Q2 2021 Brinks Co Earnings Call

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Yeah.

Welcome to the Brinks company second quarter 2021 earnings call Brinks issued a press release on second quarter results. This morning. The company also filed an 8-K that includes the relief on the slides that will be used on today's call.

For those of you listening by phone the release and slides are available in the Investor Relations section of the company's website Brinks dotcom.

At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation.

As a reminder, this conference is being recorded.

Now for the company's Safe Harbor statement this call and the Q&A session will contain forward looking statements actual results could differ materially from projected or estimated results information regarding factors that could cause such differences is available in today's press release and in the company's most recent SEC filings information presented.

And discussed on this call is representative as of today only brinks assumes no obligation to update any forward looking statements. The call is copyrighted and may not be used without written without written permission from brink's. It is now my pleasure to introduce your host Ed Cunningham Vice President on the Investor Relations and corporate Communications Mr. Coney.

You may begin.

Thanks, Kate and good morning, everyone.

Joining me today are CEO, Doug per Se and CFO Ron Domanico.

This morning, we reported second quarter results on both a GAAP and non-GAAP basis.

Non-GAAP results exclude a number of items, including our Venezuela operations, the impact of Argentina's highly inflationary accounting reorganization and restructuring costs items related to acquisitions and dispositions and costs related to an internal loss and certain accounting compliance matters.

We're also providing our results on a constant currency basis, which eliminates changes in foreign currency exchange rates from the prior year.

We believe the non-GAAP results make it easier for investors to assess operating performance between periods. Accordingly, our comments today will focus primarily on non-GAAP results.

Reconciliations are provided in the press release from the appendix to the slides, we're using today and in this morning's 8-K filing all of which can be found on our website.

Now I'll turn the call over to Doug.

Thanks, Ed and good morning, everyone and thanks for joining US today, we reported strong second quarter results clearly demonstrate the resiliency of our business and the continued strength of cash usage around the world ripped.

Reported revenue was up 27%, including organic growth of 15% on a comparable basis and local currency revenue.

Has recovered to 97% in 2019 pre COVID-19 levels supporting a strong recovery from the pandemic lows, even with the unanticipated continued shutdown of many economies, especially in Europe, Latin America and parts of Asia. During the first half of this year.

Operating profit grew 51%.

With a margin rate increase of 160 basis points to 10, 5%, which is 80 basis points above the pre pandemic second quarter 2019 rate of 9.7%.

This suggests that our focus on sustainable cost reductions is having the desired impact on increased margins, even with revenues not yet back to pre pandemic levels.

Adjusted EBITDA was up 39% with a margin rate increase of 130 basis points to 15, 8%, which is 120 basis points above the pre pandemic second quarter 2019 EBITDA right.

And earnings came in at $1.18 per share up 62% over 2020.

And.

40% over the second quarter of 2019.

We achieved these results despite extended.

Shutdowns that affected second quarter results.

Given the year to date impact of the pandemic and the interest certainty regarding the future impact. We now expect full year, 2021% revenue growth in the mid to high teens, and we continue to expect earnings to be around the midpoint of the range, reflecting higher margins.

We expect continued gradual revenue recovery in.

In the second half of this year to provide a strong jumping off point for 2022, 1 year when full year revenue is expected to exceed pre COVID-19 levels.

Our free our preliminary targets for 2022 continue to include strong revenue growth our growth in revenue adjusted EBITDA and cash flow.

In summary, we believe the continued strong and steady improvement in our results. Despite the extended pandemic headwinds is very encouraging as we look ahead to 2022, when we expect it also layer on contributions from our digital growth strategies.

We're looking forward to Investor day in early December we will provide detailed review of our core and digital growth strategies as well as financial projections for 2022.

We're trying to finalize the appropriate format a virtual meeting.

Live event in New York or hybrid items, such as well as you know as soon as we make that decision.

Turning now to slide 4.

Which summarizes our guidance and our preliminary targets for 2022.

With half of 2021 behind US we now expect full year 2021 revenue to be at the lower end of the range, but we still expect to achieve year over year percentage increases as I said before in the mid to upper teens for revenue on.

Our revenue expectations were adjusted.

For 2 reasons. The first is the unexpected persistence of the pandemic related shutdowns, which again negatively impacted our first and second quarters revenues. The second factor was related to a change in how we recognize revenue for our recent acquisition of PDI. This.

This technical change to net revenue recognition reduced our forecast revenue by $50 million or so of this year, but has no impact on profit and in fact actually increases are our margin rate.

While we while the ultimate duration and.

On impact of the pandemic remains difficult to predict we do not expect it to return and we do expect excuse me to return to a more normalized economic conditions as we move through the remainder of this year and more importantly, as we go into 2022.

Full year 2021 operating profit is expected to be approximately at the midpoint of our guidance, reflecting year over year margin rate increases.

At least 150 basis points as we drive adjusted EBITDA growth up 25% versus prior year to approximately $700 million in EPS growth of 32% to a box approximately $5 per share.

This slide also shows our preliminary 2022, EBIT target of approximately $800 million, reflecting growth in the mid teens as Ron will show you. We're also targeting 2022 free cash flow growth of about 50% on or more of EBITDA.

It is important to note that our outlook for both 2020% to 21% 22 was driven primarily by growth in our core operations and does not include any material contribution from our strategy to 1 digital solutions.

More on our core and digital.

Our strategies as we as well as on our 2023 financial targets at our Investor Day event in December I will now turn it over drawn for more financial details.

Thanks, Doug and good day everyone.

Slide 5 is a format that we include each quarter that covers 4 key metrics revenue operating profit adjusted EBITDA and EPS for the current quarter the current quarter in constant currency and the reported results for the same quarter in prior years.

I'll go into detail on each of these metrics in the next 2 slides.

Sure.

On slide 6 please remember that we disclosed acquisitions separately for the first 12 months of ownership.

After 12 months they are mostly integrated and then included in organic results.

Included in acquisitions for this quarter, our AI and most of the former <unk> businesses too.

2021 second quarter revenue was up 22% in constant currency with 15% organic growth versus last year and 7% from acquisitions, while the pandemic continues to impact many countries today. The second quarter of 2020 was globally. The most impacted.

North America, Latin America, and Europe, all grew organically, while the rest of the world was relatively flat.

Positive Forex increased revenue by $39 million or 5% as currencies in most of our markets have improved versus last year's pandemic driven devaluation.

Reported revenue was $1.049 billion.

Up $223 million or 27% versus the second quarter last year in.

In general revenue recovery was consistent with the first quarter 2021.

Despite the impact of lower than expected economic activity caused by new lockdowns imposed by governments in response to Covid variance and increased cases set.

Second quarter reported operating profit was $111 million up over 50% versus last year.

Organic growth was 42%.

Acquisitions added, 5% and Forex, another 4% or operating.

Profit margin of 10, 5% was up 160 bps versus 2020, and up 80 bps versus pre pandemic 2019.

This is evidence that our 2020 cost realignment initiatives are holding and that wider and deeper is gaining traction.

Segment information is included in today's press release and in the appendix recall that in the first quarter. The corporate allocation methodology was changed to more accurately reflect segment performance, but distorts the year to year comparisons of corporate expenses now to slide 7.

Second quarter interest expense was $28 million up $5 million versus the same period last year, primarily due to the higher debt associated with the completed acquisitions.

Tax expense in the quarter was $30 million $12 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.

$111 million of second quarter, 2021, operating profit less interest expense and taxes, plus $6 million in minority interest and other generated $60 million of income from continuing operations.

This is a $1.18 of earnings per share up 45, or 62% versus 73.

In the second quarter last year, the gain on marketable securities positively impacted EPS by about <unk> 16 versus.

At <unk> last year.

Second quarter, 2021, adjusted EBITDA, which excludes $11 million and gains on marketable securities was $166 million up $46 million or plus 39% versus prior year.

Turning to free cash flow on slide 8.

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 around $35 million in 2020 deferred payroll and other taxes payable.

Cash taxes should be approximately $95 million.

Cash interest is expected to be about $105 million, an increase of $27 million.

Due primarily to the incremental debt associated with the <unk> and <unk> acquisitions.

Our net cash Capex target is around $180 million, an increase of $67 million over last year, driven by acquisitions and a return to more normalized investment.

Our free cash flow target, excluding the payment of 2020 deferred taxes would be $220 million to $310 million generating an EBITDA to free cash flow conversion ratio of about 33% to 41% up from the 28% achieved on the same basis last year.

Our preliminary 2022 target is to increase our free cash flow, 50% to a range of $350 million to $400 million.

Which equates to approximately 7 to $8 per share.

Advancing to slide 9.

This slide illustrates our actual net debt and financial leverage at year end 2020 at June 32021, our year end 2021 estimate and the 2022 year end preliminary target that.

The current year end estimates include the $213 million acquisition of <unk>, our adjusted EBITDA range, and our free cash flow target range.

Net debt at the end of 2020 was $1.9 billion.

That was up over half a billion versus year end 2019, due primarily to the debt incurred to complete the G Force cash acquisition on December 31, 2020, our total leverage ratio was 3.3 times.

At the end of 2021, given our free cash flow guidance and the completion of the <unk> and <unk> acquisitions. We are estimating our net debt range of 2.0, $5.5 billion to $2.145 billion, which combined with our EBITDA guidance is expected to reduce leverage by up to half a turn to.

The mid point total leverage ratio of about 3 turns.

Our preliminary target for year end 2022 would reduce the leverage ratio approximately another half turn move.

Moving to slide 10.

Look we spent the last few minutes talking about what we've done and what we're going to do I want to wrap up my remarks with some comments about how we do it.

For 162 years and today in 53 countries, we have practice continuous improvement and corporate citizenship.

That work has been formalized into the brain sustainability program.

It's a comprehensive program under my leadership and directed by the Brinks Board and I'm very pleased with the progress we're making.

We're a signatory to the United Nations Global compact on human rights, we pledged to support CEO action for diversity and inclusion.

We've hired dedicated leaders for diversity equity and inclusion and supplier diversity.

We've expanded the Brinks women's leadership Forum and created employee resource groups.

We've significantly increased our disclosure and recently completed a materiality assessment that will help guide additional sustainability progress for the next 18 to 24 months.

We've been reducing our environmental impact by modernizing our fleet, taking thousands of diesel trucks off the road implementing dual fuel and alternative fuel vehicles and continually optimizing routes to minimize miles driven.

Our strategy 2 <unk> solutions target not only increase customer service, but also a major reduction in weekly stops that could take many more trucks off the roads.

We have made improvements to our already robust governance and risk management and I direct you to our website to learn more about brinks sustainability program.

But perhaps the most compelling role brinks has is economic inclusion.

Approximately 20% of the U S population is unbanked or Underbanked and doesn't have access to credit.

The numbers globally are much higher as.

As the world's largest cash management company Brinks has a critical role in facilitating the global cash ecosystem to serve everyone, but especially the most vulnerable.

For this reason alone I believe that <unk> belongs in every portfolio that is concerned about sustainability and ESG with that I'll hand, it back to Doug.

Thanks, Ron.

Moving to slide 11 summarizes our current strategic plan SP to which builds on the proven initiatives executed in our first strategic plan that over the 3 year period through 2019 resulted in a compound annual growth rate of 8% for revenue and for more than 20% for operating income.

The bottom layer outlines our 1 point on initiatives supporting core organic growth and cost reductions RSP to target is to achieve annual organic revenue growth of at least 5% and we've laid out more than $70 million of cost reductions and productivity improvements by 2022.

We're driving our cost reductions wider and deeper by expanding cost initiatives into more countries and implementing over 18 different proven operational initiatives, including things such as fleet savings route optimization money processing center standardization and much more.

These initiatives are supported by dedicated lean experts in every country and by our overall continuous underlying continuous improvement culture.

Sustained SG&A cost reductions and other fixed cost expense reductions have been realized through our recent restructurings and last year's targeted cost Takeouts. These cost reductions and structural changes are driving operating leverage as demonstrated this quarter by higher op margins versus last year and versus 2.

19, the benefits of operating margins are expected to continue to yield higher margins as revenue recovers from the pandemic lows.

The middle layer represents our $1.5 acquisition strategy, including G for S&P AI, which are the first acquisitions in <unk>, we've invested approximately $2.2 billion.

In 2015 acquisitions since 2017.

Each of these acquisitions support our overall growth strategy and we expect them to collectively represent a post synergy post multiple of less than 6.6 times EBITDA.

With the <unk> acquisition, largely integrated and run rate synergies largely recognized we're well positioned in 2022 to drive revenue and margin rates above pre pandemic levels in the 17 markets included in that acquisition.

As demonstrated by our recent P&I acquisition, our future acquisition focus is primarily on supporting 2 point on growth initiatives pivoting away from our larger core 1 point on acquisitions. However, we will continue to consider smaller tuck in core acquisitions that offer compelling returns.

As Ron mentioned, our key focus is on increasing free cash flow and capital allocation that maximizes total shareholder return, we expect our capex spend as a percent of revenue to continue to decrease while supporting increased revenue growth in our core and 2 point on strategies at above historic.

<unk> levels.

What's new and SPD <unk> as the top layer of our strategy, which includes the development and introduction of digital cash management solutions through an integrated platform of services technology and devices, leveraging our core CIT and money processing capabilities and significant assets we call.

It is due to 2 point on Brink's complete and it offers as it offers complete digitally focused solutions for a broader cash management ecosystem from 1 provider brinks.

We believe our 1 <unk> and 1.5 strategies form a very strong foundation that my themselves will drive double digit earnings growth well into the future.

The strong base of growth will be supplemented by a new strategic layer, which is designed to drive increased organic revenue growth and higher margins by offering digital cash management and payment solutions.

We plan to provide much more detail about the digital solutions at our Investor day event, including specific financial targets and an update on some initial customer wins.

But today I want to simply remind investors in general terms about the potential impact this potential but this opportunity could have on our company and frankly on our industry.

We believe that managing cash for retailers and other merchants is a significant growth opportunity for brinks, especially when you consider that about 85% of retail on merchant locations in the U S. Do not currently use any of our services or the services offered by our competitors. This means that literally millions of potential.

<unk> payment locations are completely on vendor.

Why is this the case, where given the sheer size of the unfunded market, it's hard to pinpoint all the reasons.

Im on vented retailers are simply too small and the cost effective in a cost effective and simple enough management solution for cash has not historically been available.

But many larger uninvented or under vented retailers.

That are nationally known.

And have thousands of locations are also on vented.

To be blunt in some cases some of them probably perceive our industry's traditional solutions and services to simply be too costly or to be frankly too much of a hassle.

This is a potential this is potentially a transformational opportunity and our strategy is targeted directly at this opportunity.

We believe that Brink's complete digital solutions offer a easy to use attractively priced subscription based solution for cash management services offering a compelling benefit per boat vented and invented retailers the.

The benefits listed on.

This slide on the right hand side add up to what we consider a step change in value, making cash management easier much safer and far more efficient than anything else offered by our industry.

Simply our goal is to offer digital cash management solutions that are easy to use and or as cost effective as other debit and credit payment solutions.

As with the development and introduction of many new products or services, we've had our share of growing pains on this along the way, including frankly, the global pandemic.

But we're now expanding our rollout in the U S and in several other global countries with a primary focus on <unk> and underserved national retailers with multiple locations.

And with several recent wins, we're feeling confident that the value of our solutions is beginning to be recognized by customers that historically have used limited or no cash management solution.

The chart on the left side of Slide 12 illustrates the total number of retail and commercial locations in the U S estimated to be in the 300 or excuse me the $3 million plus range. The portion in brown shows that only about 15% of these locations are currently served by brinks or any of our competitors while almost all.

All of them are visited by debit credit payment processors.

This suggests that with the right cash management solution and value proposition the opportunity or what we call the cash white space shown on the chart is tremendous.

To put this opportunity in perspective, we believe that we can capture a significant portion of the potentially unvested market the light blue and even if we capture only a small portion of the rest of the white space unfunded market. The results could increase our retail sales by more than 50 plus percent.

Over the next several years in the U S alone.

We have a ways to go on reaching such a lofty milestone, but we expect to begin showing some meaningful progress as we exit 2021, and remember our 2022 financial targets do not include a material impact from our strategy to 1 brink's complete initiatives again more to come on this at Investor Day.

Let me summarize even with the unanticipated impact of continued shutdowns during the second quarter, we reported revenue growth of 27% and on operating profit growth of 50%. That's good leverage and it supports and is supported by strong margin improvement.

We anticipate that revenue will continue to gradually recover over the second half of this year, providing a strong jumping off point for achieving revenue in 2022 that will exceed pre pandemic levels and will include the benefits of the 2 acquisitions completed since 2019 G for S&P AI.

While we feel confident as we move into the second quarter. This year, we believe that setting the stage for 2022 and beyond is even more important.

I can assure you that we're sharply focused on achieving our 2022 targeted EBIT of $800 million, which is.

Ported by continued revenue growth and strong margin improvement and includes only again, a limited contribution of $2.1 initiatives.

Cash usage continues to grow and cash continues to be a key method of payment in the U S and globally underpinning our future growth and recovery from the pandemic.

We have a proven global management team a strong balance sheet ample liquidity.

<unk> expanded global footprint from our acquisitions, a realigned cost structure coming out of the pandemic and a compelling strategic plan to expand our presence in the cash ecosystem with new digital solutions.

And we look forward to disclosing more information on these strategies and our 2023 financials, when we host financial and Investor Day in December Okay, now back to you and open for questions.

We will now begin the question and answer session to ask a question you May Press Star then 1 on your Touchtone phone. If you are using a speakerphone. Please pick up your handset before pressing the keys to withdraw from the question queue. Please press Star then 2 at this time, we will pause momentarily to assemble our roster.

The first question is from George Tong of Goldman Sachs. Please go ahead.

Hi, Thanks, Good morning, good morning, <unk> expect 2020.

1 revenue performance to come on that's the lower end of the full year guidance due in part to rising Covid cases can you discuss how revenue trends progressed through each of the months moving through the second quarter and into early July.

Yes, I think George what we tried to point out that when.

When we started the year and actually as we were going through the first quarter we.

We continue to see.

Shutdowns and I'm not sure it's increased COVID-19 cases, but at the shutdowns.

In the first quarter coming out of the first quarter going into the second quarter continued in Europe further and longer than we would've anticipated and several countries in South America as well as actually in Asia as well.

You kind of a good news and we don't know yet I'm not sure anybody knows yet the good news is as we moved out of the last month and in other words June of the second quarter. We started to see the European opens up open up countries open up markedly.

We don't know and I think we're all speculating on where the Delta.

Next wave that we're seeing in various countries in varying degrees, depending on the vaccination rates in the countries.

We're not sure how that will impact things, but we clearly saw an improvement, particularly in Europe.

In the latter part in June latter part of the second quarter.

And I think the key that we tried to point out is as we saw an improvement even in the second quarter that was not as strong as we would have liked because of the government mandated shutdowns to a local currency rate of 97% of pre COVID-19 levels up from the.

April year to date rate of 96%.

Debt we disclosed.

As we even as we went through the second quarter. So, hence we're suggesting that we will continue to see not a step change, but a gradual increase.

From that to get to a level of 100% of pre COVID-19 levels, our 2019 levels for the full year of next year.

Got it that's helpful and just a follow up on some of the geographic performance you mentioned like a little bit about Europe Asia and Latin America.

Can you also include in your discussion on how those geographies compared with North America in terms of the recovery and perhaps rank order, where you see the most strength coming out of <unk>.

Well coming out of the quarter, George I would say that the U S.

Has the opportunity we have after Israel I think the highest level of vaccination seems to have stalled for whatever reason around half the adult population.

But nevertheless, we're seeing openings quite strong so I would say the biggest opportunity for recovery would be in the U S.

Every country is different.

With their reopening and a vaccination population now approximately 70% is doing extremely well.

And again as Doug mentioned.

France for example, where and when it started to reopen on June 20th and.

So we don't have a lot of experience there people are ready to get out.

To start spending money in retail to go to restaurants.

And the cash is flowing.

The question that we all have right now is this going to be continued gradual recovery around the globe on.

Or are we going to see a surge in some variant of the virus that causes governments to go into another phase of shutdown. So it's very hard for us to.

To predict what's going to happen and because of that we didn't change our guidance range.

Just saying that based on what we've seen so far where who are Q1 and Q2.

<unk>.

Continued or new shutdowns due to various strains.

We think we'll probably end up on the lower end of the range and also as Doug mentioned in his comments.

The technical adjustment on the revenue for <unk> versus the April 6th press release that we put out unexpected revenue.

Instead of recording gross revenue for that business, we will according to accounting convention record net revenue and so those 2 things are causing us to be at the lower end of the revenue range, but as Doug also mentioned the margin expansion both from a combination of the cost realignment initiatives. We took those those initial.

Lives are really.

Hanging on the team around the globe Brinks team is really holding on to those savings and in addition, the wider and deeper initiatives that we talked about previously are gaining traction and those 2 things are really driving our margin expansion.

Very helpful. Thank you.

The next question is from Tobey Sommer of true Securities. Please go ahead.

Thanks.

Hello. Thanks.

I was wondering if you could.

Just refresh if you would the debt.

Principal cost savings.

In the realignment that you've been able to undertake over the last.

18 months and.

And also on a net basis, just describe sort of the cost that would.

<unk> themselves on the income statement.

Yes, Tobey and I believe our year end.

2020 earnings presentation, we had a dedicated slide that spoke not only about.

The costs incurred.

But also the recurring savings and then there was a a blurred bar that talked about how much was variable on how much was fixed.

I will tell you that as a part of our global cost re alignment we.

Demanded that each business take out 10% to 15% of their SG&A and across the world that happened and those costs.

Have remained down as you know those are step change costs and they are only added back deliberately and we have not added those back the variable costs, we required everybody to reduce their variable labor hours by at least as much as the percent revenue decline they did that.

I would love to tell you that the variable labor costs and head count is coming back.

With the revenue, but quite frankly.

Especially in the United States on in other countries, we're actually having trouble, attracting and retaining necessary variable labor to meet the recovering revenue.

So that's been a challenge, but we took out.

The least efficient vehicles and the fleet we shut down.

Facilities in Paris for example.

Closed 3 of the 6 branches. So every country was different.

But overall.

The permanent costs, whether they be fleet, whether they be facilities or our SG&A, we're hanging on to those.

Dolby I laid it out in my script.

And that comment in 2 ways and we try and lay this out as well as we continue to drive down cost and will continue into the future with our lean continuous improvement methodologies and culture.

And the $70 million on cost reductions take outs in 2000.

This year, 1 and 'twenty 2.

<unk> are really.

Of.

Based on those lean cost Takeouts, and we'll continue to do that into the future as well and we will give you more guidance on that in December when we talk about the rest of our strat plan period of time, but that's our continuous improvement wider and deeper cost takeouts that we will continue to see this year, we're giving you targets going forward.

As Ron mentioned, the <unk> portion of this deleverage portion of this was the restructurings and they showed up in our significant restructuring numbers and cash that we spent last year and for part of this year as well those restructurings are taking out the fixed costs, the SG&A and other fixed costs and structural costs to give us the ability to get the.

The strong operating.

Margin leverage as revenues come back and.

And we continue.

To have confidence that we'll see that margin leverage on top of our lean WD cost Takeouts as we go forward into 'twenty 2.

<unk> continued to see those takeout. So that's kind of the benefits of the underpinning of this positions us well for continued margin improvement in the future as we see revenues come back we can't tell you precisely on when all of those revenues will come back, but we have confidence that that.

They will gradually come back this year and that we.

We don't think it's unrealistic to suggest that the 2022 revenues.

Just on what we can see we will be at.

Close to or above 2019 for the full year next year and that will drive back the leverage as we maintain our fixed cost structure as to on the levels that we've taken them down too.

And Tobey it was actually our October 29, 2020 presentation slide number 10 that has all the detail there.

Perfect.

Just get your cash.

On a brief comments on the pricing.

Friends for your existing lines of business I'm, not asking you about the new strategies, yes.

<unk>.

And maybe as I see the the targets for 'twenty 2 the leverage coming down could you just describe and comment on what the acquisition climate is like thank you.

I'm not sure what you mean by the leverage coming down.

Next year Dolby.

Net debt leverage coming down.

Yes, no. Okay that makes sense, because I think about operating leverage on margin improvement leverage I think what you're alluding to is the debt leverage coming down because that slide on the talks to.

Using free cash flow generated next year, which we anticipate as Ron suggested on slide 9 that re free cash flow will it be improved fairly dramatically next year as we reduce our our.

Our restructuring expenses and other things like that we maintain our capex level, which will then reduce our capex level as a percent of revenue.

And that will again all contribute to.

The reduction or the increase you excuse me in free cash flow and then it's a question of what's our best allocation, what's the best use of that free cash flow as I said in my comments to optimize shareholder return.

This page shows that no new acquisitions on as an assumption.

No new acquisitions, and using that free cash flow to pay down debt and so that's what the.

On the.

Leverage financial leverage chart shows and the use of it.

<unk> free cash flow paying down debt with our free cash flow and as I've said in my comments about 1.5 hour acquisition strategies I think we're pivoting away from core acquisitions core business acquisitions, but acquisitions more like the <unk> and others to support our 2.0 strategies and growth associated.

With that which we think will continue to add to increase above and beyond our target organic growth levels as well as improved margins, that's where our key focus will be going forward in the future on that.

So I asked about pricing pricing I'm sorry.

Yes.

The U S.

It seems to be a bit.

More of the hotbed, if you will in terms of pricing labor issues et cetera.

Much more so than most other countries around the world.

And as we see in many other industries, we are continuing to struggle with being able to get.

Labor.

As we need them across the U S.

And in many cases as we saw on the second quarter, we are raising wages in order to attract and maintain our employees, especially on the frontline.

And as a result of that we pull through we pulled ahead, our normal October price increase in the U S to be implemented in the first part of the third quarter.

And that is being implemented right now.

And that.

So part of what you saw as wage increases increasing our cost from the second half excuse me the second quarter of the U S that we'll start seeing some of them of the benefits of pricing come back in the second quarter, but it continues to be a.

An issue with many other as many other businesses an issue from the standpoint of being able to get labor as well as the continued pressure on on.

On cost.

Thank you very much.

Again, if you have a question. Please press Star then 1.

The next question is from Sam England on bearing Baird. Please go ahead.

Good morning, Sam Hey, guys, Hey, guys. Good morning, Thanks for taking the questions on the first 1 just on the G..4 ex acquisition exceeding our synergy targets could you talk a bit about which geographies or areas of the business the timing out better than the original plan.

Do you have any idea on to scale on the Fiat ex.

Synergies.

And is it something you will talk about at the Investor Day in December.

Well, we certainly will talk about in Investor day, and I think Sam it's more around not as necessarily the synergy targets and exceeding those I think what we did say that we're close to being on track for the annualized synergy levels.

Again, we're at all really.

Dramatic if you want to put it that way.

<unk>.

Theres only overlaps in 3 of the countries and on the ESI Bgs business I think what the more important piece of this is is as we see revenue recovery, we think that we'll see that revenue recovery.

Next year 2022, and most all of the markets back to or above 2019 levels, but as important as as we've talked about earlier.

We are seeing strong improvement in operating margins as a result of the cost takeouts. The focus on the fixed cost takeouts, which will provide us the leverage on on margins and operating margins going forward. So a portion of it clearly is the integration we feel is almost completely done.

And and the synergies are.

Pretty much there and the gain the run rate.

On the implementation of those but more important I think is that we've taken additional steps.

Almost every country for cost takeouts that position as well as with the rest of the brinks business to get the leverage going forward with improved margins and we're highly confident in that.

Hey, Sam I might add debt the performance overall of the G Force acquisitions has exceeded our expectations, which countries are doing better that depends on the shutdowns in this country quite frankly.

<unk>.

The team the management team is excellent.

We're talking about cost synergies, but I will also tell you there are revenue synergies with sharing best practices. The hunger around the world for strategy to point out is it's being developed and rolled out.

In certain countries.

There's really there so so as we continue to integrate operating in the world returns to a new normal we're really looking forward to the growth from these new businesses.

And sharing all of those ideas.

Really.

<unk> charged to the top line and that will bring leverage operating leverage to the bottom line as well.

Great. Thanks, So much and then the next 1 was just around cash usage trends I just wanted how theyre looking in markets outside the U S, particularly Europe I know you've got the data around cash and speculation that you on any idea of what's going on with things like ATM transaction volume levels net cash being processed in some of the on the Mark.

Yes, so Sam.

It's a good question and I think it's a yes or no answer we have some data we have some anecdotal evidence.

On page 16, I think it is on the slides in the appendix we did provide.

Our kind of our usual slide if you will in the U S cash in circulation, which continues to be strong year over year versus prior years and pre pandemic levels.

Circulation is there as well and you can see below there are 2 bullets on similar sort of current currency in circulation in both Brazil, and Mexico, which I understand enough have similar trends to the U S and the euro in terms of cash that's there.

And then on right hand side, you can see like the <unk> you are asking the question. Unfortunately.

Unfortunately that is most of the U S. If you want to look at it there but it is.

Continued strong transactions there.

Think that pause.

Part of what's driving PKI, though we have to be a little bit careful there is the continued stimulus piece and so.

The Bottomline point that we and I like to say on all of this is it clearly is not going down.

It normally up versus our all historical levels, and that's not suggesting there's any trend or anything on site that suggesting.

Things are different or materially below in fact, theyre materially above pre pandemic levels.

The only other thing we have on top of that as kind of anecdotal.

Things like in <unk>.

No.

Ireland with our transaction levels at our Atms there they.

Spike back up when we started to see the openings, but that was only the last part of June and again it is only anecdotal.

And that's because things were shut down and now they're starting to spike back up again.

But I can't give you anything definitive or on that.

Okay, great. Thanks very much.

Net.

Thanks Sam.

Yeah.

This concludes our question and answer session and today's conference. Thank you for attending today's presentation. You may now disconnect.

Thank you.