The Brink’s Company: FY2019 Form 10-K Summary
Business context and reporting period
The filing covers the fiscal year ended December 31, 2019, with quarterly data provided for the fourth quarter. Brink’s is a global provider of cash-in-transit, ATM, cash-management, payment, high-value logistics and security services in more than 100 countries. Approximately 67% of 2019 revenue came from outside the United States. Reportable segments are North America, South America and Rest of World.
- 2019 revenue mix: Core Services 53%, High-Value Services 43% and Other Security Services 4%.
- The business is seasonal, with generally higher revenue and earnings in the second half, particularly the fourth quarter.
Financial results and key metrics
| Metric | 2019 | 2018 | Change |
|---|---|---|---|
| Revenue | $3,683.2 million | $3,488.9 million | +6% |
| Operating profit | $236.8 million | $274.7 million | -14% |
| GAAP operating margin | 6.4% | 7.9% | Down |
| Income from continuing operations attributable to Brink’s | $28.3 million | $(33.3) million | Improved |
| Diluted EPS from continuing operations | $0.55 | $(0.65) | Improved |
| Non-GAAP operating profit | $391.6 million | $346.9 million | +13% |
| Non-GAAP operating margin | 10.6% | 10.1% | Up |
| Non-GAAP diluted EPS from continuing operations | $3.89 | $3.46 | +12% |
| Net cash provided by operating activities | $368.6 million | $364.1 million | +$4.5 million |
| Capital expenditures | $164.8 million | $155.1 million | +$9.7 million |
| Cash used in investing activities | $(333.0) million | $(672.7) million | Improved |
GAAP net income attributable to Brink’s was $29.0 million, or $0.57 diluted EPS, compared with a $33.3 million loss, or $(0.65) diluted EPS, in 2018. The 2019 GAAP effective tax rate on continuing operations was 65.2%, compared with 164.7% in 2018, reflecting the unusual items affecting both periods.
At December 31, 2019, cash and cash equivalents were $311.0 million, versus $343.4 million in 2018. Cash available for general corporate purposes was $284.7 million after excluding amounts held for cash-management operations. Total debt was $1,643.6 million, versus $1,554.0 million, and net debt was $1,348.6 million, versus $1,214.2 million. Debt represented 89% of capitalization, compared with 90% in 2018. The company had $885 million available under its revolving credit facility and was in compliance with its financial covenants.
Total assets increased to $3,763.8 million from $3,236.0 million, while Brink’s shareholders’ equity increased to $191.8 million from $153.7 million. The company adopted the new lease standard in 2019, recognizing $270.3 million of right-of-use assets and $218.4 million of operating lease liabilities at year-end.
Material changes versus the prior comparable period
- Revenue increased $194.3 million, driven by acquisitions and organic growth in all three segments, partly offset by $267.8 million of unfavorable currency effects and the absence of Venezuela revenue following its 2018 deconsolidation.
- North America revenue increased 22% to $1,782.8 million, primarily due to the 2018 Dunbar acquisition and organic growth. Segment operating profit increased 44% to $186.4 million.
- South America revenue declined 1% to $916.5 million because currency devaluation offset 16% organic growth and acquisition contributions. Segment operating profit increased 9% to $217.1 million.
- Rest of World revenue declined 6% to $980.4 million, primarily from currency effects and the 2018 French airport-security disposition. Segment operating profit was substantially flat at $115.8 million.
- GAAP operating profit declined because of higher acquisition-related costs, a $20.9 million internal-loss charge, increased restructuring costs, higher corporate expenses and currency effects.
- Non-GAAP operating profit increased as segment organic growth, productivity improvements and acquisition contributions more than offset currency and corporate-cost pressures.
- Interest expense increased to $90.6 million from $66.7 million, primarily because of higher borrowing levels related to acquisitions.
- Cash used for acquisitions declined to $183.9 million from $520.9 million. 2019 acquisitions included Rodoban in Brazil for approximately $134 million and three additional businesses for approximately $50 million in aggregate.
Guidance, outlook, commentary, risks and unusual items
The filing does not provide a clear numerical 2020 revenue or earnings guidance range. Management’s strategy is to accelerate profitable growth, improve productivity and margins, and introduce technology-enabled differentiated services. Management stated that current cash, borrowing capacity and projected operating cash flows should satisfy liquidity needs for more than the next twelve months.
- Current restructuring actions are expected to reduce the workforce by 600 to 700 positions, generate approximately $12 million of annualized cost savings and require an additional $1 million to $3 million of future costs.
- GAAP results included $28.8 million of restructuring costs, $88.5 million of acquisition and disposition costs, $14.5 million related to Argentina’s highly inflationary accounting, and $20.9 million related to the U.S. Global Services internal loss.
- The internal loss involved a former employee’s embezzlement and misstated accounts-receivable records. Brink’s recorded $20.1 million of bad-debt expense in the second half of 2019, including a $19.2 million allowance on $34.0 million of receivables.
- A $19.3 million fourth-quarter pension settlement charge resulted from an annuity buyout covering approximately 2,600 participants.
- Argentina remained highly inflationary, with a 37% decline in the peso, $11.3 million of currency-remeasurement losses and $4.7 million of additional conversion losses. Currency controls may restrict dividend repatriation.
- Brink’s ceased support of its Venezuela business after U.S. sanctions and does not expect future funding while current sanctions remain in effect.
- Retirement obligations remain significant: total pension liability was $230.8 million and retirement benefits other than pensions totaled $358.8 million at year-end. Accumulated actuarial losses were approximately $676 million.
- Risks include competitive pricing pressure, declining use of cash, foreign exchange and political risk, inflation, acquisitions and integration, cybersecurity, insurance availability, employee and retirement obligations, regulatory compliance and debt-covenant compliance.
- The company disclosed a Chilean antitrust investigation in which no proceeding had yet been initiated and no loss estimate could be made.
- On February 26, 2020, after year-end, Brink’s announced an agreement to acquire most of G4S’s cash-management operations for approximately $860 million, with acquired operations generating approximately $800 million of annual revenue.
Most important facts for investors to verify
- Reconcile GAAP results with management’s non-GAAP measures and assess whether the 10.6% non-GAAP margin improvement is sustainable after acquisition and restructuring costs normalize.
- Monitor leverage, interest expense, debt maturities and liquidity following the proposed G4S acquisition.
- Evaluate the collectability of the $34.0 million of receivables associated with the internal loss and any future allowance adjustments.
- Assess the effects of Argentina’s inflation, currency controls and currency conversion losses on reported revenue, earnings and cash repatriation.
- Review retirement, UMWA, black-lung and other legacy obligations, including the sensitivity to discount rates, investment returns and medical-cost inflation.
- Confirm the timing, financing, integration costs and expected synergies of the proposed G4S transaction.
- Review the Chilean antitrust investigation, other litigation, insurance coverage and any subsequent legal or regulatory developments.
- Consider the company’s exposure to reduced cash usage, foreign exchange movements, cybersecurity incidents and operational security losses.