Brinks Company (The)

Welcome to the Brinks Company's third quarter 2022 earnings conference 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 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. 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 in 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. Mr. Cunningham, you may begin.

Thanks, Andrea, and good morning, everyone. Joining me today are CEO Mark Eubanks and CFO Kurt McMacken. Also joining the call is Rhonda Monaco, former CFO and current president of Brinks Capital and Sustainability. 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 impact of Argentina's highly inflationary accounting, reorganization and restructuring costs, items related to acquisitions and dispositions, costs related to frozen retirement plans, charges related to an antitrust matter in Chile, valuation allowance on tax credits, and certain allowance estimates. We're also providing our results on a common 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 the non-GAAP results. Reconciliations are provided in the press release and 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 Mark.

Thanks, Ed. Good morning, everyone, and thanks for joining the call today. This morning, we reported strong third quarter results, including double-digit organic growth in revenue, operating profit, adjusted EBITDA, and EPS. We achieve these results in a macro environment that continues to be challenging, demonstrating the resiliency of our business. We remain on track to achieve the midpoint of our full year guidance for adjusted EBITDA and earnings per share of approximately $775 million and $5.75 respectively. Full year revenue and operating profit are now expected to be at the low end of the prior range due primarily to the impact of foreign exchange translation. Our guidance includes full year organic revenue of about 12% and strong double-digit growth in operating profit, EBITDA, and EPS, reflecting approximately 100 basis points of margin expansion driven by our organic growth, lean cost initiatives, and leverage from a lower fixed cost base. Through the first nine months of 2022, we achieved 8% revenue growth, 15% operating profit growth, a 14% increase in adjusted EBITDA, and EPS growth of 23%. We delivered these results despite a slower than expected start to the year due to the Omicron related shutdowns around the world, a war in Europe, and an aggressive global monetary tightening trend, all of which have led to extreme movements in FX as the US dollar continues to strengthen. We expect the operational momentum in both organic growth and profit expansion to continue through the fourth quarter, which has historically been our strongest quarter. It's important to note that our 2022 guidance does not include any contribution from our recent acquisition of Note Machine, which we expect to be accretive to our results starting in the fourth quarter of this year of approximately four cents per share. In addition to the positive impact of the Note Machine acquisition, we will continue to be very proactive in taking steps to optimize our operating model, not only to drive organic profit growth, but also to mitigate the potential impact of a sustained economic slowdown in 2023. To that end, we are announcing a global restructuring plan that's expected to yield $40 million of savings in 2023 as a result of sustainable fixed cost reductions across the business. We continue to pursue additional opportunities to reduce costs, streamline our operations, and optimize our business model. We expect a strong finish in 2022 to lead to an even stronger performance in 2023. Our recent share purchases reflect our confidence that we will continue to deliver strong growth in revenue, profits, and free cash flow. We look forward to providing our guidance in 2023 when we report our fourth quarter results in February of next year. I'd like to take this time to thank our more than 70,000 associates around the world who have been the driving force for the acceleration of our strategy. by relentlessly serving our customers and executing our business improvement imperatives related to safety, quality, cost efficiency, all across our global footprint. Next slide. This slide provides a brief update on the progress we're making with our tech-enabled solutions, which we formally refer to as Strategy 2.0. The solutions are the basis for our two technology service platforms, Digital Retail Solutions, or DRS, and ATM Managed Services, referred to as AMS. Our digital retail solutions, which include Brinks Complete and other similar global service offerings, such as CompuSafe, grew organically by more than 20% during the first nine months of the year. We continue to evolve our service offerings to satisfy specific local market and customer needs, and we're seeing growing customer acceptance across all regions. Our digital retail solutions aim to make cash as easy to use as debit cards, credit cards, and other digital payments. and allow our retailers to create full value stream visibility for all payment methods, especially cash. These higher margin solutions enable us to offer enhanced services to our current customers, as well as what we believe is a very large addressable market of unvended and underserved retailers around the world who currently do not have a cash management solution. Our ATM management services offering provides a flexible turnkey solution that enables financial institutions and retailers to outsource their entire ATM estate to Brinks, thereby maximizing their ATM network performance and freeing up more resources for their core business. Year to date, our AMS business has grown organically by more than 50% over last year. We've been actively growing our AMS business, both organically and inorganically across all geographic segments. The biggest driver of our year to date organic growth is a successful execution of our agreement to provide end-to-end ATM services for BPCE, the second largest bank group in France. Our recent acquisition of NoteMachine has further added to our AMS footprint, and we're well positioned to leverage NoteMachine's expertise and infrastructure to accelerate AMS growth in Europe and around the world. Our confidence in our AMS growth strategy is further supported by a strong pipeline of additional organic ATM outsourcing opportunities in all four of our geographic segments. On to slide five. Here we provide two examples of how we're better serving customers through tech-enabled solutions of DRS and AMS. On the top of the slide, we're highlighting the success of our BPCE relationship. This is the largest tier one financial institution outsourcing award that we're aware of, and our team in France has really stepped up to implement this groundbreaking partnership. BPCE is outsourcing their entire network of more than 10,000 ATMs to Brinks, and we expect the deployment to be fully complete by the end of this year. We expect to generate annual revenue of about 50 million euros over the course of this 10 year contract. This is not only an opportunity to provide a valuable service to a major customer, It's also an opportunity to leverage our infrastructure and internal expertise to become the global partner of choice for future ATM outsourcing customers. Another customer deployment that's underway involves a major multinational retailer who has selected one of our DRS solutions as their POS integration solution. We developed a proprietary self-checkout device that uses our software to integrate with the retailer's existing POS system. allowing consumers to seamlessly use any payment method, cash, coin, or card. Our device also has recycling functions that not only improves productivity, but also provides additional features to enhance customer service and the retailer's visibility to their cash ecosystem. We expect to deploy the initial 400 units in 2023, and this comes with a five-year recurring revenue contract. The next slide Here is our most recent acquisition. While we have strong focus on organic growth, we're also looking for ways to accelerate and build capability through acquisitions. Earlier this month, on October 3rd, we acquired NoteMachine, one of the leading ATM networks in the United Kingdom, for approximately $179 million, or five times the adjusted EBITDA. NoteMachine brings a strong team of ATM managed services experts and a global technology infrastructure that will allow us to more effectively capitalize on the ATM outsourcing trends in Europe and around the world. For the fiscal year ended June 30th, 2022, NoteMachine generated revenue of approximately $131 million and adjusted EBITDA of approximately $36 million. This acquisition is expected to add approximately $5 million of operating profit and four cents per share to the fourth quarter earnings of this year. The note machine acquisition builds on our organic growth initiatives and is an important step in the execution of our long-term strategy to grow our ATM managed services business. This next slide highlights our global restructuring efforts. As I mentioned earlier, we're taking actions across our global footprint to enable growth and mitigate the potential impact of a recession. Our main focus is on realigning and reducing our headcount, streamline our infrastructure and operating footprint and shifting our business mix to more profitable offerings, such as ATM managed services and digital retail solutions. All are in accordance with our long-term growth strategy. We expect our one-time restructuring costs to be approximately $30 million, about $18 million of which was recognized in the third quarter. When completed, the current restructuring actions are expected to drive annualized savings of approximately $40 million, all of which are expected to flow through our results in 2023. Next slide. I want to remind everyone about our history of steady performance in organic revenue growth across economic cycles. This graph shows our annual organic revenue growth over the last 16 years, starting with the Great Recession of 2008 and 2009, when many companies were down 10, 20, 30% or more. Brinks organic revenue growth was basically flat in 2009 or down less than 1%. We recovered quickly back to 4% in 2010 and then returned to 7% growth in 2011 and remained in the mid single digit range throughout the next decade. Then came another crisis, a global pandemic. Even during the height of the pandemic, when organic revenue initially contracted by 7%, We recovered to 5% growth in 2021, and we're up 12% so far in 2022. Looking back over the past four years across a global pandemic, our average organic revenue growth has been about 5%. It's important to note that even during recessions and other times of crisis, when some retailers are taking in less cash, our services are still needed to transport and protect cash that they're bringing in. For example, the customer's cash volumes are down 10 or 20%, they still need our services for the remaining 80 to 90% of their cash. And our AMS business is equally resilient since our networks serve as key distribution points of cash for daily commerce. In other words, Brinks is an essential provider of services throughout all business cycles. Now let's turn to the third quarter results, slide nine. This slide summarizes the strong revenue growth and profit growth that we achieved in the third quarter. Revenue was up 6% and organic growth up 13% driven by double digit organic growth in North America, Latin America, and our rest of the world segment. Organic growth in Europe was about 8%. Operating profit was up 9% with organic profit growth of 22% and acquisition related growth of 1%, partially offset by a 14% negative impact from FX translation, primarily due to the Argentine peso and the Euro. This profit growth was driven by strong year-over-year margin expansion, especially in North America and our rest of world segment. Adjusted EBITDA was up 11% and up 22% in constant currency, with a margin of 16.6%, up 80 basis points over last year. Third quarter EPS was up 18% over the year ago quarter, which included a 3 cent per share gain from the sale of our position in MGI. Excluding this gain, EPS was up 21% for the quarter. I'll now turn the call over to Ron DeMonaco, who has been a driving force for Brinks' success in the past seven years. I want to thank him for his contributions to both Brinks and to me personally for his help in the last year since I've been here. Ron?