The Brink’s Company: Q2 2021 Form 10-Q Summary
Business context and reporting period
The filing covers the quarter and six months ended June 30, 2021. Brink’s provides cash-in-transit, ATM, global logistics, cash management, payment, guarding and other security services in more than 100 countries through four segments: North America, Latin America, Europe and Rest of World.
Results benefited from recovery in customer volumes versus the COVID-19-affected 2020 comparison period, acquisitions, cost actions and favorable foreign exchange. Prior-period segment information was revised to reflect the current four-segment structure.
Key financial metrics
| Metric | Q2 2021 | Q2 2020 | First half 2021 | First half 2020 |
|---|---|---|---|---|
| Revenue | $1,048.8 million | $826.0 million | $2,026.5 million | $1,698.8 million |
| Operating profit | $73.3 million | $(1.0) million | $135.0 million | $25.2 million |
| GAAP operating margin | 7.0% | (0.1%) | 6.7% | 1.5% |
| Non-GAAP operating profit | $110.6 million | $73.2 million | $200.7 million | $136.3 million |
| Non-GAAP operating margin | 10.5% | 8.9% | 9.9% | 8.0% |
| Net income attributable to Brink’s | $23.9 million | $12.9 million | $36.6 million | $14.7 million |
| GAAP diluted EPS from continuing operations | $0.47 | $0.27 | $0.73 | $0.30 |
| Non-GAAP diluted EPS from continuing operations | $1.18 | $0.73 | $1.99 | $1.23 |
First-half net cash provided by operating activities was $81.0 million, compared with cash used of $60.0 million in the prior-year period. Non-GAAP operating cash flow, excluding customer-related restricted cash effects and certain G4S intercompany payments, was $111.6 million versus $(24.4) million.
Capital expenditures were $73.2 million, acquisitions used $310.2 million, and total investing cash outflow was $379.9 million. Financing activities provided $314.4 million, including net long-term revolving-facility borrowings of $387.8 million. Cash, cash equivalents and restricted cash totaled $941.4 million at June 30, 2021, including $661.6 million of unrestricted cash and cash equivalents.
Total debt was $2,852.4 million at June 30, 2021, compared with $2,485.7 million at December 31, 2020. Net debt, as defined by management, was $2,218.5 million versus $1,883.9 million. The company had $634 million available under its revolving credit facility and was in compliance with all debt covenants.
Annualized dividend payments were increased to $0.20 per share quarterly; $17.4 million was paid to common shareholders during the first half. The $250 million share-repurchase authorization had $200 million remaining at June 30, 2021 and expires December 31, 2021.
Material changes versus the prior comparable period
- Q2 revenue increased 27%, including 15% organic growth, $58.8 million of acquisition contribution and $39.0 million of favorable currency impact.
- First-half revenue increased 19%, but organic growth was 4%; acquisitions contributed $229.0 million and currency contributed $29.7 million.
- Q2 operating profit improved by $74.3 million, while first-half operating profit improved by $109.8 million. Improvements reflected volume recovery, labor and operating-cost actions, lower restructuring and acquisition-related charges, and lower internal-loss charges.
- All segments reported higher Q2 revenue. Q2 organic revenue growth was 21% in North America, 16% in Latin America, 18% in Europe and approximately flat in Rest of World.
- On April 1, 2021, Brink’s acquired PAI Midco, a U.S. ATM-services provider, for approximately $216 million. PAI contributed $34.0 million of Q2 revenue and $2.5 million of net income attributable to Brink’s.
- Goodwill increased to $1,445.8 million from $1,219.2 million at year-end 2020, and other intangibles increased to $526.1 million from $426.1 million, primarily reflecting acquisitions.
- Restructuring charges declined to $21.7 million in the first half from $44.6 million. Management expects an additional $4 million to $6 million of costs for actions not yet completed and expects targeted actions to reduce the workforce by approximately 1,800 to 2,000 positions and generate annualized savings of $30 million to $35 million.
- Corporate expenses increased materially, partly because of higher bad-debt, incentive compensation and new-service-development costs. A change in North America’s allowance methodology shifted $12.3 million of expense between the segment and Corporate without affecting consolidated profit.
Guidance, outlook, risks and unusual items
The filing does not provide explicit full-year revenue or earnings guidance. Management states that it expects sufficient liquidity to meet needs for the next twelve months based on cash on hand, operating cash flow and available credit capacity, but this conclusion excludes a potential material worsening of COVID-19 or other economic conditions.
- COVID-19 continues to create uncertainty through customer-volume changes, operating restrictions, labor and service costs, and potential effects on liquidity, asset valuations, receivables and deferred tax assets.
- Argentina remains highly inflationary, with currency controls and a 13% peso decline during the first half. Brink’s recognized $6.5 million of pretax highly inflationary-accounting charges, including a $5.0 million currency-remeasurement loss.
- The company recognized a $2.7 million reduction in bad-debt expense related to collections from a prior employee embezzlement matter, but recorded $0.9 million of related legal charges. A $9.5 million allowance remained against $9.7 million of affected receivables.
- A U.S. Department of Justice investigation concerning cross-border shipments and anti-money-laundering compliance remains ongoing. No claims have been brought, no loss has been accrued, and the potential outcome cannot currently be estimated.
- A Chilean antitrust investigation also remains unresolved; the company cannot estimate the probability or range of loss.
- Debt increased to fund acquisitions and working capital. Interest expense rose 22% in Q2 and 28% in the first half, primarily because of higher borrowing levels.
- Retirement and other postretirement obligations remain significant. The company reported $311.3 million of accrued pension costs and $377.2 million of other retirement benefits. No contributions were required for the primary U.S. pension plan during the first half, and current assumptions indicate none will be required for the remainder of 2021.
- Foreign-exchange exposure remains significant; the company had $504 million of short-term foreign-currency forward and swap contract notional value and entered into $400 million of euro cross-currency swaps during Q2.
Most important facts for investors to verify
- Whether organic volume recovery and the reported 2021 cost savings persist after the easier COVID-19 comparison period.
- The sustainability of cash generation relative to acquisition spending, capital expenditures, dividends and increased debt service.
- Integration performance and future intangible-amortization, restructuring and other costs from PAI and the G4S acquisitions.
- Compliance with leverage and other debt covenants, including the February 2024 maturity of the senior secured credit facility and July 2025 maturity of the $400 million senior notes.
- Developments in the DOJ and Chilean investigations and any resulting financial or operational consequences.
- Exposure to Argentina’s currency controls and inflation, foreign-exchange movements, COVID-19 developments and the collectability of receivables related to the internal loss.
- The extent to which non-GAAP earnings exceed GAAP earnings because of restructuring, acquisition-related, retirement, Argentina and other excluded items.