Brinks Company (The)

Welcome to the Brinks Company's third quarter 2019 earnings call. Brinks issued a press release on third 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. As a reminder, this conference is being recorded. If you require operator assistance, please press star, then zero. Now for the company 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. Good morning, everyone. Joining me today are CEO Doug Perch and CFO Rhonda Monaco. This morning, we reported third 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, costs related to an internal loss, and costs related to certain accounting compliance matters. We're also providing an analysis of our results on a constant currency basis, which eliminates changes in foreign currency exchange rates from the prior year. We believe non-GAAP results make it easier for investors to assess operating performance between periods. Accordingly, our comments today, including those referring to our guidance, focused primarily on non-GAAP results. Reconciliations of the 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 Pertz.

Thanks, Ed, and good morning, everyone. Today, we reported solid growth in revenue, operating profit, adjusted EBITDA, and EPS, despite currency headwinds that were much stronger than expected. FX translation reduced operating profit by $17 million, more than $6 million higher than we anticipated in our prior guidance. Thanks to stronger organic and acquisition-related growth in North and South America segments, operating segment operating profit or operating profit before corporate expenses increased 18% and was up 28% on an organic basis and 33% on a constant currency basis. Total operating profit, which included higher quarterly corporate expenses, was up 7% on a reported basis and 25% in constant currency. These higher third quarter corporate expenses included $5 million of expenses related to share-based comp and higher insurance premiums, together reducing profit growth by about 5%. These costs were in addition to our planned spending of about $5 million for strategy 2.0 development and approximately $2 million of IT upgrades, also in corporate expense. Corporate expenses can vary from quarter to quarter compared to last year and sequential quarters, as demonstrated by this quarter. However, our full-year corporate expenses are projected to be in line with our forecast, supporting our guidance of earnings growth in the mid-teens that we'll talk about today. On the strategic front, we're continuing to execute on our Strategy 1.0 organic growth initiatives, taking them wider and deeper throughout our global footprint. These initiatives have already driven substantial profit growth, and with some new improvement initiatives, will be critical drivers to the expanded margins we are targeting over our next year three-year plan period. Supporting our Strategy 1.5, in the quarter we completed the acquisition of TVS, a small cash management business in Colombia. Our largest acquisition to date, Dunbar, is making significant contributions to our U.S. results. The integration of this acquisition is progressing well, and we expect to exceed our targeted cost synergies of $45 million by the end of 2020. Our new three-year plan will include a third-tier, Strategy 2.0, which is aimed at expanding our presence in the global cash ecosystems. We're developing 2.0 this year for initial rollout in early 2020. Finally, we've adjusted our full year 2019 guidance to reflect the higher than expected impact of FX in the third and fourth quarter of this year. The full year negative translational FX impact is now expected to be $80 million, an increase of $20 million over prior guidance. On an operational basis, our guidance has not changed. Turning to the next slide, reported revenue for the quarter was up 8% and operating profit rose 7%. As stated in the last slide, translational FX rates reduced reported earnings by 17 million, of which 6 million was greater than what we had originally assumed in our guidance. At previous guidance FX rates, operating profit would have been 14% over the prior year, even with the higher corporate expenses we mentioned earlier. We also achieved solid growth in adjusted EBITDA and earnings per share, both in constant currency and on a reported basis. Ron will provide more details on these and other financial metrics in a few minutes. Turning to slide five, led by Mexico and the U.S., our North American operations achieved double-digit growth in revenue and operating profit, both on a reported and on a constant currency basis. U.S. reported revenue of profit growth of 22% and 17% respectively, due primarily to the Dunbar acquisition. It's important to note that U.S. non-GAAP results include approximately $5 million related to the settlement of a class action lawsuit and integration expenses that reduced its margin rate to 6.4% in the quarter. Excluding these items, the U.S. margin rate was approximately 8%. Clearly, the U.S. quarterly results were not as clean as I would have liked them to have been. However, we're confident that even with these added costs, our U.S. business will exit the fourth quarter and its targeted 10% margin rate and achieve a full-year margin rate of at least 8%. It's important to remember that we started our three-year plan in 2017. When we started it, our U.S. margin was less than 1%. As I just mentioned, we continue to expect the integration of Dunbar into our U.S. operations to deliver synergies in excess of 45 million by the end of next year. We recently completed the rebranding of all Dunbar operations, closed or consolidated 21 branches to date, and are in the process of migrating to a new common CIT operating system for both businesses. And as we stated, we expect continued strong profit growth in the U.S., next year, and we're targeting 13 percent margin in 2021. Mexico continues to deliver strong revenue and profit growth. In fact, I want to again congratulate the Mexico team for exceeding their three-year margin target. That's three years through 2018, which was 15 percent in just two years through last year, and they're continuing their path to improve margins this year and will into the future. In South America, reported revenue was up 6% and margins grew 28%, despite FX translation that reduced revenue by $39 million and profit by $15 million. Organic profit rose 54% on 18% organic revenue growth. In constant currency, revenue was up 24% and profit rose 60-plus percent. Argentina and Brazil were the primary drivers of the improved results. Brazil's results included positive contribution of the successful integration of RotaBan acquisition. These results demonstrate that our underlying operations continue to perform very well despite our strong currency headwinds. Our inflation-based price increases in Argentina, combined with recent volume growth, are beginning to offset the pesos' dramatic devaluations since mid-2018, including August of this year. For 2019, we're now assuming an average of 50 pesos versus the U.S. dollars with an average for the fourth quarter of 67 pesos to the U.S. dollar. We'll be keeping an eye on next week's elections in Argentina, which could cause further volatility in the pesos' values. Before turning over to Ra, and I should mention that revenue in the rest of the world segment was relatively flat, with reported operating profit up 5% and 6% up on an organic basis. France is by far the largest country in this segment, and it has achieved solid profit growth in the quarter, thanks to improved efficiencies and to the positive impact of TEMIS integration. We look forward to continuing this improvement both now this year and into next year. And now for review of financials by Ron.