The Brink’s Company — Q1 2015 Form 10-Q Summary
Business context and reporting period
The filing covers the three months ended March 31, 2015. Brink’s provides transportation and logistics management services for cash and valuables, including cash-in-transit, ATM, global, cash-management, payment and guarding services in more than 100 countries. The financial statements are unaudited and prepared under U.S. GAAP.
Effective January 1, 2015, management excluded Venezuela from the Global Markets–Latin America segment and presented it as an item not allocated to segments. Non-GAAP results also exclude Venezuela to improve comparability.
Key financial metrics
| Metric | Q1 2015 | Q1 2014 | Change |
|---|---|---|---|
| Revenue | $776.1 million | $949.6 million | Down 18% |
| Operating profit (loss) | $12.9 million | $(73.7) million | Improved $86.6 million |
| GAAP operating margin | 1.7% | (7.8)% | Improved |
| Loss from continuing operations attributable to Brink’s | $(0.6) million | $(59.0) million | Improved $58.4 million |
| GAAP diluted EPS from continuing operations | $(0.01) | $(1.21) | Improved |
| Net loss attributable to Brink’s | $(3.0) million | $(58.5) million | Improved $55.5 million |
| Net cash used in operating activities | $(23.4) million | $30.6 million | Down $54.0 million |
| Capital expenditures | $14.3 million | $23.8 million | Down $9.5 million |
| Cash and cash equivalents | $168.8 million | $176.2 million at Dec. 31, 2014 | Down $7.4 million |
| Total debt | $507.8 million | $466.8 million at Dec. 31, 2014 | Up $41.0 million |
| Net debt | $368.6 million | $318.6 million at Dec. 31, 2014 | Up $50.0 million |
Non-GAAP revenue was $755.6 million, down 8%; non-GAAP operating profit was $40.6 million, up 95%; non-GAAP operating margin was 5.4% versus 2.5%; and non-GAAP diluted EPS from continuing operations was $0.41 versus $0.15.
Material changes versus the prior comparable period
- Reported revenue declined primarily because of currency effects, including the Venezuelan bolivar devaluation, the stronger U.S. dollar, and weakness in the euro, Brazilian real and Mexican peso. Management reported 16% organic GAAP revenue growth, or 4% excluding Venezuela.
- Operating results benefited from the reduction in Venezuela remeasurement losses to $18.0 million from $121.9 million in Q1 2014, organic profit improvement in Latin America, the U.S. and Mexico, and lower corporate expenses.
- U.S. revenue increased 4% and operating profit increased by $7.0 million. Mexico operating profit increased by $4.2 million despite lower revenue. Latin America operating profit increased by $6.4 million. France, Brazil, Canada and EMEA experienced lower operating profit.
- Operating cash flow turned negative because of increased working-capital usage, severance payments, lower operating profit excluding Venezuela remeasurement effects, and lower cash generated by discontinued operations.
- Total debt increased due primarily to borrowings used to fund working-capital needs. Brink’s refinanced its revolving facility and entered into a new $75 million term loan.
- Discontinued operations produced a $2.4 million after-tax loss, compared with $0.5 million of income in Q1 2014, including a loss related to the sale of a Mexican parcel-delivery business.
- Other comprehensive loss attributable to Brink’s was $41.8 million, primarily from a $48.9 million foreign-currency translation loss.
Liquidity, debt and capital resources
- Management believes available cash, credit capacity and projected operating cash flows are sufficient to meet liquidity needs for more than the next twelve months.
- Cash available for general corporate purposes was $139.2 million after excluding $29.6 million held temporarily for Cash Management Services customers.
- The new $525 million unsecured revolving credit facility matures in March 2020; $309 million was available at March 31, 2015.
- The $75 million unsecured term loan matures in March 2022 and was fully outstanding at quarter-end.
- Brink’s was in compliance with all financial covenants at March 31, 2015. Covenant breaches could accelerate repayment and withdraw commitments.
- Of total cash of $168.8 million, $146.4 million was held by subsidiaries considered permanently invested; repatriation could create material additional taxes.
Guidance, outlook and management commentary
- For 2015, management expects approximately 5% organic revenue growth, a roughly 12% negative currency impact, total revenue of approximately $3.1 billion, and non-GAAP operating profit of $165 million to $180 million.
- 2015 non-GAAP operating margin is expected to be 5.3% to 5.8%, with non-GAAP EPS from continuing operations of $1.55 to $1.75 and a non-GAAP effective tax rate of approximately 42%.
- The 2014 restructuring is expected to reduce annual direct costs by approximately $45 million to $50 million in 2015 versus 2014, excluding certain charges. Approximately 1,700 positions are expected to be eliminated, with cumulative pretax charges estimated at approximately $25 million. Q1 restructuring charges were $1.5 million.
- For 2016, management provided non-GAAP targets of $3.4 billion of revenue, 7.0% operating margin and $2.00 to $2.40 of EPS.
- Management expects 2015 capital expenditures of $130 million to $140 million, capital leases of approximately $20 million and depreciation and amortization of approximately $150 million.
Risks, contingencies and unusual items
- Venezuela remains a significant risk: currency controls, inability to reliably access U.S. dollars, restrictions on repatriation, inflation, potential further devaluation and difficulty controlling prices and costs.
- The SIMADI rate change caused an $18.0 million Q1 remeasurement loss. Venezuelan revenue fell to $20.5 million from $131.3 million, and Venezuelan bolivar-denominated net monetary assets declined to $5.1 million.
- A Mexican legal matter has an accrued liability of approximately $2 million; reasonably possible additional losses could be up to $10 million, based on March 31, 2015 exchange rates. The ultimate resolution remains unknown.
- Brink’s has substantial retirement and other postretirement obligations. The March 31, 2015 balance sheet included $201.3 million of accrued pension costs and $254.2 million of other retirement benefits.
- Other risks include foreign-exchange volatility, political and economic conditions, restrictions on cash repatriation, labor issues, security incidents, insurance exposure, litigation, former coal-operation liabilities, tax recoverability and access to credit markets.
Important facts for investors to verify
- Whether the restructuring delivers the projected $45 million to $50 million of 2015 annual direct cost savings and whether additional charges remain within the estimated $25 million total.
- Whether organic growth and operating margins offset the expected currency headwinds and support the 2015 non-GAAP guidance.
- Venezuela’s ability to access foreign currency, repatriate cash and avoid further devaluation losses.
- Working-capital trends, operating cash flow and the effect of increased borrowings on net debt and covenant headroom.
- The outcome and potential additional exposure from the Mexican legal proceeding.
- Actual pension, UMWA, black-lung and other postretirement cash requirements versus projected amounts.
- The reconciliation and comparability of non-GAAP measures, particularly the exclusion of Venezuela and the use of adjusted tax rates.