The Brink’s Company: Q2 2023 Form 10-Q Summary
Business context and reporting period
The Brink’s Company provides cash and valuables management, digital retail solutions and ATM managed services through four segments: North America, Latin America, Europe and Rest of World. The filing covers the three and six months ended June 30, 2023; results are unaudited and prepared under U.S. GAAP.
Key financial metrics
| Metric | Q2 2023 | Q2 2022 | Change |
|---|---|---|---|
| Revenue | $1,216.2 million | $1,133.9 million | +7% |
| Operating profit | $105.6 million | $96.5 million | +9% |
| GAAP operating margin | 8.7% | 8.5% | +20 basis points |
| Net income attributable to Brink’s | $32.1 million | $35.1 million | -9% |
| Diluted EPS from continuing operations | $0.68 | $0.73 | -7% |
| Non-GAAP operating profit | $131.8 million | $124.0 million | +6% |
| Non-GAAP diluted EPS | $1.18 | $1.34 | -12% |
| Metric | Six months 2023 | Six months 2022 | Change |
|---|---|---|---|
| Revenue | $2,401.6 million | $2,207.9 million | +9% |
| Operating profit | $185.4 million | $158.9 million | +17% |
| GAAP operating margin | 7.7% | 7.2% | +50 basis points |
| Net income attributable to Brink’s | $47.1 million | $106.4 million | -56% |
| Diluted EPS from continuing operations | $0.98 | $2.22 | -56% |
| Non-GAAP operating profit | $259.2 million | $236.1 million | +10% |
| Non-GAAP diluted EPS | $2.36 | $2.53 | -7% |
Six-month operating cash flow was $105.3 million, compared with $41.1 million in the prior-year period. Investing cash flow was negative $144.6 million, including $89.4 million of capital expenditures and $44.5 million of marketable-security purchases. Financing cash flow was negative $54.3 million.
At June 30, 2023, cash and cash equivalents were $890.1 million and restricted cash was $433.5 million. Total debt was $3,468.6 million, including $127.5 million of short-term borrowings and $3,341.1 million of long-term debt. Net debt, as defined by the company, was $2,641.7 million versus $2,516.0 million at December 31, 2022. The company had $379 million available under its revolving credit facility and was in compliance with debt covenants.
Interest expense increased to $51.1 million in Q2 and $97.7 million for the first six months, compared with $32.4 million and $60.3 million, respectively, primarily because of higher interest rates. The six-month effective tax rate was 45.3%, compared with a negative 11.7% in 2022, when a $55.0 million valuation-allowance benefit was recorded. A $7.0 million tax expense was recorded in 2023 related to changes in Brazilian tax law and foreign tax credit expectations.
Material changes versus the prior comparable period
- Revenue growth was driven by organic price increases, DRS and AMS growth, and the NoteMachine acquisition, partly offset by unfavorable currency translation, especially from the Argentine peso.
- Q2 organic revenue increased 8%; six-month organic revenue increased 10%. Europe benefited substantially from NoteMachine and a French ATM managed services contract.
- Operating profit improved despite higher labor and operating costs, inflation, acquisition-related costs and a significant loss event in the Brink’s Global Services business.
- Q2 corporate expenses increased primarily because of higher insurance and security losses; management cited a $12.4 million year-over-year increase in security losses, largely related to the BGS loss event.
- Net earnings and EPS declined because higher operating profit was more than offset by higher interest expense and substantially higher income taxes.
- The company recorded $22.2 million of pretax charges in the first six months related to highly inflationary accounting in Argentina, including an $18.2 million currency-remeasurement loss.
- The company recorded $10.1 million of charges under its 2022 Global Restructuring Plan and $4.1 million of other restructuring costs in the first six months.
- Share repurchases totaled $17.5 million for the first six months; $180 million remained available under the $250 million authorization at June 30, 2023. Quarterly dividends were increased to $0.22 per share from $0.20.
Guidance, outlook, risks and unusual items
The filing does not provide clear formal full-year revenue or earnings guidance. Management expects total charges under the 2022 Global Restructuring Plan of $42 million to $48 million, with approximately $60 million of annualized cost savings when completed and an expected workforce reduction of 3,300 to 3,500 positions.
Management stated that available cash, operating cash flow and committed credit capacity are expected to meet liquidity needs for the next 12 months. This assessment excludes a material worsening of economic conditions, higher inflation, significant acquisitions or other unexpected events that could require additional debt or equity financing.
- Argentina remains highly inflationary, with currency controls, significant inflation and a roughly 30% peso decline during the first six months. Repatriation of cash may be difficult or costly.
- The company is cooperating with an ongoing U.S. Department of Justice investigation involving cross-border shipments and anti-money-laundering compliance. No accrual has been recorded because the outcome and potential loss range cannot be estimated.
- A Chilean antitrust proceeding seeks a potential fine of $30.5 million. The company has recorded cumulative estimated-loss charges, including a $0.4 million currency-related adjustment in the first six months of 2023.
- The company recognized a $4.8 million gain from derecognition of contingent consideration related to NoteMachine. It also recognized $3.3 million of inflation-adjusted labor costs related to Maco union payments, which are scheduled through June 2024.
- Foreign exchange, interest-rate, inflation, labor, security-loss, cybersecurity, litigation, pension and former coal-operation liabilities remain significant risks.
- A previously disclosed material weakness in internal control over financial reporting remained present at June 30, 2023. Management concluded that disclosure controls and procedures were not effective, although it stated that the financial statements fairly present the company’s results in all material respects.
Most important facts for investors to verify
- Progress in remediating the material weakness in internal control over financial reporting.
- Actual losses and insurance recoveries associated with the BGS security-loss event.
- Debt maturities, interest-rate exposure, covenant headroom and the impact of continued elevated interest rates.
- Cash availability and repatriation restrictions in Argentina and other foreign subsidiaries.
- Execution, remaining charges and realized savings from the global restructuring program.
- Outcome and potential financial exposure from the DOJ investigation and Chile antitrust matter.
- Whether organic price increases and DRS/AMS growth continue to offset inflation, labor costs and currency translation.
- Changes in tax-credit realization assumptions and the company’s effective tax rate following the U.S. Treasury’s July 2023 Notice 2023-55.