Brinks Company (The)

Welcome to the Brinks Company's second quarter 2019 earnings call. Brinks issued a press release on second quarter results this morning. The company also filed an 8K that includes the release and the slides that will be used in today's call. For those of you listening by phone, the release and slides are available on the company's website at Brinks.com. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If you require operator assistance, please press star then zero. As a reminder, this conference is being recorded. Now for the company's safe harbor statement. This call and the Q&A session will contain forward-looking statements. Actual results could differ materially from projected or estimated results. Information regarding factors that could cause such differences is available in today's press release and in the company's most recent SEC filings. Information presented and discussed on this call is representative as of today only. Brinks assumes no obligation to update any forward-looking statements. The call is copyrighted and may not be used without written permission from Brinks. It is now my pleasure to introduce your host, Ed Cunningham, Vice President of Investor Relations and Corporate Communications. Mr. Cunningham, you may begin.

Thanks, Drew, and good morning, everyone. Joining me today are CEO Doug Pertz and CFO Rhonda Monaco. This morning, we reported second quarter results on both a GAAP and non-GAAP basis. The non-GAAP results exclude a number of items, including our Venezuela operations, the impact of Argentina's highly inflationary accounting, reorganization and restructuring costs, items related to acquisitions and dispositions, and costs related to certain accounting compliance matters. We are also providing analysis of our results on a constant currency basis, which eliminates changes in foreign currency exchange rates from the prior year. We believe the non-GAAP results make it easier for investors to assess operating performance between periods. Accordingly, our comments today, including those referring to our guidance, will focus primarily on non-GAAP results. Reconciliations of non-GAAP to GAAP results are provided in the press release, in the appendix to the slides we're using today, and in this morning's 8K filing, all of which can be found on our website. Finally, page three of the press release provides the details behind our 2019 guidance, including revenue, operating profit, non-controlling interest, income taxes, and adjusted EBITDA. I'll now turn the call over to Doug.

Thanks, Ed, and good morning, everyone. Today, we again announced strong second quarter results, including reported revenue growth of 11% and operating profit growth of 17% that easily offset the expected impact of negative currency translation, most of which was in Argentina. In constant currency, revenue was up 20% and operating profit was up 41%. We also achieved 8% organic revenue growth above our average of approximately 7% over the last two years. And we achieved strong growth in adjusted EBITDA and earnings per share, both on a reported and a constant currency basis. The improved results for the quarter were led by continued momentum in the U.S., where profits more than doubled, and in Mexico, which delivered growth profit growth of nearly 50%. Our U.S. team is doing a great job managing the Dunbar integration, from process and systems integration to infrastructure consolidation. We now believe we'll exceed our targeted annualized cost synergies of $45 million by the end of 2020. And our Mexico team continues to deliver double-digit organic revenue growth while also more than doubling its margin rates over the last two years, a fabulous example of our strategy 1.0 in action. As we begin the seasonally stronger second half, we're confident that we'll achieve our full year 2019 guidance, which includes operating profit and earnings growth of around 20%. This is despite currency headwinds and the previously disclosed addition of $20 million to $30 million in operating expenses to support IT upgrades, and the development of our next leg of our strategy, what we call Strategy 2.0. I will now offer a few comments from our strategic perspective. Our Strategy 1.0 initiatives continue to drive costs lower and customer service levels higher. These initiatives have already driven strong profit growth, and we expect that to continue. 2019 near-to-date margins are up 70 basis points, and we're on track to increase our margins by approximately 360 basis points over our current three-year strategic plan period ending in 2019. Our Strategy 1.0 initiatives are also beginning to pay off in the form of account share gains with several of our U.S. financial institutions. In fact, a major U.S. bank recently awarded us additional business that, when fully transitioned in 2021, will make Brinks its lead provider in the U.S., almost doubling our revenue with this account and giving us a large majority of its total account share. This new business, along with additional share gains that we are pursuing with other financial institutions, will be part of an important base for driving growth in our next three-year strategic plan. In summary, Our 1.0 operational excellence strategy is now beginning to drive revenue growth that will further leverage the significant cost improvements that we have achieved over the last two and a half years. On top of our 1.0 profit growth, our strategy 1.5 on acquisitions are also expected to drive growth well beyond the current three-year period of time ending this year. During the quarter, we completed two small acquisitions, one in the U.S. and one in Brazil, and purchased the assets of another business. Over the last two and a half years, we've completed 12 acquisitions, plus added asset purchases. Our pipeline of new opportunities continues to be strong, and I want to emphasize that the already completed acquisitions will continue to drive additional cost synergies and up profit growth into 2020 and beyond. For example, we expect the majority of the synergies from the Dunbar acquisitions to be realized after 2019. For those investors who may be concerned about future growth and margin improvement, let me be clear. We fully expect strategies 1.01 above 1.5, each of which have already delivered significant profit growth that easily exceeds our initially targets, to continue to drive strong growth and continued margin improvement throughout the next three-year strategic plan period. And beginning in 2020, we expect to add a third layer of high margin growth from the execution of our Strategy 2.0 initiatives, which are targeted at developing new high tech-enabled services and expanding our presence in the total cash ecosystem. We'll disclose more detail about Strategy 2.0 in a future Investor Day, but we're not waiting until the start of our next strategic plan period to begin providing new services and offering them to our customers. For example, we recently entered into an agreement with BPCE, the second largest banking group in France, under which we'll own and manage their entire network of 11,600 ATMs. This is a long-term managed services agreement and the first of its kind in France. While we'll not start receiving material revenue from the BPCE agreement until late next year, and we should be transitioning fully by the end of 2021, at which time we expect to generate $50-plus million in annual recurring revenue. And this is in addition to our current ATM cash fulfillment services we provide today. During the second quarter, we also acquired Balance Innovations, or BI as we call it. BI is a US-based software company that provides cash management software and other services to a national footprint of more than 11,000 retail locations. This acquisition immediately enhances our ability to deliver tech-enabled end-to-end retail cash management service, an integral part of our 2.0 strategy. These transactions, will not materially change our 2019 results, but they're critical elements to our next chapter of our strategy. Our new three-year plan will combine ongoing organic profit and margin growth from strategy 1.0, continued acquisitions-related growth from our strategy 1.5, and a new layer of growth from strategy 2.0. We believe this powerful, multilayered strategy will continue to create substantial value for our shareholders well into the future. I'll discuss more on our strategy after Ron's financial summary, but I first want to briefly cover our U.S. results and outlook. Similar to the first quarter, U.S. results were up 54% in the second quarter, heavily driven by the Dunbar acquisition, which was not in the prior year results. Operating profit more than doubled, increasing our margins by 260 basis points to 7.7% for the quarter. And we remain on track to achieve our 2019 exit rate of margin target of approximately 10%. Our Dunbar integration team continues to make great progress. We've rebranded about 85% of our facilities, trucks, and uniforms, consolidated more than a dozen CIT branches, and launched more than 150 one-person vehicle routes. We're very pleased with our progress to date on the integration, and in fact, we're more optimistic than ever about our long-term outlook. As I just mentioned, we believe we'll exceed our targeted annualized cost synergies of $45 million. This year, our combined U.S. operations should generate close to and maybe a little bit more than $1.2 billion. Assuming a conservative growth rate over the next two years, U.S. revenue should exceed $1.3 billion, by 2021, with a target margin, as we stated in the past, of about 13%. The strong operating leverage that we're achieving is expected to continue to drive profit growth throughout our next three-year strategic plan. Our U.S. teams on both sides of the integration effort are working together to build a common culture focused on the customer and driven to continuously improve customer service. as the results are showing up not only in higher profits, as we've seen in this quarter and so far this year, but also in achieving the achievement of account share gains that I mentioned earlier. I'll now turn it over to Ron for additional financial review. Thanks, Doug, and good day, everyone.