Q2 2020 Brinks Co Earnings Call
[music].
Welcome to the brakes company second quarter 2020 earnings call.
Thanks issued a press release on second quarter results. This morning. The company also filed an 8-K that includes beliefs and that's why they will be used in today's call. So those are you listening by phone or at least on slides are available at Investor Relations section.
<unk> web site breaks dot com.
At this time all participants are we know what's really load a question and answer session will follow the formal presentation.
As a reminder, this conference is being recorded.
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This call and acuity discussion will contain forward looking statements actual results could differ materially from projected or estimated results.
Operational regarding factors that could cause such differences is available at today's press release and into companies. Most recent FCC filings.
Information presented and discussed on this call is representative as of today only ranks assumes no obligation to update any forward looking statements. They call is copyrighted and may not be used without written permission for breaks.
It is not like pleasure to introduce your host and Cunningham, Vice President of Investor Relations and corporate communications.
They have you may begin.
Thanks, Chad good morning, everyone and welcome to our call joining me today, our CEO, Doug Perks and CFO Ron Domanico.
This morning, we reported second quarter results in both the gap and on both GAAP and non-GAAP basis.
GAAP results exclude a number of items, including our Venezuela operations the impact of Argentina is highly inflationary accounting.
Organizational restructuring cost items related to acquisitions and dispositions.
Cost related to an internal loss and costs related to certain accounting compliance matters.
We also provided an analysis of our results on a constant currency basis, which eliminates changes in foreign currency exchange rates from the prior year.
We believe the non-GAAP results make it easier for investors to assess operating performance between periods. Accordingly, our comments today will focus primarily on non-GAAP results.
Reconciliations are provided in the press release in the appendix of the slides were using today.
And in this morning's 8-K filing all of which can be found on our website.
Finally, while we have not provided any specific guidance or 2020 or 2021 page three of the press release does provide sensitivity models that include a range of potential revenue and adjusted EBITDA levels. Both years based on recent trends and customer data.
I'll now turn the call over to Doug.
Thanks, Ed Good morning, and thank you for joining us given the challenges and uncertainties over the ongoing Kobin 19 pandemic, our second quarter results were much better than expected when we reported our first quarter results on may fit.
On a sequential basis compared to the first quarter, we delivered strong growth in operating profit adjusted EBITDA and EPS.
We reported operating profit of $73 million with a margin rate of 8.9%. Despite negative currency translation that impacted revenue by $86 million and operating profit by $18 million. This negative FX impact on operating profit was more than offset by aggressive variable cost reductions in <unk>.
Quarter and the initial contribution from the G. Four if acquisition.
Compared to 2019, our reported revenue, which includes the acquired G. Four as business operations in the quarter was down 10% and was flat versus last year on a constant currency basis.
Like most companies are sequential and year over year results were heavily affected by the global pandemic. Both in terms of reduced revenue and profit and added cost of operations.
When we reflect on where we were in April we're very encouraged by the progressively positive impact of our cost reduction actions and what they have have have had on implementation during the quarter.
We are excuse me. We're also encouraged by the strong revenue recover recovery, we saw in June as economies began to reopen.
For example, total covered company revenue, including acquire G. for us businesses were down 20%.
On a reported basis versus last years prior April and revenue recovered to be up 3% in June.
Excluding g. for us businesses, which may be a better comparison for the market recovery. The April decline at the bottom was 29% compared to a 14% decline versus prior year in the month of June.
A 50% recovery.
Looking at the U.S. alone there was a similar 50 plus percent improvement during the quarter from a 24% decline in April in revenue to an 11% decline in June.
Both Ron and I will provide more detail on a quarter, but first I want to address some investor concerns that we heard after releasing first quarter results.
On February 26, we announced the acquisition of the majority of the G. for us cash business.
We believe this is a great acquisition and early results clearly support this but with a subsequent onset of the pandemic the timing with less than ideal.
Despite the attractive valuation for the acquisition.
Increased borrowings in the face of the pandemic raised investor concerns about our debt covenants.
We address these concerns by amending our debt covenants through the first quarter 2024, and we expanded our quickly to over $1.3 billion.
But before US acquisition is now 80% closed and with the acquired businesses performing well and $20 million of annualized synergies expected to fully be realized in 2021.
The G. Four as operations made a strong contribution to our second quarter results and with additional ongoing cost realignment, we expect further profit growth going forward.
In March and April the impact of the pandemic the sudden downturn of economies globally and the resultant impact of our short term earnings and cash flows were all unknowns and therefore potentially significant investor concerns.
In response, and as part of our priority to initiatives during the quarter, we made substantial and timely progress in reducing cost on a global basis.
Ron will provide more details.
The results of these cost reductions were targeted at reducing variable costs in line with expected near term revenue reductions and are evident in our comparatively strong second quarter results. These cost reductions at increasing impact as we were as they were implemented through the quarter and together with additional longer.
Term cost reductions they should be key drivers for margin growth in the second half of this year and even more in 2021. When we also expect additional revenue recovery.
Investor concerns about our exposure to retail customers, which comprises about 47, 45% excuse me of our total revenue is certainly understandable as well. However, it's important to understand that we have a very stable base of large retail and financial institution customers.
Furthermore, overwhelming.
The overwhelming majority of retailers do not do.
Business with Brink's or other cash management services in fact, we estimate only approximately 10% of us retail locations are vended, which gives us a great opportunity to serve these locations by offering a better cash management solution for these customers, which were in the process is doing with our strategy to point owned.
Initiatives.
We believe is still at stability of our Fi customers. The revenue recovery, we're seeing and the new 2.0 service offerings for a very large unvended retail market will limit our downside exposure during these types of times.
About 45% of our retail customers in the U.S. never close because they were considered essential businesses just as we are.
Of those the have closed many have reopened and the customer locations that have reopened our generating revenue for us at or near pre crisis.
Levels.
And contrary to what many of you have been hearing every one of our US customers that has reopened is accepting cash from its customers. Furthermore, cash in circulation has grown a short.
It has grown and shoney's sharp increase since the onset of the pandemic will provide more details in a few minutes.
With the recent July data, indicating continued revenue recovery above the June revenue levels, which was at 86% of last years revenue level on a comparable basis. We believe revenue for full year 2021 could recover to a range around 100% of 2019 revenue levels or.
Potentially higher.
It's too early to provide guidance for 2021, but with our cost reductions adjusted EBITDA in 2021 could be in the $700 million range and even higher in 2021 revenue is greater than comparable 2019 levels.
For 2020, we expect continued improvement, especially as our cost reductions further take hold and drive adjusted EBITDA margin improvement with our sensitivity models showing a range of between 14 and 14.5% EBITDA margins for the full year of 2020.
Before going further I went to briefly remind everyone about our top three priorities as we manage through the Covance 19 crisis.
The first and most important is to assure the safety of our employees their families and to ensure a safe working environment.
In addition to assure we provide the essential services to our customers and communities we serve.
During the pandemic, we did just that maintained our essential services to our customers. Thanks to all of our 70000 plus employees globally.
The second priority is to act decisively to protect our business by preserving cash in reducing variable and fixed expenses to align our near term cost structure with reduced volumes and revenue caused by the mandated shutdowns globally.
Unfortunately.
Doing so has required us to make many tough decisions, including employee layoffs furloughs and salary reductions throughout the company.
However, the aggressive and decisive actions taken supported by our dedicated employee teams globally produced the better than expected second quarter financial results.
Our third priority is to position brink's debris, a stronger company on the other side of the crisis.
This priority is focused on rightsizing, the business and capturing significant additional fixed cost reductions through restructurings that include head count reductions and other structural cost takeouts.
The sustainable fixed cost reductions are expected to drive higher margins at lower revenue levels and create greater earnings leverage that results in even higher margins as revenue continued to grow.
We're also sharply focused on completing the acquisition and integration of the G. Four as operations, including synergies as well as rollout of our strategy 2.0 initiatives.
We're acting with a great sense of urgency and making solid progress on each of these priorities as proven by our results and our future margin targets that were sharing with you today.
Now for a quick summary of quarterly results as I mentioned earlier, our reported revenue declined 10% in the quarter, including the significant negative impact of translational FX, partially offset by the G. for us acquisitions completed in the quarter.
On a constant currency basis without the negative FX impact our revenue was flat versus last year.
Organic revenue was down 17% versus last year.
This excludes the addition of the G. for US businesses that were added in the quarter and is probably a good integrator again of the pandemics impact in the quarter.
Operating profit as reported of $73 million declined 18% with the entire declined due to $18 million a negative currency translation.
In constant currency profits were actually up 3% versus last year's second quarter on flat constant currency revenue growth.
The strong operating margin of 8% to 1.9% in the quarter compares well with last year's 9.7% margin and on a constant currency basis was actually higher than last year.
These results show that our aggressive cost reductions had a very favorable impact in the impacting the quarter and position us again, well for the future adjusted EBITDA fell 6% to $125 million, but reflecting a 15.2 margin rate an increase of 60 basis points over.
The last years.
Same quarter.
Earnings declined 22% to 67 cents per se or weve, reflecting a negative currency translation.
And higher tax rate in constant currency earnings were up 3% Ron will cover more of this in a few moments.
Turning to slide six.
Predicting the future impact of the pandemic on our business almost any similar service business is very difficult and we acknowledge these uncertainties.
Just as government mandated closings of our customers negatively affected our revenue and therefore, our profits the reopenings provide a path to recovery.
With the question and the key question being the timing and slope of the revenue recovery.
This slide shows year over year revenue changes for April and June for a variety of markets and the overall company.
As you can see most of these companies countries Skews me are recovering from their lowest level of revenue in April to June. The most recent month after reopening started in many countries.
In aggregate, our consolidated recovery, including the acquired G. for us businesses with their respected.
Respective skews me pre coven 19 levels.
Shows a recovery from down 29% versus 2019 levels in April two a 14% decline in June.
An approximate 50 plus percent revenue recovery.
These june numbers represent only partial reopenings and in general additional openings continue beyond the middle of June and into July further pushing the overall revenue recovery levels higher than the 86% of last year.
Without knowing the timing of future economy openings or the impact of possible resurgence of the virus in the us and other countries. The June revenue of 86% of 2019 revenue seems to be a reasonable starting point for modeling future 2020 results.
The consolidated bar on our right of the graph shows reported revenue, including the acquire G. for us businesses as compared to only the brink's businesses in 2019.
This comparison shows revenue down 20% in April and actually up 3% in June.
This illustrates that future earnings will not only be driven by core business revenue recovery from the pandemic, but also by the added G. for US acquisition revenue both in the second half of this year and into 2021.
Here's a closer look at us.
Volumes measured by stopped as well as by actual revenue.
At the low point in April stops were at 68% in pre Covre levels were down 32%.
I have already recovered to an encouraging 83% of pre covert levels.
More importantly, the corresponding revenue recovery has also been rapid and equally encouraging.
At the April low point us revenue was down 24% and as climb back to 89% of prequalified levels in June and with additional retail openings since the middle of June is currently higher than that level.
The data gives us confidence yet again that more customers.
With more customer Reopenings, we're on track to approach and hopefully exceed 2019 revenue levels.
Most of the Reopenings are for non essential services, such as clothing general merchandise retailers as most of the essential service providers remained open during the pandemic.
Dining restaurants, and entertainment locations, such as sports venues theaters and continues casinos have been particularly hard hit by the pandemic and may continue to be delayed in reopenings.
As as an if the virus continues.
These customers in total represent only about 3% of our pre covert revenue.
Since the pandemic hit I, often here that our retail customers will not be excepting cash in the future and skin to consumers in fact will not use cash in the post pandemic world.
Contrary to popular belief and what is often heard in media every one of our customers that has reopened since being closed by the pandemic is continuing to accept cash from their customers as they reopen.
This includes a large well known department store chain that media indicated would not accept cash when they reopened.
Our revenue with this customers back close to pre covert levels.
In our U.S retail business, we bill our customers several ways based on the number of stops on a monthly flat rate basis on a subscription basis, such as we do with Compusa's, we do not build based on volume of cash and.
Typically our customers averaged two to four stops promote per week.
Or as needed in the case of comedy safe.
In the second quarter due to the state mandated closings many of our customers that are on flat rate service or comp you save subscription Greece agreements temporary closed even though our agreement stipulated that they would continue to pay.
Invoices sent to these customers were equal to approximately 11%.
Overall second quarter us revenue.
However, these invoices were not included in our second quarter reported revenue, but are included in our accounts receivable ledger.
As customers pay these invoices over the next quarter's those invoices, what we booked as revenue without additional cost.
If these invoices were recognized as revenue in the second quarter US reported revenue would have been down about 10% versus the reported 20% decline in the quarter.
And the estimated operating income would have been about.
Over 12%.
As disclosed in our lives in our last earnings release significant cost reductions were planned and implemented in the us in April and May.
These cost reductions have resulted in us operating margins of approximately 10% in June even with the revenue down 11% in June versus the prior year.
Before I talk directly about slide eight I'll remind you that the charts, we shared in the past regarding cash in circulation are included in the appendix and in other recent investor presentations those charge show the cash in circulation both in value in number of note continues to grow in the us.
And in Europe at annual rates of between five and 7%.
Well ahead of GDP rates.
This growth has been consistent for the last 20 plus years, providing a strong underpinning for our business. They also show that cash in circulation and percent of payments.
In cash historically has increased during a session recession, which we're in.
While this pandemic is unprecedented and this new slide for 2020, clearly demonstrates that us cash in circulation has increased sharply from pre covert levels and at a rate much higher than the historical 5% to 7% annual rate.
It also shows a corresponding increase in the volume of notes that brink's process before and after covert 19 supporting the stability of our financial institution customers and demonstrating the increased use of cash as a method of payment.
It is our strong belief that cash is and will remain a very popular form of payment in the us and in the rest of world in fact in emerging markets like those in Latin America, Eastern Europe, and Asia Pacific growth rates in cash in circulation and cash as a percent of all payments are even higher than in the us and Europe.
I'll now turn it over to Ron for a financial review Ron.
Thanks, Doug and good day, everyone before I get into the results I want to remind you that we disclose acquisition separately for the first 12 months of ownership at which time. They are mostly integrated and then they are included in organic results.
In the second quarter 2020 acquisitions include G. for ASI for the entire quarter in a partial quarter for the G. Four as cash acquisitions.
In the Netherlands, Belgium, Ireland, Romania, the Czech Republic, Cypress, Malaysia, Hong Kong, the Philippines, and the Dominican Republic.
Acquisitions in the second quarter also include balance innovations in the us Tvs in Colombia, a small see it bolt on in Brazil minus the divestiture of a small monitoring business in France.
As Doug mentioned, we experienced cobot 19 related volume reductions in our businesses beginning in Asia and in February Europe in early March North America in mid March and Latin America by mid to late March.
We implemented daily activity trackers, and as pandemic related shutdowns began our organic revenue decline on average about 30% and in some countries by over 50% generally those reductions persisted throughout April during May and June as Doug said, we started to see improvements as countries began phased reopening those imply.
Movements appear to be holding and when combined with our aggressive cost realignment initiatives generated results better than we originally expected.
Turning to our second quarter results on slide nine.
2022nd quarter revenue in constant currency was flat as pandemic related 17% organic decline was offset by acquisitions. The organic decline was realized across the globe, but as Doug mentioned the recovery is underway and the June organic decline was only 7%.
Negative forex reduced revenue by $86 million or 9% and was driven by the pandemic induced flight to the U.S. dollar.
Reported revenue was $826 million down 10% versus the second quarter last year.
Second quarter operating profit was up 3% in constant currency as acquisitions more more than offset and 18% decline in organic results. The fact that the percent organic operating profit decline was in line with the percent organic revenue decline is a testament to our aggressive cost management and realignment we.
We're also helped by government Cobot 19 assistance in several countries that partly offset the impact of revenue declines and government mandated delays and executing some of our cost reduction actions. The constant currency LP margin of 10% was up 30 bips versus last year.
Negative forex reduced opie by $18 million or minus 20%.
Reported operating profit for the quarter was $73 million and the operating margin was 8.9% down 80, bips from the second quarter of 2019.
Segment results are included in the appendix and in our press release. However, the impact of in response to the pandemic is unique in each country.
Corporate expense in the second quarter was $20 million favorable to 2019, driven by lower head count related expense reduced salaries bonuses and noncash stock based compensation and much less travel, partly offset by high end higher insurance costs.
Any of the savings are part of our fixed cost realignment and support the sensitivity modeling that were illustrating for 2020 and 2021.
Moving to slide 10.
Second quarter interest expense was $23 million up 2 million versus the same period last year as higher debt associated with acquisitions was partly offset by lower variable interest rates.
Tax expense in the quarter was $21 million equal to last year as lower income was offset by a higher projected effective tax rate as you saw in our press release. The full year MTR is based on pandemic related assumptions that fluctuate widely our pre pandemic guidance was a 2020 MTR of 32.
2% in the first quarter the estimated full year HCR was 49.8% and in the second quarter. The estimated full year MTR was 37.5% effective tax rate volatility is due to changes in assumptions about our ability to utilize tax attributes at varying projected income levels.
The G. for US acquisition was also constructive and moderating the TR.
Minority interest and other was positive $5 million, primarily due to a $6 million gain in our equity investment in moneygram that reverse losses that we recorded in the fourth quarter of 2019 in the first quarter of this year, reducing the $73 million of second quarter 2020 operating profit by 23 million in interest.
And 21 million and taxes, plus 5 million and other generated 34 million of income from continuing operations.
Providing this by 51 million weighted average diluted shares outstanding generated 67 cents of earnings per share versus 86 cents in 2019.
In the second quarter, depreciation and amortization was $42 million interest expense and taxes were $44 million and noncash share based compensation was 5 million in total 2022nd quarter, adjusted EBITDA was $125 million down 6% versus 2019.
Now, let's move to slide 11 to review the decisive actions that are underway in response to the pandemic to realign our cost structure to protect our profitability and cash flow.
As soon as it became apparent that cobot 19 was virulent and that it was spreading beyond China, we took immediate action to develop and implement our three priorities that Doug shared with you on slide four.
Sourcing and deploying PE for our employees around the world was an immense challenge and our sourcing team really stepped up to make it happen.
While 60% of our cost structure is variable we had to put measures in place to reduce direct labor hours at the same time and to at least the same magnitude as revenue decreased.
We also took decisive action to realign our fixed costs. So that we can generate similar or greater absolute levels of profitability. If the pandemic pandemic caused a permanent 10% reduction in revenue.
We did this while maintaining the capability to be able to serve our customers when volume levels return.
On the left side of the slide we have listed some of the actions we've taken to address both our variable and our fixed costs.
We've reduced direct and indirect labor cost by executing head count reductions either through temporary furloughs or severance and we're aggressively managing over time.
We instituted freezes in hiring merit increases and travel.
We took temporary salary and benefit reductions across our global footprint as I mentioned before some of these actions have been slowed by government mandates and or agreements with labor organizations. In some instances, we've been able to take advantage of government programs to offset a portion of our labor costs.
We're optimizing our CIO routes utilizing our most efficient vehicles rationalizing maintenance and optimizing our facilities footprint.
Our 2020 fleet upgrades have been mostly put on hold.
Non labor SGN, a and other represent 20% of our cost structure and we've taken actions to reduce discretionary spending at all levels, including head count facilities professional fees and travel.
Right side of this slide illustrates that our cost realignment actions are expected to reduce headcount by approximately 5500, we expect approximately $65 million and onetime costs associated with taking these actions and we anticipate about $85 million and ongoing annualized savings at a record.
New level equal to 90% of 2019 pro forma results.
Now, let's look at Capex on slide 12.
Our original guidance for 2020 cash Capex was $165 million, which included 140 million for operating Capex and 25 million to purchase cash devices.
Since the start of the crisis, we frozen most capex and only purchase assets that are essential to our business operations safety and security we've cut the legacy brings cash capex target by more than 50% down to $80 million. We also expect to spend an additional 20 million related to the g. for us acquisition, bringing our total.
Cash capex target for this year to $100 million.
Year to date, we've invested 54 million and cash Capex expenditures.
We will monitor the severity and duration of the pandemic and we may revisit our cash capex target later in the year turning to cash flow on slide 13.
Cash flow from operating activities is comprised of adjusted EBITDA reduced by working capital cash restructuring cash interest and cash taxes free cash flow equals cash flow from operating activities less cash capital expenditures in 2019, adjusted EBITDA was 564 million cash flow.
So from operating activity was 334 million and subtracting the 165 million a cash capex produced free cash flow of $169 million.
Due to the pandemic, we withdrew our 2020 guidance, including our original free cash flow target.
As Doug will review with you. Shortly we've now provided a model to estimate a range for 2020 adjusted EBITDA given various revenue scenarios. We are using that range on this slide to illustrate estimated free cash flow.
Working capital and cash restructuring charges in 2019 totaled $127 million.
Due to the addition of the G. Four as cash businesses and anticipated cobot related increase in DSL, and our aggressive cost realignment initiatives, especially severance or now estimating a range of $140 million to $160 million for 2020.
Cash taxes, which totaled $24 million in 2019 are estimated at $65 million this year.
We received significant tax refunds and accelerated payments last year, which are not expected to repeat.
We anticipate cash interest to be about $100 million due to the incremental debt associated with the g. for US acquisition cash Capex as we just reviewed as targeted at 100 million.
Based on a range of 2020, adjusted EBITDA of $465 million to $515 million and the cash items. We just discussed free cash flow should be in a range of $40 million to $110 million, let's move to slide 14 to review our debt liquidity and covenant headroom.
The bars on this chart represent the source of our liquidity cash available on our business and capacity in our revolving credit facility.
At the top of each bar you can see our cash flow the cash as our credit facility, both drawn and available and below that our debt and financial leases. The bars. Each represent a point in time at 2019 year end at June 32020, and at June 32020 pro forma for the completion of the G. for SK.
Cash acquisitions.
At year end 2019, we had approximately 1.2 billion in liquidity.
Year to date, we have paid $651 million for approximately 80% of the acquisition of the G. for US businesses on April one we closed a $590 million expansion of the term loan aid with our bank group and on June 22nd we issued 400 million and new five year senior unsecured notes this drove liquidity to one point.
5 billion on June 30 pro forma for the completion of the acquisition of the G. Four as cash businesses liquidity at the end of the second quarter would've been $1.3 billion.
Other than the 5% annual amortization of our term loan Inc., we have no significant debt maturities before 2024.
Our variable interest rate, including the expand term loan a is L. Plus 175 with a LIBOR floor of 75, Bips only undrawn revolver borrowings.
On June nine we amended our bank agreement through February 2024 to replace the total debt leverage covenant with a secured debt leverage covenant. The 2020 Max of the New Covenant is 4.25 times and our June 30 pro forma secured leverage ratio was approximately two times, we don't anticipate approaching our CFO.
Covenant limits at anytime in the foreseeable future.
We plan to maintain our quarterly dividend our credit rating remains strong and we have the capacity to weather the pandemic, even if the impact turns out to be worse than we currently anticipate.
Let's look at our net debt and leverage on slide 15.
This slide illustrates our actual net debt and financial leverage at the end of 2017, 2018 2019 and at June Thirtyth 2020.
Our net debt at the end of the second quarter was $1.95 billion that was up about 600 million over year end 2019, due primarily to the G. for us acquisition.
At June 32020, our total leverage ratio was 3.7 times are fully synergized leverage ratio was 3.3 times as I. Just mentioned are fully synergized secured leverage ratio was about two times with that I'll hand, it now back over to Doug.
Thanks, Ron.
As I said earlier in my remarks, predicting the future impact of a pandemic is very difficult and we acknowledge concerns about the resurgence of the virus in the us and other countries, where that mine, while we can't predict or guide to the timing or slope a recovery of revenue we can provide adjusted EBITDA sensitivities around various.
Future revenues.
In the earnings release in flies, we provided modeling based on the expected results of the significant cost reductions made to date and in progress this year.
These aggressive actions that are ones are ones that brink's can control.
The 2020 sensitivity model for adjusted EBITDA assumes a second half 2020 revenue range of 85% to 100% of last year's second half revenue.
Since June 2020.
Revenue was 86% of 2019 comparable.
On a comparable level and Reopenings have increased since June we believe this is a reasonable revenue range for the second half.
The blue portions of the bar represent actual first half revenue and EBITDA for both 2019, and 2020 and the variegated and the variegated colored areas for organic acquisition and FX bars represent the 85% to 100% sensitivities.
To second half 2019 revenues.
Starting on the left side you can see that last year's full year revenue of 3.7 billion included 1.9 billion in the second half of the year, if we achieve 85% to 100% of this second half revenue the adjusted organic growth revenue from GE for EPS acquisition and negative.
FX based on recent currency rates and taking all this into consideration to bridge takes you to a 2020 potential range of $3.3 billion to $3.6 billion.
The far right of the slide shows a corresponding EBITDA range of between $465 million and 515 million, reflecting a margin rate of 14, 14.5% driven primarily by cost reductions we're executing on this year that more than offset the significant translational FX.
Impact we're currently seeing.
Slide 17.
Uses a similar approach to the model adjusted EBITDA based on potential revenue for 2021 in this model we use a revenue range to between 90 and 110% of last years revenue and an EBITDA margin rate of 15.8 at the 100%.
Of 2019 revenue level or 50 basis points improvement versus the 2019 margin reported rate.
As shown in the margin improvement chart on the left hand side at 100% of 2019 revenue. We expect our significant cost realignment actions to result in more than a 250 basis points margin improvement that more than offsets currently projected unfavorable translational FX of approximately 170 basis points or over $75 million.
And yields a 50%.
Give me a 50 basis points margin improvement.
To be sure some of the variable cost reductions, we've implemented will adjust as revenue recovers, but we expect our priority three fixed cost reductions to me more permanent driving incremental operating leverage in 2021 and beyond for example at 110% of 2019 revenue margin.
Yes.
Mark our margins will improve another 50 basis points to approximately 16.3% and 90% of 2019 revenue model, resulting in a EBITDA of 615 million entered 110, EBITDA editor over 800 million.
As we stated earlier theres still too much uncertainty to reinstate guidance, but we believe these models provide a logical framer to help investors estimate potential ranges for future revenue and EBITDA includes the potential impact of the negative FX translation that we see today.
It's important to note that neither model includes any benefits from.
Related to our 2.0 strategy initiatives, which if successful would provide incremental revenue margin growth in 2021 and beyond.
In summary.
We're very encouraged by did better than expected second quarter results and the revenue recovery to 86% of Prequaled with levels in the month of June which demonstrates again the stability of our customer base, both with financial institutions and the resiliency of our retailers.
We expect continued improvement in revenue in the second half of this year and thanks to our aggressive cost reductions. This revenue will be at higher margin rates. Despite the significant unfavorable effects we've experienced to date.
Acquire G.S.G. for F operations are expected to continue to add revenue and margin growth as well with cost synergies added throughout this year.
We expect the acquisition to be 100% complete by the end of this year with full revisit realization of synergies next year.
The sensitivity model for 2020 yields full year EBITDA of between 465, and 515 million based on second half revenue between 85, and 100% of last year with the 86% jumping off point on revenues in June.
For 2021, our plan is to ensure that brink's emerges from this crisis as a stronger company than with substantially with substantially grow with substantial growth opportunities for revenue earnings and cash flow and higher margins as well as return on invested comp capital.
Our confidence is supported by our compelling strategic plan, a strong balance sheet ample liquidity and expanded global footprint and realign cost structure. We look forward to reporting 2021 results that will reflect higher margins for the full year benefit of the rightsizing cost structure, a four year contributions.
For us and synergies supported by continued revenue recovery.
As we go.
Into next year.
As demonstrated in the second quarter Aggress aggressive cost reductions focused on variable costs have already been achieved.
Additional cost alignment focus on sustainable fixed cost reductions are also being implemented and are expected to provide margin leverage rates as we go into next year and beyond.
It's too early to provide 2021 guidance as we said, but sensitivity models Dennis demonstrate the potential for dramatic margin leverage increases and as revenue increases as well and this model does not include again the contribution of our 2.0 technology Tech Tech enabled cash management.
Solutions that it off and that we think offer enhance safety ease of use and lower costs for our customers. We think these attributes.
We will be highly valued in the post pandemic economy.
For example, our new brings complete service offering is starting to gain traction with our existing customers and with other retailers that have that had previously not use that cash management solution.
The pandemic showed our marketing and excuse me the pandemic has slowed our marketing and rollout a bit but it also has led to some opportunities as retailers reopened their locations.
We now have a number of pilots and customer trials underway and to date, we've have agreements to serve close to 1500 locations with the right with a variety of well known retailers several of which have the potential to use our solutions in thousands of locations that have not used a cash management solution in the past, we look forward to supply.
Providing an update on the progress when we report our third quarter results.
That concludes our presentation Chad, let's now open it up for questions. Thank you.
Thank you Sir we will now begin the question and answer session to ask a question you May press star one on your telephone keypad.
If you're using a speakerphone please pick up your handset before Chris.
To withdraw your question. Please press Star then too.
At this time, we'll pause momentarily to assemble our roster.
For the first question will come from George Tong with Goldman Sachs. Please go ahead.
Hi, Thanks. Good morning, Good morning been reported that total legacy revenue is up 6% of 29000 levels through the month. The June can you detail how revenue trends have performed since June so through the month of July how the rate of improvement has progressed.
Yes, George as we stated there is theres two indicators, we really don't have reported revenue for a period. After June Thats why we provided the jumping off point for June. So if you kind of look at the June number and obviously in comparison to the April which was the bottom of the pandemic it would be effectively an average.
Ridge look for for the month of June.
We do have and we provided some some look at that no.
Continued reopenings have have continued.
Since then which would suggest additional of revenue increases, but we don't have specific revenue data associated with that.
Okay got it will any need business activity FIDA will again be again, additional reopenings, which suggests that in general in it and it depends.
I think as Ron So just a little bit depends on by region. We've seen continued.
European strong Reopenings a sense then in the US we've continued to see reopenings, probably not as as a strong a clip as we did in the month of June and it's been about stable I would suggest as a way to look at it in South America.
Nothing has gone down at that we've seen but.
But not necessarily those faster clip.
Got it that's helpful and then as a follow up you indicated that you expect your 2020 cost actions to generate 85 million in annualized savings can you elaborate on how much of this represents permanent versus temporary cost savings and how these actions might change your long term EBITDA margin target.
Well, that's why we provided our 2021 numbers and on page 17, we provided the 2021 sensitivity model and in that model you can see the target that we have laid out which includes our sustainable.
What we call sustainable fix cost reductions and our key focus of our prior to three is exactly that.
To achieve sustainable long term of fixed cost reductions, which are structurally different than where our business has been before which gives us the upside margin leverage so as revenue increases.
Just as we've shown in this model as revenue increases will not only offset the front of the FX negativity of what.
1.8 hundred 70, plus basis points that we currently project for 2021, but will also obviously gain additional margin and as you can see on that page.
You can actually see some.
Margin leverage.
Which.
Which reinforces the point.
That in fact, we've taken fixed cost out and therefore, each additional incremental revenue dollar drops through at a higher margin percent than the prior and Thats really what we're showing there so.
Ed.
At at 100% you can see the margin is greater than nine.
I had 110% the margin percent is 50% 50 basis points skews me greater than than the prior revenue thats margin leverage which means that we're maintaining a sustaining our fixed cost reductions and that's our whole objective.
And then be any commentary on longer term EBITDA margin targets.
Especially compared to competitors in the past you've indicated.
EBITDA margin targets in the high teens or low twentys.
So how do these cost savings affect those long term targets beyond 2021.
Well, we felt we are pretty is pretty aggressive in providing 2021 modeling for you it's not guidance its modeling.
But I think what we're we're suggesting here as we take these cost out depending what happens with FX you will see these types of margin and this leverage going forward.
So if you were to project out that additional recovery in revenue.
Whether it's organic growth its price growth.
On a global basis or you see additional.
Increases because of our strategy as of 2.0 et cetera that adds to this will get improve margins with those alone let alone our additional.
Strategy that we've already laid out over 1.0 wider and deeper initiatives or other cost takeouts going forward. So we would anticipate.
Although we're not going to provide guidance on it for modeling yet on it we would anticipate that we'll continue to see stronger margin leverage in the future than we evolve in the past based on the actions we've taken will continue to taken.
Continue to take on that very helpful.
Our next question will come from Jeff Kessler with Imperial capital. Please go ahead.
Thank you.
Timing of the G. for US acquisition as you said at the beginning may have not been the best but on the other hand.
In talking to other companies have just reported looking at the.
You want to both the tenor of recovery.
It appears that.
Both Europe, and South East South East Asia have done a far better job the United States in dealing with the grown the virus and is it is it fair to say that when we take a look back at those at that chart in which you showed.
The.
The potential.
Of the of that relative to relative to what you had been Ernie that in terms of revenue.
That the the recovery.
That you've been receiving in the second quarter has been a little bit skewed towards those areas.
Okay called the rest of the world.
Particularly southeast Asia, and Europe relative to the United States.
Well, so I think Jeff you state good stated well that the recoveries that we've seen since the downturn.
Or sense the reopenings.
And they have started at different times since the Reopenings have been probably stronger in Europe, and probably parts of Asia as well, although in some cases they didn't start until later.
I think you've got to keep that in mind.
Some cases, it really didn't start until June.
And or and therefore, it has been a faster slope in these markets. So do I do agree with that.
We are pleased with that the data we provided on page six.
Though was in comparison to legacy versus legacy sit with comparable data and it's not trying to skewed one way or the other is trying to provide as best we can a jumping off point. If you will for revenue recovery. So that you can determine in your modeling investors can determine and remodeling.
Types of revenue recoveries that.
You want to take in that but but in general we're very pleased with the recoveries that we've seen and there's probably been a little bit better as you suggested in those markets I think our point.
Is that if we would not have the pandemic.
And we would have had growth on top of the numbers that we purchased.
At the time, we close on the deal it would be a much better picture of than we have today, but thats true about let everything we're very pleased.
We're excited about the management teams.
The performance to date with our are different countries and businesses with GE for us and we have also implemented I think fairly aggressive and timely actions.
To help continue to drive stronger and sustainable cost structures in those countries. Just as we are in the rest of the brink's business and we're very pleased with those actions as well. So I think all that together bodes well for a very strong combined business going forward as we all get through this.
Yes.
Second question is given what you know about the us because obviously you are here.
And a lot of investors seem to focus on what's going on in the us unless there's something glow unless somebody blows up internationally.
And.
How have you.
In talking with your people on the grounds your operations people.
With regard to your let's call. It your market share not lets just your market share, but your value proposition position.
Within the United States.
Has there any has anything changed during the last quarter or two that would give you more optimism or less optimism relative to the rest of the market against your competitors, who may or may not have the the same ability.
To take down cost as much as you've been able to take down cost since a lot of them has to be leaving the need to begin with you can only get so much leaner.
You probably had a further ways to go by doing that.
By doing that you could probably incense offer a lot more.
A lot more incentives to customers to come back to you or to stay with you or to get into new programs such as 2.0 with you that others can't So the question is how do you view yourself.
In the us relative to your competition given what you've seen in this the turnover in the pandemic. Realizing I do realize that you got it had the focus on yourself first and getting your cost structure first but in terms of providing service and getting and getting market share.
How have you been doing in the last let's say quarter and a half.
Yes, I think the best answer to that is.
I think our market share and our position with customers as been.
Good we've not in our opinion.
Loss anything and we think that.
Our focus has been to service our customers make should we do that in a way that helps them restart our customers in general and I think this is true in the marketplace.
They have been focusing on their restart their opening they're continuing to make it through the crisis period and the more we can do to help support them on that that better as I mentioned in my brief comments on to the two point on brings complete in in many cases, the customers wanted to focus not necessarily.
Early on on a new solution or better solution for them that we think the provides more value, but on restarting and focusing on making sure they are operations where.
In line in cost they weren't to focus on anything except getting going again on the other hand.
We do think that and many of our customers and that fits and meets a lot of our objectives and our concerns, especially in a post pandemic world of that.
Our better than what the offerings were in the past and therefore, they like the value in the features associated with the brings complete and that will be enhancing and I think we'll catch on pretty quickly and be something that that others. Other competitors don't have we certainly had a financial strength, we have the operational strength.
And but we're not looking too.
View this as a time to.
Not strengthen our margins and our cost position as well.
I hope that answers much of that.
We did talk about.
Some of our.
Our Roe.
Invoicing and so forth in the quarter I think thats something of due to take a hard look at we'll see how that washes out over the following quarters.
I was just quickly are your people on the ground in Texas, Florida and California.
Evidencing any concern about business there.
As it as it stands today, given those places seem to be hot spots.
No Thats why we aren't seeing any specific retrenching and necessarily most of what we've seen as we openings as we've said in the comments have been around reopening of retail establishment and I think what some of the retrenching or more of the B. We're hearing a lot is dine in restaurants.
Entertainment locations theaters, and so forth, which haven't seen as much of the reopenings to the extent.
Retail locations have I.
I think thats a great.
Thank you. Thank you very MCU.
And our next question will be from Tobey Sommer with Suntrust. Please go ahead morning Toby.
Morning start I would just kind of a broad question to of the many items and scenes in today's quarterly update.
Do you what what's the most surprising aspect of the businesses performance compared to.
Where you stood in the in the prior quarter results and call.
Where's the biggest delta.
When you when you.
We would suggest you lay that out in two ways. One of them is is that we didnt know.
What was going to happen.
Over what timeframe and what that recovery curve of our customers coming back of the revenue impact and so forth. When we were laying that out we had some idea we tried to lay that as best we could as what the bottom would be and we laid that out.
So thats the number one thing so I think that to see a recovery back to.
The 86% if you will.
And in June revenue numbers and continued reopenings actually beyond that that's the first thing so at least gives us all at least a footing a foundation a jumping off point.
For where I think it's reasonable to seek suggest where things could go into the future. So I think thats. The first thing and Thats, a a footing that we didnt any of us nowhere C and it was a big unknown out there second.
I think that our cost reductions that we've talked about that we talked about in terms of general terms of both being the focus in the short term related to variable cost reductions to address the of the near term revenue reductions at the bottom.
We're very important but weren't quantified and we're just being implemented in the April and May timeframe, particularly in the us.
And then supplemented with that with our quantification related to our longer term fixed cost reductions providing the sustainable.
Margin leverage going forward.
Those weren't rest facility quantified as much either we've now quantify a lot of those we provided some guidance on the things that we can control.
Which is the cost reduction, which are those activities, which is a substantial amount of restructuring charges as Ron went through the support.
The sustainable margin improvement and leverage that we see going forward in the future. Those are things, we control and we can now talk to and predictive based on what we see in where we're going.
So the combination of those two things I think are the biggest points that we feel is much different for investors I don't blame investors are they said in ours in our top in my speech of I don't blame.
Not knowing having uncertainty around things in the past, but those are now much more quantification around that and investors. After then say well based on the recovery on revenue what should that slow be going forward and second okay. Now I can apply some quantification around both the short term long term cost structures around that and obviously there is.
This overview of the marketplace, which probably is a third point and that through point is.
That.
Cash in circulation is actually up.
That in fact that this isn't something that people aren't going to touch or use and that.
It is continuing to be something that is an important part of commerce.
We have an eight a. need in society that we'll continue to use it is not going away.
Thanks.
With respect to break complete could you give us a little bit more color.
Progress.
Pilots are betas and.
And at this point, the extent to which you see sort of.
The transition of your your book of traditional legacy Compusafe business towards the complete solution.
Yes, as I said I think it's a tale of two two different sets of customers as we start to roll out, particularly in the US one set that.
Is very interested in.
What we have to offer the benefits of that the value equation and so forth with existing customers.
But at the same time, if something they don't necessarily want to focus on at this at this point they want to get up and running worry about their business and making it through and the and another set of customers. It's pretty exciting another side is that even with existing customers and new customers that.
They see the value and they're starting to roll up on that and there are many of our jumping on the value proposition and starting up with it rather than waiting and so I think as we as we see this evolve and the reopenings become much.
Clearance stronger and get a little bit time on or we'll get even more traction.
Around it.
That we and proof if you will have the value equation going forward.
I appreciate.
And just wanted to follow up on a theme you touched on but maybe asking a different way.
With respect to the.
The company's position in the marketplace from a competitive perspective and opportunity to take share.
How would you describe it on a geographic place basis.
Where maybe there are some markets with more mom and Pops and is that where there's more opportunity or is it.
Markets with larger firms that may have stumbled for another reason.
For one reason or another thanks.
So are you talking about 2.1, and and our complete solution or just in general.
In general Thank you.
In general it varies.
Dramatically by by country, and where we are our objective over the last quarter has not been to go out and take market share it's been to improve our cost structure.
But more importantly to service our customers help them get back service, our customers and make sure. We provide the service levels as we transition with our cost structure is going forward, we serve as our customers. We think that will take care. Thanks, we're not looking to reduce price and go out and get more.
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Other issues.
And take share as result of price and not at all we're looking to service our customers based on our value equation to gain more business and we think were in both the strongest financial position as well as our operational position and then on top of that we are starting some of our other actions of ATM outsourcing as such as.
As the announcements we made in Ireland.
And we'll see more of that going forward more outsourcing from banks that we're starting to see as well even financial institutions in the us where we're seeing more outsourcing of vaults, we'll see more of that going forward. So all of that will be great opportunities and not necessarily take competitive share but to grow through that.
Additional outsourcing with customers as well as.
We see the opportunity, especially with our unique value propositions going forward to grow in the unvended space as well.
Customers I think as result of the pandemic will not go and say, we don't want more.
Helping in cash whether it be retail or five they're going to be saying just the opposite we want more help we want you to find a better solution and that's what we started to see that that customers retail customers as an example.
Our only partially vendors today, I think they're going to become a lot more vendor because we have a better solution for them I think with banks have suggested whether it be ATM or vaulting. The day is currently done in house that will be outsourced. So those present growth opportunities as we go forward as well as taking market share, but thats not our focus on competition at this stage.
Yes.
Thank you.
Your next question will be from Sam, England with bearing Burke. Please go ahead.
Hi, guys just a couple from me Thats, one could you talk a bit about your expectations for South America take eight presuming the second half. It was obviously a region. It was light it to be impacted by the pandemic.
Jay will clearly held up very strongly in Q2, given that Didnt terfel locked down so just wondering how youre thinking about that region the second half.
I'll answer to that I'll, let Ron answered as well look I think South America is holding up very well under the circumstances.
We I think I'd first say that.
We have seen more of our people and our employees impacted.
Healthwise by covered and we we are concerned and and take.
Take more focus on that.
At.
On a business side of we think that.
Brazil, South America in general.
His has more than flattened out and we may not see the Kirby is steep coming back.
Or as fast and coming back as Europe, which I think we said earlier is probably the fastest that we've seen coming back and.
And then that's what I think as seen in the economies as well.
But we didn't get has flattened out the numbers suggest that.
Brazil, and particularly that you mentioned has performed extremely well financially.
During during this timeframe and we think we will continue to improve probably not just as fast and improvement as some of our other markets.
If you look at slide six you can see that Mexico declined the least that's basically because the country didnt shut down.
And as Doug mentioned, the business toll was probably the lowest but the human toll was the highest within brink's.
So we're concerned about that he say South America, but it's really country by country as I mentioned in my remarks.
I would say, Mexico with the least responsive.
And then followed by Brazil, the I would say Argentina.
Has been the most disciplined with the incredible Lockdowns followed by Columbia. So it really is on a country by country basis.
We continue to to monitor it not day by day.
In all cases, but certainly on a weekly basis, we have war room meetings with every country.
To determine what's happening and how we can respond.
But.
Again on a case by case basis, you see that Mexico.
Was the least impacted and is starting to be impacted now just because of measures the country did not put in place.
Great. Thanks, and then the second one was I was wondering what youre seeing on consumer credit availability of my than whether we're seeing the usual recessional shifting to higher Kashi stage I realize how much benefit joining the cash market seeing from stimulus checks, giving you asked but well site actions in other countries to support.
People.
I think it's more with reopenings than it is with actual cash in circulation I mean, there's there's all the statistics that show cash is increasing that show availability to credit is declining but people are not leaving their homes and going into establishment to spend.
Anything whether its cash or credit.
You are going to see a delay and reaction.
But as Doug mentioned in his comments, we're not compensated on the volume of cash were compensated and other ways, whether it's a number of stops fixed monthly building subscription fees things like that.
So we'll see the revenue increase as customers reopened.
And that's more of a driver than actual.
Growth in cash.
But what would that said you can see the growth in cash and certainly contrary to what many as adjusted or predicted.
And if you take a look at where credit card companies are projecting and banks have reserved.
In fact, I saw something in the new the other day that banks are suggesting to their losses on credit cards and consumers related to that will be greater than what we saw what they saw in 2008 nine.
And that suggest and bookends of that in fact consumers will have.
Maybe not get the credit and credit cards, and there will be a lot that tap to then revert back to which is the typical cycle into recession like this use more cash.
And cash will become a greater payment method.
That's what we suggest and we think and certainly the numbers are starting to show that.
Great. Thanks, very much guys.
Thanks.
Ladies and gentlemen, this will conclude our question and answer session and we'll also conclude our conference call for today. We thank you for telling the brings company's second quarter 2020 conference call and at this time you may disconnect your lines.
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