The Brink’s Company: Q3 2021 Form 10-Q Summary
Business context and reporting period
The Brink’s Company provides cash-in-transit, ATM, global logistics, cash management, payment, guarding and related security services in more than 100 countries. The filing covers the unaudited quarter and nine months ended September 30, 2021, compared with the corresponding 2020 periods. Operations are reported in four segments: North America, Latin America, Europe and Rest of World.
Financial performance and key metrics
| Metric | Q3 2021 | Q3 2020 | 9M 2021 | 9M 2020 |
|---|---|---|---|---|
| Revenue | $1,075.5 million | $970.5 million | $3,102.0 million | $2,669.3 million |
| Operating profit | $74.2 million | $76.4 million | $209.2 million | $101.6 million |
| GAAP operating margin | 6.9% | 7.9% | 6.7% | 3.8% |
| Net income attributable to Brink’s | $19.0 million | $(23.9) million | $55.6 million | $(9.2) million |
| Diluted EPS from continuing operations | $0.38 | $(0.47) | $1.11 | $(0.17) |
| Non-GAAP operating profit | $115.9 million | $99.9 million | $316.6 million | $236.2 million |
| Non-GAAP diluted EPS | $1.14 | $0.89 | $3.10 | $2.12 |
Q3 revenue increased 11%, including 6% organic growth, driven by volume recovery, pricing and acquisitions. Nine-month revenue increased 16%, including 5% organic growth; acquisitions contributed $275.0 million and currency contributed $34.4 million. Non-GAAP operating margin was 10.8% in Q3 and 10.2% for the nine months, versus 10.3% and 8.8%, respectively, in the prior-year periods.
Operating performance varied by segment. Q3 operating profit increased in Latin America to $64.6 million and Europe to $28.1 million, but declined in Rest of World to $31.9 million on organic weakness and lower government COVID-19 assistance. North America operating profit was $25.0 million, with acquisition benefits offset by higher labor costs and security losses.
Net cash provided by operating activities was $273.6 million for the first nine months, compared with $87.4 million in 2020. Capital expenditures were $113.7 million, and cash used for acquisitions was $313.6 million, including the PAI acquisition. Net cash used in investing activities was $390.3 million. Financing activities provided $234.6 million.
Cash and cash equivalents were $700.8 million at September 30, 2021, and total cash, cash equivalents and restricted cash were $1,022.5 million. Total debt was $2,845.6 million, compared with $2,485.7 million at December 31, 2020. Reported net debt was $2,173.7 million, up approximately $290 million, primarily to fund acquisitions and working capital. The company had $618 million available under its revolving credit facility and stated that it expects available liquidity to meet requirements for the next 12 months.
Material changes versus the prior comparable period
- Revenue and profitability improved substantially for the nine-month period as customer volumes recovered from pandemic-related disruption and acquired businesses contributed to results.
- Q3 GAAP operating profit declined 3% despite higher revenue because of increased corporate expenses, restructuring costs and a $9.5 million Chile antitrust charge.
- Interest expense increased to $83.0 million for the nine months from $70.3 million, primarily reflecting higher borrowing levels related to acquisitions.
- The company acquired PAI Midco, a U.S. ATM services provider, for approximately $216 million on April 1, 2021. PAI contributed $67.5 million of revenue in the first nine months.
- G4S acquisition activity was completed in the first quarter of 2021; acquired G4S businesses contributed $501.0 million of revenue in the first nine months.
- Restructuring charges were $35.7 million in the first nine months, down from $49.7 million. The company expects an additional $5 million to $7 million of restructuring costs and anticipates workforce reductions of approximately 1,400 to 1,600 positions with annualized savings of $30 million to $35 million.
- The effective tax rate on continuing operations was 47.5% for the nine months, compared with an unusual negative rate in 2020, reflecting geographic earnings mix, nondeductible expenses and other tax limitations.
- The company repurchased $50 million of common stock through an accelerated share repurchase arrangement, receiving and retiring 655,699 shares at an overall average price of $76.25. A further $150 million remained available under the then-existing authorization at September 30.
Guidance, outlook, risks and unusual items
- Management did not provide a clear consolidated GAAP revenue or earnings forecast in the filing. It estimated a 33.2% full-year 2021 non-GAAP effective tax rate.
- COVID-19 continues to create uncertainty through customer volumes, operating procedures, labor and service costs, vendor and customer conditions, and potential access to capital. The duration and full financial impact remain unclear.
- The Department of Justice is investigating cross-border shipments of cash and valuables and anti-money-laundering compliance. No civil or criminal claims had been filed, and no loss accrual was recorded.
- In October 2021, the Chilean antitrust authority filed a complaint alleging collusion in 2017 and 2018 and requested a $30.5 million fine. Brink’s recorded a $9.5 million charge and intends to defend the matter.
- Argentina remains highly inflationary, subject to currency devaluation and controls that may restrict dividend repatriation. The company recorded $8.8 million of pretax highly inflationary charges for the nine months, including a $6.6 million currency remeasurement loss.
- Brink’s continues to monitor Venezuela amid U.S. sanctions and does not control its Venezuelan operations for accounting purposes.
- Retirement and legacy obligations remain significant. No contributions were required for the primary U.S. pension plan in the first nine months, but UMWA and black lung obligations continue to require payments.
- On October 27, 2021, the company announced a planned $150 million ASR and a new $250 million repurchase authorization expiring December 31, 2023.
Important facts for investors to verify
- Reconcile GAAP results to non-GAAP results, particularly the effects of restructuring, acquisition-related amortization, Argentina, the Chile antitrust matter and retirement costs.
- Assess leverage, debt maturities and interest-rate exposure, including the February 2024 maturity of the senior secured credit facility and the $618 million of available revolver capacity.
- Monitor integration and earnings contributions from PAI and G4S relative to acquisition costs, amortization and increased debt.
- Evaluate whether volume recovery, pricing and cost savings can offset wage inflation, labor shortages, security losses and reduced government assistance.
- Track the DOJ investigation, Chile antitrust litigation, foreign-exchange restrictions in Argentina and any related changes in accruals or liquidity.
- Review the sustainability of cash generation after capital expenditures, acquisitions, dividends, debt service and share repurchases.