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spk00: Hello and welcome to the Brinks Company first quarter 2024 earnings call. This morning, Brinks issued a press release detailing its first quarter 2024 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 it over to your host, Jesse Jenkins, Vice President of Investor Relations. Mr. Jenkins, you may begin.
spk03: Thanks and good morning. Joining me today are CEO Mark Eubanks and CFO Curt McMacken. This morning Brinks reported first quarter 2024 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 Brinks CEO, Mark Eubanks.
spk02: Thanks, Jesse. Good morning. Thanks for joining us. I'd like to start the call by thanking and congratulating our more than 68,000 Brinks team members around the world for their efforts to deliver a strong start to 2024. Beyond the strong Q1 financial results, we made significant progress on our strategic initiatives in the four key areas of customer loyalty, innovation, operational excellence, and people and talent. This progress includes balancing both the long-term investments as well as delivering on our short-term commitments. Now on to the results. Starting on slide three, we delivered organic growth of 12% for the total company. ATM managed services and digital retail solutions, or AMS and DRS, were up 18% as demand remained strong in its key markets. Cash and valuables management, or CVM, was up 11% with strong pricing discipline and stabilization in our commodities movement and storage business. Adjusted EBITDA grew 15% to $218 million and margins expanded 160 basis points to 17.7%, the highest first quarter margins we've seen since we started reporting this metric more than a decade ago. Profit growth coupled with share count reductions of about 4% led to a 20% increase in EPS to $1.52 per share. Trillion 12 month free cash flow improved 61% to $363 million with conversion from adjusted EBITDA of 41%. We continue to make meaningful progress on the key tenants of our strategy. DRS and AMS demand is strong and building with another quarter of double digit organic revenue growth and continued expansion of our worldwide pipeline of opportunities. Operationally, we made good progress on our year-end backlog by accelerating installations of DRS devices in Q1 as we focused on shortening the cycle time from contract signature to revenue. This is an example of the Brinks business system at work, improving business processes outside of our traditional OpEx activities. In Q4, our global product management team led a focused Kaizen event to improve efficiency in the contract to revenue value stream. Leveraging structured problem solving tools from the BBS system and various lean methodologies, we were able to reduce our time to revenue by more than 30% across North America, Brazil, and Colombia. The resulting actions are now able to be transferred as a best practice to countries around the world. We also remained disciplined in our capital allocation approach. In Q1, we purchased approximately 275,000 shares utilizing $23 million. We have continued the systematic share repurchase program into early Q2. With improving operational performance and a healthy outlook for the future, last week we announced a 10% increase in our dividend, the second consecutive year of a double-digit increase. Supported by our strong first quarter, we affirm our full year guidance and remain well on track to deliver low to mid-teens organic revenue growth, adjusted EBITDA margin expansion of approximately 80 basis points, Earnings per share of between $730 and $8, and free cash flow between $415 and $465 million. Now let's turn to slide four, and starting on the left. The revenue growth I mentioned earlier was partially offset by an 8% impact from foreign exchange, primarily due to the year-over-year devaluation of the Argentine peso. I will go into more detail on revenue and adjusted EBITDA by segment on the next slide. Adjusted EBITDA margins continue to expand as lean productivity initiatives from the Brinks business system streamline the way we perform work, and we shift the revenue base to higher margin services. Profit growth and a share count reduction of more than 2 million shares drove EPS growth of 25 cents to a first quarter record of $1.52 per share. Trillion 12-month free cash flow was up $137 million, or 61% to $363 million, with 41% conversion from EBITDA. Moving to slide five, you can see the segment level details. This view reflects adjusted EBITDA to align with our full year 2024 guidance from February. Segment level results for operating profit are included in the appendix for your reference. For the quarter, we saw organic growth in all segments in customer offerings. In North America, organic revenue growth accelerated sequentially to 1% in the quarter. Strong growth in AMS and DRS revenue was highlighted by the installation of the most DRS devices in our history in the quarter as we worked through a larger than normal year-end backlog. As we discussed last quarter, we expect accelerating growth in North America as we lap our portfolio rationalization efforts from the prior year starting this year in quarter two and capitalize on the large and growing pipeline that we have developed in both AMS and DRS. Adjusted EBITDA margins in North America were up 280 basis points in the quarter to a record of 16.9%. Good pricing efforts, portfolio rationalization, and cost productivity, especially in direct labor, were the main drivers of the margin expansion. I'm encouraged by the meaningful progress we've delivered on margins in North America over the last two years. The 16.9% this quarter is up 570 basis points from 11.2% in Q1 of 2022. This represents a 66% improvement in total adjusted EBITDA in just two short years. As I look forward, I remain encouraged by the potential of key transformational initiatives still to come in routing and scheduling, fuel efficiency, and labor optimization that will help us continue our positive momentum in North America. In Latin America, organic growth of 37% was driven by pricing efforts to offset inflation, which more than outpaced the impact of foreign exchange. We continue to monitor ongoing geopolitical and economic headwinds in the region, including the impact of currency devaluation on the economy of Argentina and the headwinds we've discussed previously in Brazil. The trends in the region have led us to streamline our cost structure in the early part of the year, which is impacting this quarter's EBITDA margins. As you can see from the total revenue growth of 6%, we are offsetting those impacts through disciplined pricing and a shift to DRS AMS. which was up more than 25% in the quarter in the segment. Europe delivered 6% organic growth with 60 basis points of margin expansion in Q1 and remains on a strong trajectory. With recent large DRS and AMS wins that are due to begin producing revenue over the balance of the year, we expect continued strong performance in the segment for the rest of the year. And then finally, in our rest of the world segment, we realized organic growth of 4% with 150 basis points of margin expansion The quarter was highlighted by a stabilizing performance in our global services business as commodity shipping and storage picked up in all areas outside of North America. Turning to slide six, I will provide an update on our results by customer offering. Starting with CBM, Q1 organic growth of 11% accelerated sequentially from 7% in the prior quarter, driven by disciplined pricing efforts and a stabilization in our global services business. While total global services revenue growth was broadly in line with the total company results, this was a headwind for North America as commodities moved out of the segment into other regions. As you can see by our strong margin improvement, we continue to build on our lean and transformation initiatives across all markets. These initiatives and growth in AMS DRS revenue have driven a reduction in miles driven and fuel usage that led to higher levels of productivity. Broadly, we saw continued improvements across all metrics related to safety, quality, cost productivity, and service delivery, highlighted by another quarter of reduced safety-related incidents with our employees. DRS was highlighted by another quarter of sequential improvement in North America. In Q1, we delivered record installations in the first quarter and reduced our backlog to a more normalized level. The value proposition of less frequent business interruptions and working capital optimization is clearly resonating with our customers. In the quarter, we completed several new agreements in the discounting convenience store verticals and are continuing conversations with customers across a robust worldwide pipeline of opportunities that increased again this quarter. We have significant room for growth in DRS as we continue to penetrate a large white space of unvended customers. convert existing retail customers from traditional CIT services, and expand our footprint and share of wallet with existing DRS customers, the purest form of customer satisfaction. AMS delivered sequential acceleration over Q4, highlighted by the closing of a few key deals to bring new ATMs into our managed network in high-traffic retail locations. We continue to evolve our go-to-market approach in AMS as we engage with our banking partners on our value proposition and technical capabilities across all geographies. Additional recent contract wins in Europe and Latin America, as well as a robust and maturing pipeline of opportunities, support our expected growth for the rest of the year. In total, AMS and DRS represent 21% of our trillion 12-month revenue and grew 18% organically in Q1. We expect at least double digit growth in these offerings over the year and are targeting an increase as a percentage of total revenue of one to two points by the end of the year. I believe we're still in the early stages of our transition to these higher margin recurring revenue offerings and I'm excited about the opportunities that remain in front of us. Overall, revenue growth is in line with our expectations for the quarter and we delivered record EBITDA margins as we continue to make strides transforming our business. The shift to new revenue streams on top of productivity actions across the globe is improving our operating consistency and predictability. With our AMS and DRS offerings delivering reduced operating costs for our customers, we remain well positioned to deliver on our commitments for the year and continue to create value for our shareholders. With that, I'd like to turn it over to Kurt to talk through the additional details on the quarter and over our full year guidance. I'll return with some closing comments and thoughts before Q&A. Kurt?
spk01: Thanks, Mark, and good morning, everyone. Starting on slide seven, $146 million of organic revenue increase represents 12% growth over the prior year. This includes 11% for cash and valuables management and 18% in DRS and AMS. When factoring in an 8% translational FX headwind, DRS and AMS make up about 75% of the 4% total growth in the quarter. Total revenue growth of 51 million produced 28 million of adjusted EBITDA for a robust incremental margin of 55%. Adjusted EBITDA was marginally impacted by the benefits of higher interest income in the quarter, primarily from higher rates in Argentina. The translational FX impact in the quarter was primarily due to the devaluation of the Argentine peso, offset by favorability in the Mexican peso, and to a lesser extent, the euro. Adjusted EBITDA margins increased 160 basis points in the period, driven by balanced execution and realization of cost productivity, improved revenue mix, and disciplined pricing. On slide eight, I will walk you from operating profit to adjusted EBITDA. Starting on the left, interest expense was up $9 million year-over-year to $56 million. The increase is related to higher interest rates and slightly higher debt from growth in provisional capital for our DRS customers. Tax expense was $29 million in the quarter for an effective tax rate of 28.9%, a rate we expect to continue over the balance of the year. The $9 million increase in the other bucket primarily relates to higher interest rates on our cash balances, creating more interest income. Income from continuing operations was $69 million. Our diluted share count was down 2.1 million shares, or 4% year-over-year to $45.3 million. contributing to a record first quarter EPS of $1.52 per share and increase of 20%. As we work back to adjusted EBITDA, you can see the 9 million of stock compensation and other that is roughly 3 million less than the prior year. We expect to finish the year with slightly higher stock compensation expense than 2023. In total, EBITDA was up 28 million to 218 million with margins that expanded 160 basis points to 17.7%. This represents the highest first quarter margin since we started reporting adjusted EBITDA. Turning to slide nine, you can see our capital allocation framework. As we discussed last quarter, we are not contemplating any changes to this structure as we move through this year and beyond. For the full year, we expect to generate between 415 and 465 million in free cash flow, with conversion from adjusted EBITDA of approximately 46%. As a reminder, our cash flow fluctuates seasonally due to the timing of EBITDA, tax and interest payments, and working capital. On a trailing 12-month basis through the end of March, free cash flow is up 61% to $363 million, and we are well on pace to achieve our target for the year given the normal timing we experienced in the first quarter. Starting at the top, we have an attractive menu of organic investments that are focused on increasing revenue growth, profitability, and future free cash flow. These investments are primarily OPEX related and fit within our broader EBITDA and free cash flow guidance. We target leverage between two and three times of adjusted EBITDA and we remain within our range. Over the course of the year, we expect to slightly reduce leverage primarily through EBITDA growth. We remain active in returning capital to shareholders. In the first quarter of the year, we completed 23 million of share repurchases and we continued our buying early into Q2. Through the end of April, we have purchased an additional $13 million and plan to remain active over the balance of the second quarter and full year. We have $464 million of capacity available as of May 1st that expires at the end of 2025. We continue to see share repurchases as attractive and plan to be active in the market through a combination of systematic and opportunistic purchases. On the dividend side of capital returns, just last week we announced an increase of our dividend by 10% for the second consecutive year. This is consistent with our broader capital allocation framework and prior communications that we expect modest increases every year. Our M&A philosophy remains the same. We target opportunities that have strong strategic fit, attractive returns, and align with our current capital allocation framework. We remain focused on accretive capital allocation that drives profitable growth and compounds cash generation in our business. Our disciplined capital allocation framework is designed to maximize shareholder value for years to come and I'm encouraged by the progress we have made. On slide 10, you can see our affirmed 2024 guidance. We expect total revenue growth to be in the mid-single digits. Full-year organic growth is expected in the low to mid-teens, offset by translational FX, primarily in Argentina. Net of FX, we expect the growth to be roughly evenly split between high-margin AMS DRS offerings and growth in our cash and valuables management businesses. Adjusted EBITDA is expected to grow by approximately 11%, with margins up about 80 basis points at the midpoint. We expect free cash flow conversion from adjusted EBITDA of approximately 46% at the midpoint. EPS is still expected to be between $7.30 and $8 per share, and contemplates a continuation of our share repurchase program through the remainder of the year. This guidance reflects our current expectations for FX in Argentina, which we expect to weigh on total growth and margins early in the year. All other currencies reflect rates as of March 31st, 2024. And with that, I'll turn it back over to Mark for some closing comments.
spk02: Thanks, Kurt. I'm pleased with a strong start to the year, and I'm confident in our ability to deliver our commitments for the full year. The progress we've made with the first quarter EBITDA margins up 230 basis points in just two short years is encouraging. First, We're shifting our revenue mix through innovation with higher margin, faster growth solutions that better meet the needs of our customers. Next, we continue to make strides to improve our operational execution of our business at a branch by branch level, focusing on improved customer quality and service, and most importantly, on the safety and wellbeing of our team. Finally, we're streamlining our cost structure across the company to drive operational leverage. as well as optimizing our business model to improve fixed asset utilization and capex efficiency. I'm confident in the trajectory of the business and our ability to continue our improvements going forward. Last week, we celebrated Brinks' 165th anniversary with celebrations with our team members around the world. While we have a lot to be proud of in our history, the future of Brinks has never been brighter. We have a sound strategic plan large under-penetrated end markets, an aligned leadership team, and over 68,000 motivated team members to transform Brinks into a company that is prepared for the next 165 years. With that, I'll turn it back to the operator to open the line for questions.
spk00: Thank you very much. We will now begin the question and answer session. To ask a question, you may press star, then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, you may press star then 2. Today's first question comes from George Tong with Goldman Sachs. Please go ahead.
spk04: All right. Thanks. Good morning. In DRS, you mentioned implementing Kaizen initiatives to shorten the time from contract signature to revenue. Can you elaborate on the changes made and any initiatives to shorten the time from pipeline to contract signing?
spk02: Sure, George. Yeah, thanks for the question. It's been a big change for the company in a pretty short period of time. Part of that was making sure that our contracts themselves as well as our internal PMO teams are able to progress those agreements in sync with our supply chain. That also includes staging those devices, both hardware as well as the onboarding and integration of software layers, to be able to accommodate customers when they're ready. That also means it's partly technical, partly program management, but it's also about improving the parallel path with our legal teams as well as our commercial negotiations.
spk04: Great. And any initiatives to shorten the timeframe from pipeline to actual contract signing, basically winning deals or converting deals more effectively?
spk02: Well, we'd love for that to happen immediately, but unfortunately, that's one that is not completely in our control. That being said, in last year, we started through our transformation program, particularly in North America, A reorganization and realignment, I think we spoke about it in Q3, of our customer-facing sales team moving from geographic coverage to more segment-focused verticals that allowed our sales teams to understand not only the needs and the product offerings of those businesses, but also the particular pain points and negotiation terms and conditions that allow us to move those through negotiation faster. I think that's really been a key learning for us in the last, let's say, 12 months. The other thing, George, as I mentioned, we mentioned in Q4 is really a timing issue and thinking about how we stage those contracts to make sure that we're not bumping up against some specific industry-related event like in retail particularly, department stores and shops doing that around the Thanksgiving and Black Friday holiday season where retailers don't want us touching their stores. That's been something that certainly we'll want to work out in front of and make sure that we've got our PMO teams as well as our installation teams staged to be able to drive those in advance of those seasons, which likely means that we have to back up from our timeline into that contracting period to make sure that we're writing those orders you know, earlier in the year. And frankly, that's what we did in Q1 and having pretty good success here in Q2.
spk04: That sounds great. And then can you discuss how AMS growth in the quarter compared to DRS growth and where in AMS you're seeing the most opportunity?
spk02: So in the quarter, Georgia was about the same split between the two. But we have seen quite a bit of growth of opportunity in a combined solution. And this is something that we've talked about, particularly in retail where AMS and DRS are very complimentary. Um, we're not in the market, uh, selling, you know, having a sales people call on customers that are AMS offerings only or DRS offerings only, meaning we don't have two of the same sales people calling the same customer. And in fact, it's a pretty unique offering because we don't see a lot of, um, competitors in the space that are able to offer both AMS and DRS, as well as the back-end network to satisfy all the cash logistics. We've seen some really nice wins here in not only late last year, but in Q1 that allow us to do that. The other side, as we have talked about, particularly outside of North America, is continued interest from financial institutions around ATM outsourcing. And those those pilots, those opportunities continue. And in fact, we're in the process both in Q1 and continues actually into Q2 and Q3 of onboarding a few other bank networks in Europe.
spk04: Very helpful. Thank you.
spk00: Sure. Thank you. The next question is from Toby Summer with Truist Securities. Please go ahead.
spk05: Yeah, good morning. This is Jack Wilson on for Toby. Maybe for my first question, can we talk about DRS and sort of if it's possible to quantify to what extent you are seeing DRS migrations, to what extent you're seeing sort of greenfield new sales to unvended customers? Is it possible to segment those two?
spk02: We actually don't have the, I wouldn't say the numbers on that to give out, but I would say it's pretty balanced. And really there's three areas of growth for us. The first is the unbended space, as you mentioned, and again, pretty balanced between that and conversions here recently in the quarter. And that's really customers who don't use cash logistics service at all today. They basically walk their cash to the bank. The second is obviously conversions of our existing traditional CIT customers, and those are clear as well. And again, I said it's it's balanced in there. The third area are existing DRS customers who are expanding their footprint or expanding DRS across more of their portfolio. And this is more of a, either a, you know, a gain of share of wallet or growth as that customer's growing. And I'd say all three of those are happening and, um, you know, clearly areas we're focused.
spk05: Okay. That makes sense. Um, then, Is it possible to maybe quantify how much of the existing book has been migrated over?
spk02: I wouldn't have that, Jack, but I can tell you we're still early innings in my view. We've got a lot left to go, not only in the white space, which is probably the bigger unit volume and location count, but in fact our existing CIT customers are – you know, are also prime, you know, prime targets for our value proposition. In fact, in some regions, this is, you know, really the only offering or the primary offering that we're delivering to customers as opposed to traditional CIT.
spk05: Okay, that's helpful. Thank you. Maybe on the AMS front, can you speak to sort of how you see your positioning from a sort of competitive landscape and how you see your market share in specific geographies or just as a whole. Sure.
spk02: So I say that the ATM managed services as a market is still pretty nascent. And, you know, if you look at industry reports or, you know, our competitors, you know, discussions, particularly from the equipment manufacturers on the ATM side, the market is, big and likely expanding by multiples as banks continue to evaluate and execute outsourcing agreements. And so I'd say right now it's still a pretty nascent market to try and quantify specifically. We feel like from a competitive position, though, and we've seen this in discussions both in open competitive environments, sort of RFPs, or even direct one-on-one negotiations with financial institutions, that our value proposition of being able to offer not only a hardware software solution that comes from many of the traditional suppliers, but integrate that into our network allows us to optimize the full value stream to a higher level. As we've talked about before, that's really based on the fact that the amount of cost in the current traditional value stream is really under our control. And so as we're able to optimize that, we're able to not only provide an accretive solution for Brinks, but also provide a nice value proposition, both lower cost and an equal or better reliability of their network. Thank you very much.
spk00: Thank you. Seeing no further questions, I would like to hand the call back to Mark Eubanks for closing remarks.
spk02: Great. Thanks, everyone. We appreciate your interest and look forward to talking to you next quarter.
spk00: The conference has now concluded. Thank you for your participation. You may now disconnect your lines.
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