The Brink’s Company — Q3 2015 Form 10-Q Summary
Business context and reporting period
The Brink’s Company provides cash-in-transit, ATM, global logistics, cash management, guarding, and payment services in more than 100 countries. This unaudited Form 10-Q covers the three and nine months ended September 30, 2015, compared with the corresponding 2014 periods. Management reports nine operating segments and excludes Venezuela from segment results and non-GAAP measures because of currency controls, inflation, and restrictions on repatriating cash.
Financial performance and key metrics
| Metric | Q3 2015 | Q3 2014 | 9M 2015 | 9M 2014 |
|---|---|---|---|---|
| Revenue | $759.2 million | $872.5 million | $2,295.6 million | $2,681.1 million |
| Operating profit (loss) | $25.3 million | $61.2 million | $23.6 million | $(3.8) million |
| Operating margin | 3.3% | 7.0% | 1.0% | (0.1)% |
| Income from continuing operations attributable to Brink’s | $7.7 million | $28.8 million | $(5.9) million | $(29.3) million |
| Diluted EPS from continuing operations | $0.16 | $0.58 | $(0.12) | $(0.60) |
| Net income (loss) attributable to Brink’s | $7.6 million | $20.2 million | $(8.3) million | $(36.7) million |
| Operating cash flow | Not provided for quarter | Not provided for quarter | $90.8 million | $72.5 million |
Q3 non-GAAP operating profit was $37.0 million, versus $20.8 million in Q3 2014, and non-GAAP diluted EPS from continuing operations was $0.37 versus $0.12. For the first nine months, non-GAAP operating profit was $108.2 million versus $65.6 million, and non-GAAP diluted EPS was $1.04 versus $0.43. These measures exclude Venezuela and other specified items and are not GAAP measures.
Revenue declines were driven principally by unfavorable foreign-exchange translation, including the Venezuelan bolivar devaluation, which reduced Q3 revenue by approximately $193.5 million and nine-month revenue by approximately $676.9 million. On a non-GAAP basis, organic revenue increased 3% in both periods. The strongest nine-month organic operating profit improvements were in Latin America, Mexico, and the United States; EMEA and Brazil weakened.
Cash and cash equivalents were $176.1 million at September 30, 2015, essentially unchanged from $176.2 million at December 31, 2014. Cash available for general corporate purposes was $145.8 million after excluding $30.3 million held by Cash Management Services operations.
Total debt was $480.0 million, compared with $466.8 million at year-end 2014. Net debt was $334.2 million, up from $318.6 million. The company reported $322 million available under its $525 million revolving facility and stated that it was in compliance with all financial covenants.
Nine-month capital expenditures were $61.2 million, down from $82.4 million. Capital leases were $8.5 million, and depreciation and amortization was $106.3 million. Dividends were $0.30 per share, or $14.6 million, for the nine-month period.
Material changes versus the prior comparable period
- Q3 revenue decreased 13%, while nine-month revenue decreased 14%, primarily because of currency movements.
- Q3 GAAP operating profit fell 59%, largely because Q3 2014 included a $44.3 million gain on the sale of a Peru CIT investment. Nine-month GAAP operating profit improved from a $3.8 million loss to a $23.6 million profit, primarily because the 2014 Venezuela remeasurement loss was $121.6 million versus $18.1 million in 2015.
- Q3 2015 included $2.0 million of restructuring costs, $0.8 million of additional Venezuela impairment, and higher U.S. retirement-plan costs. Q3 2014 included the Peru divestiture gain.
- Venezuela revenue declined to $52.0 million for the first nine months from $178.7 million, reflecting use of the SIMADI rate. The company recognized $35.3 million of Venezuela impairment charges through nine months and retained $112.2 million of accumulated other comprehensive losses related to Venezuela.
- Operating cash flow increased $18.3 million year over year, but 2014 included an $87.2 million contribution to the primary U.S. pension plan; no comparable contribution was made in 2015.
- Total equity declined to $376.6 million from $473.8 million, primarily reflecting accumulated other comprehensive losses, including foreign-currency translation losses.
Guidance, outlook, commentary, and risks
For 2015, management expected approximately 3% organic revenue growth, a 14% negative currency impact on revenue, non-GAAP operating profit of $150 million to $160 million, non-GAAP operating margin of 5.0% to 5.3%, non-GAAP EPS from continuing operations of $1.40 to $1.50, and non-GAAP effective tax rate of approximately 42%. The company projected 2015 capital expenditures of $110 million to $120 million, capital leases of approximately $20 million, and depreciation and amortization of approximately $145 million.
For 2016, management projected non-GAAP revenue of approximately $3.0 billion, operating profit of $200 million to $220 million, EPS of $2.00 to $2.20, operating margin of 6.7% to 7.3%, and a 39% non-GAAP tax rate.
The new 2015 restructuring is expected to reduce the workforce by approximately 1,000 to 1,200 positions, incur an additional $8 million to $12 million of costs, and generate projected 2016 cost savings of $25 million to $35 million. The company continued its 2014 restructuring program, which targeted $45 million to $50 million of annual direct cost savings in 2015.
- Venezuela remains subject to currency restrictions, inflation, price controls, operating constraints, limited access to U.S. dollars, and potential further impairment or loss of control.
- Argentina had $24.6 million of peso-denominated cash and short-term investments and incurred $2.3 million of conversion losses in the first nine months.
- $153.0 million of cash was held by subsidiaries considered permanently invested; repatriation could create material additional taxes.
- A Mexican legal proceeding had a $1 million accrual, with reasonably possible additional losses of up to $10 million based on September 30 exchange rates.
- Retirement obligations, foreign-exchange volatility, security losses, labor matters, insurance costs, political and regulatory conditions, customer pricing, and the ability to realize deferred tax assets remain significant risks.
Important facts for investors to verify
- Reconcile GAAP results to management’s non-GAAP results, particularly the exclusion of Venezuela, restructuring, impairment, pension, and divestiture items.
- Assess the sustainability of reported organic growth and cost savings after separating currency translation and inflation effects.
- Monitor Venezuela’s exchange-rate policies, cash access, further impairment exposure, and the treatment of accumulated other comprehensive losses.
- Verify debt maturities, revolving-facility availability, covenant compliance, and the effect of the 2015 refinancing and term loan.
- Evaluate liquidity after excluding customer-held cash and permanently invested foreign cash, including potential repatriation taxes.
- Review the assumptions supporting the 2015 restructuring savings and the projected 2016 outlook.
- Track pension, UMWA, black-lung, litigation, and other contingent liabilities, including the Mexican claim.