The Brink’s Company — 2022 Second-Quarter Form 10-Q Summary
Business context and reporting period
The Brink’s Company provides cash-in-transit, ATM, cash management, global logistics, payment, guarding and other security services in more than 100 countries through four reportable segments: North America, Latin America, Europe and Rest of World. This unaudited Form 10-Q covers the three and six months ended June 30, 2022, compared with the corresponding 2021 periods.
The company completed a President and Chief Executive Officer leadership change during the second quarter. Results continued to reflect volume recovery, inflation-based pricing, labor and operating cost pressures, foreign currency headwinds and ongoing COVID-19-related uncertainty.
Key financial metrics
| Metric | Three months ended June 30, 2022 | Three months ended June 30, 2021 | Six months ended June 30, 2022 | Six months ended June 30, 2021 |
|---|---|---|---|---|
| Revenue | $1,133.9 million | $1,048.8 million | $2,207.9 million | $2,026.5 million |
| Operating profit | $96.5 million | $73.3 million | $158.9 million | $135.0 million |
| GAAP operating margin | 8.5% | 7.0% | 7.2% | 6.7% |
| Net income attributable to Brink’s | $35.1 million | $23.9 million | $106.4 million | $36.6 million |
| Diluted EPS from continuing operations | $0.73 | $0.47 | $2.22 | $0.73 |
| Non-GAAP operating profit | $124.0 million | $110.6 million | $236.1 million | $200.7 million |
| Non-GAAP operating margin | 10.9% | 10.5% | 10.7% | 9.9% |
| Non-GAAP diluted EPS from continuing operations | $1.29 | $1.15 | $2.44 | $1.94 |
Revenue increased 8% in the second quarter and 9% in the first half. Organic revenue growth was 13% and 11%, respectively, driven primarily by volume recovery and inflation-based price increases. Foreign currency translation reduced second-quarter revenue by $53.9 million and first-half revenue by $87.3 million.
Second-quarter operating profit increased 32%, while first-half operating profit increased 18%. Interest expense rose 15% in the quarter and 9% year to date, primarily because of higher borrowing levels associated with share repurchases. The second-quarter effective tax rate was 43.4%; the first-half rate was negative 11.7%, largely because of a $55.0 million valuation allowance release related to U.S. foreign tax and general business credit carryforwards.
Segment performance and material changes
- North America: Second-quarter revenue increased 13% to $401.6 million, but operating profit fell 17% to $34.1 million. First-half operating profit declined 29% to $58.5 million. The decline reflected prior-year insurance-related and bad-debt reversals, lower Canadian government COVID-19 assistance and higher costs.
- Latin America: Second-quarter revenue increased 12% to $306.3 million and operating profit increased 13% to $64.7 million. Growth reflected pricing, volume recovery and cost actions, partly offset by currency effects, particularly in Argentina.
- Europe: Second-quarter revenue decreased 2% to $226.7 million because of euro weakness, despite 11% organic growth. Operating profit increased 20% to $22.4 million.
- Rest of World: Second-quarter revenue increased 6% to $199.3 million and operating profit increased 24% to $39.5 million, driven primarily by global services growth and cost actions.
- Restructuring costs declined to $14.4 million in the first half from $21.7 million in the prior-year period. Management expects an additional $8 million to $10 million of restructuring costs and expects completed actions to reduce the workforce by approximately 1,400 to 1,600 positions and produce annualized savings of $35 million to $40 million.
- The company recorded a $16.7 million first-quarter increase in its allowance for doubtful accounts after revising its methodology to include significantly past-due receivables; $0.4 million was recovered in the second quarter. The June 30 allowance was $37.2 million.
Cash flow, debt and liquidity
- First-half cash flow from operating activities was $41.1 million, down from $81.0 million. The decline was driven by working-capital changes, higher tax payments of $70.5 million versus $38.9 million, and customer-related cash movements.
- Capital expenditures were $83.4 million, compared with $73.2 million in the prior-year period. Investing cash outflow was $102.5 million versus $379.9 million, primarily because 2021 included substantially larger G4S and PAI acquisition payments.
- Cash flow from financing activities was $136.5 million, including net debt borrowings, compared with $314.4 million in 2021. Dividends paid to Brink’s shareholders were $18.9 million, or $0.40 per share.
- Cash and cash equivalents were $743.3 million at June 30, 2022, compared with $710.3 million at December 31, 2021. Total cash, cash equivalents and restricted cash were $1,101.9 million.
- Total debt was $3,159.1 million, up from $2,966.7 million at year-end 2021. Net debt, as defined by management, was $2,455.8 million versus $2,291.1 million. The company attributed the increase primarily to corporate purposes and working-capital needs.
- Following a June 2022 amendment, the senior secured credit facility includes a $1.0 billion revolving facility and approximately $1.4 billion of term loans, both maturing June 23, 2027. Revolving availability was $510 million at June 30, 2022.
- The company was in compliance with its debt covenants at June 30, 2022 and stated that existing cash, operating cash flow and available credit should meet liquidity needs for the next 12 months, subject to economic, inflationary and pandemic-related risks.
Guidance, outlook, risks and unusual items
The filing does not provide a clear quantitative full-year revenue or operating-profit guidance range. Management expects continued effects from COVID-19, inflation, labor shortages, higher interest rates, foreign exchange volatility and economic disruption. The estimated 2022 full-year non-GAAP effective tax rate is 32.5%.
- Argentina remains a highly inflationary economy with currency controls. The company recorded $13.4 million of pretax currency remeasurement losses in the first half and held $75.8 million of net monetary assets denominated in Argentine pesos.
- In July 2022, after the reporting date, the company terminated euro cross-currency swaps and received $67 million in cash, then entered into replacement swaps with total notional value of $400 million.
- The company remains subject to a U.S. Department of Justice investigation concerning cross-border shipments and anti-money-laundering compliance. No claims have been brought, and no loss accrual was recorded because the outcome and potential loss could not be estimated.
- In Chile, the antitrust authority requested a $30.5 million fine related to alleged collusion. Brink’s recorded a cumulative $9.5 million charge in 2021 and an additional $0.8 million adjustment in the first half of 2022; the company intends to defend the matter.
- COVID-19 developments, foreign currency movements, restrictions on repatriating foreign cash, cybersecurity, labor conditions, acquisitions, pension and black-lung obligations, tax-asset realizability and litigation remain material risk areas.
- The company repurchased 546,993 shares in April 2022 under an accelerated share repurchase arrangement. The full $250 million 2021 repurchase authorization remained available at June 30, 2022.
Important facts for investors to verify
- Whether organic pricing and volume growth can offset labor, inflation, interest and foreign exchange pressures, particularly in North America.
- The sustainability of reported earnings growth excluding the $55.0 million tax valuation allowance release and other nonrecurring items.
- Progress on receivable collections and whether additional credit-loss provisions are required.
- Net leverage, covenant headroom, borrowing costs and the availability of the $510 million revolving credit capacity.
- The ultimate cost and timing of restructuring actions, including the remaining $8 million to $10 million of expected costs and projected savings.
- Developments in the DOJ investigation, Chile antitrust proceeding and other legal contingencies.
- Exposure to Argentina’s devaluation, inflation and currency controls, as well as broader foreign exchange volatility.
- Whether operating cash flow improves after the first-half working-capital outflow and elevated tax payments.