MANPOWERGROUP INC. See the financial measures section on pages 27-28 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, 2020 , which information is incorporated herein by reference. Other 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, including the possibility of additional lockdown restrictions; 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 2021, 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 2021, we continued to see some recovery in the majority of our markets as we began to anniversary the significant COVID-19 related declines in our results that occurred during the last two weeks of the first quarter of 2020. Revenues increased 6.6% during the first quarter of 2021 compared to the year-earlier period. Our first quarter results reflect a stronger market environment and increased demand for our services in many of our key markets. Overall, we saw an increasing monthly rate of recovery as the quarter progressed, although the pandemic continued to limit the demand for our services across almost all of our operations. Furthermore, the recovery we experienced was not uniform, with some markets, particularly inEurope , continuing to experience COVID-19 related challenges. These challenges included the imposition of additional or extended lockdowns or other restrictions, which have impaired the rate of recovery. These restrictions have continued into the second quarter of 2021 and we expect to encounter targeted and localized lockdowns into the future. Although continued uncertainty remains as to the future impact of the pandemic on global and local economies, we have experienced strengthening demand across geographies and industries during the quarter and we expect the recovery will continue to move in a positive direction. In addition to the impact from COVID-19 discussed above, results for the quarter were impacted by currency. During the first quarter of 2021,the United States dollar was weaker, on average, relative to the currencies in all of our markets, except in Other Americas, which therefore had a favorable impact on our reported results and generally may overstate the performance of our underlying business. The changes in the foreign currency exchange rates had a 6.0% favorable impact on revenues from services and an approximately$0.06 per share favorable 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 21 --------------------------------------------------------------------------------
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 three months endedMarch 31, 2021 , our businesses experienced improvement in year-over-year revenue trends from the fourth quarter reflecting a stronger market environment and continued signs of a global recovery. Our consolidated revenues increased 6.6% year-over-year in the quarter, an improvement from the 2.7% year-over-year decrease in the fourth quarter of 2020. As we began to anniversary the dramatic revenue declines as a result of the COVID-19 crisis and related lockdowns imposed by the European governments in the prior year period, specifically during the last two weeks ofMarch 2020 , we experienced a crossover from revenue declines to revenue growth throughout the first quarter of 2021. Following a monthly year-over-year revenue decline in January of 4.6% as some seasonal logistics work ended, we saw revenue growth of 3.4% in February and exited the quarter with growth of 22.5% in March. The progressive improvement from year-over-year revenue declines to revenue growth during the quarter reflects the continued increase in activity levels as the recovery continued to take hold across our key markets during the quarter, including strengthening demand for talent within the manufacturing sectors. On an overall basis, our Talent Solutions business, which includes Recruitment Process Outsourcing (RPO),TAPFIN - Managed Service Provider (MSP) and our Right Management offerings, experienced an increase in the quarter, which was driven mostly by increased demand for our MSP and RPO services. Our MSP business has remained resilient during the crisis and we experienced growth during the quarter as we assisted more clients to develop customized workforce solutions during the economic downturn. As workplaces reopen across our geographies and workers return in phased approaches, we are seeing increased demand for our HR skills within our RPO business as our clients put a greater emphasis on hiring. During the first quarter of 2021 compared to 2020, most of our markets experienced revenue increases as the recovery continued to progress and as we anniversaried the sharp revenue declines in the last two weeks ofMarch 2020 due to the COVID-19 crisis. We experienced a revenue increase inSouthern Europe , mainly driven by the favorable impact of changes in currency exchange rates and increased demand inItaly . We experienced a revenue increase inNorthern Europe mostly due to the favorable impact of changes in currency exchange rates and the increased demand in theUnited Kingdom . Revenues decreased 0.8% in theAmericas driven by the decrease inthe United States primarily due to the unfavorable impact of one fewer billing day and the unfavorable impact of changes in currency exchange rates in the markets within Other Americas. We experienced a 5.5% revenue increase in APME mostly from the increase inJapan , which was mainly due to an increase in demand for our staffing/interim revenues. Our gross profit margin declined in the first quarter of 2021 compared to 2020 primarily due to an unfavorable change in business mix as the higher-margin permanent recruitment business represented a lower percentage of the revenues mix as a result of the COVID-19 crisis. The decrease was also due to the decline in our staffing/interim margins in theAmericas ,Southern Europe andNorthern Europe as a result of the higher mix of our lower-margin enterprise client business. These decreases were partially offset by a higher mix of MSP gross profit due to strong growth during the quarter and the increase in staffing/interim margins in APME primarily due to the improvement inJapan . Our operating profit increased 160.9% in the first quarter of 2021 while our operating profit margin increased 120 basis points compared to the first quarter of 2020. Excluding the restructuring costs in the prior year, our operating profit was up 14.4% while operating profit margin was up 10 basis points compared to the first quarter of 2020. The operating profit margin increased as we were able to increase our revenues while experiencing a decrease in our selling and administrative expenses due to the strategic initiatives and strong cost actions put in place in late March and early April of 2020. 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. 22
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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) 2021 2020 Variance
Variance
Revenues from services $ 4,924.4 $ 4,619.1 6.6 % 0.6 %
Cost of services 4,156.3 3,895.1 6.7 % 0.6 %
Gross profit 768.1 724.0 6.1 % 0.5 %
Gross profit margin 15.6 % 15.7 %Selling and administrative expenses 669.7 686.3 (2.4 )% (7.5 )% Operating profit
98.4 37.7 160.9 % 145.7 %
Operating profit margin 2.0 % 0.8 %
Interest and other expenses, net 5.4 20.5 (73.6 )%
Earnings before income taxes 93.0 17.2 439.2 % 409.7 %
Provision for income taxes 31.0 15.5 99.3 %
Effective income tax rate 33.3 % 90.2 %
Net earnings $ 62.0 $ 1.7 3562.0 % 3361.0 %
Net earnings per share - diluted $ 1.11 $ 0.03 3600.0 % 3400.0 %
Weighted average shares - diluted 55.7 59.0 (5.7 )%
The year-over-year increase in revenues from services of 6.6% (0.6% in constant currency and 0.9% in organic constant currency) was attributed to:
• a revenue increase in
This included a revenue increase in France of 8.7% (-0.5% in constant
currency), which was primarily due to the favorable impact of changes in
currency exchange rates, partially offset by the unfavorable impact ofapproximately one fewer billing day. The increase also includes an increase
in
the increased demand for our Manpower staffing services, an 18.1% increase
(8.1% in constant currency) in the permanent recruitment business and the
favorable impact of changes in currency exchange rates, partially offset by
the unfavorable impact of approximately one fewer billing day;
• a revenue increase in
primarily due to the favorable impact of changes in currency exchange rates,
partially offset by the 5.4% decrease (-13.1% in constant currency) in the
permanent recruitment business, primarily due to the impact of the COVID-19
crisis. We experienced revenue increases in the
and
-5.1%, respectively, in constant currency). These increases were partially
offset by revenue declines in Germany and Belgium of 9.8% and 6.9%,
respectively (-17.4% and -14.8%, respectively, in constant currency);
• a revenue increase in APME of 5.5% (0.3% in constant currency) primarily due
to the favorable impact of changes in currency exchange rates and the
increase in demand for our staffing/interim services in
offset by the unfavorable impact of approximately one fewer billing day in
the quarter; partially offset by
• a revenue decrease in
primarily driven by decreased demand for our staffing/interim service due to
the impacts of the COVID-19 crisis and the unfavorable impact of one fewer
billing day. These decreases were partially offset by an increase in our
permanent recruitment business of 14.5% (14.3% on an organic basis) and
increased demand for our RPO and MSP offerings; and
• a 6.0% increase due to the impact of changes in currency exchange rates.
The year-over-year 10 basis point decrease in gross profit margin was primarily attributed to:
• a 10 basis point unfavorable change in business mix as the higher-margin
permanent recruitment business represented a lower percentage of the
revenues mix; and
23
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• a 10 basis point unfavorable impact from declines in the staffing/interim
margins in the
higher mix of our lower-margin enterprise client business; partially offset
by
• a 10 basis point favorable impact from the growth in our higher-margin MSP
services within our Talent Solutions business.
The 2.4 % decrease in selling and administrative expenses in the first quarter of 2021 (-7.5% in constant currency; -7.2% in organic constant currency) was primarily attributed to:
• restructuring costs of
and
• a 0.4% decrease (-5.7% in constant currency and -5.5% in organic constant
currency) in non-personnel related costs, excluding restructuring costs,
primarily driven by a reduction in discretionary expenses and a decline in
office-related expenses due to a decrease in the number of offices;
partially offset by
• a 5.1% increase due to the impact of changes in currency exchange rates; and
• a 7.7% increase (2.1% in constant currency and 2.3% in organic constant
currency) in personnel costs due to the increase in variable incentive costs
as a result of an increase in profitability in most markets.
Selling and administrative expenses as a percent of revenues decreased 130 basis points in the first quarter of 2021 compared to the first quarter of 2020 due primarily to:
• a 100 basis point favorable impact as a result of the decrease in
restructuring costs from
in the first quarter of 2021;
• a 30 basis point favorable impact due to the decrease in non-personnel
related costs, excluding restructuring costs; and
• a 10 basis point favorable impact from changes in currency exchange rates;
partially offset by
• a 10 basis point unfavorable impact from the increase in variable incentive
costs.
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$5.4 million in the first quarter of 2021 compared to$20.5 million in the first quarter of 2020. Net interest expense decreased$0.3 million in the first quarter of 2021 to$7.1 million from$7.4 million in the first quarter of 2021. Miscellaneous income was$4.2 million in the first quarter of 2021 compared to miscellaneous expense of$10.0 million in the first quarter of 2020. The change is primarily due to the pension settlement expenses of$10.2 million recorded in the first quarter of 2020 related to one of ourUnited States plans, the increase in income from our equity investment inManpowerGroup Greater China Limited , and the increase in the returns on pension plan assets. We recorded income tax expense at an effective rate of 33.3% for three months endedMarch 31, 2021 , as compared to an effective rate of 90.2% for the three months endedMarch 31, 2020 . The 2021 rate was favorably impacted by the scheduled reduction in the French corporate tax rate to 27.5%, the enacted 50% reduction in the French business tax rate, and a higher level of pre-tax earnings. The 33.3% effective tax rate in the first quarter of 2021 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. The COVID-19 crisis is creating uncertainty around predicting future earnings, and that uncertainty could make it more difficult for us to accurately estimate tax rates into the future. Net earnings per share - diluted was$1.11 in the first quarter of 2021 compared to$0.03 in the first quarter of 2020. Foreign currency exchange rates favorably impacted net earnings per share - diluted by approximately$0.06 per share in the first quarter of 2021. Restructuring costs recorded in the first quarter of 2020 negatively impacted net earnings per share - diluted by approximately$0.68 per share, net of tax, in the first quarter of 2020. The pension settlement expense recorded in the first quarter of 2020 negatively impacted net earnings per share - diluted by approximately$0.11 , net of tax, in the first quarter of 2020. Weighted average shares - diluted decreased to 55.7 million in the first quarter of 2021 from 59.0 million in the first quarter of 2020. This decrease was due to the impact of share repurchases completed since the first quarter of 2020 and the full weighting of the repurchases completed in the first quarter of 2021. 24 --------------------------------------------------------------------------------
Segment Operating ResultsAmericas In theAmericas , revenues from services decreased 0.8% (increase of 1.1% in constant currency and 0.8% in organic constant currency) in the first quarter of 2021 compared to the first quarter of 2020. Inthe United States , revenues from services decreased 0.3% (-0.7% on an organic basis) in the first quarter of 2021 compared to the first quarter of 2020, primarily driven by decreased demand for our staffing/interim services due to the impacts of the COVID-19 crisis and the unfavorable impact of one fewer billing day during the quarter. The decreased demand for staffing/interim services inthe United States was partially offset by increased demand for our MSP and RPO offerings along with a 14.5% increase (14.3% in organic constant currency) in our permanent recruitment business. In Other Americas, revenues from services decreased 1.5% (increase of 3.3% in constant currency) in the first quarter of 2021 compared to the first quarter of 2020 primarily due to the unfavorable impact of changes in currency exchange rates. This decline was driven by decreases inMexico ,Colombia andPeru of 5.8%, 19.0% and 14.8%, respectively (-3.6%, -18.4% and -8.3%, respectively, in constant currency). These decreases were partially offset by increases inArgentina ,Canada andBrazil of 25.2%, 8.1% and 15.7%, respectively (80.3%, 1.7% and 42.3%, respectively, in constant currency). The increase inArgentina was primarily due to inflation. Gross profit margin increased in the first quarter of 2021 compared to the first quarter of 2020 primarily due to gross profit margin increases inthe United States from the increase in revenues from our higher-margin MSP and RPO offerings as well as the increase in our permanent recruitment business of 14.3% (15.4% in constant currency; 15.3% in organic constant currency). This increase was partially offset by the declines in the staffing/interim margin due to client mix changes, particularly inthe United States , as a higher percentage of revenues came from our lower margin enterprise clients. In the first quarter of 2021, selling and administrative expenses decreased 11.5% (-10.3% in constant currency and -10.5% in organic constant currency), primarily due to the decrease in restructuring costs to zero in the first quarter of 2021 compared to$12.8 million in the first quarter of 2020, the decrease in discretionary expenses and a decline in office-related expenses driven by a decrease in the number of offices. The decreases were partially offset by the increase in salary-related costs due to higher headcount in the quarter and an increase in variable incentive costs as a result of an increase in profitability in certain markets. Operating Unit Profit ("OUP") margin in theAmericas was 4.4% and 1.6% for the first quarter of 2021 and 2020, respectively. Inthe United States , OUP margin increased to 4.8% in the first quarter of 2021 from 0.4% in the first quarter of 2020 primarily due to the decrease in restructuring costs and an increase in the gross profit margin. Other Americas OUP margin increased to 3.8% in the first quarter of 2021 from 3.6% in the first quarter of 2020 primarily due to the decrease in restructuring costs, partially offset by the decrease in the gross profit margin. OnApril 23, 2021 , new legislation was enacted inMexico that will prohibit the provision of traditional temporary staffing services, only allowing outsourced worker assignments for specialized services outside of the client's core business activity. The effective date for the new law isJuly 23, 2021 . We are currently assessing the magnitude of the impact that this new legislation will have on ourMexico business pending the issuance of the final implementation and transition rules. We expect that the new legislation will reduce revenues and operating unit profit within ourMexico operations. OurMexico operations approximated 2.8% of our consolidated revenues for the year endedDecember 31, 2020 .Southern Europe InSouthern Europe , which includes operations inFrance andItaly , revenues from services increased 11.1% (2.0% in constant currency) in the first quarter of 2021 compared to the first quarter of 2020. In the first quarter of 2021, revenues from services increased 8.7% (decrease of -0.5% in constant currency) inFrance (which represents 55% ofSouthern Europe's revenues) and increased 22.9% (12.5% in constant currency) inItaly (which represents 19% ofSouthern Europe's revenues). The increase inFrance is primarily due to the favorable impact of changes in currency exchange rates, partially offset by the unfavorable impact of one fewer billing day. The increase inItaly was primarily due to the increased demand for our Manpower staffing services and an 18.1% increase (8.1% in constant currency) in the permanent recruitment business, partially offset by the unfavorable impact of approximately one fewer billing day. In Other Southern Europe, revenues from services increased 8.7% (0.8% in constant currency) during the first quarter of 2021 compared to the first quarter of 2020, due to increased demand for our Manpower staffing services, 25 -------------------------------------------------------------------------------- partially offset by the decrease in our permanent recruitment business of 17.4% (-22.5% in constant currency) due to the continued impact of the COVID-19 crisis and the disposition of subsidiaries in Other Southern Europe in the third quarter of 2020.
Gross profit margin decreased in the first quarter of 2021 compared to the first quarter of 2020 primarily due to the decrease of 1.9% (-9.5% in constant currency) in the permanent recruitment business and the decrease in the staffing/interim gross profit margin as lower margin enterprise clients represented a larger percentage of revenues during the first quarter of 2021.
Selling and administrative expenses increased 2.3% (decrease of -6.0% in constant currency) during the first quarter of 2021 compared to the first quarter of 2020 primarily due to the unfavorable impact of changes in currency exchange rates and an increase in variable incentive costs due to an increase in profitability in certain markets. These increases were partially offset by the decrease in restructuring costs to zero in the first quarter of 2021 from$13.1 million in the first quarter of 2020 and the reduction in discretionary expenses. OUP margin inSouthern Europe was 3.4% for the first quarter of 2021 compared to 2.7% for the first quarter of 2020. InFrance , the OUP margin increased to 3.6% for the first quarter of 2021 from 3.5% in the first quarter of 2020 primarily due to our ability to increase revenues without a similar increase in expenses, partially offset by the decrease in the overall gross profit margin. InItaly , the OUP margin increased to 4.8% for the first quarter of 2021 from 4.3% for the first quarter of 2020 primarily due to the decrease in restructuring costs to zero in the first quarter of 2021 from$1.6 million in the first quarter of 2020. OtherSouthern Europe's OUP margin increased to 2.0% in the first quarter of 2021 from 0.2% in the first quarter of 2020, primarily due to the decrease in restructuring costs to zero in the first quarter of 2021 from$11.5 million in the first quarter of 2020, partially offset by the decrease in the gross profit margin.Northern Europe InNorthern Europe , which includes operations in theUnited Kingdom , the Nordics,Germany ,the Netherlands andBelgium (comprising 38%, 20%, 14%, 11%, and 7%, respectively, ofNorthern Europe's revenues), revenues from services increased 6.1% (decrease of -2.3% in constant currency) in the first quarter of 2021 compared to the first quarter of 2020. We experienced revenue increases in theUnited Kingdom , the Nordics andthe Netherlands of 12.4%, 8.4% and 3.7%, respectively (increase of 4.0%, decrease of -3.9% and decrease of -5.1%, respectively, in constant currency) and revenue decreases inGermany andBelgium of 9.8% and 6.9%, respectively (-17.4% and -14.8%, respectively, in constant currency). The revenue increase inNorthern Europe was due to the favorable impact of changes in currency exchange rates and the increase in demand for our Manpower staffing services, primarily in theUnited Kingdom , partially offset by a decrease in demand for our Experis interim services and a 5.4% decrease (-13.1% in constant currency) in the permanent recruitment business and the unfavorable impact of approximately one fewer billing day. Gross profit margin decreased in the first quarter of 2021 compared to the first quarter of 2020 due to the decrease in our permanent recruitment business in the first quarter of 2021 compared to the first quarter of 2020, and the decline in the Manpower staffing margin due to client mix changes, as a higher percentage of revenues consisted of revenues from our lower-margin enterprise clients. Selling and administrative expenses decreased 7.8% (-15.6% in constant currency) in the first quarter of 2021 compared to the first quarter of 2020 primarily due to the decrease in restructuring costs to zero in the first quarter of 2021 from$19.5 million in the first quarter of 2020, the unfavorable impact of changes in currency exchange rates and the decrease in non-personnel and discretionary costs. These decreases were partially offset by the increase in variable incentive costs due to an increase in profitability in certain markets. OUP margin forNorthern Europe increased to 0.4% in the first quarter of 2021 from an operating unit loss of 1.3% in the first quarter of 2020. The increase was primarily due to the decrease in restructuring costs, partially offset by the decrease in the gross profit margin.
APME
Revenues from services increased 5.5% (0.3% in constant currency) in the first quarter of 2021 compared to the first quarter of 2020. InJapan (which represents 45% of APME's revenues), revenues from services increased 11.8% (8.9 % in constant currency) due to the increased demand for our staffing/interim services and the favorable impact of approximately one additional billing day, partially offset by a 3.5% decrease (-5.9% in constant currency) in our permanent recruitment business. InAustralia (which represents 17% of 26 -------------------------------------------------------------------------------- APME's revenues), revenues from services increased 12.3% (decrease of -4.8% in constant currency) due to the favorable impact of changes in currency exchange rates, partially offset by the unfavorable impact of approximately three fewer billing days. The revenue decrease in the remaining markets in APME is due to the decline in demand for our staffing/interim services due to the COVID-19 crisis, partially offset by the increase in demand for our Talent-Based Outsourcing services within our Manpower business and the favorable impact of changes in currency exchange rates. Gross profit margin increased in the first quarter of 2021 compared to the first quarter of 2020 primarily due to the increase in our staffing/interim margin, mostly inJapan . Selling and administrative expenses increased 7.9% (0.9% in constant currency) in the first quarter of 2021 compared to the first quarter of 2020 primarily due to the unfavorable impact of changes in currency exchange rates and the increase in variable incentive costs due to an increase in profitability in certain markets. These were partially offset by the decrease of restructuring costs to zero in the first quarter of 2021 from$2.6 million in the first quarter of 2020. OUP margin for APME increased to 3.0% in the first quarter of 2021 from 2.9% in the first quarter of 2020 due to the increase in the gross profit margin and the decrease in restructuring costs, partially offset by the increase in variable incentive costs. 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. 27 -------------------------------------------------------------------------------- Constant currency and organic constant currency percent variances, along with a reconciliation of these amounts to certain of our reported results, are provided below: 3 Months Ended March 31, 2021 Compared to 2020 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 608.8 (0.3 )% - (0.3 )% 0.4 % (0.7 )% Other Americas 394.1 (1.5 )% (4.8 )% 3.3 % - 3.3 % 1,002.9 (0.8 )% (1.9 )% 1.1 % 0.3 % 0.8 % Southern Europe: France 1,188.9 8.7 % 9.2 % (0.5 )% - (0.5 )% Italy 402.8 22.9 % 10.4 % 12.5 % - 12.5 % Other Southern Europe 568.6 8.7 % 7.9 % 0.8 % (3.0 )% 3.8 % 2,160.3 11.1 % 9.1 % 2.0 % (0.8 )% 2.8 % Northern Europe 1,133.8 6.1 % 8.4 % (2.3 )% - (2.3 )% APME 627.4 5.5 % 5.2 % 0.3 % - 0.3 % Consolidated 4,924.4 6.6 % 6.0 % 0.6 % (0.3 )% 0.9 % Gross Profit 768.1 6.1 % 5.6 % 0.5 % (0.1 )% 0.6 % Selling and Administrative Expenses 669.7 (2.4 )% 5.1 % (7.5 )% (0.3 )% (7.2 )% Operating Profit 98.4 160.9 % 15.2 % 145.7 % 6.6 % 139.1 %
(a) In millions for the three months ended
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 lending, and some local credit lines to meet funding needs and allocate our capital resources among our various entities. As ofMarch 31, 2021 , we had$1,365.6 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. With the enactment of the United States Tax Cuts and Jobs Act inDecember 2017 , we no longer recordUnited States federal income taxes on unremitted earnings of non-United States subsidiaries. However, we do record deferred tax liabilities related to non-United States withholding and other taxes on unremitted earnings that are not considered permanently invested. Cash provided by operating activities was$140.9 million and$181.0 million during the three months endedMarch 31, 2021 and 2020, respectively. Changes in operating assets and liabilities generated$58.9 million of cash during the three months endedMarch 31, 2021 compared to$147.7 million of cash generated during the three months endedMarch 31, 2020 . These changes were primarily attributable to an increase in accounts receivable due to the stronger market environment as the impact of the COVID-19 crisis has stabilized in many parts of the world. Accounts receivable decreased to$4,892.1 million as ofMarch 31, 2021 from$4,912.4 million as ofDecember 31, 2020 . This decrease is due to the impact of changes in currency exchange rates. Days Sales Outstanding ("DSO") increased to approximately 56 as ofMarch 31, 2021 from approximately 54 as ofDecember 31, 2020 due 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 saw during the first quarter of 2021, we generally see 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. 28 -------------------------------------------------------------------------------- Conversely, as the demand for our services declines, we generally see 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$12.7 million for the three months endedMarch 31, 2021 compared to$9.1 million for the three months endedMarch 31, 2020 . 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 2021 compared to 2020 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. For the three months endedMarch 31, 2021 , the total cash consideration paid for acquisitions, net of cash acquired, was$12.9 million , which includes consideration payments for franchises inthe United States and contingent consideration payments related to previous acquisitions.
Net debt borrowings were
Our €500.0 million notes and €400.0 million notes are dueJune 2026 andSeptember 2022 , respectively. When the notes mature, we plan to repay the amounts with available cash, 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 should we decide to replace either the €500.0 million or €400.0 million notes.
As of
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 -0.09 to 1 and a fixed charge coverage ratio of 3.39 to 1 as ofMarch 31, 2021 . Based on our current forecast, we expect to be in compliance with our financial covenants for the next 12 months. We have assessed what impact the COVID-19 crisis has had or may have on our liquidity position as ofMarch 31, 2021 and for the near future. As ofMarch 31, 2021 , our cash and cash equivalents balance was$1,522.7 million . We also have access to the previously mentioned revolving credit facility that could immediately provide us with up to$600 million of additional cash, which remains unused as ofMarch 31, 2021 , and we have an option to request an increase to the total availability under the revolving credit facility by an additional$200 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 million ($600 million in the third quarter) to meet the working capital needs of our subsidiaries, of which$268.5 million was available to use as ofMarch 31, 2021 . Our €500.0 million notes and €400.0 million notes that total$1,051.1 million as ofMarch 31, 2021 mature in 2026 and 2022, thus, there are no payments due in the very near term except for annual interest payments. 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 should the COVID-19 crisis cause any additional cash flow needs. InAugust 2019 , the Board of Directors authorized the repurchase of 6.0 million shares of our common stock, with terms consistent with the previous authorizations. This authorization is in addition to theAugust 2018 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 2021, we repurchased a total of 1.1 million shares under the 2019 authorization at a total cost of$100.1 million . During the first quarter of 2020, we repurchased a total of 0.9 million shares comprised of 0.8 million shares under the 2018 authorization and 0.1 million shares under the 2019 authorization, at a cost of$63.8 million . As ofMarch 31, 2021 , there were 2.3 million shares remaining authorized for repurchase under the 2019 authorization and no shares remaining authorized for repurchase under the 2018 authorization. 29 -------------------------------------------------------------------------------- We had aggregate commitments of$2,169.9 million as ofMarch 31, 2021 related to debt, operating leases, severances and office closure costs, transition tax resulting from the Tax Act and certain other commitments compared to$2,197.6 million as ofDecember 31, 2020 . We also have entered into guarantee contracts and stand-by letters of credit totaling$897.0 million and$890.0 million as ofMarch 31, 2021 andDecember 31, 2020 , respectively ($845.4 million and$838.4 million for guarantees, respectively, and$51.6 million for stand-by letters of credit as of both dates). 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$0.5 million for both the three months endedMarch 31, 2021 and 2020. We did not record any net restructuring costs during the three months endedMarch 31, 2021 . We recorded net restructuring costs of$48.2 million during the three months endedMarch 31, 2020 in selling and administrative expenses, primarily related to severances and office closures and consolidations in multiple countries and territories. The costs paid or utilized out of our restructuring reserve were$13.8 million during the first quarter of 2021. We expect a majority of the remaining$32.3 million reserve will be paid by the end of 2021.
Recently Issued Accounting Standards
See Note 2 to the Consolidated Financial Statements.
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