The Brink’s Company — Q1 2020 Form 10-Q Summary
Business context and reporting period
The filing covers the three months ended March 31, 2020. Brink’s provides cash-in-transit, ATM, cash management, global logistics, payment, guarding and other security services through three reportable segments: North America, South America and Rest of World. The COVID-19 pandemic began materially affecting operations during the quarter as government restrictions and reduced commerce lowered customer volumes and led some customers to cancel or suspend services.
Key financial metrics
| Metric | Q1 2020 | Q1 2019 | Change |
|---|---|---|---|
| Revenue | $872.8 million | $905.0 million | Down 4% |
| Operating profit | $26.2 million | $58.4 million | Down 55% |
| GAAP operating margin | 3.0% | 6.5% | Down 350 bps |
| Income from continuing operations attributable to Brink’s | $1.8 million | $13.7 million | Down 87% |
| Diluted EPS from continuing operations | $0.03 | $0.27 | Down $0.24 |
| Non-GAAP operating profit | $63.1 million | $84.8 million | Down 26% |
| Non-GAAP operating margin | 7.2% | 9.4% | Down 220 bps |
| Cash flow from operating activities | $13.4 million | $(38.0) million | Improved $51.4 million |
| Capital expenditures | $30.2 million | $35.2 million | Down $5.0 million |
| Cash used in investing activities | $(110.4) million | $(164.2) million | Use decreased $53.8 million |
| Cash provided by financing activities | $168.1 million | $106.6 million | Up $61.5 million |
Net income was $2.8 million, compared with $14.5 million in the prior-year quarter. The tax benefit was $12.2 million, producing a 129.8% effective tax rate on a pretax loss of $9.4 million. The filing attributes the unusual rate primarily to geographic earnings mix, seasonality, nondeductible expenses and other tax factors.
Liquidity, debt and balance sheet
- Cash and cash equivalents were $274.4 million at March 31, 2020, compared with $311.0 million at December 31, 2019.
- Total cash, cash equivalents and restricted cash were $512.1 million, including $237.7 million of restricted cash that was generally unavailable for corporate purposes.
- Total debt increased to $1.845 billion from $1.644 billion at year-end 2019.
- Net debt increased to $1.577 billion from $1.349 billion, primarily to fund acquisitions and working capital needs.
- $674 million remained available under the $1 billion Revolving Credit Facility at March 31, 2020. The company was in compliance with all debt covenants.
- On April 1, 2020, Brink’s increased term-loan commitments by $590 million, with proceeds intended for working capital, capital expenditures, permitted acquisitions and general corporate purposes.
- Management stated that available cash, operating cash flow and credit facilities were expected to meet liquidity needs for the next 12 months, but this assessment did not assume a material worsening of COVID-19 conditions.
Material changes versus the prior comparable period
- Revenue declined $32.2 million, reflecting $59.5 million of unfavorable currency effects and an organic decline in Rest of World, partly offset by organic growth in North America and South America and acquisition contributions.
- Organic revenue increased 2%, but operating performance weakened. North America operating profit fell 25% to $33.0 million, South America declined 3% to $41.6 million, and Rest of World declined 37% to $15.0 million.
- Operating profit was reduced by currency effects, higher internal-loss charges, acquisition and disposition costs, restructuring charges and lower volumes associated with COVID-19.
- GAAP selling, general and administrative expense increased 5% to $148.1 million, partly because of internal-loss costs and acquisition-related expenses.
- Operating cash flow benefited from an $81.2 million increase in restricted cash held for customers. Excluding restricted cash and certain customer obligations, management’s non-GAAP operating cash flow was $(61.6) million, down from $(12.5) million.
- Brink’s acquired G4S International Logistics Group Limited on March 9, 2020, for $90.1 million. The acquired business contributed $5.4 million of Q1 revenue and $0.4 million of net income attributable to Brink’s.
- Brink’s recognized a $4.7 million gain on the January 1, 2020 sale of a French security-services subsidiary.
Guidance, outlook, risks and unusual items
- Management did not provide specific full-year revenue or earnings guidance in the filing. It expects COVID-19 to negatively affect volumes, revenue and operating results for as long as the pandemic continues.
- Management initiated cost and liquidity actions, including headcount reductions, furloughs, pay and benefit reductions, overtime controls, reduced fleet maintenance, elimination of nonessential travel, lower capital expenditures and suspension of the fleet replacement program.
- Current restructuring actions are expected to reduce the workforce by 600 to 700 positions and generate approximately $6 million of annualized cost savings. Q1 restructuring charges were $5.6 million, with an additional $1 million to $2 million expected.
- The internal loss involving a former U.S. employee resulted in a $9.4 million Q1 increase in bad-debt allowance and $0.2 million of related reconstruction costs. At March 31, 2020, a $23.0 million allowance had been recorded against $30.2 million of related receivables. Future adjustments remain possible.
- Brink’s adopted the current expected credit loss standard effective January 1, 2020, reducing opening retained earnings by $1.7 million.
- Accumulated other comprehensive loss increased to $1.096 billion, primarily because of a $120.3 million foreign-currency translation loss and $14.7 million of cash-flow-hedge losses during the quarter.
- Argentina remained a highly inflationary economy, and currency controls may limit cash repatriation. Venezuela remains deconsolidated because of sanctions and the company’s lack of control.
- The company faces ordinary-course litigation and a Chilean antitrust investigation for which the potential loss cannot currently be estimated.
- After quarter-end, Brink’s acquired additional G4S cash-management operations in several European, Asian and other markets. The acquired and planned G4S businesses were described as generating approximately $800 million of annual revenue.
- The $250 million share-repurchase authorization remained unused and was suspended as of the filing date. The quarterly dividend remained $0.15 per share.
Most important facts for investors to verify
- Whether COVID-19-related volume declines and customer cancellations persist longer or become more severe than assumed by management.
- Liquidity after the $590 million incremental term loan, subsequent G4S acquisitions, ongoing working-capital needs and increased net debt.
- Compliance with leverage and other debt covenants under materially weaker operating conditions.
- The collectability of the $30.2 million of receivables associated with the internal loss and any further allowance requirements.
- The timing, cost and savings realization of restructuring actions and broader cost-reduction measures.
- The integration, purchase accounting and returns associated with G4S and other acquired businesses.
- Exposure to foreign-currency movements, Argentina’s currency controls and highly inflationary accounting.
- Potential impairment of goodwill or other long-lived assets if pandemic-related deterioration continues.
- Future pension, UMWA and black-lung funding requirements, together with legal and regulatory contingencies.