideas and collaboration across business, government, and education. This is how we will create sustainable skills, resilient communities, and greater prosperity for all. I would now like to open the call for Q&A. Operator?
Operator: The first question came from the line of Andrew Steinerman of JPMorgan. Your line is now open.
Andrew Steinerman: Good morning, Jonas. This is Andrew. I wanted to ask you if you felt like we were at the beginning of a new economic expansion cycle. I definitely took note of your U.S. comments where you've said demand for your labor feels stronger than expected in a typical economic recovery. And then I heard the caveat that the supply, at least through the summer months, seemed more constrained than a typical economic recovery. And so my question is for the U.S. and for Europe, do you feel like this is the beginning of an economic expansion where temporary Health really benefits for a couple of years? Or do you feel like you were going to kind of get back to where we were in 2019?
Jonas Prising: Andrew, and yes, it's a great question. And our view would be twofold. First of all, there are some anomalies in terms of how we got into the economic recession and how we're getting out of that economic recession. So, the speed of the downturn, the speed of the recovery, the supply shortages that we're seeing in the U.S. and frankly, also in other countries for various reasons as we spoke about in our prepared remarks, but our feeling is that all of this leads to the beginning of a new economic cycle. And we are seeing stepping back from some of these anomalies really the signs of what that would look like. And to your point around the increased demand for strategic and operational flexibility, we truly believe that our penetration rates will continue to improve and will surpass prior peak levels from the previous cycle. Because if you ever needed a reminder of the benefit of flexibility both in terms of increasing the need for workforce adjusting to an unexpected event. But longer term, adjusting to structural changes with skills changing as companies want to make sure they have the skill sets in the workforce to take advantage of technological progress and other structural drivers, we really feel that this is going to be a question of long-term demand for our services and solutions over this new economic cycle.
Andrew Steinerman: Right. And just to make a comment about supply. Do you feel like supply will improve in the United States as we get into the fall?
Jonas Prising: Well, from what we can see today, workers clearly still have health concerns; they have child care concerns; and we have a very significant stimulus package and unemployment benefits that for the most part, at least in terms of the additional unemployment benefits, will terminate around the 6th of September for a lot of states. Some of them already have ended those additional benefits. And we feel that this has been a factor in the supply of the workforce back into the labor markets. And of course, we're also hopeful that vaccination rates will continue to improve. And those two, in combination, we believe, will increase the supply of workers into the labor market so that we can see normalize over the coming quarters.
Operator: Thank you. And our next question is from the line of Jeff Silber of BMO Capital Markets. Your line is now open.
Jeff Silber: Thank you so much. Along the lines of the supply constraints, is there anything you're doing on your own proactively to try to mitigate that that might have been different now than it has been in the past?
Jonas Prising: We are really adjusting to the supply constraints that we see by offering upskilling and reskilling opportunities for our existing associates, and that's under the program called MyPath, where we have the ability to take our existing associates on assignment, retain them by offering them progression in terms of the skills and the job opportunities that we have. And of course, all kinds of other measures that we can, whether it's referral bonuses, assignment completion bonuses, all of those in collaboration with our clients are clearly measures that we're taking to attract and retain the associates that we have on assignment. And I would say, this is something that we're seeing not only in the U.S., but it's also, to a lesser degree, evident in Europe. But as I mentioned in my earlier remarks, we really see this as a temporary effect and an anomaly following the pandemic. And we expect it to normalize over the coming quarters and really expect to see some changes for the U.S. The additional unemployment benefits are running out in September. So we would expect the situation to improve because we feel that there is ample supply, but it's being held back for various reasons, and those reasons will dissipate over time.
Jeff Silber: Okay. Fair enough. In looking at your operating margin guidance for the third quarter, it looks like the revenues compared to 3Q 2019 should be higher, yet your operating margin guidance of 3% to 3.2% is lower than 3Q '19's 3.6%. Is there something structurally going on now? Or are you just maybe being a little bit more conservative?
Jack McGinnis: Yes, this is Jack. I'd be happy to take that. So we did say at the end when we gave the third quarter guide, when you compare it to 2019, we're still below. So we were down. I think the range we provided was down minus 1% to minus 3%. So just to clarify that, that was still below 2019. So at the midpoint, that's about 2% below 2019 levels. And I think the -- if you think about our biggest businesses, France, we mentioned was still below by 12% in the second quarter. That's going to improve in the third quarter, but they'll still be below by 5% from 2019 levels. So that's the biggest business we have 25% of our revenues, and that's having an impact. The good news is the operating margin is definitely improving on an underlying basis. As I look at the second quarter, we did talk about the accrual adjustment we had in France that added about 20 basis points. If you take that out, our 3.2 is about 3.0. And if you look at the guidance into the third quarter, that improves to the 3.1%. So we are seeing sequential underlying improvement. And in the U.S., we mentioned it's still below 2019. And we think with the forecast for the third quarter, we're going to continue to narrow that gap as well. So those are the top two businesses. The good news is we are making progress in narrowing that gap. And on an underlying basis, if you look back, first quarter, we were down from 2019, about 5.5%. Second quarter, as we mentioned, we were down about 4%. So we saw that ongoing improvement. And we're projecting another 2% improvement to minus 2% in the third quarter versus 2019. So quarter-by-quarter, we continue to narrow that gap, and you should expect that our operating profit margin will continue to improve with that same trend.
Jeff Silber: Okay. I must have been looking at U.S. dollars only. Thank you for the clarification. I appreciate it.
Jack McGinnis: Sure.
Operator: Thank you. The next question is from the line of Hamzah Mazari of Jefferies. Your line is now open.
Mario Cortellacci: This is Mario Cortellacci filling in for Hamzah. Could you just comment on how much of your margin target of the 4.5% to 5% is based on further upside from leveraging gross margins? I guess, specifically, how much more room is there to increase exposure to midsized customers versus enterprises or to drive that higher margin solutions and professional staffing mix? Just wondering where you are in that journey.
Jonas Prising: Sure. So I'd be happy to talk about that. So maybe first, I'll just say we are definitely still committed to the 4.5% to 5% EBITDA margin target more than ever. I think we're very encouraged by the progress we've been making in this recovery quarter-over-quarter in terms of operating profit margin. And what I'd say is how we're going to get there to your question is, certainly GP margin is going to be part of the equation. I think what we saw this quarter was good GP margin development. Perm came back very, very strongly this quarter. You can see the impact that, that had in our GP margins. And I would say the permanent hiring market is very, very strong in our largest markets right now. So we talked about Italy. We talked about the U.S. The U.K. is coming back and narrowing that gap to pre-pandemic levels. So GP margin mix is going to be part of the equation. You mentioned Solutions and Experis. That is definitely part of our road map to improve the contribution from those businesses. And this quarter was a great example of the opportunity there. So both Talent Solutions and Experis growing very, very strongly, and that trend, we expect that trend to continue into the third quarter as well. So improving the mix, the contribution from those businesses going forward will definitely help. And to your point on convenience, so we have the large enterprise, which, definitely from a mix shift, was part of what we saw in 2020, became a bigger part. And the convenience market, which is higher margin, is coming back, and we saw that start to happen in the U.S. The U.S. had very, very good GP margin improvement during the quarter. And we expect convenience to continue to come back. And I think that's -- there's more to go in that regard, and that's going to help us be an additional tailwind in improving our staffing margin going forward as well. So I think all of those factors are going to be issues that are going to be initiatives that are going to help us increase GP margin. And along the same time, we've talked to a great extent about the technology investments we're making. Those technology investments are increasing our recruiter productivity. That's going to help our GP margin as well, and that's going to help our overall efficiency. So that, along with our other cost transformation initiatives, which we've talked about in the past in terms of our back-office initiatives and other items, all of those are going to be part of the mix to continue to improve our operating profit margin progressively going forward.
Mario Cortellacci: Great. And then just my follow-up is on the bill pay rates. Could you walk us through maybe what you're seeing right now on those bill pay rates across your portfolio? Maybe you can talk us through how you're thinking about labor inflation and the impact on your business? And then maybe just as supply comes back into the market, how that labor inflation and to the timing of what you're expecting on that normalizing?
Jonas Prising: Well, from a -- as a starting point, Mario, wage inflation is generally good for our business as we're able to increase our bill rates in line with at least that wage inflation. And we are seeing some good pay bill gap expansion in a number of markets, notably the U.S. and Japan. And we are seeing, especially for a number of manpower skill sets, some very strong wage inflation right now. As I'm sure you've also seen a lot of the efforts from employers to attract and retain their employees also come not only with wage increases, but also onetime bonuses, be they referral retention and those kinds that are of a onetime nature so that wage inflation doesn't get out of hand. Because employers are very well versed on what it is that they can pay to be competitive in the market. And whilst we are seeing a spike a little bit in some of those wages, in some of the skill sets over time, we think that wage inflation will moderate and more accurately reflect then also an improved supply into the labor market as the lingering effects of the pandemic, and the stimulus initiatives start to wear off and you get a little bit more of a normalized labor market dynamic. So we are seeing slightly higher wage inflation, in particular, for some manpower skills, but we feel that this will get adjusted over time to a more normalized level there as well.
Operator: Thank you. And the next question is from the line of Mark Marcon of Baird. Your line is now open.
Mark Marcon: Good morning Jonas and Jack. I got few different questions. One, Jonas, you mentioned, you made some fairly positive comments with regards to France from a longer-term perspective Wondering, if you can just discuss some of the things that are giving you reason for optimism with regards to just France becoming more competitive in general?
Jonas Prising: Thanks Mark. Yes. No, I think we've been very positive on France for a while. If you recall, the structural reforms that France has implemented as it relates to our industry from a labor market perspective that have had a positive effect. But the overriding ambition of France and the French administration is to make France more competitive in a global economy. And that means lowering tax rates, making sure their labor costs are in line with their closest competitors in Europe and globally and directing investments into areas that they believe are fast-growing parts of the economy. So having had the opportunity to spend some time with President Macron and his government, along with other global leaders a few weeks ago in France, it is a program that they also intend to promote going forward. And that, we believe, is a very positive sign. We think they have further opportunities, a number of areas to address labor markets, making them even more competitive as well as further investments in infrastructure and specific sectors. And all of this taken together gives us a great deal of optimism as it relates to France's role and the opportunities that we will have as ManpowerGroup in France to see our business continue to grow.
Mark Marcon: Great. And then can you talk a little bit about what you're seeing in the U.K. on a monthly or a weekly basis? Obviously, they're further along in terms of the new wave with regards to Delta and the impact there in terms of the number of cases, how is that translating to actual demand on the Street? And what does that portend for the rest of the world?
Jack McGinnis: Yes. Mark, this is Jack. I'd be happy to talk to that. So I would say, the U.K. has actually been performing very, very well despite the issues with the Delta variant that we've seen start to increase more recently. And if I look at that trend, I think the year-over-year monthly trends aren't overly helpful because of the prior year was really the depth of the pandemic. But what I would say, when you compare to 2019 levels, the U.K. has actually been above 2019 levels in both the first quarter and the second quarter, and we expect that to continue. And the U.K. has actually won some significant new business as well, which is great. So I would say it hasn't really been a big factor in our business in the U.K. And the outlook continues to look very strong in terms of demand from our customers in the U.K. I did mention perm, and the U.K. made some good progress in perm recruitments in the second quarter as well, still not quite back to pre-pandemic, but definitely narrowing the gap quite significantly. So I'd say on an overall basis, on the U.K. business, it's actually been performing very well despite the recent increases in the Delta variant.
Mark Marcon: Great. And then last question is just with regards to gross margins, I mean, really nice improvement here in the second quarter. It's been a few years since we've achieved this level. And I know we had the 20 basis point improvement from the accruals in France in terms of the reversal. But when I take a look at the performance, and then I take a look at the midpoint of the guidance for the third quarter, is that conservatism? Or is it perhaps mixed in terms of maybe places like France becoming a little bit bigger of a part of the mix? Or how should we think about the guidance for gross margins for the third quarter relative to the second quarter?
Jack McGinnis: Yes. Good question, Mark. I would say, it's generally in line with what we're seeing on an underlying basis currently. So to your point, 16.3% in Q2 take out the accrual adjustment that we called out for 20 basis points. So, on an underlying basis, 16.1%, we're guiding to 16.0% next quarter that 10 basis points is largely a bit of a mix. Remember, in the third quarter, we do have the holiday impact in some of our European countries that put a little pressure on our bench as a result of that. So we -- it's not uncommon to see a little bit of pressure from the second quarter to the third quarter in those markets. But on an overall basis, I'd say generally in line and still, we expect good underlying positive momentum on staffing margin going into the next quarter.
Operator: Thank you. And the next question is from the line of Kevin McVeigh of Credit Suisse. Your line is now open.
Kevin McVeigh: I guess in regard to kind of where we are in the cycle, I guess, Jack, are you -- obviously, you've done a much better job with margins this cycle. Is there any way to think about how we should think about just longer term, the impact on margins as we transition through the next up cycle? I mean you're able to hold on to a lot more of the margin in this downturn as opposed to prior cycles? So how should we think about that as we're working our way through this upturn?
Jack McGinnis: Thanks, Kevin. So I'd say this is a bit related to the previous discussion, I think, we've had in terms of our margin target. And to your point, and a bit related to our views on the cycle in terms of the economic recovery and the opportunity going forward. So I would say we're very pleased by the margin progression that we've seen over the last few quarters. I think if you think about the opportunity to continue that, I think perm, very, very strong this quarter. We actually are back to 2019 levels in perm organically, which is great to see, so very strong. The perm contribution to margin is significant, and that is going to be an opportunity for us as we go forward. And we've been investing in that. We've been investing in perm consultants in some of our key markets, and we're starting to see really good results as a result of that investment. So as we look forward, I would say our GP margin initiatives, combined with the technology agenda that we've been implementing, and as Jonas mentioned, we're making very, very good progress on the technology agenda. We've been implementing at speed on plan, and those are all proceeding very, very well. So when we get to the end of this year, we'll really be down to just a handful of markets that don't -- that we'll be implementing the new front-office system. And we'll be very, very well positioned to continue to see the improvement from that recruiter efficiency going forward. So I would say we're very optimistic about the opportunity to march to that EBITDA margin target. And one step at a time, and once we get to that, we'll talk more about what's next. But I think, as Jonas said earlier, we look at this economic recovery as having some real legs and some real momentum, particularly in the manufacturing sector that we've talked a lot about that really impacted our business quite significantly in the second half of 2018 and 2019. And we think that, that's going to have a good run going forward as well. So I think all of those factors give us the confidence that we have a very, very good opportunity to improve our operating profit margin over the medium term here.
Kevin McVeigh: That helps. And then, Jack, any thought as to kind of length of assignments, just given the tightness of supply of people keeping candidates on assignment a little bit longer? Just anything you can call out in terms of client conversations around tone just as we're thinking about near-term trends?
Jack McGinnis: I'd say, Kevin, that the clients and us are very focused on keeping our associates on assignment. But as you can imagine, it's a very tight labor market. So the competition for talent is high. So we probably see more churn than we would normally do. But on the other hand, we've been able to manage it well. And this is our business, and we know how to recruit and attract and retain people. So I think it depends, of course, on where you are in the world. But overall, it is a tight supply market from a workforce perspective, but we are managing to mitigate those impacts reasonably well, I would say.
Operator: Thank you. And the next question is from the line of Tobey Sommer of Truist Securities. Your line is now open.
Jasper Bibb: Good morning. This is Jasper Bibb on for Tobey. I wanted to follow up on margin guidance and where the Company is in the process of bringing back SG&A. Like should we be looking for more SG&A in the fourth quarter as 3Q guidance pretty close to what the cost base can look like there going forward?
Jack McGinnis: Jasper, this is Jack. So I would say what you've seen us do during the pandemic, we took cost down very sharply to manage our recovery ratio, and we did that very well. And now in the recovery, we've been investing in that growth. And so when I look back at the first quarter, our FTEs were still down year-over-year, about 3%. On average, in the second quarter, when we compare the second quarter to the first quarter, we're up about 3% in FTEs. And I would expect, as demand continues to improve and we continue to recover, you should expect that we will be continuing to invest in that. I think the key will be that we're managing that very carefully. So during the pandemic, we talked a lot about the recovery ratio. Now it's all about GP flow-through. So that incremental GP year-over-year, we're seeing a good amount of that fall down to the bottom line. And so we will continue to invest, but we'll do that carefully to ensure that we continue to get good GP flow-through going forward. So you should expect that we will continue to take costs up with that increase in GP dollars coming through, but we'll do that carefully to ensure there's still good flow-through down to operating profit dollars.
Jasper Bibb: And then with respect to Talent Solutions and what's driving your new client wins there, beyond like a cyclical rebound, do you think more clients are looking to adopt solutions like RPO or MSP as they rethink their cost structures, talent management programs, et cetera? Folks got it.
Jonas Prising: Talking to our clients, Jasper, they are clearly indicating that, yes, right now, they have a significant need. But the sudden onset of the pandemic also reminded them of the need to have flexibility, both ramping down and ramping up. So we really see this as another impetus for market penetration in terms of human capital outsourcing solutions, such as our RPO offerings and our offerings under the Talent Solutions brand. So we've been very encouraged by the progress, and based on those offerings and talent solutions as a whole is now above 2019 levels because of the strong resurgence of RPO and the continued very strong progress of our MSP offering. So we think that this is certainly benefiting from the cyclical rebound, but in terms of the new client wins we had and that we talked about in prior quarters that were of scale during the pandemic and our current pipeline, we feel very good about the progress that we've made and the outlook for Talent Solutions going forward as well.
Operator: Thank you. And the next question is from the line of Gary Bisbee of Bank of America Securities. Your line is now open.
Gary Bisbee: Hi, guys. Good morning. So the first question, it's interesting that Italy, and I think you just said the U.K. are ahead of 2019, a few markets, it looks like in other Americas clearly ahead, but yet a lot of markets are well behind. Is that just market factors? And sort of what are the key variables determining how quickly the business has come back versus 2019? And what are the gating factors, if any, to some of those trending more like the ones that are already ahead?
Jonas Prising: The starting point is probably the depths and the degree to which they were hit during the pandemic. So as Jack noted earlier, France is making its way back to 2019 levels, but also their hit and how deep they went is, from our industry perspective, the steepest decline of all countries globally. So the starting point would be how deep and how hard was the market hit, and after that, you have specific market conditions, what are the strengths of various sectors compared to others and what was the severity of the lockdowns and how much was business impacted and how quickly were those lockdowns released. And then finally, what is the confidence and the speed around the vaccination rates, and those are the things that, combined, make certain markets recover a little bit quicker. But I would say the most important aspect of this is how deep did the market drop initially? And then how quickly are they able to make their way back? That would sort of be, on average, the reason why you see some disparity. But having said all of that, as we noted in our prepared remarks, the recovery is broad-based across markets and industries, manufacturing and services. So it is -- that is a common factor across all of the markets where we operate and the speed of the recovery against, especially 2019, depends a bit on those factors I mentioned.
Gary Bisbee: Okay. Great. And then there's been a lot of press reports around workers shifting from some industries to others, for example, maybe people not wanting to go back into hospitality jobs, but having moved to other industries where there's been more hiring during the pandemic. Are you seeing that in countries outside of the U.S., where I think it's been discussed a lot? And what are the implications, if any, for your business from sort of shifts in the type of work that workers want to perform?
Jonas Prising: First of all, I'd say that the labor market dynamics in the U.S. are probably a little bit unique. It is a highly dynamic, very open labor market where we have a significant level of churn, even in a normal year and certainly post pandemic or within still the ending parts, hopefully, of the pandemic, it's still labor market that's impacted with some anomalies related to that pandemic. So the fact that people are moving between industries, although it may be at somewhat of an accelerated pace right now, really is a hallmark of the U.S. labor market as a whole and, to a much lesser degree, is a phenomena that we see in other markets. Overall, I think our task and what we are very good at is finding skilled workers for specific industries and meeting the needs of those workers as matching those with the demand from the employers. And we have, as one of our hallmarks, to try and understand what skill sets are applicable not only to one specific industry, but to multiple industries so that we can provide opportunities to workers. So at this point, what is impacting our ability or rather what is impacting us in the U.S., as we mentioned in our prepared remarks, has to do with supply, not the churn and the increased movement between industries. And that's really a factor that we are looking at. But as I mentioned earlier, we expect that to dissipate over the coming quarters. But this movement between industries is frankly quite logical. If certain industry is heavily impacted and the outlook is uncertain, it is understandable that workers will do everything they can to try and find gainful employment in another industry where their skill sets are applicable, and that's what you're seeing happening now. I don't think this is going to impair the ability for the hospitality industry over the long term to attract workers. Certainly, they will adjust their hiring practices and offer better pay and conditions as they need to compete in the market for talent. But once they've done that, they will start to normalize that flow as the remaining and lingering effects of the pandemic start to decrease.
Jack McGinnis: And I would just add, Gary, we did include our industry vertical update as an appendix to our earnings slides. And as we show, we don't have significant exposure to the hospitality industry. So if that trend does persist that you mentioned, that could be an opportunity from a workers' supply side into some of the sectors that we are strong in.
Operator: Thank you. And the next question is from the line of Manav Patnaik of Barclays. Your line is now open.
Manav Patnaik: I just had one quick question for you guys, and that is obviously, you said your guidance doesn't assume any future lockdowns, but it sounds like maybe the Delta variant will cause some of that. So I was just curious with that, since we've been through this for 1.5 years or so, how are you guys preparing for potential lockdown? And maybe what are your clients saying? Just try and gauge what the impact could be? I presume it will be less than what we saw last year, but just trying to see how you guys are thinking through that.
Jonas Prising: Well, we've navigated through the existing lockdowns for the better part of the second quarter, and the then subsequently eased during June and in some places now, some countries are implementing additional lockdowns. But what we saw in the second quarter, and frankly, for a large part of the pandemic, excluding the initial lockdowns, governments really focused on reducing social interactions to the greatest degree possible while allowing work to continue to the greatest degree possible. So we think that there will be exactly the same objective going forward. And I think the latest lockdowns that you're seeing, for instance, occurring in France, are making a clear distinction between those that are vaccinated in terms of how the lockdowns affect them, which is not very much, if at all. And those that are unvaccinated, which are the ones that unfortunately are the most impacted by the surge in Delta variance. And that is certainly true in Europe. And as far as other countries and other parts of the world with the lower vaccination rates, Latin America is making its way through this pandemic and managing to keep their economic growth going and improving. And Asia-Pac is now seeing some resurgence. And of course, their strategy has been to isolate and close their countries. But for the most part, when we look at Japan has had maybe three or four state of emergencies, they have focused on maintaining their ability to go to work and reduce the social interaction. So in summary, we would expect that governments would apply exactly the same principle of reducing social interactions in the areas where infections occur and focus on incentivizing increased vaccination rates. And that is why at this point, we don't expect any material impact of lockdowns. Clearly, as we mentioned, that can change. But if governments navigate this as they have in the past during more difficult times with no vaccination available, we expect this to be managed in exactly the same way; and therefore, at this point, not expecting a material impact.
Operator: Thank you. And our final question came from the line of George Tong of Goldman Sachs.
George Tong: Hi, thanks. Good morning. I just wanted to follow up on that last question on the impact of lockdowns. Again, your guidance assumes no material additional lockdowns or business restrictions beyond those that exist today. Can you describe which of your markets are seeing the most restrictions currently? Obviously, things are in flux right now, you talked about the UK and France and parts of Asia. And I guess, even though your guidance assumes no material impact from the delta variant, how would you frame the downside risks in terms of potential impact?
Jonas Prising: George, as I mentioned in my previous response, clearly, first of all, this can change. But if the past is a guide to what we can think of what governments would do, they will want to continue to keep the economic growth engine going and minimize the impact of any restrictions to the greatest degree possible certainly to economic growth and to their populations as well. So what's different compared to the prior lockdowns, and of course, all of the progress that you've seen over the quarters here, over the last four quarters really, has been under quite severe lockdowns that have progressively been eased, but really majorly only been eased over the last quarter or so. And frankly, in the last part of the second quarter in many countries, we've shown an ability to adapt to those restrictions and still be able to serve our customers and meet the increased demand for flexibility and strategic and operational workforce additions on temporary and on a permanent basis. So it's very hard to predict, of course, what this resurgence would do, but we think the stance of governments will be very similar, if not even more focused on trying to keep the engine going, trying to motivate their people to get vaccinated. And that in combination is why we are at this point, believing that there won't be a major impact. But as I mentioned, this can change. But based on what we are seeing today, that appears to be the case.
George Tong: Got it. And then lastly, can you discuss the competitive environment? And if you've seen any changes in market shares in your key geographies as economies begin to recovered?
Jonas Prising: We're really seeing a traditional dynamic in terms of a recovery, albeit maybe somewhat different in terms of the speed of certain of our services and solutions. As Jack mentioned, our permanent placement activity is actually above 2019. And normally, permanent placement and permanent recruitment is a bit of a lagging offering in a traditional recovery. But in this case, it's actually been synced with and in some cases, even ahead of the temporary staffing recovery. So we think the dynamics overall are very similar to traditional recovery, maybe on somewhat faster speed. And in terms of the market, it remains very competitive, but also rational and is not really -- there's really nothing I'd call out that is different from what we've talked about in prior quarters.
George Tong: Got it. Very helpful. Thank you.
Jonas Prising: Thank you. And that brings us to the end of our Q2 earnings call. We look forward to speaking with you again on our third quarter earnings call and very importantly for today, go box. Thanks, everyone. Have a great rest of the week.
Operator: Thank you. And that concludes today's conference. Thank you all for participating. You may now disconnect.
