Brinks Company (The)

Welcome to the Brinks Company's fourth quarter and full year 2022 earnings. Brinks issued a press release detailing its fourth quarter and full year 2022 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 at investors.brinks.com. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. And as a reminder, this conference is being recorded and will be available for replay. 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 are available in the footnotes of today's press release and in the company's most recent SEC filings. Information presented and discussed on this call is representative 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. I will now turn it over to your host, Jesse Jenkins, Vice President of Investor Relations. Mr. Jenkins, you may begin.

Thanks and good morning. Joining me today are Brinks CEO Mark Eubanks and CFO Kirk McMacken. This morning, we reported fourth quarter and full year 2022 results on both a GAAP and non-GAAP basis, as well as 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, the majority of our comments today will focus primarily on non-GAAP results. Reconciliations of non-GAAP results to their most comparable GAAP results are provided in the press release, the appendix of this presentation, and in this morning's 8K filing, which can be found on our website. I'll now turn the call over to Brink's CEO, Mark Eubanks.

Thanks, Jesse. Good morning, everyone, and thanks for joining us. This morning, we reported strong full-year fourth quarter 2022 results, highlighted by the highest full-year organic growth rates we've seen over a decade, and operating margins at the highest level in recent years. We delivered our full year 2022 guidance for revenue, operating profit, EBITDA, and EPS, despite the impact of $252 million on revenue due to negative foreign exchange translation. The 12% organic growth rate included double digit growth in three of our four segments, as well as in our digital retail solutions, ATM managed services, and in our valuables management business, Brinks Global Service. All service lines benefited from strong pricing discipline in the current inflationary environment. Operating profit margins and EBITDA margins expanded by 90 and 110 basis points respectively, a result of improved revenue mix from higher DRS and AMS revenue, continued cost productivity, primarily from labor management, and disciplined pricing actions to offset inflation. EPS for the year was $5.99 per share, a $1.24 per share increase over 2021. In the year, we generated $203 million of free cash flow and prioritized use of cash towards share repurchases and the October 3rd acquisition of NoteMachine, which was immediately accretive in Q4. In total, we purchased about 950,000 shares at an average price of approximately $55 per share. Kurt will have more on free cash flow and capital allocation later in the call. Demand remains strong in the fourth quarter, allowing us to post 12% organic revenue growth and 15.7% operating margins. North American operating profit margins were 15.1%, the highest in the history of the segment, and I'm encouraged by the progress our North American leadership team is making. Adjusted EBITDA margins in the fourth quarter were over 20% for the first time in our history, As we saw the benefits from the growth of our high margin businesses, as well as the aggressive cost efficiency efforts in the quarter, which included early benefits from the restructuring efforts that we announced during our Q3 earnings. Our 2023 guidance builds off a strong foundation developed in 2022. We're targeting organic growth between seven and 11%, including continued strong growth in the DRS and AMS offerings. Operating profit is expected to improve by approximately 100 basis points through continued cost productivity and profitable growth in these higher margin lines of business. EBITDA is expected to be between $855 and $905 million, with EPS between $6.30 and $7 per share. As always, we remain keenly focused on generating free cash flow. We expect significant improvement in free cash flow generation year on year, to around 40% conversion of adjusted EBITDA, primarily through profitable growth and working capital improvements. Moving to slide four. Let's take a quick look at full year 2022 results. Starting on the left-hand side, reported revenue was up 8%, which included the previously mentioned foreign exchange currency translation impact throughout the year. On a constant currency basis, revenue is up 14% 12% organically and 2% from acquisitions. Reported operating profit was up 17%, which included $45 million in negative foreign currency impact. The 26% constant currency growth included 23% organic growth. In total, revenue growth of $335 million and operating profit growth of $80 million delivered an incremental margin of 24%, increasing the all-in operating margin to 12.1%. a 90 basis point improvement over prior year. Adjusted EBITDA grew 106 million or 15% to 788 million with a margin of 17.4%. Incremental EBITDA margins were just over 30%. EPS of $5.99 per share improved by 26% on a reported basis, excluding the prior year 24 cent gain on the sale of MGI EPS would have grown 33%. As a reminder, the gain on MGI shares in the prior year is now fully behind us as we move into 2023. Turning to slide five, you can see our strong 2022 performance and early look at our outlook for 2023 compared to our recent history. I'd like to highlight a few key actions we undertook this year to deliver strong revenue and profit growth. First, We established defined processes and procedures to address inflationary pressures across many of our lines of business. I'm happy to report that we were able to effectively recover the cost inflation we experienced. The foundational capabilities we built during the COVID impacted inflationary years of 2021 and 2022 will allow us to take a much more disciplined approach as we look ahead. As we continue to drive value for our customers through improved service quality and customer focused digital solutions, We believe there's an additional opportunity to drive profitability through strategic pricing in the coming years. Secondly, we were able to accelerate growth in our tech-enabled service platforms, both digital retail solutions, or DRS, and ATM-managed services, or AMS. As I'll discuss on the next slide in more detail, our strategy on how best to capture more than our fair share of these growing markets continues to evolve. In DRS, We are encouraged by the success we've seen to date in all of our regional segments across both small and mid-sized businesses, as well as the larger multi-site enterprise customers. While we expected North America and Europe to be the primary adopters of these solutions, we have been encouraged by the uptake in other geographies. Our products offer an end-to-end solution that provides fast access to working capital through bank-agnostic provisional credit that has resonated worldwide. The ability to tailor our solution to the size and budget of our customer has created exciting opportunities in underserved channels that have not previously considered Brink's traditional CIT offering. In ATM Managed Services, we leveraged our internal talent from the 2021 acquisition of PAI and promoted David Dove to be our global leader of AMS. David and his team are working closely with the segment leaders to develop opportunities across all geographies to complement our strong, existing AMS presence in both North America and Europe. The AMS strategy aligns well with the outsourcing trend we're seeing from financial institutions and retailers as they search for cost-effective solutions to outsource ATM management in order to focus on their own core services. In addition to the outsized revenue growth we saw in the year, we were also able to post operating margins at the highest level in recent history. Growth in our higher margin services like DRS and AMS, as well as global services, were contributors to the performance. And we also continued to drive operational efficiencies throughout the business. During 2022, we expanded the Brinks business system globally. Under the Brinks business system, we develop and apply best practices and standard processes across the global business to achieve operational excellence. Using a lean continuous improvement framework, We closely examine and create efficiencies in many aspects of our operations. While the future applications of BBS are wide ranging, areas where we saw early results in 2022 included standardized workflow, employee turnover and staffing, and route optimization. These initiatives delivered fleet and labor efficiencies, allowing us to expand operating margins by 90 basis points in the full year. Strong profit margins in Latin America over the last few years can be partially attributed to the early phases of lean and the Brinks business system. And over the course of 2022, we scaled the best practices we developed in the region to other parts of the world. The most tangible success story we delivered through BBS this year came in employee turnover in North America. Labor markets in the US have been extremely tight over the last 18 to 24 months with unemployment rates recently posting 53 year lows. Despite the challenging labor market, we delivered a 22% year-over-year reduction in turnover in the fourth quarter. The turnover improvement led to 97% staffing levels in the business as we exited the year and was a clear driver of revenue growth, margin improvement, and improved service quality in the North American segment. While turnover remains higher than we would like, we are happy with our progress. We will continue to introduce standardized playbooks and KPIs in areas like capacity planning and fleet excellence that will drive our efficiency journey and allow us to meet our 100 basis point margin expansion goals for 2023. I look forward to sharing additional progress under the Brinks business system as we move forward with this important initiative. I'm also pleased with the progress we've made on restructuring that we announced last quarter. We now estimate the program to generate about $10 million more than our original estimates, bringing the expected savings to approximately $50 million of permanent cost structure improvements by the end of 2023. I'm excited about the improvements to the business we've made that have generated double-digit organic growth and strong margin improvements this year, but I'm even more excited about the benefits these enhancements will deliver in the future as they scale and optimize over time. With this strong 2022 performance as our backdrop, let's turn to slide six and discuss how we continue to improve our financial model in 2023. Here on slide six, we plan to focus our efforts this year on three primary lines of business, each with different growth expectations and financial benefits. The traditional cash logistics and valuables management portion of our business had a great 2022 with 9% organic growth. This line of business includes our cash and transit operations, as well as our Brinks Global Services business. These services form the foundation of our 163-year-old company and are an important part of our continued success. Our strategy in this area is to continue our operational excellence journey while developing deeper relationships with our customers. Deepening these customer relationships is moving us from simply being a vendor to a strategic partner, providing opportunities to innovate our offerings into better solutions for our customers and higher profit margins for Brinks and for our shareholders. Digital retail solutions are a natural extension of our legacy business as we innovate with our customers to provide solutions that make cash acceptance as easy as debit and credit, often at more cost-effective price points than a traditional CIT service. We provide retailers with full visibility to their cash ecosystem and fast access to working capital. The digital visibility of cash volumes to these solutions also allows us to optimize our own resources, only scheduling stops when the need arises, producing fuel usage and carbon emissions, and driving better margins while allowing for lower price points for our customers. DRS comes with longer-term recurring revenue contracts that create better inherent retention rates. We're seeing growing customer demand for these solutions across all of our reporting segments, and we continue to see an opportunity to expand our addressable market to customers that don't currently have access to a cash management solution. 2022 was another strong year for DRS with organic revenue growth of 25%. And we see a robust pipeline of opportunities with both existing and new customers eager for these solutions. Finally, ATM managed services or AMS is an additional innovation on top of our traditional ATM replenishment services. These offerings provide a flexible turnkey solution that enable financial institutions and retailers to move beyond just-in-time cash replenishment to a holistic outsource model, which reduces costs and improves performance. Leveraging expertise and infrastructure from recent acquisitions, we are building out a global team focused both on financial institutions and retail customers in the AMS space. Our strong existing relationships and brand reputation in the markets around the world make us a logical choice for customers looking for an outsourced option. We have recognized a meaningful shift in the market from financial institutions toward reducing their branch footprints while maintaining connectivity to customers through ATMs. Our ATM managed services solutions meet the needs of our banking customers as they pivot resources away from the storefronts and into the digital banking channels. With our size and geographic presence, We offer a range of solutions that differentiate us from other providers. 2022 organic growth in AMS was 50%, and we expect strong growth in this line of business in 2023, both organically and inorganically as we continue to integrate the October acquisition of NoteMachine. Our success in these areas, line of sight to future growth prospects, and favorable external market factors inform our outlook for 2023. We expect total organic revenue growth between 7% to 11%. DRS and AMS are expected to grow faster than our traditional cash logistics and valuables management business as we gradually shift our business mix from traditional services to higher margin solutions. With the shift to higher margin revenue, continued efficiencies gained through lean initiatives as part of the BRICS business system and the additional benefits from our restructuring plans, We plan to expand our operating profit margins by approximately 100 basis points in 2023. Above historical average growth and record operating margins for the business are expected to generate free cash flow of approximately 40% of our adjusted EBITDA in 2023. I'm confident in the strategic initiatives we have in place and the market opportunities we see in front of us that will allow us to deliver profitable growth in 2023 and for years to come. I'll now hand it over to Kurt McMacken, our CFO, to walk through the finer points of the quarter, our capital allocation priorities, and a more detailed review of the 2023 guidance. I will return with some closing comments.