Brinks Company (The)

Good morning. Welcome to the Brinks Company's third quarter 2024 earnings call. This morning, Brinks issued a press release detailing its third 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 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.

Thanks and good morning. Joining me today are CEO Mark Eubanks and CFO Kurt McMacken. This morning, Brinks reported third 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. These non-GAAP financial measures are intended to provide investors with a supplemental comparison of our operating results and trends for the periods presented. Our management believes that these measures are also useful to investors as such measures allow investors to evaluate our performance using the same metrics that our management uses to evaluate past performance and prospects for future performance. 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 8-K filing, all of which can be found on our website. I will now turn the call over to Brink CEO, Mark Eubanks. Thanks, Jesse, and good morning.

Thanks for joining us. Starting on slide three, we delivered total organic growth of 13% in the quarter. ATM Managed Services and Digital Retail Solutions, or AMS and DRS, grew 26% organically, marking another quarter of growth ahead of our expectations. With double-digit organic growth in AMS and DRS in every regional segment, With healthy backlogs and a good pipeline of future opportunities, we continue to build momentum in these important growth areas. Cash and valuables management, or CVM, was up 9% organically, with pricing execution offsetting market softness in our global services business. The strengthening U.S. dollar caused an 11% FX headwind in the period. The FX headwind was more than we originally expected, primarily due to the devaluation of the Mexican peso. Adjusted EBITDA of $217 million was impacted by the timing of a $10 million increase in security losses in the quarter. Adjusting for this item, EBITDA margins were 18% in the quarter, down 80 basis points for the same quarter last year. The margin declines included a headwind from dollar strengthening in our high margin Latin America businesses, revenue mix related to our global services business, as well as the impact of a delay in productivity in North America as we deploy a new routing system. I'll have more details on North America performance in a few slides. We generated $135 million in free cash flow with better asset efficiency and working capital improvements, primarily related to DSOs and AR management, being offset by the impact of lower EBITDA and the currency impact of our FX hedging portfolio. Kurt will have more on our free cash flow performance and outlook later in the call. We made two key additions to our executive team in the quarter. Josh Teatak is leading our Brinks business system efforts, and I've tasked him with delivering cost productivity across the P&L as we continue to standardize and simplify operations worldwide. Josh's background at GE and Eaton and deep experience in lean and continuous improvement make him the ideal person to help us unlock additional opportunities as we continue to expand our EBITDA margins. We recently appointed Nader Antar as the global leader of Brinks Global Services. Nader joins us with global experience with companies like Honeywell, United Technologies, and Otis Elevators. Nader will be focused on identifying and capturing new growth opportunities across our total addressable market. He'll also focus on improving our operational cadence, as well as strengthening our compliance culture. and then finally developing our global talent agenda for our Brinks Global Services business. Despite the near-term market headwinds caused by record high gold and silver prices, we have a leading market presence and are leveraging a large global footprint that makes us the logical choice for customers when these markets return to form. Operationally, we continue to advance our AMS and DRS businesses. We are increasing our organic growth expectations for the remainder of the year to more than 20% and we now expect AMS DRS revenues to exceed the high end of our original mixed expectations of 23%. Our customers appreciate the value proposition of these services and our teams continue to embrace the power of shifting our business to these higher margin, faster growing businesses. With a robust backlog of devices to install in the fourth quarter, we have increasing confidence in our revenue trajectory for the balance of the year and With a full pipeline, we're off to a strong start towards achieving our 2025 targets of mid to high teens organic revenue growth. We also continue to execute on our capital allocation framework, maintaining our leverage target below three times and returning capital to shareholders by purchasing $125 million in shares year to date through the third quarter. In total, we've reduced our share count by 5% year over year, and continue to target more than $200 million of repurchases in 2024 as we work through the remaining $375 million worth of authorization that runs through 2025. At the bottom of the page, you can see our updated full-year 2024 guidance. Revenue over $5 billion reflects the impact of approximately $100 million in currency headwinds, primarily from the Mexican peso, and to a lesser extent, some market softness in our global services business. Adjusted EBITDA of $910 million at the midpoint reflects the mixed impact of lower revenue and high margin geographies and lines of business. Free cash flow reflects the EBITDA change, as well as higher cash taxes from geographic mix of income and the impact of currency fluctuation in the quarter. While our quarter and the balance of the year fell short of our initial expectations, We continue to make good progress executed against our strategy and transforming our operations. We are seeing strong demand in our higher growth tech enabled solutions, and we believe we're turning the corner on our routing processes that will help us further operationalize the margin benefits of AMS and DRS. And we have clear line of sight to the productivity actions and growth initiatives into 2025. I'm confident we're making the right investments in the business to improve predictability in our results. and remain very encouraged by the opportunity still in front of us. Turning to slide four, I'll move quickly through the headline results of Q3 as Kurt will discuss these in detail in a few slides. Organic growth of 13% was partially offset by an 11% impact from translational FX. Adjusted EBITDA declined $4 million year over year when adjusted for the previous mentioned loss event in the quarter. Earnings per share was down 40 cents year-over-year due to higher interest expense and the lapping of a prior year marketable security gain. Trailing 12-month free cash flow was $262 million, with conversion from trailing 12-month EBITDA of 29%. Turning to slide five, you'll recognize an update to a slide we shared last quarter. On the left, you can see we continue to make meaningful progress expanding margins in North America up 120 basis points from the end of the year and delivering EBITDA growth at a 15% CAGR since 2018. In the quarter, we accelerated technology and systems investments that we expect to enable better planning and routing processes across our network, as well as migration of our legacy on-premise data center to the cloud for improved security and global scalability. We've also moved local logistics planning activities into a centralized control tower equipped with industry leading smart algorithms to better optimize our routes. With the accelerating growth in our AMS and DRS business, it's vital that we have a best in class system and process to fully realize the benefits of the additional capacity from the reduction of stops that the operating model delivers. During the rollout of the system, we experienced system integration issues that caused us to slow the planned deployment to better ensure operational stability and performance. We have planned this initial investment to be offset by approximately $8 to $10 million in labor and fleet productivity that we did not realize in the quarter. We are being very deliberate in our continued deployment as we work through these issues during the quarter in several pilot markets in large U.S. metropolitan cities. While the results are early, we are seeing meaningful improvements in key metrics like service quality and stops per worked hour that we believe will ultimately translate into labor and fleet productivity across the entire network. We now expect these productivity benefits to ramp over the next few quarters and hit full maturity in the first half of 2025. Turning to slide six, I'll provide some detail on revenue by customer offering. In cash and valuables management, we saw organic growth of 9% in our core cash management business. Volumes remain stable in most geographies despite the uncertain retail environment and geopolitical backdrop, particularly here in the U.S., as well as other countries around the world. This growth was also supported by strong price realization, but was partially offset by BGS market softness with the movement of precious metals and commodities. The global services softness had a negative revenue and profit impact against our expectations in every segment, including the Americas. With gold and silver prices consistently rising throughout the year with limited volatility, the demand for movement and storage of precious metals from mining operations to refineries and financial institutions slowed. Supported by a new dedicated leader in global services, we plan to expand into new growth avenues that further leverage our existing infrastructure. The DRS business continues to exceed our expectations. Favorable demand patterns are driving double digit growth in all segments as we continue to penetrate a large unvended market and convert our existing legacy cash and transit customers to more tech enabled solutions. Customers are reacting favorably to the value proposition of these services as they look for ways to maximize working capital, reduce bank fees, and simplify the day-to-day operations for employees during a changing retail backdrop, especially here in the US. We've built a backlog that supports our fourth quarter forecast, and we continue to expand our pipeline of potential DRS customers into next year. We've had several key wins that we closed here in the quarter, including a large US nationwide auto parts dealer, a national pharmacy chain in a Latin American country, and a hypermarket chain in Asia Pacific. AMS delivered the third consecutive quarter of accelerating organic growth as we continue to educate financial institutions on the benefits of outsourcing, as well as place new ATMs into retail operations. With several new customers set to onboard in early 2025, we have significant momentum. We have many new early stage opportunities that we're just beginning to explore and an increasing number of opportunities that have already moved into the pilot phase. Our global pipeline is vast and maturing in quality, and we're very excited about several key wins in the period. Beyond the previously announced Sainsbury's partnership, which I'll touch on in a moment, we signed an outsourcing agreement with a major grocery store chain in Europe, as well as several ATM outsourcing service agreements with both retailers and financial institutions here in the U.S. Turning to slide seven, I'd like to take a second to highlight a key AMS win from the third quarter. On September 25th, we announced an agreement to provide full ATM managed services for Sainsbury's, one of the largest grocery and convenience store chains in the UK. As part of the agreement, Sainsbury's ATMs will fully transition to our network and we will provide all services associated with the ATM ownership. We differentiated ourselves during this competitive process by our ability to be a single provider across the entire value stream. Everything from cash and transit first and second line maintenance, cash forecasting, and transaction processing. The addition of Sainsbury's will increase our network of ATMs by about 15% in the UK, providing increased route density, increased processing volume, and increased scale while leveraging back office and network infrastructure at higher incremental margins. We're excited about the relationship with a great partner and are working diligently on the transition plan, which we expect to be completed through the first half of next year. Overall, I'm pleased with the progress in both AMS and DRS so far this year. We continue to build momentum and strengthen our operating cadence. We're improving our go-to-market tactics through solution-based selling and aligning our incentives to drive the right behaviors locally. We've increased our performance expectations this year and into 2025, and I look forward to a continued shift of our business over the next several years. And with that, I'll turn it over to Kurt to discuss the financials, free cash flow, capital allocation, and our updated guidance. I'll return with some closing thoughts before we open the lines for Q&A. Kurt?