Business Context and Reporting Period
The Brink’s Company provides cash-in-transit, ATM, cash management, global logistics, payment, guarding and related security services in more than 100 countries through four segments: North America, Latin America, Europe and Rest of World. This unaudited Form 10-Q covers the three months ended March 31, 2022, compared with the same period in 2021.
Key Financial Metrics
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Revenue | $1,074.0 million | $977.7 million | +10% |
| Operating profit | $62.4 million | $61.7 million | +1% |
| GAAP operating margin | 5.8% | 6.3% | Down 50 bps |
| Non-GAAP operating profit | $112.1 million | $90.1 million | +24% |
| Non-GAAP operating margin | 10.4% | 9.2% | Up 120 bps |
| Income from continuing operations attributable to Brink’s | $71.4 million | $12.7 million | Significant increase |
| Diluted EPS from continuing operations | $1.48 | $0.25 | Significant increase |
| Net cash used in operating activities | $76.3 million | $1.5 million | Higher use of cash |
| Capital expenditures | $37.0 million | $32.2 million | +15% |
Revenue growth included 9% organic growth, $42.4 million of acquisition contribution and a $33.4 million unfavorable currency effect. Non-GAAP measures exclude restructuring, acquisition-related items, Argentina highly inflationary effects and other specified items.
Revenue by segment was $368.8 million in North America, $291.3 million in Latin America, $222.1 million in Europe and $191.8 million in Rest of World. Segment operating profit was $24.4 million, $63.0 million, $14.8 million and $33.1 million, respectively.
Profitability, Cash Flow, Debt and Liquidity
- Cost of revenues increased 11% to $839.7 million and selling, general and administrative expense increased 11% to $171.6 million, reflecting higher labor and operating costs, acquisitions, restructuring and a $16.7 million increase in the allowance for doubtful accounts.
- The reported income tax benefit was $41.1 million, compared with a $13.6 million provision in the prior-year quarter. The benefit included a $58.3 million reversal of valuation allowances on U.S. deferred tax assets related primarily to foreign tax credit and general business credit carryforwards. The effective tax rate was negative 123.8% versus 46.9% in Q1 2021.
- Operating cash flow was adversely affected by working-capital changes, a $31.3 million cash tax payment versus $14.6 million in the prior year, and changes in restricted customer cash. Management’s non-GAAP operating cash flow, excluding certain customer cash effects and other items, was negative $23.7 million versus positive $49.1 million.
- Total debt was $3.094 billion at March 31, 2022, up from $2.967 billion at December 31, 2021. Net debt was $2.396 billion, compared with $2.291 billion at year-end.
- Cash and cash equivalents were $733.0 million, while total cash, cash equivalents and restricted cash were $1.046 billion. Cash available for general corporate purposes was $698.0 million after excluding cash held in certain cash-management operations.
- $380 million remained available under the revolving credit facility. The company was in compliance with all debt covenants at March 31, 2022 and stated that available liquidity was sufficient to meet expected needs for the next 12 months, subject to economic and operating conditions.
- The quarterly dividend increased to $0.20 per share from $0.15 per share. The $250 million share-repurchase authorization remained fully available at March 31, 2022; no repurchases were reported during the quarter.
Material Changes Versus the Prior Comparable Period
- Revenue increased $96.3 million, primarily from pandemic-related volume recovery, price increases, acquisitions and growth in all four segments. North America benefited from the PAI acquisition but had lower organic operating profit because of higher labor costs and bad debt expense.
- Latin America, Europe and Rest of World reported higher organic operating profit, supported by volume growth and cost actions. Foreign exchange reduced reported revenue and operating profit.
- GAAP operating profit was nearly flat because higher underlying operating performance was offset by $16.7 million of incremental bad debt expense, $11.7 million of restructuring costs, $6.1 million of Argentina-related charges and acquisition-related expenses.
- Net income attributable to Brink’s increased to $71.3 million from $12.7 million, primarily because of the deferred-tax valuation allowance release and modestly improved operating results.
- Cash flow deteriorated substantially, with operating cash use of $76.3 million versus $1.5 million in the prior year, while investing cash use declined because the prior-year period included substantially higher G4S acquisition payments.
Guidance, Outlook, Risks and Unusual Items
- The filing does not provide clear formal full-year GAAP revenue, earnings or cash-flow guidance. Management expects to have sufficient liquidity for the next 12 months based on cash, operating cash generation and available credit capacity.
- Restructuring actions are expected to reduce the workforce by approximately 1,000 to 1,200 positions and generate annualized cost savings of $25 million to $30 million when completed. The company expects an additional $3 million to $5 million of restructuring costs for actions not yet completed.
- COVID-19 remains an ongoing risk through customer volumes, labor shortages, operating costs and potential economic disruption. Inflation, interest rates, currency movements and a stronger U.S. dollar may pressure results.
- Argentina remains a highly inflationary economy with currency controls. Brink’s recorded $4.9 million of pretax currency remeasurement losses and $6.1 million of total highly inflationary accounting charges in Q1 2022.
- The company recorded a $16.7 million additional allowance for significantly past-due receivables, particularly in the United States. The allowance methodology and collectability of receivables remain important estimates.
- A U.S. Department of Justice investigation concerning cross-border shipments of cash and valuables and anti-money-laundering compliance remains ongoing. No accrual was recorded because the outcome and potential loss could not be estimated.
- A Chilean antitrust complaint seeks a $30.5 million fine related to alleged collusion in 2017 and 2018. Brink’s recorded a $9.5 million charge in Q3 2021 and intends to defend the matter.
- Venezuelan operations are not consolidated because Brink’s does not meet the accounting criteria for control; U.S. sanctions and local regulations limit support and operating flexibility.
Important Facts for Investors to Verify
- Whether the $58.3 million tax valuation allowance release is sustainable and how future tax rates compare with the company’s estimated 2022 non-GAAP rate of 32.2%.
- Underlying operating performance excluding the tax benefit, acquisition effects, restructuring, Argentina-related charges and the $16.7 million receivable allowance adjustment.
- Whether operating cash flow improves after the Q1 working-capital and tax outflows, particularly as net debt increased by $105 million during the quarter.
- Progress toward the stated restructuring savings and the remaining $3 million to $5 million of expected restructuring costs.
- Receivable aging, allowance adequacy and collection trends following the revised credit-loss methodology.
- Developments in the DOJ investigation, Chilean antitrust proceeding, Argentina currency controls, COVID-19 effects and other foreign-market risks.
- Debt maturities, covenant compliance, interest-rate exposure and continued availability under the $1 billion revolving credit facility, of which $380 million was available at quarter-end.