The Brink’s Company — 2020 Second-Quarter Form 10-Q
Business context and reporting period
The filing covers the quarter and six months ended June 30, 2020. Brink’s provides cash-in-transit, ATM, cash-management, global logistics, payment, guarding and other security services through three segments: North America, South America and Rest of World. Results were materially affected by the COVID-19 pandemic, which reduced commerce, customer volumes and demand for services.
Financial performance and liquidity
| Metric | Three months ended June 30 | Six months ended June 30 |
|---|---|---|
| Revenue | $826.0 million, down 10% | $1,698.8 million, down 7% |
| Operating profit | $(1.0) million; margin of (0.1)% | $25.2 million; margin of 1.5% |
| Non-GAAP operating profit | $73.2 million; margin of 8.9% | $136.3 million; margin of 8.0% |
| Income from continuing operations attributable to Brink’s | $13.7 million | $15.5 million |
| Diluted EPS from continuing operations | $0.27 | $0.30 |
| Net income attributable to Brink’s | $12.9 million | $14.7 million |
| Cash flow from operating activities | Not separately provided for the quarter | $(60.0) million |
- Six-month GAAP operating cash flow declined from $23.9 million in 2019 to negative $60.0 million, while investing cash use increased to $469.8 million, primarily because of acquisitions.
- Cash and cash equivalents were $531.3 million at June 30, 2020, compared with $311.0 million at December 31, 2019. Total cash, cash equivalents and restricted cash were $702.8 million.
- Total debt increased to $2.483 billion from $1.644 billion at year-end 2019. Net debt increased to $1.953 billion from $1.349 billion, primarily to fund acquisitions and working-capital needs.
- The company had $1.0 billion available under its revolving credit facility and stated that existing cash, operating cash flow and credit capacity were expected to fund needs for the next 12 months, subject to the effects of COVID-19 and other uncertainties.
- Debt included a $1.326 billion term loan, $986.6 million of senior unsecured notes and $150.2 million of financing leases. Brink’s was in compliance with its debt covenants at June 30, 2020.
- Quarterly dividends remained $0.15 per share. The company suspended share repurchases under its $250 million authorization; the full authorization remained available at June 30, 2020.
Material changes versus prior comparable periods
- Second-quarter revenue decreased $88.0 million, driven by a 17% organic decline, unfavorable currency movements of $85.7 million and COVID-19-related volume reductions, partly offset by $149.5 million from acquisitions.
- Second-quarter GAAP operating profit fell from $52.6 million to a $1.0 million loss. Higher restructuring charges, acquisition-related costs, currency effects and weaker organic performance were only partly offset by cost reductions and acquisition contributions.
- Six-month revenue declined 7% and GAAP operating profit declined 77% from $111.0 million to $25.2 million. Six-month non-GAAP operating profit declined 21% to $136.3 million.
- North America second-quarter revenue declined 21% and operating profit declined 61%. South America revenue declined 29%, while Rest of World revenue increased 29% because of acquisitions despite a 21% organic decline.
- Brink’s acquired substantial G4S cash-management operations during the first half of 2020 for aggregate consideration of $694.7 million. Acquired operations generated $128.9 million of reported six-month revenue and $3.0 million of net income attributable to Brink’s during the post-acquisition period.
- Restructuring charges increased to $44.6 million in the first half of 2020 from $14.1 million. Management expects additional costs of $5 million to $7 million and estimates that completed actions will reduce the workforce by 2,300 to 2,500 positions and generate annualized savings of $35 million to $40 million.
Guidance, outlook, risks and unusual items
- Management withdrew or did not provide clear quantitative full-year operating guidance in the filing. It expects COVID-19 to continue negatively affecting volumes, revenue and operating results, but stated that the magnitude and duration remain uncertain.
- Cost actions included layoffs, furloughs, pay reductions, overtime and benefit controls, reduced fleet maintenance, lower capital expenditures, suspended fleet replacement and other liquidity-preservation measures.
- The company performed a quantitative goodwill impairment test because of COVID-19-related forecast reductions. No goodwill impairment was recorded, although the France reporting unit had only an 8% excess of fair value over carrying value and held $86.7 million of goodwill.
- An internal embezzlement-related accounting issue resulted in an additional $10.6 million allowance for doubtful accounts in the first half of 2020. At June 30, 2020, the company had recorded a $21.6 million allowance against $25.0 million of affected receivables.
- Argentina remained highly inflationary, with a $3.5 million pretax currency-remeasurement loss in the first half. Currency controls may restrict dividend repatriation and other transactions.
- The company faces foreign-exchange, interest-rate, pandemic, customer-credit, acquisition-integration, labor, sanctions, pension, legacy coal-operation and litigation risks. A Chilean antitrust investigation remains unresolved; the company cannot estimate the probability or range of any potential loss.
- Venezuelan operations are no longer consolidated because Brink’s does not control them under applicable accounting criteria, and the company does not expect to provide further funding while current U.S. sanctions remain in effect.
- On July 6, 2020, after quarter-end, Brink’s completed the acquisition of G4S cash operations in Indonesia.
Investor verification points
- Verify the pace of COVID-19 volume and revenue recovery, particularly in North America and Rest of World, and whether cost reductions are sustainable.
- Assess integration progress, final purchase-price allocations, contingent consideration and leverage implications of the G4S acquisitions.
- Reconcile GAAP results with management’s non-GAAP measures, including the effects of restructuring, acquisition-related charges, internal-loss costs, Argentina inflation and tax-rate adjustments.
- Monitor operating cash flow, working-capital trends, acquisition spending, debt maturities, covenant headroom and the availability of revolving credit capacity.
- Track collectability of the embezzlement-related receivables and any future changes to the allowance for doubtful accounts.
- Evaluate sensitivity of goodwill, deferred tax assets, pension obligations and other estimates to prolonged economic weakness, currency depreciation and higher borrowing costs.