Q3 2020 Brinks Co Earnings Call
Welcome to the Brink's company's third quarter 2020 earnings call.
Brink's issued a press release on.
Third quarter results this morning.
The company also filed an 8-K that includes really looks like that will be used in today's call.
For those of you listening by phone the release.
Non-GAAP results exclude a number of items, including our Venezuela operations the impact of Argentina's highly inflationary accounting.
They offer our best wishes to all of you and your families. During these difficult times.
Strong third quarter performance, we reported this morning as result of outstanding execution by all of our global management team, which has been sharply focused on three priorities since the onset of the COVID-19 pandemic, starting with the health and safety of our employees and their families.
And I want to personally thank all of our people for their dedication for providing our services, which are so essential to customers and economies around the world.
Our results reflect the team's successful execution of our second priority as well, which is to preserve our financial strength and reduce cost in line with the short term revenue declines we experienced in the second quarter. We've made great progress in right sizing our business without sacrificing service levels and quality to our customers.
They expect.
Our third priority is to position brings to be stronger and more profitable on the other side of this pandemic.
This priority is focused on permanent cost reductions.
And that combined with the successful integration with Jeep with the G. Four S. acquisition and the initial rollout rollout of our strategy to do 0.0 have positioned us to continue deliver long term value to all of our stakeholders.
We believe that our revenue recover that as our revenue recovers and surpass is 2019 levels are realign cost structure will provide the open operating leverage.
To drive up margin rates and margin dollars to new and higher levels in 2021 and beyond.
Our performance since the onset of the pandemic in March, including our strong third quarter results and our expectation of even stronger finish to this fourth quarter is a testament to the disciplined execution on these priorities and as important.
88% of 2019 pro forma level and the 78% in the second quarter is very encouraging given the retail shutdowns and overall economic weakness caused by the pandemic.
Since April we've seen steady monthly increases in the number of retail customers and customer locations that are reopening.
And were processing more cash per location, both in terms of volume of notes and total value.
Our total class our total cash process in the US is also up significantly from pre pandemic levels.
And independent data suggests that cash as a percent of payments has not materially changed.
From 2019 levels.
Looking ahead.
We expect continued improvement in the fourth quarter as ongoing cost reductions organic revenue growth in additional contributions from the GE for as acquisition drive operating profit and margin rates higher as a result, we reinstated 2020 guidance that exceeds the top end of the model, we disclosed with second quarter results with re.
Effective with Midpoints with midpoint operating profit and EPS of $348 million and $3 per share respectively.
This guidance is supported by a fourth quarter operating margin target of approximately 11.5%, which we see as a strong jumping off point for 2021, when the full year benefits of permanent cost reduction realignment and the G. Four Essi acquisition are expected to supplement the continued revenue recovery.
Slide five provides a more complete summary of our sequential results thus far in 2020.
As I mentioned, we believe the second quarter results were very strong, especially when you consider that the initial and most damaging effects of the pandemic. We're occurred in April and May.
Our third quarter results were even stronger and they underscore the impact of increased operating leverage as operating profit grew by 30 per 6%.
More than double revenue growth of 17%, reflecting a margin increase of 140 basis points to 10.3% the.
The revenue increase was driven mostly by organic growth with some additional revenue from the GE Forest acquisition.
Adjusted EBIT was up 17% to $147 million and EPS was inc. increased by 21% to 86 cents per share.
Turning to slide six.
This slide provides more detail on the revenue recovery rates across a variety of our global markets. After hitting a low point in April almost all of our markets experienced strong recoveries in June as economies around the globe began to reopen and most continues to recover in the third quarter, although at a slower rate than in June.
The U.S. revenue as you can see on the left hand side of the chart recovered in the third quarter to about 91% of 2019 levels up from 81% in the second quarter sales.
Excuse me up from 80% in the second quarter is as shown on the chart use.
US operating profit margin was up as well 160 basis points compared to the 2019 third quarter and this is even as revenue was 9% lower in 2020 versus 2019.
The right side of the chart shows.
That on a pro forma basis, which includes both brink's and G. Four as results for 2019 and 2020, our total third quarter revenue was about 88% of 2019 again up from 78% in the second quarter and 71% in April.
Revenue recovery continued in the third quarter, although at a lower recovery rate with September pro forma revenue at about 90% of 2019.
While we're encouraged by the recovery rates given the fluctuating impact fluctuating impact of the pandemic on economies around the world predicting future revenue.
Levels is at best difficult.
As a result, the low end of our 2020 guidance assumes a revenue recovery rate of about 85% in the fourth quarter to accommodate a potential further deterioration in the external environment.
Ill now turn it over to Ron.
For his financial review, Ron Thanks, Doug and good day, everyone Doug.
Doug reviewed our sequential third quarter results versus our second quarter results I will now review, our third quarter results versus the third quarter last year before.
Before I do please remember that we disclosed acquisitions separately for the first 12 months of ownership at which time. They are mostly integrated and then they are included in our organic results in the third quarter 2020 acquisitions include for the entire quarter GE for ESI and the G. Four s. cash.
Cash businesses that we purchased in the Netherlands, Belgium, Ireland, Romania, the Czech Republic, Cypress, Malaysia, Hong Kong, the Philippines, and the Dominican Republic.
During the third quarter, we acquired G. Four s. cash businesses in Estonia, Latvia, Lithuania, and Indonesia and those results were included from the month of acquisition.
Acquisitions in the third quarter also include Tvs in Colombia, and exclude the impact of the divestiture of a small monitoring business in France.
Looking at slide 11.
2023rd quarter revenue in constant currency was up 11% as that pandemic related 9% organic decline was more than offset by a 20% contribution from acquisitions negative forex reduced revenue by $56 million or 6% was driven by the pandemic induced flight.
To the U.S. dollar.
Sequentially on average exchange rates improved slightly during the third quarter.
Reported revenue was $971 million up 5% versus the third quarter last year.
Third quarter operating profit was up 19% in constant currency as acquisitions more than offset a 1% decline in our organic results significantly improved from the second quarter organic decline of 18%.
The fact that the percent organic operating profit decline was much better than the percent organic revenue decline is a testament to our proactive cost realignment.
Negative forex reduced our opie by $22 million or minus 22%. This.
This included a 10 million dollar charge on the conversion of Argentine pesos to us dollars using the blue chip swap market.
Reported operating profit for the quarter was $100 million and the operating margin was 10.3% down 80, bips from the third quarter 2019, but up 30, Bips if you adjust for the Argentine conversion.
Segment results are included in the appendix in our press release and later today in the 10-Q.
Corporate expense in the third quarter was $2 million unfavorable versus 2019, driven by negative Forex, primarily that $10 million Argentine peso conversion costs and higher bonus accruals, partly offset by bad debt and reduced expenses for IP professional fees and travel.
Our reported results include more than $4 million in incremental expenses in the third quarter for personal protective equipment additional cleaning and other measures to keep our employees and our customers safe movie.
Moving to slide eight.
Third quarter interest expense was $27 million up $5 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 $24 million $1 million better than last year as lower income was mostly offset.
By a higher projected effective tax rate.
During the quarter, we revised our estimated full year EMR down to 34.1% from 37.5% in the second quarter, reflecting our expectation of higher earnings.
The effective tax rate volatility is due to changes in assumptions about our ability to utilize tax attributes at varying projected income levels. The G. Four s. acquisition has been constructive and moderating the tiara.
$100 million of third quarter 2020, operating profit was reduced by $27 million in interest $24 million in taxes and $6 million in minority interest and other to generate $43 million of income from continuing operations dividing this by 50.6 million weighted average diluted shares outstanding.
Generated 86 cents of earnings per share versus one dollar five and 2019.
Our EPS comparison was negatively impacted versus 2019 by about 15 cents from the Argentine peso conversion and four cents due to the higher HCR.
Our EPS comparison was positively impacted versus 2019 by one cents from the third quarter 1.1 million share repurchase, which reduced our outstanding outstanding shares by about 2%.
In the third quarter, depreciation and amortization was $44 million interest expense and taxes were $51 million and noncash share based compensation was $9 million in total 2023rd quarter adjusted EBITDA was $147 million up 1% versus 2019.
Slide nine summarizes the four metrics I just reviewed revenue operating profit adjusted EBITDA and EPS. This is a format that we've used repeatedly and is included here for reference turning to slide 10.
As we discussed last quarter as soon as it became apparent that COVID-19 was virulent we took immediate action to put measures in place to reduce direct labor hours at the same time into at least the same magnitude as revenue decreased we also took decisive action to reduce our fixed cost so that we can generate similar or greater absence.
At levels of profitability at the pandemic caused a permanent 10% reduction in revenue we.
We did this while maintaining the capability to serve our customers when volume levels return.
On the left side of the slide are listed some of the actions that we've taken to address both our variable and our fixed costs. The rightside illustrates that our cost realignment actions are expected to reduce head count by approximately 6500 1000 more than our estimate last quarter.
We now expect approximately $70 million in 2020 costs associated with these actions and we anticipate about $90 million and ongoing annualized savings each up 5 million versus our projection last quarter we.
We estimate that over half of our cost reductions are permanent and will generate positive operating leverage as revenue levels continue to recover.
We continuously monitor and utilized government programs around the world and were able to offset a portion of our labor costs in certain countries. However, these programs are diminishing and the benefit was material less materially less than the third quarter compared to the second quarter now, let's look at Capex on slide 11.
Our original guidance for 2020 cash Capex was $165 million, which included $140 million for operating Capex and 25 million to purchase cash devices at.
At the start of the crisis, we rationalized capex to only purchase assets that are essential to our business operations safety and security we cut the legacy brink's cash capex target by more than 50% down to $80 million. We also expect to spend an additional 20 million related to the G. Four s. acquisition.
Bringing our total cash capex target for this year to $100 million.
Year to date, we've invested $79 million.
Due to the catch up Capex Capex, we invested since 2017 and the implementation of our strategy 2.0 initiatives that require less capital investment, we expect our new normal maintenance capex level to be down to about 4% of revenue turn.
Turning to cash flow on slide 12.
Cash flow from operating activities is comprised of adjusted EBITDA reduced by changes in working capital cash restructuring cash interest and cash taxes.
Cash flow from operating activities less cash capital expenditures equals free cash flow.
In 2019, adjusted EBITDA was 564 million cash flow from operating activities was $334 million and subtracting the $165 million in cash Capex resulted in $169 million of free cash flow.
We have reinstated 2020 full year guidance and as Doug will review with you. Shortly we estimate that annual adjusted EBITDA of $520 million to $535 million. This year we.
We expect working capital to be negatively impacted by pandemic related increases in DSL receivables collection.
And we have a high cash restructuring charges related to both the GE for us acquisition and our price priority three cost realignment actions together they should consume 140 to 160 million in cash this year.
Cash taxes, which totaled only $24 million in 2019 are estimated at $65 million. This year, we received significant tax refunds last year, which are not expected to repeat at the same level. This year.
We anticipate cash interest to be around $95 million due to the incremental debt associated with the G. Four s. acquisition cash.
Cash Capex as we just reviewed is targeted at $100 million. All in 2020 free cash flow should be in a range of $100 million to $135 million up materially from the $40 million to $110 million, we modeled last quarter and as noted previously during the third quarter, we used $50 million of cash.
On hand to repurchase and retire approximately 1.1 million shares.
Let's move to slide 13 to review, our debt liquidity and covenant headroom.
The bars on this chart represent the source of our liquidity the cash available on our business and the capacity in our revolving credit facility at the top of each bar you can see our cash below the cash as our credit facility available undrawn and below that our debt and financial leases the bars each represent a point in time at two.
2019 year end at September 32020, and at December 31, 2020 pro forma for the completion of the GE for us cash acquisitions.
At the end of last year, we had approximately 1.2 billion in liquidity on April one we closed a $590 million expansion of the term loan with our bank group and on June 22nd we issued $400 million and new five year senior unsecured notes year to date, we used most of those proceeds to complete approximately 90 per.
Cent of the G. Four s. acquisition and the balance increased liquidity to $1.5 billion on September 30, we expect that free cash flow in the fourth quarter will exceed the cash necessary to complete the remaining G. Four s. acquisitions and liquidity should remain around one and a half billion at year end.
Other than the 5% annual amortization of our term loan a we have no significant debt maturities before 2024.
Our variable interest rate, including the expanded term loan a increased 25 bips in September to L. Plus 200, reflecting the increased financial leverage associated with the pandemic related EBITDA reduction and the increased borrowings related to the G. Four s. acquisition.
On June 9th we amended our bank agreement through February 2024 to replace the total debt leverage covenant with a secured debt leverage covenant. The 2020 Max than new Covenant is 4.25 times and our September 30 pro forma secured leverage ratio was 2.0 times, we don't anticipate.
Approaching our 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 conditions worsen.
Let's look at our net debt and leverage on slide 14.
This slide illustrates our actual net debt and financial leverage at year end 2018, 2019 and at September 30 this year.
The fourth bar on each side estimates, our net debt and financial leverage at this year end.
Our net debt at the end of the third quarter was $1.95 billion that was up about $600 million over year end 2019, due primarily to the G. Four s. acquisition.
At September 32020, our total leverage ratio was 3.7 times and as I. Just mentioned are fully synergized secured leverage ratio was 2.0 times with that I'll hand, it back over to Doug.
Thanks, Ron.
Slide 15 give some much needed perspective on ecommerce as it relates to the us retail market.
As the global market leader in cash management, we fully acknowledge that the pandemic has accelerated the adoption of ecommerce forward at least several years.
However, if you strip step back and look at the Big picture studies suggest that the overwhelming majority of retail revenue more than 80% will continue to be generated from in person sales.
According to a US census Bureau inquiry and due to the U.S. Census Bureau total retail sales in 2019 were approximately 5.5 trillion and of that 89% was transacted in person with ecommerce accounted for about 11% of total sales.
E. Commerce is growth. This year is estimated to be around 35% to about 15% of total retail this year, which means 85% of retail sales will still be in person.
In fact, according to industry experts given.
Even as ecommerce sales continue to grow.
By 2022, the share of improves and retail sales will remain well over 80% of total retail sales.
Given that in the second quarter during the height of the shutdowns Walmart reported a 97% growth in ecommerce sales.
However.
Ecommerce sales at Walmart still represented a little over 11% of the total revenue similarly.
Its E commerce sales grew an impressive 195%.
But still represented only a little over less 17% of targets total sales. This means that 83% of target sales were in store and in fact in store sales were up 11.5% in the second quarter year over year.
These results are you soon are very consistent with the overall retail sales data shown in the table at the top of the slide in short speculation that we're becoming a cashless society only considered some of the facts and as you'll see in the next slide we're actually seeing a higher levels of cash in the U.S retail business and we believe.
The improved and retail opportunity will continue to grow over the next several years.
Slide 16 represents data.
As supporting our assertion that cash as a percent of total payment methods. In recent months has effectively remained at or close to pre pandemic levels in the us and the data is from a combination of extended external sources and internal metrics start.
Starting at the top left label one based on a regular annual statistically significant survey by the fed.
Cash has.
Cash was the most preferred form of in person payment at 35% of all transactions have credit cards debit cards and other forms of payment.
Moving to the left part of the slide labeled too.
The fed also issued.
Also issued special a special Coven, 19 report, which examined consumer payment behavior in April and May of this year during the height of the nation wide lockdowns, notably the fed study reported that people were using cash at similar rates to prepare endemic levels for employers in Peru.
Services and that 90% of those surveyed said the cash was accepted at retailers they visited.
The data at the top right.
Of the slide number three reflects a survey of square Inc.'s sellers and is perhaps the most telling confirmation of the staying power of cash square.
Square has publicly stated that since the announcement of the pandemic cash as a percent of sellers payments remains in the mid 30% range consistent with the feds pre pandemic level.
While the square survey indicated that cash as a percentage of all of its payments.
All of its sellers transactions declined.
From the preapproved pandemic level of 37%, it's still remained at the 33% level in both April ended in August the.
The square survey also notes that 85% of its sellers intend to continue accepting cash over the long term future, which is actually an increase over their 2019 survey results.
To complement the square and the fed data number four on the bottom right of the slide represents internal brink's analysis of cash levels were seeing and our us retail consumers customers.
The Gray bar on this chart shows that our retail customers were reopening at a steady pace throughout the second and third quarters, resulting in over 90% of locations reopened in September importantly over the same period the blue in the yellow bars indicate that we're processing more cash per retail location in the us than at pre.
At the pre Govan baseline this.
This supports the premise that cash as a percent of payment methods remains largely unchanged and supported and is supported by other in.
Independent sources.
The strong support for the resiliency of cash and the solid future of our business even during the pandemic as evidenced by first brink's is picking up and processing more cash in the U.S. today than before the pandemic and the cash as a percent of payments has not meaningfully changed in 2021 and also.
The us cash in circulation is at a record level up around 10% since since March.
Moving to slide 17.
This slide summarizes our strep plan, our strategic plan to which is a continuation of our first strategic plan that we call SP one as our new 2.0 initiatives are layered on top of the one point organic growth initiatives and our 1.0 acquisition initiatives initiatives, both of which were successful.
We executed and in SP, one together they form a strong foundation for continued growth.
From 2017 through 2019, our SB one plan period these initiatives added $75 million.
Operating profit via 1.0 organic improvements and another $100 million from the $1.1 billion invested in 13 acquisitions. This year's G. Four S. acquisition brought our total to one point of total 1.5 strategy investments to 1.9 billion.
The owners.
RSP one initiatives drove a 27% increase in revenue with an average annual organic revenue growth of 7%.
We improved operating profit by 81% equating to a 22% compounded annual growth rate over the three year period through 2019.
Adjusted EBITDA grew by 67%, 65% scrutiny over this time and EPS grew by 71% or 19% compounded Ode group overall annual growth rate. The brink's team has a solid track record of execution and despite the pandemic, we expect to continue to build on this track record.
Throughout SP too.
In SP to our our original one point on issues become 1.0 wider and deeper which stands for.
Which is why we WD, which stands for wider and deeper.
During the first three years. The 1.2 initiatives were heavily focused on the use in Mexico, and we are extending these improvements throughout.
The 50 additional countries in our global footprint and will continue to drive operational excellence and cost improvements. Additionally, during the pandemic, we've restructured and re sized our business with the key focus on permanently reducing fixed costs, which we expect will lead to higher operating leverage and higher margins.
In SP to our 1.5 initiatives include. The addition of GE for US this year, which added 14, new markets to our global footprint, including very desirable cash intensive markets in eastern Europe and in Asia.
And the top our represents a new third layer to SB, two which we call strategy 2.0.
2.0 is designed to expand our presence in the global cash ecosystem and provides a path to digital payments.
Our initial focus today is on strategy 2.1, which rolls out our brings complete solution.
Turning to slide 18 strategy 2.0, as excuse me strategy 2.1, specifically refers to our new brings complete service. We develop this service weve unvended and underserved retailers in mind and we're also introducing it to our current customer base.
For years, the cash management industry has drifted toward commoditization relying on efficiency gains throughout density to compete heavily on price and to increase our margins simply put the industry, including Brink's has not made cash management easy to use or provided a complete cash management solution to our customers.
Do we illustrate this unfilled need and opportunity all use again the square example score.
Squares customers state that 33% of the total payments are in cash. It square service is designed to handle other forms of payment, but not cash.
In the US brings complete is the right cash management service retailers, both large and small.
Thanks completed subscription base fully develop digital cash management solution. The service consists of a digital app a low cost tech enabled safe for cash deposits.
Tailored to the needs of each business and most importantly, it provides next day credit for cash deposits is positive into the device.
We believe brings completed an ideal solution for a large portion of the brink's existing customers and retail market that currently doesnt use any cash management services.
This includes large retail chains that currently walk cash to local banks into SMB square sellers discussed above in the survey.
Recovery rates, including.
About 85% in the fourth quarter at the low end.
Slide 20 offers an approach for modeling non-GAAP operating profit based on potential 2021 revenue as a percent of 2019.
Pro forma revenue.
On the right side are modeled uses a revenue range of 92, 110% for 2019 revenue.
Our third quarter results are already close to the 90% recovery Mark with September revenue at 90% of 2019, so with the low end of the range of 2021 model results in op income or profit of 425 men or EBITDA $615 million at 110% range revenue range.
<unk>.
Profit rises to $650 million EBITDA of over $800 million, demonstrating improve margin driven by operating leverage at the midpoint, assuming recovery two 100% of 2019 revenue next year and with an unexpected.
Operating margin of 11.5%, which is approximately 100 basis points above 2019 margin, we expect to generate a profit of $550 million and EBITDA of over $700 million.
The chart on the left shows what's driving the margin improvement at 100 per cent of 2019 revenue, we expect cost actions and the G. Four of synergies two more than offset the projected unfavorable FX impact of approximately 170 basis points a margin yielding the 90 basis points a margin right improvement very.
Variable cost will adjust upward as revenue recovers, but we expect our priority three fixed cost reductions to be more permanent driving incremental operating leverage in 2021 and beyond hence our estimate that 110% of 2019 revenue margins would improve another 100 basis points too.
To 12.5%.
It is important note to note that this model does not include any benefits related to our strategy 2.0 initiatives, which is successful would provide incremental revenue and margin growth in 2021 and beyond.
In summary, we're very encouraged by a third quarter results the positive margin impact on our cost of our cost actions and a strong re revenue recovery that demonstrates the resiliency of our business.
We're also encouraged by the fact that support.
By the facts that support the continued strong use of cash as a primary method payment at similar to three pandemic levels and the increased level of cash we're processing and in circulation in the U S.
We expect the G. Four S cache acquisition to be completed by the end of this year and full synergies realized and strong earnings contribution in 2021.
We expect to have a strong finished the fourth quarter and as a result, we've reinstated our full year 2020 guidance to a level that exceeds the high end of the model. We provided in the second quarter earnings, including adjusted EBITDA that is now expected to be in the $520 million to $535 million range.
I'm highly confident that brings will emerge from the current crisis as a stronger company with substantial opportunities for growth in revenue.
Operating profit adjusted EBITDA earnings and cash flow.
Our confidence is supported by our strong balance sheet ample liquidity are expanded global footprint Ah realign cost structure and a compelling strategic plan to expand our presence in the cash ecosystem with tech enabled services like brings complete.
We look forward to reporting 2021 results that we believe will reflect the benefits of a full year's contribution to the <unk> acquisition and related synergies continued revenue recovery rates any full year of margin growth driven by relying crossed structure.
Sarah was now open it up for questions.
Thank you well. Thank now thank you have a question and answer session to ask a question you may pastime. Some one on your Touchtone phone.
If you're using a speaker phone please pick up your handset before pressing lucky.
To withdraw your question. Please pastime. Thank you.
At that time, we will pause momentarily to assemble a roster.
Our first question comes from Georgetown with Goldman Sachs. Please go ahead.
Hi, Thanks. Good morning, good morning, gigantic revenue trends continue to improve in in the third quarter can you discuss how organic revenues performed on a monthly basis moving through the quarter and exiting the quarter and what organic revenue Rangers are incorporated into your full your guidance.
Yeah, that's it.
It's it varies by country and on a global basis, but in general as we stated that certainly in the second quarter as we saw.
June was by far the highest slope in terms of revenue recovery, but.
But during in general the fourth quarter of third quarter, we continue to see a monthly improvement during the quarter and hence that's why you see the jumping off point from September into the fourth quarter being at the highest level in comparison to the average for the fourth quarter and.
Which suggests that the slope, it's still positive in terms of the recovery for revenue recovery in general in the U S. As an indication of that as an example, but it is a substantially lower growth rate or acceleration rate versus the second quarter.
So we continue to see that and I think that George what we were staying in here and which leads to the second part of your question is is we really don't know what will happen during the third quarter in terms of revenue, but based on what we've seen based on forecasts based on what is open and what we've seen not only in.
The third quarter, but as you say as we exited the third quarter.
That we see the range of revenues that we've laid out in our.
In our in our guidance and that ranges from somewhere in the 85, 586% range of revenue.
To the low.
Low nineties.
And again jumping off point in September was 90% and the U S was it approximately 91%. So we think thats realistic range, who knows again, what will happen in these times.
But we think that's a realistic range based on jumping off point, what we've seen to date and and it gives us a little bit of downside protection in the quarter for the revenue growth.
Got it that's helpful and stepping back <unk> can you talk about how customer demand for services might be affected by the resurgence of covid pieces and specifically if you're seeing any change in the number of pick up and drop offs.
Well I mean, obviously, it's too early to tell most of the most recent of changes that you've seen on media and obviously that has seemed to have and it had an impact on on the markets over the last couple.
Couple of weeks are fairly recent the.
The shutdowns that we've heard about during the what if you want to call. It the second wave have been.
Heavily focused on shutting.
Shutting down restaurants, and bars and other areas such as gyms in places where people gather.
We've not seen as much of a focus as was the case in the May may timeframe April may timeframe. The first shutdown, we haven't seen as much focus on shutting down retail and so we're hoping and again, we don't know, but we're hoping is will continue to see both essential nonessential retail continue to stay more <unk>.
And this time then we saw the first and the first wave.
And that the.
The openings of restaurants, especially dining restaurants, obviously will be the things that are impacted and again those are a lot of the the establishment and the customers that we hadn't seen fully reopened and hence we had not gotten back to our full levels of reopening we've got back into that 90% range in the U S. As an example.
[laughter].
Got it very helpful. Thank you hope that helps you.
I think I think George what's important as well as as we've gone through this even if these levels that we've seen the cost reductions the cost takeouts.
Balancing with the service levels excuse me with the reopening.
Reopening levels not only balance that but also provide us the opportunity for that leverage and you saw that leverage in the quarter and we anticipate that we'll see that again in our fourth quarter as we continue to see the re sizing and they take out so that business. So we're very <unk>.
Excited and comfortable with that both from what we accomplished has a team in the third quarter, but also what we anticipate we'll see as a result of the continued actions in the fourth quarter and Ron went through some of those numbers in the us to be able to achieve in the U S.
Margins that are greater in present margins that were greater in the third quarter by 100, and what was 130 140 660 basis points.
At at revenue levels that were 9% lower than the prior year is a testament events.
Got it thank you.
Our next question comes from Toby Center with two of Securities. Please go ahead.
Hey, good morning. This is jasper bed filling in for Toby I was hoping you could speak to what you're seeing in pricing and your major markets and also higher labor expense trying just tracking versus prior years.
Higher global unemployment.
So every country's different jasper so.
In the U S. The fourth quarter is typically when we take price increases.
I would say generally around the world the majority of the price increases occur in the second half those are happening.
We have not had.
A lot of resistance.
We likewise on the labor front, it's still.
Believe it or not in this in this market challenge to to keep them to retain employees.
We're able to reduce our variable labor very quickly.
Globally, but at the same time as we mentioned that we also were very quick to take down the fixed and permanent labor.
Levels that have allowed this margin expansion.
I'd say basically.
The the price increases.
That we had expected are on track.
And we have not seen anything that would suggest otherwise.
Thanks, and then I wanted to ask about kind of what trends you're seeing for outsourcing work with financial institutions do you see the pandemic kind of accelerating and outsourcing trend more broadly and how would you describe the RFP environment there.
Yeah, I think generally the pandemic.
Accelerated a lot of the trends that we anticipated and the global cash management ecosystem.
So.
We have been prepared for this.
Right now most businesses, including financial institutions are just dealing with how to cope with the the pandemic, which changes on a daily basis.
What did they will see in the new normal is a compelling case for additional outsourcing we're planning on that we're planning to be a leader to to influence them to use brinks for that outsourcing.
I appreciate it thanks for taking the questions guys. Thank you. Thanks Jasper.
Our next question.
If you'd like to ask a question. Please press star and one as a reminder, our next question will come from just Kessler with Imperial capital. Please go ahead. Thank you good morning.
And I don't usually say it is just excellent excellent execution and these last couple of quarters. It's.
<unk> got a lot better than obviously than people expected and also did a lot better than most of my.
Comparable companies that I'm covering in your in your area. Thanks, John got a great team and they're really focused during this pandemic in particular.
Right when I get to is.
You are now significantly larger because of G for us.
Then your next competitor in fact, you're probably about twice the size and it's not just one competitors the other competitors and the entire group.
What can you do to take the scale that you now have the scale advantage you know have.
It's somewhat of a softball question, but the fact is that making 2.0 work is kind of critical because it would take you to a it would take you to a place that would combine both scale and technology.
What are the hurdles and the milestones did you have to see to show that.
If you get this then you're going to have you go ahead, you probably will be able to get market share gains and regain market share that you still haven't gotten back.
From some you know from some institutions. The fact is is that you still have some hurdles to overcome in taking your scale and using the new technology. How are you going to how are you going to go through this process.
Well that's a.
Quite a quite a question to be.
Be honest I appreciate.
Comments upfront.
I also think that your strategy your thought process exactly where we are and is a key piece of what we call SB too I would start off by saying Unfortunately, the pandemic has negatively impacted.
If you want to call it that from the standpoint of slowing things down.
It is if you will put some timing constraints, both from our standpoint of implementation as well as from customers Receptiveness openness willingness to engage in may make changes because their focus like ours has been heavily focused on on the business I think the good news from our standpoint, and our focus you can see the results.
The focus on the second and third quarter and we anticipate that you will continue to see those results in the fourth quarter and our leverage going forward.
But now we need to come back and we will come back as part of SB to to put in what we call. Our <unk> strategy is layered on top of that and accelerates. It. So our focus to answer your question needs to be too.
Accelerate our efforts with all of the various areas, including or two one which is part of our brings complete the rollout of that both in the U S and on a global basis accelerate that and use that as leverage as well as all the rest of our 2.0 strategies that we are aggressively working on to roll on you.
Can see as part of those strategies as an example, the outsourcing of Atms you can see the very significant.
When that we have in France that will start coming on next year, which is the outsourcing will complete a state to what we are doing in Ireland that we won another 500 units. There. These are all key outsourcing. These are things that will start rolling if they're not ones, they're not they're not projects and they're not changes that banks.
Financial institutions make overnight and they take time to do that but.
But you can start seeing gain traction and we have now the global platform to do that the biggest piece and the best answer to your question. I think is that we do have by far the largest platform. We are 50 plus countries. We have the global platform that is much larger that we can scale and wall. These these these.
These strategies is solution out on and that's the benefit and I think you'll see that as we start getting the acceleration of our 2.0 strategy do end up with higher organic growth higher than that 7% organic growth that we had compound or over the last three year period of time, we'll have higher organic growth. It will take some time to do it.
Organic growth as a result of of our strap plan, you'll see a higher margins. Because these are complete total services to our customers that can and should demand.
Both higher pricing I should say higher value for the complete services in the in the supply chain as well as them lower.
Capex and the ability to roll this out and our scale on a global basis and to use our scale for the cost management and the unique tech enabled ways that we do this I think we will have a tremendous impact as we roll out of the pandemic and as we see the acceleration of these strategies.
So I think that will be unmatched, which is not in the numbers. We're talking about the numbers that we're talking about the juice on the second and the third quarter that you're going to see in the fourth quarter have been primarily because of the strong focus of this management team of our company.
On what we've been able to accomplish as we've gone through the pandemic.
Okay. Uhm second question is in my years of covering breaks.
For better for worse, the marketplace generally tends to like like the focus on U S and perhaps secondarily Mexican operations. However, with G. Four S. You've picked up not just eastern Europe, but a whole bunch of south Eastern Asian.
Countries that are not as affected or have done a much better job. That's it let's call. It let's call. It like it is done a much better job of keeping down the effects of the pandemic and we have.
It kind of showed up in that in that in that scale in one of the slides that.
Jump for Malaysia, rattled speeds and stuff like that the answer is is up are you planning to add.
New any types of new revenue services. There are you <unk> are you <unk> are we going to be seeing a greater percentage of revenues and perhaps an improvement in operating margin in those in those countries where.
That are not as that you picked up from G. For us that are not as impacted by but places like the United States and Mexico in France in South America, well I I'm not sure.
The answer to your question is absolutely, yes, we're going to improve which is R. One point O wider and deeper are leveraged strategies, we're going to improve margins of those countries in the core based businesses and we're going to leverage 2.0, New services added services in these markets.
I'm not sure I fully understand or agree with this question around.
The pandemic is that changing how we're going to roll around in those countries versus others.
In other words, we're not looking at just over the next quarter.
Over the next year, we think we have the opportunity to start rolling out and many many of the countries are 2.0 strategies and the pandemic is going to impact it as it has some already in slowing some of that down.
But that doesn't mean, it's still not a great solution in fact in many cases.
A lot of the solutions, we're talking about making a heck of a lot more sense.
So I understand there will be ups and downs associated with that and your.
Your evaluation of Hong Kong as an example, you can see Hong Kong stayed about flat or within a couple of percentage points of revenues over that period of time, that's why there's not much different than changing color there.
And Singapore continue to improve and was back at levels that are like you said, we're like priest pandemic or or better so.
Malaysia is continue to improve so you are correct in terms of your analysis there.
But we're not going to let that standard and way of any place to really say, we shouldn't be aggressively implementing are too pointless strategies and our continued 1.0.
Strategies to improve our business as you are seeing this year.
Let me just throws last let me quickly.
Do we not seek in terms of the Compusa's brand any more is compu safe now going to be part of.
Of.
Of 2.0 and will it.
As a whole or is copy states still going to be.
Sold to some as a as a separate or so I should say sold read it out in the end.
And put out there on a as a as a separate entity well. If you think about compusa, where you think about another smart saves that are offering offered in the in the in the classic.
As system like we did in others do it's a different offering if not a complete offering and the value proposition for the customer is not as strong.
Therefore, I think that the market will move over to our brings complete system.
Include all the same benefits if there are significant benefits of a smart safe that's out there today, but will also be a complete fully managed system, providing daily credit on from one source, including brinks off as at one source plus all the integrated benefits associated with that so the answer is equal transition.
Okay, great. Thank you very much. Thank you Jeff Thanks for your comments one more question.
I think we have time for one more than we have to cut it off.
Our next question comes from standard, England with fan Bank. Please go ahead, hi, Sam mourning mourning guys. Yeah. Just building on one of those last questions. You mentioned broadening of stretchy, one point out of costume frequently it's globally Uhm I, just wanted to which Marc Itchy thing representing the best opportunities for that it it might need to develop to European markets.
That you've acquired would she forest and then are you planning to sat down with a time margin target at some point similar to the original one point I plan paying that they once things got lots of all the time.
The answer to your second part is absolutely we do we anticipate that some point in time in the future. We will have that will hold a a a investor conference in in such as we committed to in the past, though we anticipate that will rule out some targets in the future those targets and as we talk about on that flight.
Our strategy includes.
Continued 1.0 wider and deeper initiatives.
That are cost initiatives that our productivity initiatives that are productivity improvements that helps support our customer service initiatives and those are in every country, that's why they're called wider.
And deeper in those countries, we believe and the continuous improvement as a way of life and part of our culture. We believe that we can always do better both for our customers and for our productivity in our efficiencies and that therefore as an integral piece to each of our business plans that are rolled up both as part of the strapline an annual plans every country as a.
Target for cost reduction margin improvements in productivity improvements that are passed onto our customer that is now augmented by the leverage initiative, which is the priority three strategy that was part of the pandemic focus that.
That allows us to gain the leverage that we spoke about.
Because of our management and controlling of.
What I consider permanent fixed cost reductions ongoing as well layered on top of that.
What we're suggesting is every country is part of this and you'll see the benefits associated with it. So we will come out and say that and that's prior to doing anything of 1.5 beyond do for us and it's prior. This is in addition to our 2.0 strategy rollout as well.
Okay, Great and then if you got time to one other quick one I just wanted it what happened with the revenue she told it's valid quiche.
They didn't voice full but not recorded in the numbers I think it was within the U S retail business I didn't see anything mentioned about it sorry, if you if you talked about it yeah.
That those those continued to be able to invoice some of those but a much smaller.
Ponant of those as they as those customers come back.
We do the credit memos that offset negotiations if you will by customer and you end up with some benefit in the in the third quarter of that.
But it's also offset though in general by by credit memos as well as.
As well as bad debt.
<unk>.
So there is some benefit but it's very very minimal and that will continue to be less and less going forward.
Okay, great. Thanks, very much thank you.
And I think that gentleman that's <unk>.
Please go ahead.
This will conclude our question and answer session and it also concludes that call for today.
Thank you for attending the banks company third <unk> 2020 conference call and at this time you may disconnect you long.