The Brink’s Company: Q1 2023 Form 10-Q Summary
Business context and reporting period
The Brink’s Company provides cash and valuables management, digital retail solutions and ATM managed services across North America, Latin America, Europe and the Rest of World. This unaudited Form 10-Q covers the three months ended March 31, 2023, compared with the three months ended March 31, 2022.
Key financial metrics
| Metric | Q1 2023 | Q1 2022 | Change |
|---|---|---|---|
| Revenue | $1,185.4 million | $1,074.0 million | 10% |
| Gross profit | $265.1 million | $234.3 million | 13% |
| Gross margin | 22.4% | 21.8% | Up 60 bps |
| GAAP operating profit | $79.8 million | $62.4 million | 28% |
| GAAP operating margin | 6.7% | 5.8% | Up 90 bps |
| Non-GAAP operating profit | $127.4 million | $112.1 million | 14% |
| Non-GAAP operating margin | 10.7% | 10.4% | Up 30 bps |
| Income from continuing operations attributable to Brink’s | $14.3 million | $71.4 million | Down 80% |
| Diluted EPS from continuing operations | $0.30 | $1.48 | Down 80% |
| Net income attributable to Brink’s | $15.0 million | $71.3 million | Down 79% |
| Cash flow from operating activities | $(45.1) million | $(76.3) million | Improved $31.2 million |
| Capital expenditures | $45.2 million | $37.0 million | Up $8.2 million |
| Total debt | $3,370.9 million | $3,402.8 million at Dec. 31, 2022 | Down $31.9 million |
| Net debt | $2,637.9 million | $2,516.0 million at Dec. 31, 2022 | Up $121.9 million |
Cash and cash equivalents were $816.6 million at March 31, 2023, compared with $972.0 million at December 31, 2022. Including restricted cash, total cash, cash equivalents and restricted cash were $1,218.4 million, down from $1,410.5 million. The company had $398 million available under its revolving credit facility and reported compliance with all debt covenants.
Material changes versus the prior comparable period
- Revenue increased $111.4 million, including $135.3 million of organic growth and $36.0 million from acquisitions, partly offset by $59.9 million of unfavorable currency effects.
- Organic revenue increased 13%, primarily from higher volumes and inflation-based price increases. Segment revenue growth was 9% in North America, 8% in Latin America, 21% in Europe and 4% in Rest of World.
- Operating profit benefited from organic growth, pricing, cost savings and the absence of the $16.7 million increase in the doubtful-account allowance recorded in Q1 2022.
- Interest expense rose 67% to $46.6 million, primarily because of higher interest rates on corporate debt.
- The effective tax rate on continuing operations was 53.6%, compared with a benefit-driven negative rate of 123.8% in Q1 2022. The prior-year tax benefit included a $58.3 million release of valuation allowances on U.S. tax credit deferred tax assets.
- Europe benefited from the NoteMachine acquisition, which contributed $34.1 million of Q1 2023 revenue and a $1.1 million net loss attributable to Brink’s.
- The company repurchased 247,422 shares for $16.0 million during the quarter; $182 million remained available under the repurchase authorization.
Guidance, outlook, commentary and risks
- Management expects total expenses under the 2022 Global Restructuring Plan of $42 million to $48 million. Through Q1 2023, $32.6 million had been recognized, including $10.4 million in the quarter. The plan is expected to reduce the workforce by approximately 3,300 to 3,500 positions and produce annualized cost savings of approximately $60 million when completed.
- Management stated that existing cash, operating cash flow and available credit are expected to meet liquidity needs for the next 12 months, subject to no material worsening of economic conditions, inflation or other circumstances.
- Argentina remains highly inflationary. The company recorded $11.2 million of pretax charges related to highly inflationary accounting, including a $9.8 million currency remeasurement loss. Currency controls may restrict repatriation of cash.
- The company faces foreign-exchange exposure, higher labor and operating costs, elevated interest rates, inflation, labor issues, economic and political risks in foreign markets, and risks related to acquisitions and integration.
- The Department of Justice investigation concerning cross-border shipments of cash and valuables and anti-money-laundering compliance remains ongoing. No accrual has been recorded because the outcome and potential loss cannot be reasonably estimated.
- The Chilean antitrust matter carries a requested fine of $30.5 million. The company recorded a cumulative estimated loss, including a $0.2 million adjustment in Q1 2023, but continues to defend the matter.
- The company’s disclosure controls and procedures were not effective at March 31, 2023 because the material weakness previously reported in the 2022 Form 10-K remained unresolved. Management nevertheless concluded that the financial statements fairly present the company’s results in conformity with U.S. GAAP.
Most important facts for investors to verify
- Whether organic pricing and volume growth continue to offset labor, security, insurance and other inflationary costs.
- The pace and realized savings from the global restructuring program, including remaining charges and workforce reductions.
- Interest-rate sensitivity, debt maturities, leverage and availability under the revolving credit facility.
- Operating cash-flow conversion, working-capital requirements and the decline in unrestricted cash.
- The financial effects of Argentina’s devaluation, inflation and currency controls, including cash repatriation constraints.
- Potential outcomes and additional losses from the DOJ investigation, Chile antitrust proceedings, Maco union payments and other contingencies.
- Progress in remediating the material weakness in disclosure controls and internal control over financial reporting.