Brinks Company (The)

Welcome to the Brinks Company's fourth quarter 2020 earnings call. Brinks issued a press release on fourth 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 in the investor relations section of the company's website, 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'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, Andrew. Good morning, everyone. Joining me today are CEO Doug Pertz and CFO Ron DeMonaco. This morning, we reported fourth quarter results on both a GAAP and a non-GAAP basis. The non-GAAP results exclude a number of items, including our Venezuela operations, the impact of Argentina's highly inflationary accounting, reorg 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 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 will focus primarily on non-GAAP results, reconciliations, 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. I'll now turn the call over to Doug Burtz.

Thanks, Ed. Good morning, everyone, and thanks for joining us today. Before we review our strong fourth quarter results and increase guidance, I want to stress how proud I am of our employees around the world. Their dedication, focus on health and safety, and outstanding execution under pandemic conditions has been nothing short of remarkable. Despite unprecedented challenges, they have continued to provide the essential high-quality services that makes Brinks the clear leader in the cash management business globally. In response to the pandemic, our more than 76,000 global employees have been focused on our key priorities of providing essential services and ensuring that Brinks emerges stronger on the other side of this pandemic. Our leadership and global team have also remained focused on strategic execution, including the completion and integration of the large and very complex acquisition of G4S cash operations in 17 markets. Our fourth quarter results clearly demonstrate that in addition to proactively addressing the pandemic's impact on our employees, our customers, our families, and our business, We've not lost sight of our strategic priorities. By any means, our fourth quarter results, I think, are outstanding. Reported revenue was up 9%, driven by sequential improving organic revenue growth since the onset of the pandemic and the G4S acquisition. Operating profit was up 26%, reflecting a margin rate of 14.2%. an increase of 180 basis points with strong support from the U.S. business, which achieved a margin rate of 15%. Adjusted EBITDA increased 25% to $194 million, which was 19% of revenue. And EPS grew 39% to $1.64 per share. These results primarily reflect the impact of our 2020 cost reductions and business restructurings, which yielded significant margin improvements. These sustainable cost reductions are expected to drive continued earnings leverage in 2021, driven by organic revenue growth, partially supported by the pandemic recovery, and the full-year impact of the completed G4S acquisition. Our fourth quarter results underscore the continued strength of cash as well as a payments method. Even during the pandemic, cash is used in two-thirds of global consumer transactions and in 35% of U.S. in-person transactions. The strength and resiliency of cash is reflected in the independent data from the Federal Reserve showing that during the pandemic, U.S. currency in circulation grew at a materially higher rate than the 6% compound annual growth rate that it has grown over the last 30-plus years. And I'll share with you in a moment, our internal U.S. money processing metrics also show that cash usage increased during the pandemic. Looking ahead, we expect continued strong organic revenue and profit improvement in 2021. At the midpoint of our guidance, we expect revenue growth of 17%, operating growth of 30%, and EPS growth of 26%. Adjusted EBITDA is expected to be in a range of between $640 million and $730 million, an increase of 21% at the midpoint. Our confidence in the short- and long-term future of Brinks is based on our team's proven track record of strategic and operational execution, continued retail recovery from the pandemic lows, the realization of full-year benefits of the G4S acquisition, the sustainability of our cost reductions and the substantial organic growth expected in our core base business, as well as the transformational potential of our Brinks complete digital cash solutions. Turning now to slide four, which we think demonstrates the resiliency of our revenue base compared to other companies represented here in various indices. I think some of you may be surprised to learn that Brinks is outperforming all of these industries during the global pandemic. Clearly revenue for the hospitality and entertainment industries with their near total reliance on consumer spending has been hit very hard by the pandemic and government mandated closings. Yet in many cases, the equity values of some of these companies in these indexes have shown sharp increases in anticipation of a post-pandemic recovery. Moving from the left to the right on the chart, you can see that the cash management industry, the S&P 400 industrials, our route-based peers, and traditional payment companies all fared better than most consumer-focused companies, with 2020 fourth quarter revenue at or above the 90% of 2019 levels. Our fourth quarter recovery is the strongest versus these indices. I just want to make a note that all the companies reported revenues in these indices use organic revenue as well as acquisitions and divestitures similar to ours. This is especially the case if you take a look at the payments indexes that include several companies with numerous acquisitions The far right of the slide shows the strength of our recovery on both a reported basis and a pro forma basis, which includes the G4S results for both 2019 and 2020. We compare favorably on both counts, with reported fourth quarter revenue up 9% versus prior year and pro forma revenue at 92% of 2019, up from 88% in the third quarter and 78% in the second quarter. Rink shares many characteristics with route-based and industrial services companies, including high levels of recurring revenue, strong customer retention, but we've not yet been able to achieve similar valuation multiples or share price increases since the onset of the pandemic, despite the fact that we had similar revenue growth since the bottom of the pandemic versus these indices. Taking a step Taking a step further, Brinks even outperformed the payments index with fourth quarter revenue up 9% versus 2019 for Brinks. On a comparable basis, the payments index was down 6% versus the prior year. While some of you may have been surprised at our comparably strong revenue growth, we most certainly weren't. Slide 5 represents data that proves our longstanding assertion that cash usage is strong and growing, even during the pandemic. To be clear, we fully acknowledge the increase in e-commerce and the step change in the growth in e-commerce sales during the pandemic. But if you consider the facts, there may be a different story. Even during the height of the pandemic-related shutdowns, Cash as a percent of all payments remains strong, and the use of cash continues to grow. Further, despite accelerated e-commerce growth during the pandemic, in-person retail sales, where cash is the most popular method of payment, are expected to continue to grow and remain far greater than e-commerce sales. The growth on the left side of page five, slide five, I think is compelling. It shows the growth of e-commerce sales, and continued growth in in-person retail. In 2019, according to the U.S. Census Bureau, in-person retail spending accounted for about 89% of total retail sales. This was prior to the pandemic, suggesting that e-commerce accounted for about the balance of the 11%. Obviously, the pandemic has accelerated e-commerce sales growth to about 14% of total sales in 2020, suggesting full-year e-commerce growth this year or last year, excuse me, of about 35%. But its growth rate is expected to level off and even decelerate between now and the next five years through 2025, when e-commerce is expected to reach about 23% of total retail sales. This means that in 2025, five years from now, more than 75 percent of retail sales will be in-store purchases. It's also important to remember that total retail sales are expected to reach more than $6.5 trillion in 2025. So, the size of in-person retail sales in terms of total dollars will be larger in 2025 than it was before the pandemic, or over $5.2 trillion. even with accelerated e-commerce sales growth. The right side of the slide shows that cash is the most popular form of in-person transactions in the US at 35% of payments, ahead of debit and credit cards. That survey suggests that retailers have no intentions as well of stopping acceptance of cash as a form of payment. So even as e-commerce becomes a larger part of the payments landscape, in-person sales, where cash is the preferred method of payment, are also expected to grow. This data supports our belief that Brinks is very much a growth business, given our strategic focus on increasing organic revenue, growth through acquisition, and our development of digital cash management solutions targeted at a very large market of underserved or unserved customers and retailers today. Turning to the next slide. Consistent with prior quarters this year, fourth quarter internal and external cash usage levels remain elevated versus prior year. According to the Federal Reserve, cash in circulation in the U.S. is up 16 percent year over year. a material increase, as I mentioned earlier, over the 30-year historical compounding annual growth rate of 6-plus percent. Historically, history has also shown that during periods of recession and economic stimulus, the use of cash increases as a percent of payments, suggesting that we are in, and possibly will continue to be in, a period of increased cash usage. And our internal BRINCS metrics show that both the volume and value of notes flowing through our U.S. operations have increased 6 percent over last year's fourth quarter, even with fewer locations still being served. So, despite the headlines, we believe both the historical and current data support the resiliency and persistence of cash usage. And on the right side of slide six, the outer ring show that between 85% and 90% of U.S. retail locations do not use any cash management industry services. They're unvended or undervended. Unlike the market for credit and debit services that is almost fully vended, shown by the inner ring, there is clearly a significant opportunity for Brinks to penetrate the very large unvended or unvended cash payments market with our new services in the future. Let's now take a look at our 2021 guidance on slide seven. Despite the pandemic's continued impact on near-term revenue in many countries, we expect strong growth in our financial results as we move through 2021, with revenue and profit growth continuing to accelerate, especially in the second half. For 2021, we're targeting revenue growth of 17% at the midpoint to $4.3 billion, driven primarily by organic growth and continued revenue in our retail market recoveries. Operating profit growth of 30% at the midpoint of $495 million, reflecting a margin of 11.5%. an increase of 120 basis points over last year, adjusted EBIT growth of 21 percent to $685 million at midpoint, and EPS growth of 26 percent at midpoint to $4.75 percent per share. This includes, this excludes the impact of MoneyGram in 2021, or let me restate that, excluding the impact that was favorable in 2020 of MoneyGram, the midpoint equates to a 2% increase. We expect strong revenue growth in 2021 as the pandemic subsides and economies around the world continue to reopen, especially, again, in the second half, supported by the four-year impact as well of the G4S acquisition. Given the difficulty of predicting the timing and pace of the recovery, The low end of our guidance assumes a conservative revenue recovery rate that does not increase from our current fourth quarter rate of approximately 92 percent of pro forma 2019. The midpoint of our guidance assumes a recovery rate of about 96 percent and the high end a little over 100 percent, which would generate $730 million of EBITDA. Our guidance also assumes improved margins and operating leverage. and only includes minimal potential benefits from our strategy 2.0 digital cash management solutions. Before I turn it over to Ron, I'd like to make a few comments about our ES&G initiative that Ron is driving. We're pleased with our fourth quarter results and for our outlook for 2021, as we just discussed. But we appreciate that the way we achieve results is just as important to us and to our investors. As an industry leader, we recognize the importance of being stewards of the environment, employing sound government principles, and having a positive social impact on the communities where we live and where we do business, all while continuing to drive shareholder value. In 2020, we accelerated our efforts and evaluation of best practices in sustainability programs and recently formalized and centralized a global sustainability program at Brinks. Our priority in 2021 is to conduct ES&G assessments with internal and external stakeholders and to determine metrics and goals that we will begin to report to stakeholders. Based on our work to date, we're encouraged by the many examples of ES&G initiatives throughout our global organization and will seek to leverage best practices across our global footprint. Our commitment to ESMG is underscored by the fact that Ron is leading the effort. I'll now turn it over to him for follow-up comments on this, plus our financial review. Ron?