The Brink’s Company: Q3 2022 Form 10-Q Summary
Business context and reporting period
The Brink’s Company provides cash-in-transit, ATM management, cash management, global logistics, payment, guarding, and other security services through four segments: North America, Latin America, Europe, and Rest of World. This unaudited Form 10-Q covers the three and nine months ended September 30, 2022, compared with the same periods in 2021.
Key financial metrics
| Metric | Q3 2022 | Q3 2021 | 9M 2022 | 9M 2021 |
|---|---|---|---|---|
| Revenue | $1,136.7 million | $1,075.5 million | $3,344.6 million | $3,102.0 million |
| Operating profit | $59.5 million | $74.2 million | $218.4 million | $209.2 million |
| GAAP operating margin | 5.2% | 6.9% | 6.5% | 6.7% |
| Net income attributable to Brink’s | $19.2 million | $19.0 million | $125.6 million | $55.6 million |
| Diluted EPS from continuing operations | $0.41 | $0.38 | $2.63 | $1.11 |
| Non-GAAP operating profit | $126.8 million | $115.9 million | $362.9 million | $316.6 million |
| Non-GAAP operating margin | 11.2% | 10.8% | 10.9% | 10.2% |
- Q3 revenue increased 6%; management reported 13% organic growth, offset by $85.1 million of unfavorable currency effects. Nine-month revenue increased 8%, including 12% organic growth, $50.3 million of acquisition contribution, and $172.4 million of unfavorable currency effects.
- Q3 GAAP operating profit declined 20%, while non-GAAP operating profit increased 9%. The GAAP decline reflected restructuring, acquisition-related costs, Argentina inflationary accounting, currency effects, and higher corporate expenses.
- Q3 income from continuing operations attributable to Brink’s was essentially stable despite lower operating profit, primarily because of lower tax expense and higher nonoperating income. Nine-month earnings benefited materially from a $52.8 million valuation allowance release on U.S. tax credit carryforwards.
- Operating cash flow was $200.5 million in the first nine months, down from $273.6 million in the prior-year period. The decline was driven by working-capital requirements and higher cash taxes, partly offset by higher operating profit.
- Capital expenditures were $131.5 million, compared with $113.7 million in the prior-year period. Cash used in investing activities was $112.1 million, compared with $390.3 million, primarily because 2021 included substantial G4S and PAI acquisition payments.
- Cash, cash equivalents, and restricted cash totaled $1,348.9 million at September 30, 2022, including $1,019.0 million of unrestricted cash and $329.9 million of restricted cash.
- Total debt was $3,371.7 million, up from $2,966.7 million at December 31, 2021. Management-defined net debt was $2,390.8 million, up from $2,291.1 million.
- The amended senior secured credit facility matures in June 2027. $320 million remained available under the revolving credit facility, and the company was in compliance with all debt covenants.
- Brink’s paid $28.3 million of dividends during the first nine months and repurchased $27.3 million of common stock during Q3. The repurchase authorization had $223 million remaining at September 30, 2022.
Material changes versus the prior comparable period
- Organic growth was broad-based. In Q3, segment revenue growth was strongest in Rest of World at 24%, North America at 11%, Latin America at 14%, and Europe at 8%, before currency and acquisition effects.
- Q3 segment operating profit increased in North America to $38.2 million from $25.0 million and in Rest of World to $48.3 million from $31.9 million. Latin America increased modestly to $66.5 million, while Europe declined to $25.9 million from $28.1 million.
- For the first nine months, North America segment operating profit declined 2% despite revenue growth, while Latin America, Europe, and Rest of World segment operating profit increased 8%, 10%, and 28%, respectively.
- Interest expense increased to $34.7 million in Q3 and $95.0 million for the first nine months, primarily due to higher borrowing levels and rising rates.
- The allowance for doubtful accounts increased to $36.6 million at September 30, 2022. A revised methodology produced a $16.7 million additional allowance in Q1; $0.7 million was subsequently released through collections in Q2 and Q3.
- Foreign currency translation generated a $33.1 million comprehensive loss in Q3 and a $23.3 million loss for the first nine months. Argentina’s peso declined approximately 30% against the U.S. dollar during the first nine months, producing a $24.4 million pretax remeasurement loss.
Guidance, outlook, risks, contingencies, and unusual items
- No formal consolidated revenue or earnings guidance is provided in the filing. Management expects to meet liquidity needs for the next 12 months using cash on hand, operating cash flow, and available credit capacity.
- A global restructuring program began in Q3. The company recorded $17.5 million of charges in the quarter, expects an additional $6 million to $10 million of approved costs, and expects the actions to reduce the workforce by approximately 2,000 to 2,400 positions and generate annualized savings of $35 million to $45 million when completed.
- Other restructuring programs generated $16.5 million of costs during the first nine months, with expected additional costs of $4 million to $6 million and estimated annualized savings of $15 million to $20 million.
- Acquisition and disposition items included $37.4 million of acquisition-related intangible amortization, $12.4 million of Argentina union-related charges, $7.8 million of indemnification asset adjustments, and other integration and transaction costs.
- On October 3, 2022, after the reporting date, Brink’s acquired U.K.-based ATM provider NoteMachine for approximately $177 million in cash. Purchase accounting was not yet complete at the filing date.
- The company faces ongoing risks from inflation, labor shortages, wage pressure, higher interest rates, stronger foreign currencies, supply-chain disruption, cybersecurity, foreign-exchange restrictions, political and regulatory conditions, and the continuing effects of COVID-19.
- The DOJ continues an investigation primarily involving cross-border shipments of cash and valuables and anti-money-laundering compliance. No civil or criminal claims had been filed, and no accrual was recorded because the potential outcome and loss range could not be estimated.
- The Chilean antitrust matter remains unresolved. The Chilean agency has sought a potential fine of $30.5 million; Brink’s recorded an additional $1.1 million adjustment during the first nine months of 2022.
- Argentina remains subject to currency controls and highly inflationary accounting. Venezuela is not consolidated because Brink’s does not meet the accounting criteria for control and has ceased financial support following U.S. sanctions.
Most important facts for investors to verify
- Whether organic revenue growth can offset currency headwinds and whether labor, inflation, and interest costs will compress GAAP margins.
- The timing, execution, and realized savings from the global restructuring program, including the estimated workforce reductions and additional charges.
- Debt reduction capacity, refinancing exposure, covenant headroom, and the effect of variable-rate borrowings on future interest expense.
- Collection performance for aged receivables and whether further credit-loss provisions will be required.
- The sustainability of earnings excluding the $52.8 million tax valuation allowance release and other unusual items.
- The integration, purchase accounting, and financing impact of the NoteMachine acquisition.
- Potential financial consequences of the DOJ investigation, Chilean antitrust proceedings, Argentina currency controls, and legacy retirement and black-lung obligations.