Q3 2021 Brinks Co Earnings Call
Welcome to the Brink's company's third quarter 2021 earnings call.
Brink's issued a press release on third quarter results. This morning. The company also filed an 8-K that includes the release and the slides that will be used in today's call for.
For those of you listening by phone the release and slides are available in the Investor Relations section of the company's website Brinks Dot com at this time all participants are in a listen only mode.
<unk> 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.
Rented and discussed on this call is representative as of today only brink's assumes no obligation to update any forward looking statements. The call is copyrighted and may not be used without written permission from brink's. It is now my pleasure to introduce your host Ed Cunningham, Vice President of Investor Relations and corporate Communications Mr. Cunningham.
May begin.
Thanks, Jason Good morning, everyone joining.
Joining me today are CEO, Doug <unk> CFO Ron Domanico.
And our recently appointed Chief operating Officer, Mark you back.
This morning, we reported third quarter results on both a GAAP and non-GAAP basis. The 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 rates.
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, 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.
I'll now turn the call over to Doug.
Thanks, Ed Good morning, everyone and thanks for joining us.
Today, we reported third quarter results are above the guidance, we provided in September with double digit increases in revenue profit and earnings per share importantly, despite slower than expected revenue recovery from the pandemic Loews third quarter revenue versus pre COVID-19 levels did grow sequentially over the second quarter and despite <unk>.
Other operational issues that impacted the quarter, including labor shortages and wage inflation in the U S that has not yet been offset by price increases that have been enacted operating profit margin improved by 50 basis points to 10, 8% with.
With continued revenue and margin improvement this positions us well for 2000 to 2022 and the future.
We're affirming our full year 2021 guidance, which includes revenue in the range between $4 1 billion and $4 2 billion with a bias to the higher end of the range due to the strong third quarter results.
Operating profit of approximately 465 million, which reflects a margin increase of close to 100 basis points versus prior year and adjusted EBIT of approximately $660 million, reflecting an EBIT margin of approximately 16%.
We're also affirming our preliminary 2022, adjusted EBIT target range between 785 and $825 million.
After an expected margin improvement of approximately 100 basis points. This year, we expect a similar operating profit margin.
Increase next year with margins continuing to be driven by our strategy one point O lean cost initiatives and further margin leverage driven by sustained fixed cost reductions and revenue growth.
We expect continued revenue improvement in 2022, driven by continued revenue growth from the pandemic lows.
Ganic revenue growth, partially driven by higher than normal price increases that will be offset.
That will offset wage inflation.
Inflation and further revenue growth driven by initial contributions from our digital.
Solutions that will take that.
That will be.
Be stronger next year.
Based on these revenue drivers and unexpected higher 2021, one year end revenue run rate. We believe revenue in 2022 will exceed 100% of the adjusted pre Covid revenue level of approximately $4 $5 5 billion, which includes historical revenue acquired with G. Four S. M P.
As a reference.
<unk> point at 100% of the adjusted pre Covid revenue level, we would expect 2022, adjusted EBIT to be about $755 million and we'd expect continued margin and.
Growth and margin leverage as revenue grows above this pre COVID-19 levels, which would support our initial 2022 targets as we've provided.
We're also pleased to announce today, our plan to enter into a $150 million accelerated share repurchase agreement that would represent the repurchase of approximately 5% of the company's outstanding shares at the current share price.
Based on our current share price and projected earnings for 2021 and 'twenty. Two we believe the best investment for our shareholders Mr by bring shares.
We expect the $150 million ASR will be.
We are announcing today will be substantially completed by early November.
Our board has approved another $250 million authorization to be used from time to time over the next two years and finally, we're pleased to confirm that we'll host an investor day on December 15th.
Be a hybrid event with a virtual presentation of our strategic plan and financial targets, followed by a live Q&A with our management team. We hope you will attend.
Turning to the next slide our third quarter results came in as I said above September guidance with revenue operating profit and EBITDA, each exceeding our outlook and analysts' consensus.
On a reported basis revenue was up 11% with organic growth of 6%, while not as strong as I said as originally expected organic revenue grew sequentially from the second quarter and revenue as compared with pre Covid levels also improved.
Operating profit grew 16%, reflecting a margin increase of 50 basis points to 100 to 10, 8% and demonstrating earnings leverage.
Our revenue increase.
Adjusted EBIT was up 15% with a margin up 60 basis points to 15, 8%.
<unk> grew 28% from 89 cents per share to $1 14.
We achieved these results despite the ongoing impact of the global pandemic in several key markets and wage and labor issues in the U S. As Mark will cover in a minute. We expect these conditions in the U S to improve as we move into 2022.
On a global basis, we see encouraging trends, indicating that revenue is recovering to pre pandemic levels and above as evidenced by the significant revenue recovery. So far this year compared to pre pandemic levels.
Though the rate of recovery may continue to be choppy, and then easy from country to country and region to region.
On that note I'm happy to turn it over to our new COO, Mark <unk>, who will provide an overview of our segment reporting results and actions being taken in the U S. Please join me in welcoming Mark to Brink's.
Okay.
Great. Thanks, Doug Hello, everyone I'm excited to join the <unk> leadership team and look forward to getting to know all of you over the next several months I'll start by adding some high level comments to our third quarter results at the segment level.
In North America third quarter reported revenue grew 14%, while operating profit grew 4%, which includes the impact of the acquisition. We did last April.
These results were less than our expectations as we entered Q3, primarily driven by labor shortages across the U S market.
The impact of this tight labor market reduced segment revenue by about 1% and reduce segment margins by approximately 300 basis points. This came in the form of both loss revenue and higher labor costs.
In August several of our branches didn't have enough drivers and as many of you know <unk> revenue is largely based on our revenue per stop model. When we're short on drivers we can't service all our routes so missing stops means missing revenue.
And then on the cost side like many in the transportation and logistics industry, we've had to aggressively increase frontline hourly wages not only to attract new associates, but also to reduce the attrition rates of the current brink's workhorse.
The good news is we've recently seen improvements on both fronts, both hiring and retention the exploration of the federal unemployment benefits seem to be driving a meaningful increase in job applications.
And while were still slightly understaffed.
But we're seeing sequential improvement week over week and the volume of new applications.
In fact, our staffing level is currently the highest it's been in five months and our U S. HR teams are working diligently to resolve the ongoing labor shortages.
It's also important to note that rising fuel costs generally have not had a material impact on our profitability as most of our customer agreements have fuel surcharge clauses as a cost recovery mechanism.
To offset rising costs that we've seen here in the U S. We've announced and implemented several price increases in our business in Q3 that are well above the historical annual averages.
Additionally, we've announced this month that our upcoming 2022 annual general price increase will also be well above the historical average increases to account for the ongoing impact of the extraordinary 2021 wage inflation.
We anticipate meaningful lift in this price increase that will take us back in balance relative to our price versus cost inflation ratio as we start 2022 and end of the first quarter.
I want to make the point that we are confident in our ability to pass on inflationary cost pressures to the marketplace in the form of these type of price adjustments now.
Now to Latin America, where revenue continued its double digit growth trend with reported revenue up 13% and operating profit up 26%, reflecting a margin increase of 240 basis points to 22, 3%.
Our lean transformation in Latin America, particularly in Mexico continues to produce good results in both organic growth and strong earnings leverage despite the lingering impact of COVID-19 across the region in Q3.
In Europe, while below our expectations, we saw modest organic revenue growth was strong profit growth operating profit improved more than 300 basis points to 11, 8%. A result of strong cost management and the benefits of prior year restructuring actions coming through.
For the rest of the world for the rest of the World segment.
Revenue grew 8% on a reported basis accounting for the contribution of the <unk> acquisition on an organic basis revenue and profits decline, reflecting the impact of government mandated COVID-19 restrictions across the region and tough 2020 comps in our precious metal logistics business.
Similar to Europe, we are beginning to see signs of improvement in September as economies begin to reopen.
Now, let's move to slide six.
Slide six presents the 2021 quarterly revenue by segment, showing the revenue recovery percentage versus pre COVID-19 levels.
We present comparisons both on a U S dollar and a local currency basis, both of which are important to us.
The local currency recovery percentage is helpful. In understanding the underlying resiliency of cash usage in each region in the U S. Dollar recovery percentages factor in the impact of foreign currency translation, which of course is how we report our results.
Beginning on the left side, we'll start with North America, you can see modest sequential improvement from 93% to 97% from the first and second quarter. We then saw a slight dip down to 96% in the third quarter and we expect the fourth quarter recovery to be north of 100%.
Now moving to Latin America, you can see that on a local currency basis recovery has been significantly stronger than North America with the third quarter at 108% of adjusted 2019 levels.
A large part of this recovery is attributed to the inflationary environment in Argentina, but even excluding Argentina local currency recovery was 19% in Q3 and is expected to be over 100% in Q4.
As we move to Europe noticed the U S. Dollar reported recovery percentages are greater than the local currency percentages as we've noted in previous disclosures the impact of the Delta very has had significant impact in this region by Forex has helped offset some of this impact.
Still we expect the fourth quarter to be about 94% recovery in local currency.
And for the rest of the World. We saw a similar dynamic in local currency were seeing levels similar to North America in the mid 90% range Forex translation has been helpful. In the region as well and we expect our fourth quarter to come in around 96% on a us dollar basis.
In total we expect our consolidated results in the fourth quarter to be about 95% on a reported basis and around 100% on a local currency basis. This suggests our business is back to pre COVID-19 levels as we exit the year.
This certainly supports the underlying resiliency of cash usage in the global economy and provides an ability for us to continue to grow in the future.
With that I'll turn the call over to Ron who will take you through the financial results for the quarter Ron.
Thanks Mark.
He hit the ground running and are a great addition to the team good day everyone.
On slide seven please remember that we disclosed acquisitions separately for the first 12 months of ownership. After 12 months, they're mostly integrated and then included in organic results included in acquisitions for this quarter are primarily PAA and about 20% of the former <unk> businesses too.
2021 third quarter revenue was up over 10% in constant currency with 6% organic growth versus last year and 5% from acquisitions.
Reported revenue was $1.076 billion up $105 million or 11% versus the third quarter last year.
Third quarter reported operating profit was $116 million up 16% versus last year.
Organic growth was 2% acquisitions added 7% and Forex another 7%.
Our operating profit margin of 10, 8% was up 50 bps versus 2020. This is evidence that our 2020 cost realignment initiatives are holding and that wider and deeper is gaining traction.
Now to slide eight.
Third quarter interest expense was $27 million up $1 million versus the same period last year as higher debt associated with completed acquisitions was partly offset by lower average interest rates tax expense in the quarter was $31 million 8 million higher than last year driven by higher income.
Our full year non-GAAP effective tax rate is estimated at 33% versus 32% last year.
$116 million of third quarter, 2021, operating profit less interest expense taxes and $1 million in minority interest and other generated $57 million of income from continuing operations.
This is a $101.14 of earnings per share up 25, or 28% versus 89 in the third quarter last year.
The gain on marketable securities positively impacted EPS by about <unk> <unk> this quarter versus minus <unk> <unk> in the quarter last year.
Third quarter 2021, adjusted EBITDA, which excludes $2 million in gains on marketable securities was $170 million up $22 million or plus 15% versus prior year.
Turning to free cash flow on slide nine.
Our 2021 free cash flow target is $185 million, which reflects our adjusted EBITDA guidance of $660 million we.
We expect to use about $60 million of cash for working capital growth and restructuring and another $35 million in 2020 deferred payroll and other taxes payable cash.
Cash taxes should be approximately $95 million up $18 million versus last year due primarily to the timing of refunds.
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 generating an EBITDA to free cash flow conversion ratio of about 33% up from the 28% achieved in the same basis last year.
While not included in cash flow from operating activities in July we Opportunistically sold all of our shares and Moneygram for $33 million, we purchase those shares in November 2019 for $9 million.
Our preliminary 2022 target is to increase our free cash flow 50, plus percent to a range of $350 million to $400 million, which equates to seven to $8 per share advair.
Advancing to slide 10.
This slide illustrates our actual net debt and financial leverage at year end 2020 at September 32021, our year end 2021 estimate in the 2022 year end preliminary target.
The current year end estimates include the $213 million acquisition.
Our adjusted EBITDA guidance in our free cash flow target.
The shaded blue box on top of the 2021 year and bar represents the impact of the planned $150 million accelerated share repurchase announced today.
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 <unk> cash acquisition.
On December 31, 2020, our total leverage ratio was three three turns.
At the end of 2021, given our free cash flow guidance and the completion of the <unk> acquisitions, we're estimating our net debt to $1 75 billion or $2 $3 billion to $5 billion, including the planned ASR.
This is expected to generate total leverage of three three turns and three five turns respectively.
Our 2022, EBITDA target range of $785 million to $825 million combined with the estimated year end 2022, net debt of $2 $35 million to $2 billion $95 million would reduce the total leverage ratio to approximately two 5% to two seven turns.
Moving to slide 11.
The last few quarters I spoke to you about <unk> sustainability program to comprehensive program under my leadership and directed by the <unk> Board.
I discussed the significant progress, we're making we're a signatory to the United Nations Global compact, we pledge 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 <unk> Women's leadership Forum and created employee resource groups.
We've been reducing our environmental impact by modernizing our fleet, taking thousands of diesel trucks off the roads implementing dual fuel and alternate fuel vehicles and continually optimizing routes to minimize miles driven.
Our strategy to point out solutions, which you'll learn more about at our December 15, Investor day target not only increase customer service, but also a major reduction in weekly staff that could take many more trucks off the roads.
And while we're very proud of our progress in these areas, but I want to focus on today is Brent social impact.
One of <unk>, most compelling rolls that are facilitating economic inclusion.
In the United States, 28% of in person transactions are in cash and approximately 18% of the population is unbanked or underbanked doesn't have access to credit and must rely on cash we estimate similar demographics for other developed countries, but the reliance on cash is much higher in developing markets.
Mexico, Brazil, and the Philippines are just three examples where over half the in person transactions are in cash.
<unk> cash use is often highest among many underrepresent it groups people of color the elderly immigrants veterans and the poor as.
As the world's largest cash management company Brink's 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 Bcl belongs in every impact investing portfolio with that I'll turn it back to Doug.
Thanks, Ron.
Turning now to page 12.
As we reviewed during past earnings calls and plan to discuss in much more detail in the upcoming Investor day, we have three layers that support our current multi year strategy plan. The first two represent an extension of our proven.
Our strategic plan.
The bottom layer outlines our one point those strategic initiatives that drive core organic growth and cost reductions our target is to achieve annual mid single digit organic revenue growth and this has been proven during our first strategic plan period of time and improve operating profit margins by approximately.
200 basis points over the next two years over the two year period that is a 2021 and 'twenty two.
We expect to drive cost reductions wider and deeper than we did over the last strategic plan expanding into more countries and expanding the number of lean initiatives. We also expect to leverage the significant fixed cost reductions we've made over the last year and a half into higher margins maintaining fixed cost levels as revenue.
Increases.
The middle layer strategy, one five represents our acquisition strategy includes.
Including <unk> and <unk>, which are.
Acquisitions completed early in our current strategic plan, we have invested a total of $2 $2 billion in over.
Over 17 acquisitions since 2017.
Since we added acquisitions as a part of our overall strategy. We have proven that we can acquire and integrate such businesses with strong returns and strategic benefits.
As demonstrated by our recent <unk> acquisition future acquisitions may focus more on supporting the strategies <unk> and our digital initiatives. We will also be considering smaller tuck in core acquisitions that offer compelling returns.
What's new in our current strategy strategic plan is the top layer of our strategy, which introduces digital cash management solutions we.
We've created an integral platform of services technologies and devices, leveraging our core CIP and money processing capabilities. These new digital cash management solutions will be as easy to use as debit and credit card payments.
We believe our existing operations form a strong foundation that by themselves will drive mid single digit revenue growth and double digit profit growth well into the future. This strong base of growth is expected to be supplemented by additional revenue growth and margin improvement as our digital solutions gain traction beginning in 2022 and well.
Into the future.
As we said before we will provide more detail in investor day coming up.
The next slide I'd like to close.
With a slide.
Summarizes our recent performance and our outlook going forward for 2021 again, we're targeting revenue growth of 12% operating profit growth of 22%, reflecting a margin increase of almost 100 basis points over last year, adjusted EBIT growth of 17% reflecting.
And EBITDA margin of 16% and EBIT EPS growth of 21%.
We expect substantial improvement in 2022 and beyond as we discussed with strong increases in revenue operating profit.
Margins EBITDA and EPS as our existing opera operations, continuing to grow and we layer on our new strategies the.
The right hand side of this slide slide 13 provides additional perspective of our 2022 outlook.
Our 2021 revenue as compared to adjusted pre Covid levels as Mark pointed out.
Has improved from 89% in the first quarter of this year to 93% in the third quarter that we just reported this trend supports our expectation of continued revenue recovery and strong year end and a strong year and jumping off point expected to be leased 95%, which is a great starting.
For next year.
So we need just and approximately additional 5% revenue recovery from the fourth quarter run rate throughout full year 'twenty two to reach 100% of our pre COVID-19 revenue levels.
We expect our 2022 revenue recovery will also be supported by additional organic growth, including higher than normal price increases in the U S that will assess offset wage inflation that we've seen this year. These higher than historical increases will also help improve our margins and we expect further growth in 2020.
Two will be driven by initial contributions by our digital solutions. All of these indicators support our belief that 2022 revenue will exceed adjusted pre Covid 2019 revenue at levels corresponding to our preliminary EBITDA range of 785 to 825.
Brink's is a stronger company today than it's ever been and is clearly stronger as we transition to the other side of the pandemic, we have substantial growth opportunities and are well positioned to capitalize on a large underpenetrated global cash payments market.
We have a global but we have a proven global management team a strong balance sheet ample liquidity and expanded global footprint.
Realigned cost structure and a compelling strategic plan to expand our presence in the cash ecosystem with digital solutions.
Like to take this time to and this opportunity to again, thank our over 70000 strong global Brink's family for all of their hard work and dedication as together, we have been making it through the pandemic and are now close to seeing the other side of the pandemic in which together we will be stronger.
We look forward to disclosing more information on our future strategy when we host our Investor day, hopefully for all of you on December 15.
Jason Let's turn it back to you now for questions.
We will now 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 withdraw your question. Please press Star then two at this time, we will pause momentarily to assemble our roster.
Our first question comes from Tobey Sommer from <unk> Securities. Please go ahead.
Thank you.
In the in the press release, you cite 2022 EBITDA.
Target.
But also have a sentence that says something about what you would be at.
What kind of EBITDA you would generate after it at.
At 100% of pre Covid could you sustain.
Distinguish those for me and maybe put a finer point on which one is the target, which one's just sort of a reference points to help us frame things.
Yes, Tobey I think Thats a good question and hopefully we tried to provide some additional.
Understanding around.
At various revenue levels.
Going into next year.
As to what the EBITDA and the margins would be associated with that and again, we're providing you and we provided you at the.
End of the second quarter, some very preliminary targets not guidance, but preliminary targets.
For 2022.
For for EBITDA and.
I think the question is what are the specific revenue numbers.
I would suggest is so similar to what we did.
During I guess it was last year, we provided ranges of revenue.
That suggested along with that do we think.
The EBITDA in our generation of profit will go along with it so that's what we.
Attempted to try and do and to give you some reference point associated with it I think the key pieces as you can see we expect operating profit margins to increase about 100 basis points. This year and we expect that to be what we will achieve next year as well those combined with the.
Strong revenue growth that we anticipate for all the reasons that I.
Laid out in the press release and in my my words.
Suggested we think that revenue next year will be north of will be more than <unk>.
Pre COVID-19 levels.
And.
At.
At a.
Our margin that is not quite.
100% increase.
And at pre Covid, 100% of pre Covid levels as we've laid out gets you to 755, we think.
Revenue will be stronger than that next year and that margins will increase by 100 basis points similar to this year, which gets you to the range depending on what that revenue is gets you to the range that we previously disclosed as our initial targets and we still think will be our targets going forward, we'll certainly provide more information around that.
We go into next year, and we get closer to.
Sure.
Information, if you will about recoveries the key piece as we laid out on the last slide.
And that Mark talked a little bit about in some of the information is we've seen strong steady progression and recoveries.
On a global basis from the lows of the pandemic and in comparison to an adjusted adjusted being revenue levels that fully include.
Our acquisitions and therefore, they are fully loaded.
If you will.
We've seen strong improvements associated with that would suggest a jumping off point.
<unk>.
Would suggest that revenue for 2022.
In order to get to 100% from the jumping off point that we see in the fourth quarter only needs to be an increase of about 5% and for all the factors and the reasons and the drivers that we've laid out we think we will see that and hopefully more.
Thank you.
Could you give.
Give us a little more color on your visibility into <unk>.
Price increases in the U S offsetting labor pressure as you head into next year.
I think if memory serves me correctly you.
Traditionally increased prices on January 1st, but sort of socialize those price increases with customers during the fourth quarter and.
A portion of them may accept the price increase earlier in order to get the advantage of a slightly lesser price increase how is that progressing here in the fourth quarter.
Yes sure Tobey this is Marc I'll take that one.
Price increases continue to.
To be the theme here as we see the cost inflation wage inflation I think that was a little bit of our discussion on the quarter, particularly in the U S. As we saw this wage inflation in advance of the actual realization of price increases that being said, we did announce a price increase.
It started in Q3 realization for that continues to ramp and Additionally, we have just announced our annual price increase that starts in Q1 and as you mentioned customers do have the opportunity to.
For a slight discount to pull that forward into Q4, but the message for us as we continue to think.
And believe that we will be able to balance this cost versus price equation and expect to be in full balance as we enter Q1 going forward.
Okay.
Question for me and I'll get in the queue.
<unk>.
How is your <unk>.
Progress in terms of putting in the the limited probably small size sales infrastructure that you might need for strategy two <unk>.
Trying to get real specific here, but just.
Maybe a little little preview of the December day.
I guess I guess.
You said that well its a December discussion that I think you'll we'll provide a lot more detail around what we suggested in the past we are investing this year.
The tune something less than $20 million in expenses, which includes sales marketing product product development.
Third party development et cetera, and.
That is the target that we are at for this year and it is an investment that our strategy and our plan is for next year for sales and therefore margins related to to point out to more than offset that and put us on a positive trajectory of both revenue and margins going forward.
I hope that gives at least a little bit of a background in around that and we'll certainly provide more detail in December.
Okay. Thank you.
The next question comes from George Tong from Goldman Sachs. Please go ahead.
Morning, George Hi, Thanks, Good morning, good morning.
In September you provided the business update with revenue guidance for <unk> and you came above the high end of the range.
Core revenue, which markets are performing above your initial expectations and would you expect that positive momentum.
Well I think.
It varies so dramatically by country and the way that each of the countries and the governments have.
Implemented policies around that and that obviously changes it's changed several times in many countries throughout this year already.
We tried to give some fairly reasonable color around that in March presentation on slide six.
<unk> provided some ups and downs.
By region, and you can see where we anticipated George.
As we went into the second quarter, we anticipated we see.
A greater improvement versus 2019 as a base our base here in the third quarter than we did the good news as I said is we did see an improvement.
It didn't fall back down, but that was an improvement there wasn't as much as we would've expected and that was even in light of all of the.
The changes in the Lockdowns and the Covid the Delta variant exposures.
So I guess, it's hard to give a good answer specifically to that but we see it.
<unk> improvement almost across the board, but you can see that it varies quite a quite a bit. The good news is we don't win that 95 plus percent range, we think coming out of this year and.
I like to look at it from the standpoint that 95 coming out of this year.
As a more of an indicator of what the true revenue number implied would be for 2021, and a real jumping off point in terms of what's needed to get to a 100% plus and I think it's going to 100% plus more than.
In 2022, rather than what we started at the year as you see in the first quarter was about 89%.
Throughout the year, we've gone from 89 to 93, plus two we opened 95 and.
And that will give us a good base, but it varies dramatically by by country by region.
We do anticipate.
Dissipate, but we will.
Continue to see improvement.
Almost across the board.
With that well anyway, I think you can jump and specifically if you have a specific question on a country or an area and we can help with that.
All right maybe I'll ask the question a different way. So if you look at North America, Latin America, Europe and rest of World.
How would you.
So to see the numbers on slide six, which which which are helpful, but which I guess are you seeing the most positive momentum in the most upside potential to your initial expectations, which of those four.
Yes.
I'm not sure that I could characterize any of these individually as being better than the others I would just reiterate doug's point in the areas and it's spotty by country, where we saw a delta linger into Q3.
Basically tamped down the expected growth that we had even though there might have been growth in.
Individual country it was less than we expected and it wasn't in one region only in fact it was in all four regions.
Across the across the globe.
Got it.
Second question, you talked about wage inflation and pricing adjustments to adapt you also talked about the fuel surcharges that helped you pass along.
Oil price increases so are there any other input cost dynamics that could impact your margin performance over the next 12 months to 18 months.
I wouldn't I wouldn't I wouldn't characterize any other big impacts. These are the really the biggest.
Two input costs wages and fuel.
Of course uncertainty for us out in front would be COVID-19 and seeing how we get through the winter months with that but other than that I wouldn't be able to call out anything else.
Doug any no I do think though that we need to look at the other side to it George and that is is that we clearly saw the need to increase wages in the U S, which we did starting in <unk>.
Latter part of the second quarter, well into the third quarter and there were massive increases like we've never really experienced at least in.
Our lifetimes.
And where we have high degree of confidence as Mark suggested it will catch up with those with the price increases and I think what youre seeing not only.
Our industry, but across the board.
Customers or the market is is accustomed to or is aware that these types of wage increases and these cost inputs.
Are out there and therefore.
We'll see the cost.
B pass through in wage increase excuse me and price increases.
We have a high degree of confidence based on what we see that we'll see that but as we go into next year.
George I might add that unlike other companies were really not subjected to a lot of the supply chain constraints that you're seeing around the world and especially in the United States. That's a positive and I would also tell you that we got out ahead and purchasing both PPE and COVID-19 tests to comply with whichever direction.
The stay.
State and federal governments go in that area. We're ready so that we wouldn't expect any disruption just based on those things.
I think thank you.
I think Georgia, Mark referenced some numbers in the U S, where our biggest impact of the wage increases.
We saw the negative impact in the quarter that we didnt catch up yet and won't catch up where I'll be until the end of the year.
You've laid out a number that was about 3% of the segment.
On a on a operating profit margin basis impacted us in the quarter.
Got it helpful. Thank you.
Again, if you have a question. Please press Star then one.
Our next question comes from Sam England from Baird. Please go ahead.
Hey, guys. Thanks for taking the questions and the last one I had you were expecting quite a step up in revenue recovery in Q4, North America on that Slide six chart I'm. Just wondering what gives you the confidence there and how much of that step up is just price but volume.
Volume of Capri.
But it also includes the labor recovery as Mark talked about our ability to hire and retain.
Frontline workers has dramatically improved over the last couple of months and that will aid what I would call. The volume component. In addition to the price component and the two combined give us confidence.
Okay, Great and then the second one I just wanted if you could talk a bit about how the acquired ecosystem G four assets.
Forming so just lastly on an organic growth basis, and then secondly are you identifying more cost opportunity within those acquired businesses now you've had been sort of a part of the business for a bit longer.
Yes, Sam.
Yes.
As we've said before and we said in our numbers.
We are very pleased with the integration, they're fully I wouldn't say fully but theyre very much in line with the integration of these businesses and probably ahead of schedule our synergy targets.
Then probably one or two countries like in Macau, which were relatively small are well on track.
On an annualized basis to achieve those.
And I think if you took a look at as an example.
The results by segment you can see the nice improvement in margins in.
In Europe as an example.
What we've seen is despite some of the countries, where COVID-19 had an impact in the third quarter.
Our country is closed.
Or not opening as much as we thought they might.
We saw margins come back very nicely.
So we're pleased with the cost reductions that have been implemented we are pleased with.
The management.
In those countries the integration is going extremely well and we.
We're very much we think are ahead of schedule.
Okay, great. Thanks, I'll leave it at.
What we what we'll see is there are certain countries in Europe in particular, but other areas as well like like even even some in Asia, where we haven't seen.
The full recovery, we think we'll be well positioned as we see that additional full recover which is obviously what we call the.
The margin leverage the profit leverage deceiving.
Numbers that are better than pre COVID-19 levels as we see that revenue recovery come back that's what we're positioning for.
Great. Thank you very much.
The next question comes from Wayne are Chombo from Monarch partners. Please go ahead.
Hi, good morning.
What is there anyway.
Good morning, what's the net debt number coming down.
As much as it has is that.
You sort of reloading on the M&A side or are you folks.
You know pretty much done at this point on the M&A side, you got enough to do certainly you've acquired a lot that you folks have joined brink's, but.
You've certainly got lot more debt capacity, then you had but what are your thoughts on that.
Well I think Theres a couple of things.
Probably our signaling today as we have in the past number one.
We take a look at our allocation of our debt capacity.
What what the returns are and balance that with returns.
For the company and investors.
And historically, what we've generally said is.
Generally we can see the best returns for.
Strong capex use.
Because we know we can control and manage that as best we are gaining and get returns on it.
But we are managing that and we want to continue to manage that as we've I think laid out we expect capex to continue to reduce over a period of time as a percent of revenue.
We've rolled back for fewer use of trucks better route optimization et cetera.
So thats the Capex piece and then the next piece is is the what's the best return, we think for investors as compared to buying businesses M&A.
Versus buying back shares and what we clearly stated today and we think buying back shares probably based on what we can see and where our share prices today is a better return for shareholders. We hope that doesn't continue.
To be to be honest.
Over the next period of time, but.
But we it's not precluding us if you will wane from looking at acquisitions that both strategically and return.
Shareholder return.
Optimization makes sense, we will continue to do that.
I mean does it make it more difficult for you to.
Do acquisitions that I've got to move the dial because.
The company is so much bigger now I mean, you have to move the dial on a deal its going to have to be pretty significant size wise right.
Well I think it is I think there's a couple of Brian what we did say both in the second quarter and this earnings call on this call and we'll talk more in December.
We're moving more toward acquisitions.
Of any consequence that will help us strategically that we think will help us move the dial if you will on a strategic basis to give us platforms like <unk> did.
Did for our two point strategy is going forward.
So P&I, we think was a great acquisition that provided the base along with our organic development of ATM outsourcing for banks like we have in France.
Combined with that gives us a position to.
A very strong player for ATM outsourcing and ATM management on a global basis, which is an integral piece of our total cash ecosystem management.
Think about this a year and a half ago as a company we didn't have anything in that space.
What we'll be talking about now I'm going to give you a preview what we'll be talking about in December this is going to be a.
Quarter over $1 billion business for us and more going forward.
I think can be pretty exciting.
So that's a strategic base.
That is important and part of our two point strategy going forward.
Okay, great. Thanks, guys. Thank you thank.
Thank you.
Ladies and gentlemen, this concludes the <unk> third quarter conference call. Thank you for your time today you may now disconnect your line.
Thank you.
Yeah.
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Okay.
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