Brinks Company (The)

Good day and welcome to the Brinks Company's fourth quarter and full year 2023 earnings call. This morning, Brinks issued a press release detailing its fourth quarter and full year 2023 results. The company also filed an 8K that includes the release and the slides that will be used in today's call. 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 presentation. 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 the call over to your host, Jesse Jenkins, Vice President of Investor Relations. Mr. Jenkins, you may begin.

Thanks and good morning. Joining me today are CEO Mark Eubanks and CFO Kurt McMacken. This morning, Brinks reported full year 2023 results on a GAAP, non-GAAP, and constant currency basis. Most of our comments today will be focused on our non-GAAP results because we believe these results make it easier for investors to assess operating performance between periods. Reconciliations of non-GAAP results to their most comparable GAAP results are provided in the press release, the appendix of the presentation, and in this morning's 8K filing. I will now turn the call over to Brink's CEO, Mark Eubanks.

Thanks, Jesse. Good morning, and thanks for joining us. Starting with the fourth quarter on slide three, we delivered total growth of 5% with organic growth of 9%. The organic growth was driven by strong pricing discipline and 17% growth in AMS and DRS revenue. Profit margins were impacted by geopolitical and economic pressures in certain markets and lower than expected growth in high margin services in North America. Q4 operating profit was $190 million with a margin of 15.2%. and adjusted EBITDA of $252 million with a margin of 20.2%. EPS was up 31% to $2.76 per share, benefiting from a few unique items in the quarter that Kurt will discuss later in more detail. We also delivered another strong quarter of improvement in free cash flow on our way to our record year. Free cash flow was up 36% from the prior year with sustainable conversion improvement to a rate of 70% in the quarter. Moving to the full year, revenue was in line with expectations with 9% organic growth. Approximately 40% of that growth came from AMS DRS revenue, which was up 21% organically in the year. Adjusted EBITDA was $867 million with a margin of 17.8%, expansion of 40 basis points. Full year EPS improved $1.36 to $7.35 per share. We delivered record free cash flow through record EBITDA, improved working capital, and a reduction in CapEx as a percentage of revenue, as well as lower cash taxes. For the full year free cash flow, it nearly doubled to $393 million with 45% cash conversion of adjusted EBITDA. 2023 reflects consistent progress executing against our strategic initiatives. We ended 23 with over a billion dollars or 21% of our revenue now represented by higher margin AMS and DRS offerings. This improved revenue mix and cost productivity across the business led to expanded profit margins for the full year. We delivered record-free cash flow through increased focus and operational discipline at all levels of the organization. We also increased our financial flexibility by reducing leverage to 2.9 times within our target range of two to three times. And finally, we returned over $200 million of capital to our shareholders through the repurchase of 2.3 million shares of common stock as well as our dividend which was increased 10% in May of 2023. As we look forward to 2024, our guidance represents continued progress on our key objectives. We expect revenue growth in the mid-single digits with low to mid-teens organic growth and another year of double-digit growth in AMS and DRS. We expect adjusted EBITDA to be between $935 and $985 million with margin expansion of 80 basis points at the midpoint. driven by strong revenue growth, continued revenue mix improvement, and cost productivity initiatives. EPS is expected to be between $7.30 and $8 per share, and free cash flow is expected to grow to between $415 and $465 million, with conversion at the midpoint of approximately 46%. We'll provide more detail on the guidance later in the presentation. Turning to slide four. Our full year performance demonstrates good progress against our goals. Total revenue in 2023 was in line with our expectations with 9% organic revenue growth and a 2% contribution from M&A, partially offset by 4% headwind from FX. I'll go into much more detail on revenue and operating profit by segment on the next slide. Adjusted EBITDA was up about $80 million due to the flow through of higher revenue, good pricing leverage, and cost productivity, which includes restructuring savings from the program that we announced late in 2022. Earnings per share was $7.35 per share, reflecting the flow through of higher net income and a reduced year count. Our focus on free cash flow led to a $190 million increase year over year, reflecting improved working capital and lower cash taxes that more than offset the higher cash interest. Kurt will have more specifics on the free cash flow cadence and expectations into next year. On to slide five, I'd like to take a moment here to discuss the segment level performance in both the full year and fourth quarter. Starting with North America on the left side, organic revenue growth of 1% for the full year includes an organic decline of 2% in the fourth quarter. The quarter was impacted by the portfolio rationalization we discussed in Q2 and the lower volume growth from our global services revenue. There were also several large new DRS customers that delayed device installations from the Q4 peak retail season into 2024. As we look at the year, we're well positioned to accelerate our DRS revenue in the North American market as we convert our backlog to revenue. We continue to make progress on a robust sales pipeline that's up over 50% year on year with a much more mature outlook than a year ago. Operating profit in North America was up 160 basis points on the year to a record of 11.6%. Good pricing efforts, portfolio rationalization, and cost productivity, especially in direct labor, were the main drivers of the margin expansion despite the revenue mix headwinds that we saw in Q4. We also continue to make good progress on our safety and quality initiatives with Q4 total recordable incidents at the lowest it's been in the last three years and quality scores that improved year over year again this quarter. In Latin America, strong organic revenue growth in Q4 and the full year was driven by our pricing efforts to offset inflation as well as strong DRS and AMS revenue growth. Geopolitical and economic headwinds in several countries in South America, including the impact of the currency devaluation in Argentina, impacted profitability in the fourth quarter and the full year. As we discussed previously, we continue to experience economic headwinds in Brazil. The country has taken action to spur the economy, as evidenced by the five consecutive interest rate cuts, and we feel good about our outlook. Our local team are offsetting these impacts through our continued shift to AMS and DRS revenue, which are strong in Q4. And we continue to streamline our cost structure to match the demand shifts. Looking at 2024, we have a strong business in Latin America, good momentum on DRS and AMS in the region, and are encouraged with our outlook despite a forecasted impact in Argentina from the recent devaluation. Europe has performed well in 2023 as they had success with DRS and AMS early in the year and have driven growth in both of these areas throughout the year. The strong growth in these higher margin areas has helped profit margins expand by 40 basis points on the year despite the economic backdrop. With several new AMS contracts set to come online in early 2024 and similar to North America, a DRS pipeline that's up 50% year on year, we feel really good about the trajectory of the segment. next year. In the rest of the world segment, we realized modest growth and margin expansion in the year. As we previously discussed, our global services business, which represents more than half of the revenue in the segment, was impacted by the slowdown in the movement and storage of commodities worldwide. We're encouraged by a nice recovery we've seen in BGS late in the year, and we continue to see that here in Q1. DRS has done well, and the AMS pipeline in the region is very active with several ongoing pilots. With the growth of DRS base in 2023, we are targeting margin expansion in this segment next year. So far this year, we've seen a recovery in our BGS business outside of North America and an accelerating progress in DRS in all regions highlighted by North America. I'm encouraged by the strong progress on our strategy as evidenced by the growth we delivered in AMS and DRS in both the fourth quarter and full year. As we continue on this growth trajectory, our business will naturally shift to a larger base of predictable, higher margin recurring revenue business mix. As we exit 23, our AMS DRS revenue makes up 21% of our total revenue. Over the long term, we feel good about our ability to continue to increase that percentage going forward. On slide six, you can see the EBITDA performance over time, including the midpoint of our 2024 guidance. The company has performed very consistently through challenging economic cycles. The 14% CAGR is well ahead of our revenue CAGR over the same period as we continue to make strides, increasing our margin profile. On average, EBITDA margins have expanded by more than 80 basis points annually, and that aligns with our expectations for next year. There are several drivers of margin expansion starting with the work we've done to improve our revenue mix. Since 2020, we have nearly tripled the size of our AMS and DRS recurring revenue base, growing the business by over $600 million incrementally. In 2024, we expect another double-digit organic growth year in these higher margin offerings as we continue to convert and penetrate the retail market for DRS, as well as help financial institutions and independent ATM operators simplify their ATM ownership and operation through our AMS offering. Operationally, we continue to drive waste out of the system through the Brinks business system. We're doing this by leveraging lean philosophies and sharing best practices across our global branch network as we continue to unlock savings opportunities. We've also recently started a transformation of our North American business that we expect to eventually scale globally. The transformation is focused on commercial and operational excellence, as well as support function optimization. Even with the record margin performance in North America, we realize we have significant room to continue to expand our margins. The transformation supports our margin expansion efforts in 2024, as well as the years beyond. We remain focused on our midterm goal of approximately 20% EBITDA margins across the business and believe we have a clear path to continued margin expansion. Turning to slide seven, I'd like to take a moment to touch on the development of each of the customer offerings. Starting with cash and valuables management, we saw good growth in the fourth quarter driven by disciplined pricing efforts, which more than covered our inflation in all segments. As I mentioned earlier, we did experience headwinds in our BGS business due to elevated interest rates and market trends globally. We've made good progress instilling a culture of lean into our operations and are driving cost productivity throughout the organization and across the network. DRS was up sequentially from the third quarter on strong growth in Europe due to the onboarding of several new customers in the quarter. North America was up sequentially as well, despite the impact of several larger customers delaying installations out of Q4 into 2024. I'm encouraged by the improvement in the pace of installations earlier this year, with several days setting record highs And the month of February has been our best on record. Our sales pipelines in all regions are up approximately 50% versus the same time last year. AMS also had a successful year of progress as we established our global team and increased our visibility with customers. Over the year, we developed several key wins in both Latin America and Europe as we continue to build scale and improve our service levels in AMS. I'm encouraged that we remain on the right path when I see the size of our pipeline and the various pilot programs we have going on across the globe. As you can see from the chart on the left side of the slide, AMS and DRS are now 21% of our total revenue. As I mentioned, we expect to see at least double-digit organic growth in these offerings next year. I believe we're still in the early stages of the transition to these high-margin recurring revenue offerings and I'm excited about the opportunities that remain in front of us. With that, I'd like to turn it over to Kurt to talk through the quarter and provide more color on our guidance assumptions. I'll return with some closing thoughts before we open up for Q&A. Kurt?

Thanks, Mark. Looking at our fourth quarter results on slide eight, 9% organic revenue growth was offset by 4% translational FX, primarily in Argentina. Adjusted EBITDA was up $5 million to $252 million and a margin of 20.2%. EPS was up 31% and includes a 48 cent benefit from gains on the sale of marketable securities. These were primarily in Argentina as we monetized certain investments that protected our assets from devaluation during the uncertain geopolitical backdrop in the country. EPS also benefited from a lower than expected foreign tax expense relating primarily to higher tax deductible inflation adjustments in Argentina. We have not included additional benefits from these items in our 2024 outlook. Free cash flow in the fourth quarter was $177 million and converted at a 70% rate from our EBITDA, representing a strong improvement year over year as we continue to stress the importance of free cash flow across our business. Realizing the heightened interest of this metric by our investors, we plan to present a trailing 12-month view of this metric when we share quarterly performance going forward. On slide nine, you can see that roughly 40% of our organic growth in the quarter came from AMS and DRS. In total, 102 million in organic revenue produced 31 million of organic operating profit for an incremental margin of around 30%. Translational FX reduced revenue by 46 million and operating profit by 29 million, with higher margin Argentina currency devaluation offset by favorability in relatively lower margin Euro-denominated countries. On slide 10, I would like to walk you from operating profit to adjusted EBITDA. Starting on the left, interest expense was up 9 million year-over-year to 52 million. The increase is related to higher interest rates and higher debt needed to fund DRS growth. Tax expenses were 42 million in the fourth quarter and 118 million for the full year. Our effective tax rate was 24.8%, lower than our expected 30% target due to an increase in tax deductible inflation adjustments associated with Argentina's currency devaluation in mid-December. We expect these rates to normalize back to slightly below 30% in 2024. You can also see the $29 million in marketable securities gains that I mentioned earlier. Income from continuing operations was $127 million, along with a reduced diluted average share count of 45.9 million shares equates to $2.76 per share, an increase of 31%. With approximately 2.3 million shares purchased in 2023, we ended the year with 44.5 million shares outstanding, a reduction of approximately 4% from the prior year. Working back to adjusted EBITDA, you can see where we removed the marketable security gains to aid comparability to past and future periods. In total, EBITDA was up $5 million to $252 million. On slide 11, I'd like to talk you through one of our more significant successes of the year, free cash flow generation. We delivered a record $393 million in free cash flow in 2023, up 93% over last year. In the chart on the top right, we have provided three-year trends on the major components driving free cash flow. Record EBITDA was up approximately 80 million in 2023, and at the midpoint of guidance is expected to increase by another 90 million in 2024. We made considerable improvements year over year in working capital as we worked our way back from a challenging 2022. Improvements were mostly driven by meaningful gains in DSO across all of our segments. The change in our annual incentive plans to include free cash flow for our top 300 leaders, has engaged and motivated our leadership to drive results. Looking to 2024, we expect to see slight working capital usage as we lap the strong improvements made in 2023. Cash taxes were lower in 2023, primarily due to lower foreign tax driven by higher inflation adjustments. We expect cash taxes to increase in 2024 as these benefits are expected to lessen going forward. Cash interest is expected to rise in 2024 due to higher floating rates early in the year and increases in the lease debt and provisional capital to fund our planned DRS growth. CapEx was down as a percentage of revenue in 2023, and we expect to continue this trend in 2024 as we make progress reducing capital intensity through growth in AMS and DRS. For 2024, we expect total free cash flow to grow by approximately 50 million, and conversion to be about 46% at the midpoint of our guidance. Turning to slide 12, you'll see a familiar slide that displays our capital allocation framework. In short, we're not planning any major changes to our framework going forward. Starting at the top, we have an attractive menu of organic investments that will increase revenue growth, profitability, and ultimately future free cash flow. These investments are primarily OPEX related and fit within our broader profit guidance. I'm happy to report that we have successfully reduced our leverage below three times to within our target range. As expected, this reduction came largely through EBITDA growth, although we continue to shift our debt by paying down our revolver to offset growth in leases and provisional capital needed to fund our DRS growth. With leverage now within the targeted range, we have increased our financial flexibility to pursue additional capital returns and accretive M&A. Shifting to capital returns, in 2023, we completed $170 million of share repurchases, reducing outstanding share count at year end by approximately 4%. Looking forward, we have $500 million of capacity available in a new share repurchase program that expires at the end of 2025. We continue to see share repurchases at our current valuation as attractive, and we plan to be active in the market through a combination of systematic and opportunistic purchases. On the M&A side, our philosophy remains consistent. Our pipeline is robust with most of our targets prioritized in the AMS and DRS space. Any of our potential M&A opportunities require attractive returns and a strong strategic fit and need to fit within our current capital allocation framework. We remain focused on accretive capital allocation that will drive profitable growth and increase cash generation in our businesses. Our disciplined capital allocation framework is designed to maximize shareholder value for years to come, and I am encouraged by the strong year we delivered in 2023. On slide 13, you can see our 2024 guidance. We expect total revenue growth to be in the mid-single digits. Organic growth is expected in the low to mid-teens, offset by translational FX, primarily in Argentina. Net of FX, we expect mid-single digit growth in 2024. evenly split between high margin AMS DRS offerings and growth in our cash and valuables management businesses. Adjusted EBITDA is expected to grow about twice as fast as revenue due to revenue growth and mixed benefits, as well as expected productivity in our core operations led by the Brinks business system. As is our normal practice, this guidance factors in FX expectations for Argentina, which we expect to be more pronounced in the first half of the year. All other currencies reflect rates as of December 31st, 2023. Free cash flow is expected between $415 and $465 million, with conversion from adjusted EBITDA of approximately 46% at the midpoint. EPS is expected to be between $7.30 and $8 per share. EPS growth is partially muted due to the lapping of higher marketable securities gains in 2023 that we have not factored into our guidance for 2024. We also expect a return to more normalized effective tax rate slightly better than 30%. Interest expense expectations reflect market assumptions for interest rate reductions in the back half of 2024 and are based on our current capital structure. You may notice that we are not providing guidance to operating profit as we have historically. We have found that EBITDA is the preferred valuation and profitability metric of our analysts and shareholders, and we believe guiding adjusted EBITDA maintains the same amount of visibility into the expected future performance. With that, I'll turn it back over to Mark for some closing comments.

Thanks, Kurt. Before we turn to Q&A, I thought it'd be helpful to investors to provide a comparison of our 2024 guidance against the targets that we set out in our 2021 Investor Day. through the first two years of this three-year framework, we've outperformed those investor day targets when considering the FX and interest rate headwinds. As a reminder, our targets were given on a constant currency basis and excluded the impacts of FX over the multi-year period. While reported revenue is a little short of the number we communicated over two years ago, there's already been over $400 million of currency headwinds to revenue. Strategically, We also communicated a growth plan that focused on acceleration of our higher margin businesses of AMS and DRS, which we called Strategy 2.0 at the time. Our commitment was to deliver an incremental $500 million over the three-year period, and we've already delivered $482 million over the first two years. With our 2024 guidance, we expect to deliver over $600 million in total and outperformance of over $100 million of revenue. Our 2024 guidance has margins of 18.6% at the midpoint, driven by the improved revenue mix, exceeding our 18.5% target we set back in 2021. Looking at the EBITDA dollars, we expect to deliver $960 million at the midpoint, $80 million higher than our original target when taking into account the $120 million of negative FX we've already experienced in the first two years. Looking at free cash flow, We've seen a rapid rise of interest rates over the last two and a half years that has moved the assumed rates on our debt from only basis points to over 5.25% today. Free cash flow conversion is higher than our original expectations when factoring in the impact of $130 million, largely from higher interest rates. Over the last couple of years, we've also sharpened our focus on value creating capital allocations. We completed the Note Machine acquisition in 2022 to bolster our global capabilities in the ATM managed services market. We've also returned significant capital to shareholders, approximately $300 million in share repurchases and dividends over the last two years. In addition, we recently announced a two-year, half a billion dollar share repurchase authorization. Even with these investments, over the past two years, we were still able to reduce our leverage by a half a turn to 2.9 times. As I look back over the strategy period, I'm confident in the progress we've made and remain committed to our strategic direction. The future growth prospects for AMS and DRS remain strong and the demand for our essential services remains high. With the increased financial flexibility and improved operating model that we've built over the last two years, we will continue to grow our business and create additional shareholder value during 2024 and beyond. Now, let's open the line for questions. Operator?

Thank you. We will now begin the question and answer session. To ask a question, you may press star, then one on your touch-tone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star, then two. Again, it is star and then one to ask a question. Our first question today will come from George Tong of Goldman Sachs. Please go ahead.

Hi, thanks. Good morning. Good morning, George. Hi. Your cash and valuables management business had organic revenue growth of 7% in the quarter, which was quite strong. Part of this growth reflects improved price realization. Can you elaborate on how much pricing gains drove the growth and how sustainable these pricing increases are looking ahead?

Yeah, thanks, George. As we look at the business just sort of globally, maybe I'll just spin around the regions a little bit because there's some different, some unique aspects around. We're seeing strong pricing continue, George, relative to inflation. Although we've seen inflation subside in most regions, we continue to see pricing that exceeds inflation that's allowing us to continue to maintain our margins. particularly in North America. We've seen, whilst inflation has subsided, there's still, and you'll see the numbers today, I'm sure, I haven't seen the PCE number yet, but we'll still continue to see local inflation here for the workforce, which is putting pressure on wages, and we're continuing to push that through. You know, I think that the demand side, though, has really... not we've not seen the demand impact though from that price pressure particularly as we shift our business model drs this is an area where we continue to see a lot of success um particularly not only in in bookings but also in a growing pipeline i mentioned the prepared comments you know our pipeline's up 50 percent uh year on year uh for sales opportunities by the way that's we're also seeing that uh around the globe in in the other regions if we move to latin america again, there's quite a few different things going on down there. Some geopolitical uncertainty, of course, in Argentina and really continue to see the market and the economy in Brazil be light. And so a lot of pricing in those markets as we continue to push through. I'd say in the rest of Latin America, really pretty stable. That pricing continues to follow that a little bit higher than 50-50 mix of price to volume, but we continue to see that. We expect that to continue to normalize as we move into 24, that we've already seen that be the case both in Latin America as well as North America. Moving on to Europe, I think things, again, they're pretty stable. We are seeing good DRS and AMS pick up, and you can see that in the numbers. We also have a good pipeline of opportunities that we've signed and booked that we'll see come online in Europe, particularly on the AMS side. Moving on to the rest of the world, the rest of the world is predominantly our BGS business. A lot of the global services business is there in that segment. We saw that return and continue to pick up sequentially Q3 to Q4. If you remember, we had a bit of a softness in Q3 globally with our global services business, particularly on commodities and bank notes movements. We've seen that pick back up sequentially in Q4, predominantly in the rest of the world segment. We did see some softness there in BGS in North America, which you can see coming through on the volume side. But all in all, the pricing environment stays pretty consistent. with 23 as we ebb into 24, levelizing a little bit closer to 50-50.

Got it. Very helpful. And then you noted expectations of double-digit organic revenue growth for DRS and AMS in 2024. Can you talk about how much growth you're specifically incorporating into the guide and how you expect the growth rates of DRS and AMS to compare to each other in the year ahead? Sure.

Well, we actually had a similar look last year, although maybe it's a little bit more. But about 50% of our organic growth, we're anticipating to be in DRS and AMS. That's an expectation. Last year, we were about the same. Maybe we were a little bit less of the organic growth. But going forward, we'll be a little more. And I think as the business becomes a larger percentage of the base, as you know, we exited the year at 21%. of total revenue from AMS DRS, as that base continues to get bigger and the organic growth rates are higher than the CVM business, we're going to continue to see that maybe 50-50 split of organic growth of AMS DRS to the rest of the business probably accelerate a little bit, maybe be a little more than 50%. So for us, that's what's embedded in our guide. Now that obviously excludes the Argentina impact to organic growth, but that mid-single-digit organic growth that we would expect would be, like I said, about half of that would be AMS DRS.

Got it. Very helpful. Thank you.

Sure. Our next question today will come from Toby Sommer with Truist Securities. Please go ahead.

Thanks. I wanted to ask a question about free cash flow and conversion. You're guiding for about $440 million, I guess, and if I assume low 40s in dividend, that's about $400 million left. If you were to just let it sit there, the leverage would be lower than what your stated target is. So without paying any debt down, maybe 2.6 times, if my math is right. Do you intend mostly to do share repurchase with that cash? Because that could be in excess of 10% of the stock.

Yeah. Hey, Toby, it's Kurt. I think, as we mentioned in the remarks, we continue on an active program for share repurchases. And I think the way you can think about share repurchases in 24, because if you look at our free cash flow and take about half of that, which is what we pretty much did in 23, then that kind of gets you to the, you know, pretty close to, you know, the amount of share repurchases we're, you know, initially thinking about for 24. And, of course, we'll be, you know, opportunistic and, you know, depending on what happens in the market, but I think that's a good way to think about it.

And is that embedded in the EPS guidance already? Yes. Could you talk about AMS and DRS through, I think, a different lens than the earlier part of the call? Talk about it in terms of the extent to which you're participating in a market trend versus driving a market trend or taking share because it is a little bit hard externally. with all of your international exposures to understand where you're kind of ahead or lagging on an AMS perspective. And then DRS, I'm curious about the growth coming from kind of transitioning legacy retail customers into the new line of business versus kind of actual net growth of new customers and Greenfield stuff.

Sure. Thanks, Toby. Maybe I'll take DRS first and then AMS second. On the DRS side, the single kind of one customer, one location, simple retail shop of remote deposits, provisional capital, digital transparency, integration with POS systems, I think that has been an evolution. And in some of the larger markets, We obviously have some differentiation that we're leading with, but I'd say that is largely us with the other participants, let's say moving that market and driving that market, probably in a concerted way. It's a clear value proposition for customers. I think the other thing that I would say our DRS has extended, and this is where I think we're leading, would be as we're looking to put a closed loop on the cash ecosystem inside of retail stores, particularly larger, higher cash usage stores in all regions. And that's been demonstrated, and we've released some examples of that in what we've done in Europe, particularly where we've developed and integrated cash recycling, electronic payments, you know, a fully managed service for a fully outsourced solution that allows a retailer to outsource basically their entire POS experience, not just on the electronic side like you might see with the traditional POS providers, but providing a full closed-loop service, both physical and the digital integration in the stores. And I'd say in that area we're leading because – and the way I'd say we're leading is many of our discussions with customers – our one-to-one discussions that we're collaborating together and evolving a solution, developing a solution, providing the integration, providing program management, and then, of course, all the managed services post-installation. And that's really been, I'd say, a next level relationship for us that we've been able to develop because of our full visibility and access to the Cache ecosystem. On the AMS side, Again, globally, speaking globally, I think we're still in the early innings. I mean, we love where we are. We love the customers we've signed, the contracts we've had, the networks we've deployed. But honestly, it's a very nascent market. There is still many years of opportunity for for ATM owners, particularly financial institutions, to outsource this infrastructure, these systems, these networks. And I think this is where, again, we're having conversations with customers that, of course, involve competition in many cases. But in many cases, we're also having one-on-one conversations with customers to develop a solution. And again, our unique value proposition is is that we're able to continue to close the entire loop and provide the most synergy of the full value stream. And the reason for that, and we've talked about this before, is we occupy and control the largest cost base in the value chain of managing an ATM. And that really is the physical logistics and processing of the physical cash. And so that's an area where we think we can continue to innovate, leveraging the technology we've developed, but also continue to show customers that not only are we the cash logistics provider, but we're also able to provide a more fulsome solution and provide a closed-loop answer to their entire ATM network.

I really appreciate that. That was helpful. Could you describe the... the sales process in length in AMS? Because I think you mentioned pilots and it'd be interesting to hear you talk about that to understand the visibility you have into the ongoing momentum.

Sure. So our pipeline globally continues to grow and how that pipeline evolves is typically either an outbound from our team in a local market with our relationships, or an inbound from one of our customers asking for, hey, what do you think? Could you help us with this? And that evolves in many different ways, but the really big decision that a customer makes is when they step into this discovery phase. And that's where we really sit down and put pen to paper both from a financial perspective, but from a technology perspective and an operations logistics perspective, and build out the proposed solution with the customer. And from that point, the customer either says yes or no to any and all parts of our offering, but predominantly what they do is move to a pilot phase. And that might feel like, 10 ATMs, 25 ATMs, 100 ATMs, depending on how big the pilot is and how big their estate is. And we typically bring those online. It's for fee. It's not a charity event. But we developed this solution arm's length to develop a proof of concept and, frankly, prove to them that the solution can deliver all of what we've committed to. From that, customers, that can take, Toby, anywhere from 90 days to a year. And what we have found is the AMS pipeline and AMS contracts are typically longer lead time decisions than the DRS. And maybe if you have a continuum of time on initial contact to revenue, For DRS on the single ice cream shop or deli, that might be as short as 90 days, where an AMS contract could be as long as a year, two years. And so it just varies, and I think it also varies with where we are in that market. And so where we have existing networks in a market that we're able to already demonstrate to a customer, you know, we're helping, you know, another customer, it's easier and faster to bring them online, where if we have, you know, we're pioneering in a particular market, you know, it's a little more difficult, it takes a little more time. And I, you know, I'd use the example of a small country, I've mentioned it before in Jordan, took us a while to get the first ATM network. But once we did, we now have four more banks that have signed on and are part of our managed services network in the country. And so that's a good example of how once we get a success, we can parlay that into more success and, frankly, more value for the incremental customers. Thank you very much.

Last question for me. Could you talk about free cash flow conversion from EBITDA in 2024? What are the sort of puts and takes with your guidance number. And where do you think that lands a little bit longer term? How much more opportunity to increase that percentage do you have and what are the main levers?

Sure. Yeah, Toby, let me kind of walk you through that thinking a little bit. I mean, if you kind of looking at how you would think about a bridge from 23 to 24 free cash flow, Obviously, the growth and profitability, so the EBITDA expansion is going to be your major item that's increasing cash flow. And then off of that, we'll pull off some higher interest and higher taxes, both cash interest and cash tax. And then the remainder will be a little bit left related to working capital and other items, so a little bit on working capital as we grow. So that's kind of the walk. I think with conversion at 46%, about 46% in 24, we don't see any reason why we shouldn't be getting 50% and higher as we look out. There's nothing really structurally that would hold that back as we grow EBITDA. We continue to get more efficient with our capital and more efficient with our working capital The one thing I didn't mention was CapEx because we continue to see that as kind of a flat number. So all of those things will help continue to drive that conversion. And I think there continues to be opportunity in our taxes, our tax planning. We've continued to work in that area as well.

And if I could sneak one last one in. DRS perspective, I presume that you're seeing most of your success in the U.S., but maybe you could enlighten us on that. And wherever you are seeing the most progress in DRS, on a micro level within that country, are you seeing more of a positive influence in terms of holding down CapEx because of better density and utilization of the fleet?

Yes, absolutely. And I'd say, while North America is the biggest, and we are happy with the progress, as I mentioned, that pipeline of activity is the same in the other two regions, Latin America and in Europe. And if I think about Europe, if I think about those areas specifically from a CapEx perspective, you know, our CapEx is largely flat. the last two years. We don't expect that to be much different in 24. We'd love to be in a position where we have so much DRS that we need more infrastructure, but I think where we sit today, DRS and AMS both give us the opportunity to continue to leverage off our existing asset base and be more productive. Obviously, the more DRS we have, the more we have to control our own network and frequency. I believe that this is going to continue to be an opportunity for us in the future, and there's no reason why we don't think that can't happen. You know, I think customers also view this as more and more as a value proposition as well. And so, you know, as we hear from existing customers that are converting or new customers that may be you know, had passed on the service previously, you know, the idea of them not being responsible to us for appointments and for scheduled pickups and, you know, fixed logistics networks, I think is also very appealing.

Thank you very much.

This will conclude our question and answer session. I would like to turn the conference back over to Mark Eubanks for any closing remarks.

Yep, good morning. Thank you everyone for joining us today. We appreciate your support and we look forward to speaking with each of you soon.

The conference has now concluded. Thank you for attending today's presentation and you may now disconnect your lines.