The Brink’s Company: Q1 2016 Form 10-Q Summary
Business context and reporting period
The Brink’s Company provides secure transportation and logistics services for cash and valuables, including cash-in-transit, ATM, global logistics, cash management, payment and guarding services. This unaudited Form 10-Q covers the three months ended March 31, 2016, compared with the three months ended March 31, 2015.
Key financial metrics
| Metric | Q1 2016 | Q1 2015 | Change |
|---|---|---|---|
| Revenue | $721.8 million | $776.1 million | Down 7% |
| Operating profit | $13.8 million | $12.9 million | Up $0.9 million |
| Loss from continuing operations attributable to Brink’s | $3.1 million | $0.6 million | Unfavorable |
| Diluted EPS from continuing operations | $(0.06) | $(0.01) | Unfavorable |
| Net loss attributable to Brink’s | $3.1 million | $3.0 million | Comparable loss |
| GAAP operating margin | 1.9% | 1.7% | Improved |
| Non-GAAP operating profit | $31.1 million | $40.6 million | Down 23% |
| Non-GAAP operating margin | 4.5% | 5.4% | Down 90 basis points |
| Operating cash flow | $(37.8) million | $(23.4) million | More cash used |
| Capital expenditures | $20.8 million | $14.3 million | Up $6.5 million |
| Cash and cash equivalents | $186.8 million | $198.3 million at Dec. 31, 2015 | Down $11.5 million |
| Total debt | $494.6 million | $430.5 million at Dec. 31, 2015 | Up $64.1 million |
| Net debt | $327.0 million | $269.3 million at Dec. 31, 2015 | Up $57.7 million |
Material changes versus the prior comparable period
- Revenue declined primarily because of unfavorable currency translation, including the Venezuelan bolivar devaluation, and lower EMEA revenue. On a non-GAAP basis, revenue declined 9%, while organic revenue increased 3%.
- GAAP operating profit improved because Venezuela-related remeasurement losses fell to $2.8 million from $18.0 million. This benefit was partly offset by lower U.S. and Mexico performance, currency effects and Ireland exit costs.
- Non-GAAP operating profit declined 23%, principally because of organic declines in the U.S. and Mexico and unfavorable currency effects, partly offset by growth in Latin America.
- Cash used in operations increased by $14.4 million. The change included an $18.5 million decrease in customer obligations and higher working-capital needs, partly offset by improved cash generation from Venezuela.
- Debt increased to fund liquidity needs. The company ended the quarter with $305 million available under its $525 million unsecured revolving facility and stated that it was in compliance with all financial covenants.
- Discontinued operations produced no loss in Q1 2016, compared with a $2.4 million after-tax loss in Q1 2015.
Guidance, outlook, commentary and unusual items
- For 2016, management expects approximately 5% organic revenue growth, a negative currency impact of approximately 8% on revenue, and total revenue of approximately $2.9 billion on a non-GAAP basis.
- Expected 2016 non-GAAP operating profit is $190 million to $210 million, with an operating margin of approximately 7.0%. Non-GAAP income from continuing operations attributable to Brink’s is expected at $101 million to $111 million, or $2.00 to $2.20 per diluted share.
- Management expects 2016 capital expenditures of $100 million to $110 million, capital leases of approximately $20 million, and depreciation and amortization of $120 million to $130 million.
- The 2015 restructuring is expected to eliminate approximately 1,200 to 1,300 positions and generate $20 million to $30 million of 2016 cost savings. Q1 2016 restructuring charges totaled $2.8 million, and executive leadership and board restructuring charges totaled $3.2 million.
- Brink’s exited the majority of its Irish operations effective March 1, 2016. Q1 charges included $4.2 million of severance and $1.7 million of operating and exit costs; additional costs of approximately $5 million to $10 million are expected later in 2016.
- Venezuela remains a significant uncertainty. The company recorded a $2.8 million currency remeasurement loss, held $10.1 million of bolivar-denominated cash, and had not repatriated U.S. dollars from Venezuela in 2015 or through the filing date.
- The company accrued $2 million for a Mexican legal matter involving SERPAPROSA; additional reasonably possible losses could be up to $10 million. A Mexican antitrust investigation is pending, but the company cannot estimate a potential loss.
- Cash availability is constrained by foreign holdings: $164.4 million of the $186.8 million in cash was held by subsidiaries considered permanently invested. Repatriation could create material additional taxes.
- Management believes current cash, credit availability and projected operating cash flows will meet liquidity needs for more than the next twelve months.
Most important facts for investors to verify
- Whether the projected restructuring savings and planned workforce reductions offset continuing weakness in the U.S. and Mexico.
- The effect of foreign-exchange movements, Venezuelan currency controls and the ability to repatriate foreign cash.
- Progress toward reducing net debt, particularly after the quarter’s negative operating cash flow.
- The ultimate costs and timing of the Ireland exit and executive restructuring.
- The resolution and potential financial exposure from the Mexican legal proceeding and antitrust investigation.
- Whether non-GAAP guidance reconciles to GAAP results as unusual items, tax effects and Venezuela-related charges develop.
- Funding requirements and actuarial changes related to pension, UMWA, black lung and other retirement liabilities.