The Brink’s Company — 2023 Third-Quarter Form 10-Q Summary
Business context and reporting period
The filing covers the quarter and nine months ended September 30, 2023. Brink’s provides cash and valuables management, digital retail solutions and ATM managed services through four reportable segments: North America, Latin America, Europe and Rest of World. The company operates in more than 100 countries and serves customers through cash-in-transit, cash management, global services, vaulting, DRS and AMS offerings.
Financial performance and liquidity
| Metric | Three months ended September 30 | Nine months ended September 30 |
|---|---|---|
| Revenue | $1,227.4 million, up 8% | $3,629.0 million, up 9% |
| Operating profit | $137.7 million, versus $59.5 million | $323.1 million, up 48% |
| GAAP operating margin | 11.2%, versus 5.2% | 8.9%, versus 6.5% |
| Non-GAAP operating profit | $166.3 million, up 31% | $425.5 million, up 17% |
| Non-GAAP operating margin | 13.5%, versus 11.2% | 11.7%, versus 10.9% |
| Income from continuing operations attributable to Brink’s | $45.7 million, versus $19.2 million | $92.2 million, versus $125.8 million |
| Diluted EPS from continuing operations | $0.97, versus $0.41 | $1.95, versus $2.63 |
| Operating cash flow | Not separately provided | $293.0 million, versus $200.5 million |
Third-quarter revenue growth reflected 6% organic growth, acquisition contributions of $34.5 million and a $15.4 million unfavorable currency impact. Growth was led by Latin America and Europe. DRS and AMS growth and inflation-based pricing supported results, while BGS revenue declined in some regions.
Third-quarter operating profit benefited from higher organic segment profit, lower corporate expenses, reduced restructuring costs and lower acquisition-related costs. Results were partially offset by foreign-currency effects and weaker Rest of World performance. Interest expense rose 55% to $53.8 million in the quarter and 59% to $151.5 million for the nine-month period, primarily because of higher interest rates.
The nine-month effective tax rate was 44.2%, compared with a benefit-driven negative 2.5% rate in 2022. The 2023 rate included a $7.0 million tax expense related to the expected treatment of Brazilian withholding taxes for U.S. foreign tax credit purposes; 2022 included a $52.8 million tax benefit from releasing valuation allowances on certain U.S. tax credit carryforwards.
At September 30, 2023, cash and cash equivalents were $933.5 million and restricted cash was $387.0 million. Total debt was $3.419 billion, compared with $3.403 billion at December 31, 2022. Net debt, as defined by the company, was $2.579 billion, up from $2.516 billion. The company had $437 million available under its $1 billion revolving credit facility and was in compliance with all debt covenants.
Operating cash flow funded capital expenditures of $133.1 million, while investing cash outflows totaled $147.9 million. Financing cash outflows were $207.4 million, including $105.7 million of share repurchases and $29.7 million of dividends. Total cash, cash equivalents and restricted cash declined by $90.0 million to $1.321 billion.
Material changes versus the prior comparable period
- Revenue increased 8% in the third quarter and 9% year to date, supported by organic pricing and DRS/AMS growth and by the NoteMachine acquisition.
- GAAP operating profit more than doubled in the third quarter and increased 48% year to date, principally because of stronger organic performance and substantially lower unusual charges.
- GAAP nine-month earnings and EPS declined despite higher operating profit because of the prior-year tax benefit, higher interest expense and higher taxes in 2023. Non-GAAP nine-month income from continuing operations increased 8% to $202.2 million, and non-GAAP diluted EPS increased 9% to $4.27.
- Europe revenue increased 31% in the quarter and 26% year to date, including $34.9 million and $107.0 million, respectively, from NoteMachine.
- Latin America produced strong organic revenue growth of 24% in the quarter and 21% year to date, but currency devaluation substantially reduced reported growth and profit.
- Rest of World revenue and operating profit declined in the third quarter, primarily because of lower-margin BGS revenue.
- Share repurchases increased to $105.7 million in the first nine months from $27.3 million in the prior-year period. The company had $92 million remaining under the existing program at September 30, 2023; on November 2, 2023, the board authorized an additional $500 million program expiring December 31, 2025.
Guidance, outlook, risks and unusual items
Management did not provide a new consolidated revenue or earnings outlook in the supplied filing text. Management expects the 2022 Global Restructuring Plan to produce total charges of $42 million to $48 million and annualized cost savings of at least $60 million after reducing the workforce by approximately 3,300 to 3,500 positions. A total of $32.2 million of charges had been recognized, including $10.0 million in the first nine months of 2023.
Argentina remains highly inflationary for accounting purposes. The Argentine peso declined approximately 48% against the U.S. dollar during the first nine months of 2023, and Brink’s recognized $30.3 million of pretax Argentina-related charges, including a $23.9 million currency remeasurement loss. Currency controls may restrict dividend repatriation and cash transfers.
Other significant items included $56.4 million of acquisition- and disposition-related operating charges, $14.6 million of restructuring charges, $0.4 million related to the Chile antitrust matter and $0.7 million of reporting-compliance costs. The company also recognized a $4.8 million gain from derecognizing a NoteMachine contingent consideration liability.
The company expects sufficient liquidity for the next 12 months based on cash on hand, operating cash flow and available credit, but this assessment excludes a material worsening of economic conditions or inflation. Key risks include foreign exchange volatility, inflation, interest rates, labor costs and shortages, geopolitical and sanctions exposure, repatriation restrictions, cybersecurity, acquisitions and integration, litigation, pension and black-lung obligations, tax-law changes and access to capital markets.
Brink’s continues to cooperate with a U.S. Department of Justice investigation concerning cross-border shipments and anti-money-laundering compliance. No civil or criminal claims have been filed and no loss accrual has been recorded. The Chilean antitrust authority seeks a fine of $30.5 million; Brink’s has recorded cumulative estimated-loss charges, including a $0.4 million adjustment in the first nine months of 2023.
The company’s previously reported material weakness in internal control over financial reporting remained present at September 30, 2023. Management concluded that disclosure controls and procedures were not effective, although it concluded that the condensed financial statements fairly present the company’s financial position and results. A new Oracle EPM Cloud consolidation system was implemented during the quarter, creating additional control-implementation risk.
Important facts for investors to verify
- Whether organic pricing and DRS/AMS growth can offset labor, inflation and currency pressures, particularly in Latin America.
- The effect of higher interest rates and the company’s $3.419 billion debt balance on future earnings and cash flow.
- Progress and final cost savings from the global restructuring program.
- The sustainability of operating cash flow after capital expenditures, financing leases, share repurchases and dividends.
- The financial impact and timing of the DOJ investigation and Chile antitrust proceedings.
- Argentina’s currency controls, inflation and devaluation exposure, including the ability to repatriate cash.
- Remediation of the material weakness and the effectiveness of controls following the Oracle EPM Cloud implementation.
- The basis and comparability of management’s non-GAAP measures, including adjustments for Argentina, acquisitions, restructuring, taxes and retirement plans.