Q1 2021 Brinks Co Earnings Call
Hello, and welcome to the Brink's company first quarter 'twenty to 'twenty, One earnings conference call.
For instance, you had a press release on first quarter results. This morning.
The company also filed an 8-K that includes the release and slides I'll be used in today's call.
And those of you listening by phone and the release of Pfizer and available on the Investor Relations section of the company's website crank.
And Frank stock Com.
At this time all participants are in a listen only mode.
And that's for a session will follow the formal presentation.
As a reminder, this conference is being recorded net.
Oh for the Companys Safe Harbor statement this call and the Q&A session will contain forward looking statements.
Actual results could differ materially from those projected or estimated.
Information regarding factors that could cause such differences is available in today's press release and the company's most recent SEC filings.
Information presented and discussed and as college representative as of today All day.
<unk> assumes no obligation to update any forward looking statements. The call is copyrighted and may not be used without written permission from brinks.
And my pleasure to introduce your host Ed Cunningham, Vice President of Investor Relations and corporate Communications. Mr. Cunningham you may begin.
Thanks, Keith Good morning, everyone. Joining me today are CEO, Doug <unk> and CFO Ron Domanico.
This morning, we reported first quarter results and both the GAAP and non-GAAP basis.
The non-GAAP results exclude a number of items, including.
And our Venezuela operations, the impact of Argentina's highly inflationary accounting.
Reorganization and restructuring costs items related to acquisitions and dispositions.
Costs related to and internal loss and costs related to certain accounting compliance matters.
We're also providing our results on a constant currency basis, which eliminates changes in currency exchange rates from the prior year.
We believe the non-GAAP results make it easier for investors to assess operating performance between periods.
And really our comments today focused primarily on the non-GAAP results.
Conciliations of these results are provided in the press release and the appendix to the sludge and and this mornings 8-K filing all of which can be found on our website with that I'll turn the call over to Doug.
Thanks, Ed and good morning, everyone and thanks for joining US today. This morning, we announced first quarter results that we believe clearly demonstrate the increased earnings power and resiliency of Brinks. Our strong first quarter results were driven by the ongoing successful integration of the G for us acquisitions, and our fixed cost reductions.
Which more than offset the impact of extended pandemic shutdowns, mostly and in Europe.
On a reported basis revenue was up 12% operating profit grew 43%, reflecting a margin increase of 200 basis points to 99, 2%.
And EBITDA was up 32% with margin improvement of 210 basis points to 14% and EPS grew 64% to 82 cents per share.
It is important to remember that we're comparing to a year ago quarter that was not materially affected by COVID-19, and in fact, not until the last week or so of March do we start seeing those impacts.
So we're quite encouraged by the fact that on an organic basis. This year's first quarter revenue was down only 6%, while operating profit increased 30%, reflecting and operating margin improvement as we said earlier, a 200 basis points and we expect this leverage and margin expansion to continue as revenues recover we.
<unk> forecast organic Rev.
For revenue and profit growth to accelerate as we move through this year 2021, especially in the second half supported by continued recovery from the pandemic.
During the quarter, we completed the final phase of the <unk> acquisition and these businesses, which spans 17 countries have been largely integrated well ahead of schedule and we're on track to exceed our original synergy targets of 20 plus million dollars.
On April one we completed our purchase of <unk>.
For $213 million, reflecting a pre synergy purchase multiple of about seven times EBITDA.
And I provide managed services for approximately 100000 Atms and brings.
It's strong manage and management highly scalable business model and cross selling opportunities to brinks.
And as a great platform on which we can accelerate our two three strategy and North America I'll cover <unk> in more detail and a few minutes.
Together G for S&P are expected to add approximately $130 million and adjusted EBITDA. This year and more next year as revenue growth.
Returns and full run rate synergies are realized.
And we're increasing our 2000 and 'twenty one guidance at midpoint to over $700 million of EBITDA and EPS of approximately $5 per share which includes the positive impact for the <unk> acquisition as well as a cross currency swap I'll review guidance more on the next slide.
And finally, I'm actually report the we plan to host an Investor day.
October.
When we will provide the details behind our three year strategic plan and prevent and present financial targets.
Our current strategic plan, which we call <unk>.
Three years.
Three layers excuse me two of which expand on the first three year plan, we're continuing to drive organic growth by taking our strategy one point on initiatives wider and deeper across our global footprint boosted by the operating leverage initiatives that are already driving margin growth.
<unk> and lean initiatives are now a part of our core brinks business system and are becoming embedded in our culture.
For S&P acquisitions provide a strong start to our second strat plan.
And with $1 $4 billion of liquidity.
<unk> additional acquisition opportunities to support our core business and our two point or digital cash initiatives, which are aimed at driving subscription based recurring revenue streams beginning next year.
Our Investor day event.
And they also include an update on the potential growth opportunity related to cannabis pending the outcome of recent legislation efforts at the federal level turning to the next page slide five summarizes our updated and increased guidance for 2021, we're targeting revenue growth of 21% at midpoint due for four.
And $5 billion drew.
Driven primarily by inorganic growth from acquisitions and continued organic revenue growth recovery.
Operating profit growth of 34% at midpoint to $511 million.
And reflecting a margin of 11, 5% again, an increase of 120 basis points over last year.
And note is at a high and of our revenue range, which is equivalent to about 2019 pro forma revenue the margin increases of 170 basis points.
Our garden guidance target is for you.
Yes.
EBIT growth of 25%.
Two 705 million at midpoint and EPS growth of 32% at midpoint of just under $5 per share.
It is also important to note the top of our revenue guidance range.
Which only gets us back to around 100% of pro forma 2019 revenue or EBITDA guidance is approximately $750 million at 16% margin.
Once again, we're expecting revenue and profit growth to accelerate in the second half of the year. Our confidence is based on continued economic recovery from the pandemic lows and realization of full year benefits from the G Force acquisitions, the sustain the sustainability of operating leverage driven by our cost reductions and normal seasonality.
Okay.
Consistent with prior quarters during the pandemic first quarter internal use and external cash levels remain elevated versus prior years, contrary actually to what many might have expected during the pandemic.
Based on Federal reserve published data cash and circulation and and use and the first quarter is up 17% versus prior year, a material increase over the 30 year historical six plus and compound annual growth rate. Similarly euro currency in circulation is also up over 12% and the first quarter, which is high.
And then it's historical annual compound growth rates of about 9%.
History has also shown that during periods of recession and economic stimulus. They use of cash increases as a percentage of payments, suggesting that we are suggesting that we are in and we will continue to be in a period of increased cash usage.
And internal metrics also support this data as the value of note flowing through our U S operations increased 4% over last year's first quarter. When the pandemic was not much of a factor.
And our acquisition of <unk> also provides what we feel is a leading indicator on cash usage.
The number of cash withdrawal transactions that PAA is Atms that were opened a year ago is up more than 18% over the quarter. The same first quarter of last year and the value of these transactions is up even more.
These internal and external data points and demonstrate the resiliency and persistence of cash usage, even during the pandemic.
And they support the fact that cash uses is not going away and in fact getting stronger.
Slide six presents data from reputable independent sources also demonstrating the cash use is strong and growing the combination of a long term forecast for strong in person retail sales and the continued use of cash is one of the most popular forms of payment and supports the case the cash management is a great.
Growth opportunity for brinks.
The graph on the left hand side and this slide is compelling and 2020. According to the U S Census Bureau, 86%.
Excuse me, 86% of retail spending was done in person even during a pandemic.
And experts predict that by 2025 in person retail spending will still accounts for over three quarters of total retail sales.
And importantly, when it comes to in person and transactions. The most juice most used form of payment still as cash at about 35% ahead of both debit and credit.
It's also important to remember that retail sales are expected to reach over six trillion and 2025.
So the size of in person and retail sales at over five train will be larger.
Five years from now than it was pre pandemic.
Even with the projected continued acceleration and ecommerce sales growth.
And again based on this data brinks is very much and a growth business given our strategic focus on increasing our organic revenue growth through acquisitions and our development of digital cash solutions for a very large market of uninvented retailers and we're highly confident that we'll continue to deliver strong organic revenue growth that will creep.
Get value for our shareholders.
Please visit our website to see this data and more on cash and retail sales. Please visit investors not brinks dot com with.
With that I'll now turn it over to Ron for a review on financials, Thanks, Doug and good day everyone.
Slide seven is a format that we include each quarter that covers the for key metrics of revenue operating profit adjusted EBITDA and EPS for the current quarter, the current quarter and constant currency and the reported results for the same quarter and prior years I'll go into detail on each of these metrics on the next two.
Slides.
Turning to slide eight.
Please remember that we disclosed acquisition separately for the first 12 months of ownership at which time. They are mostly integrated and then included in organic results.
Our results for this quarter include the February 2021 acquisitions of the G Force cash businesses, and Macau, Kuwait, and Luxembourg, which completed the <unk> acquisition as announced last year.
<unk> and the second quarter of 2021. Our results will also include the recent acquisition.
Okay.
2021, first quarter revenue was up 13% and constant currency as the pandemic related organic decline of 6% was more than offset by a 20% contribution from acquisitions.
Negative forex reduced revenue by $9 million or 1% as strength and the euro was more than offset by weakness in Latin American currencies.
Reported revenue was $978 million up $105 million or 12% versus the first quarter last year.
And general revenue recovery was consistent with the fourth quarter 2020, except for Europe, where lockdowns were re imposed by governments and response to a post new year's wave of the pandemic.
First quarter operating profit was up about 50% and constant currency with organic growth contributing 30% and acquisitions added 20%.
As I noted last quarter, we believe that the fact, we achieved organic operating growth. Despite an organic revenue decline is a testament to our proactive cost realignment.
Forex reduced operating profit by $5 million or minus 8% reported operating profit for the quarter was $90 million and the operating margin was nine 2% up 200 bps from the first quarter 2020, and just 20 bps below our 2019 first quarter.
<unk> pre pandemic operating profit margin of nine 4%.
Corporate expense and the first quarter was up $15 million due primarily to a change and the methodology for allocating allowance for doubtful accounts with our updated reporting segments under the previous methodology conditions, mostly associated with the pandemic overstated the country accrual by $12 three.
$3 million, the new methodology, consistent with U S. GAAP reversed the country accrual overstatement, resulting in an increase and segment operating profit and a corresponding $12 $3 million charge and corporate there was no impact to consolidated operating profit for the quarter more information on the methodology change.
And is included in our 10-Q filings.
Segment results are included in the appendix and in our press release moving to slide nine.
First quarter interest expense was $27 million up $8 million versus the same period last year due primarily to higher debt associated with the G Force acquisitions tax expense and the quarter was $20 million 8 million higher than last year driven by higher income.
Our full year non-GAAP effective tax rate is estimated at 32% in line with last year.
And $90 million at first quarter 2021, operating profit was reduced by $27 million of interest expense $20 million of taxes and by $2 million and minority interest and other to generate $41 million of income from continuing operations.
Dividing this by $50 5 million weighted average diluted shares outstanding generated 82 cents of earnings per share up 32, or 64% versus 50.
And the first quarter last year.
Our EPS comparison was positively impacted versus a 2020 by about <unk> from a gain on marketable securities versus a loss last year and by <unk> from the $1 1 million share repurchase and the third quarter 2020, which reduced our outstanding shares by about 2%.
To calculate and first quarter 2021 adjusted EBITDA.
We started with $41 million of income from continuing operations and added $44 million of a price depreciation and amortization.
Which was up $7 million due primarily to the G for as cash acquisitions interest expense and taxes as just discussed were $47 million and noncash share based compensation was 8 million backing out $3 million and gains on marketable securities resulted in $137 million of adjusted EBITDA up.
$33 million or plus 32% versus prior year now on to Capex on slide 10.
Total cash Capex for 2020 was $119 million, which included $101 million for operating Capex and $18 million to purchase cash devices, we acquired another $31 million of assets under financing leases.
This year, we expect cash capex of about $180 million or approximately 4% of revenue, which includes approximately $125 million for legacy <unk> businesses $25 million for the acquired G for as cash businesses and $30 million for cash devices.
This includes $10 million cash devices for PAA.
We expect to acquire about $35 million of operating assets under financing leases.
It's important to note that many of our strategy to point O initiatives utilized cash devices. The cost for these cash devices, whether purchased or leased will be included as a component of the subscription agreement as a cost of services sold.
It's our intent to source the majority of these devices under operating lease arrangements if were unable to secure operating leases and certain countries, our cash and our finance lease Capex put increase capex could also increase if we identify additional opportunities to deploy capital with returns above our minimum targets.
Turning to 2021 free cash flow on slide 11.
Our 2021 free cash flow target range is $185 million to $275 million, which reflects our adjusted EBITDA guidance range of $660 million to $750 million.
We expect to use about $95 million of cash for working capital growth and restructuring.
This includes about $35 million and 2020 deferred payroll and other taxes payable.
Cash taxes should be approximately $95 million and cash interest about $105 million and increase around $27 million due primarily to a full year of debt related to the <unk> acquisition and additional debt related to the <unk> acquisition.
As I just discussed our net cash capex target is around $180 million and increase of $67 million versus last year.
And our free cash flow target, excluding the payment of taxes deferred from 2020 will be 2000, and it will be $220 million to $310 million generating and EBITDA to free cash flow conversion ratio of about 33% to 41% up from the 28% achieved last year on the same basis advance.
Slide 12.
The bars on this chart represent the source of our liquidity the cash available on our business and capacity and our revolving credit facility at.
At the top of each bar you can see our cash below the cash as our credit facility, both available and drawn and below that our debt and financial leases.
The bars, each represent a point and time at year end 2020 quarter and March 31, 2021, and pro forma year and 2021, considering our 2021 free cash flow target and the impact of the <unk> acquisition.
At the end of last year, we had approximately $1 6 billion and liquidity and the first quarter of this year, we used approximately $108 million and cash to complete the G for as cash acquisitions, and Kuwait, Macau and Luxembourg at the end of 2021, we're expecting to have liquidity of about $1 4 billion, which includes the.
Impact of our completed $213 million acquisition of PAA and the midpoint of our 2021 free cash flow target of between $185 and $275 million.
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 is L plus 200.
On April 26, 2021, we entered into a 10 year U S. Dollar Euro cross currency interest rate swap and $400 million notes issued last June we locked in a 151 bps reduction and rate that should reduce 2021 interest expense by about $4 million and increased too.
And in 'twenty, one EPS by around <unk>.
Last year, we amended our bank agreement through February 2024 to replace that total net leverage covenant with a secured debt leverage covenant and the 2021 cap on the new Covenant is for two five times and our March 31, 2021 pro forma secured leverage ratio.
Was one eight times, we don't anticipate approaching our covenant limits at anytime in the foreseeable future.
Our legacy liabilities, including the U S frozen pension plan and the voluntary employee benefit association or VEBA plan benefited from rising discount rates and the American recovery Relief Act of 2021.
As a result and based on current assumptions, we expect to make no cash contributions to these plans until 2029.
Our quarterly dividend is currently 15 per share and our credit rating remains strong, let's look at our net debt and leverage on slide 13.
This slide illustrates our actual net debt and financial leverage at year end 2020 March 31, 2021, and our estimated for the year end 2021.
Current year and estimates include the $213 million acquisition of.
$705 million midpoint of our adjusted EBITDA range, and our free cash flow target range between $185 and $275 million and.
Net debt at the end of 2020 was $1 9 billion that was up over $500 million versus year end 2019, due primarily to the debt incurred to complete the G for as cash acquisition at December 31, 2020, our total leverage ratio was three three times and as I just mentioned are fully synergize.
<unk> leverage ratio at March 31, 2021 was approximately one eight times at the end of 2021, given our free cash flow guidance and the completion of the G for us and <unk> acquisitions, we're estimating our net debt range of 2.6 billion to $2, one 5 billion, which.
Combined with our EBITDA guidance of $660 million to $750 million is expected to reduce leverage by up to a half a turn to a midpoint and total leverage ratio of about three point O turns with that I'll hand, it back over to Doug for a strategic update.
Thanks, Ron let's talk a little bit now just a strategy.
<unk> 15 summarizes our current strategic plan SP to which builds on the proven initiatives executed in our first strategic plan that covered the three years through 2019 and resulted in 8% annual revenue growth on a compound annual basis. During this period of time and compound annual growth rate for operating income.
<unk> over 20% per year.
The bottom layer outlines our one <unk> initiatives supporting core organic growth and cost reductions our SP to target is to achieve over $70 million of cost reductions and productivity improvements by 2022, driven by our lean initiatives and core brinks continuous improvement culture, we're driving our costs.
Reductions wider and deeper by expanding question and just initiatives into more countries and implementing over 18 different proven operational initiatives, including fleet savings route optimization money processing center standardization and more of.
These initiatives are supported by dedicated lean experts in each country as part of the newly introduced Brinks business system.
Sustained cost reductions of SG&A and other fixed expenses have been realized through our recent restructurings and last year's priority three targeted cost Takeouts. These cost reductions and structural changes are driving operating leverage as demonstrated this quarter and the higher <unk> margins versus last year.
And 2019, even with lower revenue levels.
The benefit of operating leverage will continue to be material as organic revenue recovers from the pandemic, yielding higher margins going forward.
This leverage is evident in our 2021 earnings guidance, which shows a margin improvement of 100 basis points from the low end of the guidance with margins at 11% to the high end of the guidance at 12%.
As organic revenue continues to recover operating leverage is expected to add over 150 basis points to our profit margin by 2022, and WD initiatives will drive additional growth as well as we spoke about earlier.
The middle layer of our strategy represents our 1.1.
And $1 five acquisition strategy, including G for S&P, AI, which are the first acquisitions in SPD <unk>.
Where we have invested approximately $2 $2 billion 15 acquisitions since 2017.
Each of these acquisitions support our overall growth strategy and will collectively yield close to six times EBITDA on a post synergy basis.
For the G for acquisitions, largely integrated and run rate synergies recognized we're continuing to identify and evaluate additional acquisition opportunities to support our core businesses and our new two co strategy.
What's new and the two <unk> strategy.
As the top layer, which includes the introduction and development of digital cash solutions through an integrated platform of services technology and devices, leveraging our core CIP and money processing capabilities and assets, we call two point Brink's complete as it offers complete digital focused solutions for the <unk>.
<unk> cash ecosystem.
We believe our one <unk> and one five strategies form a very strong foundation that by themselves will drive double digit earnings growth well into the future we.
We expect that the strong base of growth will be supplemented and starting latter part or late this year by this new strategic layer, which is designed to drive increased organic revenue growth and higher margins by offering digital cash management and payment solutions.
Turning to slide 16, with 2.0, we're taking our tech enabled strengths, including mobile apps systemwide track and trace customer portals portals, and low cost devices, and combining them with our core capabilities and cash logistics and money processing.
This enables us to deliver complete digital cash management solutions that provide faster access to working capital for retailers and are easy to use.
And as easy to use as other digital payment options.
By integrating these new services with our core cash operations, we're creating a platform of truly differentiated digital cash management solutions that we include and.
As for distinct strategic pillars.
On the left hand side two one is a digital cash solution offering a complete hassle free tech enabled cash settlement for retailers that just is is just is timely and is easy to use and.
And most cases.
And at least as cost effective as processing credit and debit card purchases.
In addition to optimizing working capital are $2, one solutions reduce labor costs and theft and related losses.
The box and the upper right hand corner of page 16 illustrates how the $2 one digital cash solution combines and App and brinks device similar to a credit card and a reader to provide credit for cash deposited into the device delivering and experienced similar to processing cash pay.
And that's.
Our two two solution extends cash process automation and settlement, two large big box and enterprise retailers and enabling them to automate and optimize their high volumes of cash from the register to the back office to their banks using brinks as a single service provider.
Given our acquisition of <unk> I'll cover two three ATM solutions separately and just a moment.
And the right hand side, our two for digital payment solution integrates our $2 one digital cash management solutions with other payment methods to provide a unified solution for small and medium sized businesses.
All digital payment process.
Our solely focused.
Most all digital payment processors are solely focused on processing noncash payments with no solution offered to retailers for handling cash for example square has stated that cash represents about 30% of their retailers in store payments, yet day and most of all.
Payment processors do not offer any solution for managing cash payments are too for solution is designed to do just that and fill that void.
With the recent <unk> acquisition I wanted to summarize our two three strategy and a bit more detail over the next several pages just as a preamble to our investor day.
With two point with two three we provide a full range of ATM services and important part of the cash.
Cash and ecosystem that also converts digital to cash through the use of cards and other devices.
<unk> are critical consumer touch points that are also expensive for retailers and financial institutions to operate and our non core frankly to their businesses by outsourcing these devices to brinks retailers and financial institutions can reduce costs and more importantly focus on the needs of their customers and their business.
Our <unk> relationship and France is a great example of a fully outsourced FY and managed service for a complete ATM estate and more than 11000, Atms, which will be coming on and the second half of this year.
Piano.
Enables us to offer a similar for range of ATM managed services and North America.
We believe the market for ATM managed services and ATM managed services will be a steady source of growth for brinks as it has been for P&I and we offer.
Both ATM only services as well as and expanded complete cash services offering.
Retailers need ATM partners like <unk> that offer an array of leading technology solutions that are tailored to their needs and desires up too and income, including a complete managed service.
As illustrated in the right hand portion of this slide.
And as financial institutions rationalize their branch networks. They are increasingly relying on Atms as a main source of customer interaction and moving to outsourced.
And <unk> services.
Before.
And BPC Brinks ATM services for the most part were comprised primarily of cash fulfillment and some first line and second line maintenance services and as shown and the lower section of the Blue services.
Illustration on this page.
Brinks now provides a full and Duane range of higher value higher margin services. The goal is to develop multiple recurring revenue streams with long term subscription based contracts.
And the benefits for customers include single source access to a full range of propriety, ATM technology, and operating and management systems by operating ATM.
And by outsourcing ATM operations, and even ownership our customers can free up resources and capital and focus again on their business. We believe some of our financial institutions, especially and regional and community banks and credit unions will increasingly look to outsource these functions and longer term the outsourcing of Atms.
By larger banks and the U S tier one and tier two financial institutions should be another growth opportunity just as it is starting to be for us and Europe.
<unk> is the largest price.
<unk> held a provider of ATM services and the U S with a platform of more than 800000 active ATM service locations on our full year 2021 basis.
And is projected to generate gross revenue of approximately $320 million and adjusted EBITDA of approximately $30 million based and Dallas PAA employs about 225 people and offers a full range of managed services and technology tools for ATM owner operators NPA PAA owned Atms.
In summary.
The addition of PAA for us accelerates our execution of strategy to three with a strong U S platform and brings a highly scalable asset light business model offering SaaS technology to both retailers and <unk>.
<unk> also offers significant cross selling opportunities to market, our brinks 2.0 services to its current customers starting with <unk>.
And 70000, plus merchant partners and day market ATM ATM services to banks and <unk> as well as other retail customers. These services include obviously, our 2.0 cash management and ATM solutions for retailers and all from one source.
And again as we said and I also think expands the potential for five value outsourced ATM networks for <unk>, both in the U S and on a global basis.
Under the leadership of CEO.
David Dove, <unk> has an exceptional management team with deep industry experience and offer significant potential for cost and revenue synergies and.
In other words pie is ready to go and is expected to be accretive to our earnings this year.
I'll close with the slide that summarizes our recent performance our increased guidance and our next three year strategic plan.
We expect substantial improvement in 2021 and beyond with midpoint 2000, and 'twenty one guidance of revenue up 21% EBITDA up 25% to 700 plus million dollars and EPS EPS up over 30%.
And as a reminder, our 2021 and the guidance does not include any material contribution from our strategy to point out.
And as we and as we.
Enter what we believe will be a robust post pandemic economic recovery brinks is and emerging stronger than ever with substantial growth opportunities underpinned by operating leverage that will increase.
And with our recovery.
We have a proven global management proven results a strong balance sheet ample liquidity.
And and expanded global footprint.
A realigned cost strategy structure, and a compelling strategic plan to expand our presence and the cash ecosystem with new digital solutions.
Once again I want to thank our global team and all of our employees around the world who have proven their ability to execute very.
Execute very effectively under difficult conditions, and we recognize that the last year under the global Vandalic has been tough for all of our team members and their families.
To them, we are well positioned to deliver accelerated growth as economies reopen and as we execute on our strategic plan and we look.
Look forward to disclosing more information on these strategies when we host an investor day.
Keith I'll turn it back to you and and open up for questions.
Yes. Thank you.
Ill begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone.
If youre using a speakerphone please pick up your handset before pressing the keys to try your question. Please press Star then two.
At this time, we will pause momentarily to assemble the roster.
And the first question comes from George Tong with Goldman Sachs.
Hi, Thanks, good morning.
You indicated that the high end of your 2021 guidance assumes a return to 2019 revenues and a pro forma basis can you discuss what trends youre seeing with market share gains and market penetration and pricing across each of your for geographies that support this outlook.
Well George that's a pretty significant question if youre looking at all the geographies and looking at the pricing and everything else I think what we.
And what we really are seeing is a recovery that is.
And quite different and many other geographies, but will start to accelerate at different paces through each of the geographies. What we saw in the first quarter.
Was the U S not accelerate dramatically by continuing to improve.
And we think that's a very good sign.
If you think back as an example.
And the U S. While things seemed like they've have come a long way it's only.
And really and the start latter part of February that we started rolling out true vaccines of any consequence, and the U S. But they started to really make a material improvement and the economy and where things are going and the U. S. Clearly is ahead of most other countries not all like Israel.
But.
But I think thats, what we will continue to see that will drive.
Organic revenues back to 2019 levels and beyond and remember I didn't suggest that our our guidance for the year will be that and Thats. Our high end of our guidance and what we're really suggesting is the midpoint that's closer to about 5% below the top end of the range, but clearly we expect to see significantly.
Increased.
Acceleration and the second half of this year as we see economies come back and as we said and our comments and I think as most people have seen this was a tougher than expected quarter for European markets, and particularly with government shutdowns and mandated lockdowns, which we start we're start.
And to see some light of the tunnel.
And Europe.
From those government mandated lockdowns and the latter part of this quarter.
Got it that's helpful and just a follow up on that question.
Can you discuss the relative potential growth in each of the for geographies and in other words, where do you expect the recovery to be the quickest and then where do you expect it to be most lagged or most.
And performance.
And again.
I think we will see steady recovery and.
And in our markets and the U S and it's ahead of other countries Israel probably is one that.
Because of the vaccination rate.
It jumped ahead, but not until the end of the quarter when they really reopen the economy and Israel and Thats, an interesting and example.
Of that.
So I think if you take Europe as a whole.
It is lagging at least by a quarter of the U S and and maybe some other other markets.
But that'll be the key drivers one vaccinations happen and as they as they move for we expect though to continue to see strong cash usage and.
And places that we have new platform positions and like Eastern Europe, and Asia, Certainly South America continues to be extremely strong and it varies some Brazil is lagging in terms of its recovery.
The use of cash and all of those locations, including Mexico and other countries in South America is extremely strong and and some of those countries where at or or back at 2019 levels for revenue already.
Got it that's helpful. And then secondly on the cost side Youre expanding your cost initiatives into more countries to help drive margin expansion can you elaborate and where you see most opportunity for cost savings outside of North America with your wider and deeper strategy and what.
EBITDA margins can expand to longer term.
While we won't share what our EBITDA margins will expand to longer term and.
Until we get to Investor day, and I think thats the appropriate time.
And that across the board, but in the comments and in our numbers that are on page 15, we did.
Provide some indication of the improvements and we laid out that.
And the layering of the cost reductions.
And that we've laid out some targets on with the expanded.
Rollout to more countries.
Remember, we're in 50 plus countries now on the ground.
So as we rollout to more of these countries, including the additional 14, New G Force countries.
And we're rolling out a lot of the same initiatives that improve and to be significant cost improvements and implementing our lean strategies, which drive both cost and capacity improvements and those give us the ability in those countries to continue to.
And to improve our margins. This is not a one year two year and then and and this is a way that we do business. This is part of of the culture and that will continue to roll and continuously improve improve our capacity improve our service to our customers and improve our costs going forward, but and the short term.
And we've laid out this year and next year $70 million associated with cost savings.
Related specifically to the lighter and deeper programs as well as then the co.
<unk> leverage.
Improvements and margin improvements.
And we suggested would be.
We and project would be probably 100 plus basis points through next year, depending on where revenues recover too.
And those two combined give us the base.
And with then adding to that for 100 or excuse me the one five.
Acquisition for <unk>.
Benefits from synergies and then growth from those additional countries as well that is our core business and that's what's going to continue to drive double digit growth. This year and next year and then on top of that we're laying on these new strategies and we'll talk more about.
And and.
In October and that I did speak a little bit about already today with a $2 three strategies.
Got it very helpful. Thank you.
The key piece here and then I wanted to emphasize this is that this is part of the culture. This is part of where we're going and 2023, we'll be talking about more cost reductions as a result of a one point and wider and deeper and the way that we move forward.
Got it thank you.
Thank you and the next question comes from Tobey Sommer with Truth Securities.
Good morning, Tobey. Thank you.
Thanks.
Could you talk about your.
Your ATM transaction and some of that data you cited how much was the value of transactions up in the U S and the quarter and could you explain the leading indicators and nature of this metric for core CIT and the U S.
Yes, Tobey I think what we with the acquisition of <unk>.
And we gain some additional insights that we really didn't have before of good sized ATM player in terms of the transactions.
And that go through and so we just wanted to provide some additional insights this is effective.
Same store sales and other words same.
ATM locations that were opened last year and the increase of of withdrawal transactions and as we said the number actually for dollars going through was up even a little bit higher than the 18%.
And we think Thats, a good indicator and I think most of the many industry analysts suggest that ATM transactions and the amount that's being put into the economy is a good indication that is a good indication of where the economy is going and the amount of cash that we see going forward.
Our primary purpose of continuing to price provided this information is not to suggest that.
And we see a for a five or a 10% increase and.
And our numbers or a 17% increase and and.
And cash and circulation that we should see a 17% increase and.
And our revenue.
Unfortunately.
And I kind of put it that way our model in the U S is not directly tied to the amount of cash that is going through.
The.
And the economy.
And which unlike a credit card and debit cards. It is.
But it does give a very strong and I think very positive indication that that number is not flat.
And I point down and it's greater than historical numbers have been which suggesting and the cash is not going away in fact and no ways of going away. It's just the opposite that's the primary message and point here, yes, which means that our opportunity is strong our business opportunities are strong and in fact, there's significant white space and I like to call. It out there of transactions that are using.
Cash and that don't have any services vendor services by a third party provided to them and Thats. The message that we're trying to get to and that's the opportunity and the future. So our core business.
And it's very much intact margins are improving we see the growth opportunities with recovery and the and the economy and then on top of that.
There is an opportunity to go after these additional white space of cash payments that have not been tapped into the past.
Thank you.
And I know the vaccination program and the U S has been very fluid and it's very recent but has.
The increase vaccination rates translated into and ability to rollout your pilots and beta customers for strategy 2.0 and.
And in a in a better and perhaps faster fashion, so there'll be able to get up and running and and use the service and start to assess what it means for them.
It's starting to Tobey.
And as I've said two months ago, when we talked about at the end of our fourth quarter and results at the end of February.
We are.
We are disappointed if you will and the lag times and delays and a lot of this has caused and the program. It's also given us some time to make sure that we get things right as well.
But I think we're just starting to see that I was just speaking with some of our team over the last week and what they're seeing is a refocus of many retailers to start taking a look at what can we do to improve efficiencies going forward rather than just how do I survive through the pandemic timeframe, how do I focus on restarting my business.
And which in those type of situations, which is what we are just starting to get out of.
Retailers are that is and those type of situations. What you end up with is the focus is not is how do we materially changed my processes or how do I put new new things and to prove and to prove my productivity and efficiency I think theyre just starting to take a look at those things and we will start seeing a refocus on on that and that's going to also be.
I think hastened by accelerated by the fact that I think the focus is going to be more on labor ability to get labor and.
And.
And stores are going to be more focused on making sure that labor and their people.
Support the significant increase and and retail sales.
Great and.
I had a.
Another question.
With respect to free flow.
Free cash flow conversion from EBITDA. Thanks for that bridge for 2021. That's helpful could you give us a sense for what a normalized free cash flow conversion range might look like as a.
And the business kind of continues to bounce back post pandemic.
2021 range is appropriate for out years as well.
Toby if you look at slide 11, where we went through the free cash flow as Doug showed on his concluding slide and it still may be up on the screen.
We see post pandemic based on all the initiatives that we just discussed those cost initiatives. The WD the strategy to point out continued growth and our adjusted EBITDA we.
We do not see continued growth and restructuring that's primarily tied to acquisitions and so and 2021 that yellow bar has quite a bit of restructuring and.
And there and we will continue to have working capital needs as the revenue growth.
But that that first box should be smaller cash taxes, and we don't talk much about it but we have years of Nols and tax attributes that we can utilize that will keep our cash taxes about $100 million range and the future even as earnings and EBITDA grow into.
Interest is going to get a little bit higher when we have a full year impact.
The incremental debt.
That we assumed with the G Force acquisition, primarily the incremental $400 million in June of last year, when that rolls over and youre going to see and incremental increase in cash interest.
Interest rates, we do have a lot of it locked in.
Fixed and.
And where we're going to be able to keep.
Keep the rate pretty pretty flat, despite what you're hearing and the market about increased rates generally and then finally the cash capex.
Mentioned in my prepared remarks that.
2021 is going to be at 4% as we start coming up and the next few years to the anniversary date.
Date of some of the new generation trucks, where we can replace just the chassis and not the entire truck, we're going to get what I call. It Capex holiday and Youll expect that Capex number to decline below 4% of revenue, we're targeting at least three and a half, but it's yet to be seen so youll see capex as a percentage of revenue decline.
And then dividends.
And we look at that all the time.
So far what we've heard for the past few years as our investors prefer us to redeploy capital.
And through Capex, and M&A, which has a much higher returns and so.
The board, obviously looks at that regularly certainly on an annual basis, but right now at.
30% to $35 million and cash Capex, it's not a material number so I think I've given you all the pieces, but the main driver of our free cash flow conversion metric is going to be the growth of EBITDA, where these other match metrics are relatively flat or declining.
Perfect. Thank you very much for that outlook.
Thanks Tobey.
Thank you and told me I just want to reemphasize, we're looking at EBIT going up at least 100 million and this year versus last year and 2019 on a on a midpoint basis and so it's not only with these other areas that we are reducing capex spend and and managing and working capital reducing of any restructure.
And expenses going.
Going forward, but also we are growing the topline for trillium materially and 100 plus man.
Year is pretty material.
I appreciate that thank you. Thank you.
Okay. Thank you and once again. Please press Star then one if you would like to ask a question.
And then ask question on console and Santa England, and wanted to bear and bargain.
Hey, guys. Thanks for taking the questions.
And I was just wondering should we should.
Should we expect that future M&A is going to focus more on the adjacent markets and like the <unk>.
<unk>.
Core on core <unk>.
And I still the main focus of M&A or are you engaging at being a bit of price going forward.
We look at absolutely everything Sam we have a record of being highly disciplined.
But a lot of this is.
Based on what's in the market at a certain time so.
And the ability and the 14 additional geographies that we got with the G Force acquisition to do bolt ons.
And our core business is something that we're exploring but none of these are really going to be large deals.
But.
And you could expect some transactions and the future and the new geographies.
To accelerate the growth.
And the impact and the timing of our two point O initiatives. We're also looking at potential acquisitions, there, but again.
We're highly cognizant of brinks multiple and the multiple that some of these.
And more finsen fin serve.
Acquisitions have make a lot of acquisitions and that space highly challenging.
To be accretive and we do focus on our shareholders and the returns and.
So you are probably going to see.
A lot of continued organic growth.
But our eyes and ears are open and we do look at a lot of different things.
They've kind of and.
Another way and are in our core and one five type acquisitions.
Acquisitions, the bigger elephants.
And I have already most of those have been taken.
And there's still opportunities for nice tuck ins, if they are accretive and they make a lot of sense and.
I think though as a good example.
And one that we think gives us a platform ties together nicely and gives us great synergies at least on the topline, which werent as much as what we were focusing on.
The core acquisitions, we've done to date.
But gives us that opportunity for expanding our organic growth cross selling et cetera, and we think we did that at a pretty reasonable multiple staying consistent with a post synergy that's going to be closer to the sixes and therefore, good value for investors as well. It's a good example.
Great. Thanks, Yeah, Okay come on and talk about the <unk> deal I, just wondered if you're seeing interest already from existing customers and that offering and how long do you thinking it would take to get to the full cross selling benefits from that deal.
We already have seen interest from customers on both sides and I think the ability to put the package together to expand where we go out with this both and what I'm, saying is complete package will be very interesting I think it will take some time to ramp that up but we're already starting to get the organizations.
Aligned to do that.
And having the conversations with a lot other customers on both sides. So I think I think it will be exciting and compelling and a complete package gives us much more.
Latitude and options and ways to put it too.
A complete package for customers.
Okay, Great and then one more go ahead.
Please.
Go ahead.
Actual actually.
And secondly, I believe is a winded disconnect okay.
So.
And there are no further questions, ladies and gentlemen that will conclude our call for today you may now disconnect your lines.
Thank you. Thank you very much everybody I appreciate your comments.
Yes.