Brinks Company (The)

Welcome to the Brinks Company's second quarter 2024 earnings call. This morning, Brinks issued a press release detailing its second 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 at the investor relations section of the company's website at investors.brinks 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 the 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. This call is copyrighted and may not be used without written permission from Brinks. I will now turn the conference 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 second quarter 2024 results on a gap, non-gap, 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 thank you for joining us. We'll start here on slide three. We delivered total organic growth of 14%, accelerating sequentially over the first quarter. ATM Managed Services and Digital Retail Solutions, or AMSDRS, grew 26% organically and accelerated sequentially across all geographic segments. Cash and Valuables Management, or CVM, was up 10% organically with strong pricing discipline, offsetting continued cyclical market softness in our global services business. Adjusted EBITDA grew 16% to $226 million and margins expanded 200 basis points to 18%. Transformation initiatives led by North America drove labor and cost productivity throughout the P&L. Profit growth and the results of our share repurchase program drove a 31% increase in earnings per share to $1.67 per share. Free cash flow conversion remained strong with the flow through of higher profits, margin expansion, and working capital improvements. We continue to make meaningful progress executing against our strategy. DRS and AMS continue to grow as a percent of our total revenue, exceeding $1.1 billion of revenue on our trailing 12-month basis. Demanding these key business lines remain strong as evidenced by the 26% organic growth in the quarter. We continue to sell these innovative tech-enabled solutions to into both underserved and under-penetrated markets across all of our segments and are encouraged by building customer demand in our growing pipeline. Additionally, we see increased demand for our tech-enabled solutions from both existing CIT customers as well as new customers in both retail and banking verticals. This mix of higher margin revenue coupled with the benefits of the rollout of the Brinks business system drove second consecutive quarter of mid-teens EBITDA growth as we progressed towards our year-end targets. Notable is the continued margin expansion in North America, which improved 360 basis points year over year in Q2. This was the eighth consecutive quarter of at least 90 basis points of margin improvement in the segment. Our disciplined capital allocation framework is also creating value for shareholders. So far this year, we've purchased 722,000 shares for just over $91 per share and have allocated $86 million in capital towards shareholder returns. This represents an increase of 133% over the first half of 2023. And as Kurt will discuss in a minute, we were able to increase liquidity, secure additional credit capacity, and improve flexibility in our capital structure with a successful refinancing of our 2025 bonds. As part of this process, we also received a credit rating upgrade from S&P. With a strong first half completed, we remain on track to deliver low to mid-teens organic revenue growth, double-digit EBITDA growth, earnings per share between $730 and $8, and free cash flow between $415 and $465 million. On to slide four. Starting on the left, Organic growth of 14% was partially offset by an 11% impact from translational FX. Foreign currency degraded throughout the period and was a slight headwind in the quarter relative to our expectations and outlook from our earnings release back in May. Adjusted EBITDA grew 32 million year over year on a reported basis. As we discussed in the second quarter of 2023, there was a $12 million increase in security losses that impacted timing of expense recognition last year. Adjusting for the impact of this increase in the prior year, EBITDA margins increased 100 basis points, slightly ahead of our full year expectations. Looking at revenue and EBITDA at the segment level, all segments delivered accelerating organic growth in AMS and DRS as we continue to add new customers across the globe. North America growth continued to accelerate as we've now fully lapped the impact of prior year portfolio rationalization efforts we previously discussed. Latin America growth and margins continue to be impacted by currency fluctuations, mostly in Argentina, which are impacting our margins while our pricing efforts catch up to the large devaluations that occurred late last year. And finally, all segments are experiencing growth and margin headwinds related to continued cyclical market softness in our global services business. Earnings per share are up 40 cents, driven by a 25% increase in net income and a 5% reduction in outstanding shares. or 2.2 million total, as well as the previously mentioned prior year security loss. Trillion 12-month free cash flow was down 7% versus the prior year. The decline was driven almost entirely by the seasonal timing of working capital, primarily related to DSO on accounts receivable, as we lap a particularly strong prior year comparison. As we've already seen in July, this timing-related impact is expected to unwind over the back half of the year, and we remain confident that we're on track to deliver our full-year free cash flow targets. Turning now to slide five, I'd like to take a moment to highlight the progress we're making in North America. Since 2018, we've improved our EBITDA margins by 610 basis points and expect to continue the upward trajectory over the balance of 2024. Operationally, the team is focused on advancing our lean maturity by utilizing structured problem solving, increasing the use of standard work, and leveraging best practices across our footprint to streamline processes on everyday activities. A few areas where we've made progress recently include the money processing centers and routing and scheduling of our logistics network. In money processing, we've changed the layout of our facilities to maximize production and have rolled out standardized workflows in all of our branches. We're making technology investments in cash processing automation equipment to further automate processes and procedures. We're also investing to improve our IT systems that allow us to use larger data sets and real-time information to improve route density and efficiency. While these activities began in North America, we've already started to scale some of these best practices globally and will continue to drive change in future periods. These process improvements are not going unnoticed by our customers. We continue to hear positive feedback about the improvements we're making in our execution and the increased visibility of funds throughout the cash value stream. We've also seen a corresponding improvement in safety-related incidents and preventable collisions in North America that should lead to further cost avoidance moving forward. We're encouraged by the success we've seen so far, but we continue to see an opportunity for future improvements in our business, and we look forward to sharing that progress with you as we move forward. Turning now to slide six, I'll discuss the revenue by customer offering. Starting with cash and valuables management, CBM, Our Q2 organic growth of 10% was the second consecutive quarter of double-digit organic growth. Growth was driven by both volume increases and strong pricing above inflation, offset by conversion efforts as we've shifted customers to higher margin DRS and AMS offerings and the continued market softness in our global services business that we mentioned across all segments. Despite the revenue mix on margins from our global services revenue, we drove productivity in the business as we continue to globally scale our OpEx initiatives through the Brinks business system, delivering record second quarter operating profit, EBITDA, and earnings per share. We had a strong quarter of growth in DRS, delivering the fastest organic growth rate in the last six quarters. As we explained in prior quarters, occasionally in DRS, we see revenue growth that's derived from the sale of equipment at the start of certain customer relationships. We remain committed to sharing these fluctuations with investors in order to help explain trends, both the headwinds and the tailwinds. In the second quarter, equipment sales were approximately an $8 million benefit in our Europe segment as we added a new large grocery store customer to our network. After adjusting for this benefit, AMS DRS organic growth was 23% and DRS organic growth accelerated across all segments with our value proposition continuing to resonate with customers. With several large customer wins late in the second quarter, we enter Q3 with a healthy backlog of orders that provides support for our ongoing outlook. AMS delivered sequential growth acceleration over Q1 with newly installed ATMs at retail locations, driving increased transaction volumes in North America. We continue to improve our capabilities and visibility with potential customers in the AMS markets. We are engaged in discussions with many potential partners across the globe as we educate retail and banking customers on the benefits of cost savings, extension of network useful life, and the improved performance that come with a move to Brinks. I remain encouraged by the level of activity and the interest we're generating as we continue to work a large global pipeline of opportunities in both financial institutions and retail customers. In total, AMS DRS grew to 22% of our trailing 12-month revenue and we're up a combined 26% organically in Q2. We expect to continue double-digit organic growth in these offerings over the full year and are now targeting an increase as a percentage of revenue towards the high end of our original 22 to 23% range. We remain in the early innings of our transition to AMS and DRS, and I'm confident in our ability to continue to grow these global offerings above our base business for the next several years. Overall, organic revenue growth was in line with our expectations for the quarter, and we achieved double digit EBITDA growth as we continue to transform into a more consistent recurring revenue business. We are driving profitable organic growth in all lines of our business and are well positioned for the back half of the year and beyond. On slide seven, you can see our organic growth and adjusted EBITDA performance over time. Historically, Brinks has been resilient in times of market disturbances. We have a broad distribution of customers both geographically and by end markets, that provide stability to our organic growth profile. Our services are required to securely enable commerce regardless of the broader economic volatility or, as we saw in the quarter, global IT systems outages. Our profitability is even more resilient. The large portion of our cost structure, variable in nature, we're able to protect profit margins in times of changing volumes in the business. You can see in the chart EBITDA margins were only down 10 basis points in 2020, despite the 7% organic revenue decline over the same period. While no business is completely immune from challenging economic cycles, we're confident that we can continue to drive improvements in the business in any cycle. We have a bright future here at Brinks, and I look forward to meeting the challenges in front of us head on. And with that, I'll turn it over to Kurt before I return with some closing thoughts before we open up the lines for Q&A. Kurt?