Q4 2022 Brinks Co Earnings Call

1st quarter in full year 2022 earnings.

Brings issue to press release detailing its first quarter in full year 2022 results this morning. The company also filed an 8K that includes the release and the slides that will be used in 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 at investors.brinks.com.

At this time, all participants are in a listen only mode.

A question and answer session will follow the formal presentation. And as a reminder, this conference is being recorded and will be available for replay. This call and the Q&A session will contain forward-looking statements.

Formation regarding factors that could cause such differences are available in the footnotes of today's press release and in the company's most recent SEC filings.

Information presented and discussed on this call is representative up to date on.

Brink's assumes no obligation to update any forward looking statements.

The call is copyrighted and may not be used without written permission from partners.

I will now turn it over to your House, Jesse Jenkins, Vice President of Investor Relations. Mr. Jenkins you may begin.

Thanks, and good morning, joining me today are break CEO , Marc <unk> and CFO Kurt Mcmackin. This morning, we reported fourth quarter and full year 2022 results on both a GAAP and non-GAAP basis as well as on a constant currency basis, which eliminates changes in foreign currency 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, the majority of our comments today will focus primarily on non-GAAP results reconciliations of non-GAAP results to their most comparable GAAP results are provided in the press release, the appendix of this presentation and.

In this morning's 8-K filing which can be found on our website I'll now turn the call over to brink CEO Mark Eubanks.

Thanks, Jessie good morning, everyone and thanks for joining us.

This morning, we reported strong full year fourth quarter 2022 results highlighted by the highest full year organic growth rates, we've seen in over a decade and operating margins at the highest level in recent years.

We delivered our full year 2022 guidance for revenue operating profit EBITDA and EPS. Despite the impact of $252 million on revenue due to negative foreign exchange exchange translation.

The 12% organic growth rate included double digit growth in three of our four segments as well as in our digital retail solutions ATM managed services and in our valuables management business brings global service.

All service lines benefited from strong pricing discipline in the current inflationary environment operating profit margins and EBITDA margins expanded by 90, and 110 basis points, respectively. A result of improved revenue mix from higher Drs in Ams revenue.

Continued cost productivity.

Primarily from Labor management.

And disciplined pricing actions to offset inflation.

EPS for the year was $5 99 per share of $1 24 per share increase over 2020 one.

In the year, we generated $203 million of free cash flow and prioritize use of cash towards share repurchases. Andy October 3rd acquisition of note machine, which was immediately immediately accretive in Q4.

In total we purchased about 950000 shares at an average price of approximately $55 per share.

Curt will have more on free cash flow and capital allocation later in the call.

Demand remained strong in the fourth quarter, allowing us to post 12% organic revenue growth and 15, 7% operating margins.

North American operating profit margins were 15, 1% the highest in the history of this segment and I'm encouraged by the progress our North American leadership team is making.

Adjusted EBITDA margins in the fourth quarter were over 20% for the first time in our history as we saw the benefits from the growth of our high margin businesses as well as the aggressive cost efficiency efforts in the quarter, which included early benefits from our restructuring efforts that we announced during our Q3 earnings.

Our 2023 guidance build off a strong foundation developed in 2022.

We're targeting organic growth between seven and 11%, including continued strong growth in the Drs in Ams offerings.

Operating profit is expected to improve by approximately 100 basis points through continued cost productivity and profitable growth in these higher margin lines of business.

EBITDA is expected to be between 855 and $905 million with EPS between $6 and 30 <unk> and.

$7 per share.

As always we remain keenly focused on generating free cash flow, we expect significant improvement in free cash flow generation year on year to around 40% conversion of adjusted EBITDA, primarily through profitable growth and working capital improvements.

Moving to slide four.

Let's take a quick look at full year 2022 results star.

Starting on the left hand side reported revenue was up 8%, which included the previously mentioned foreign exchange currency translation impact throughout the year.

On a constant currency basis revenue was up 14%, 12% organically and 2% from acquisitions.

Reported operating profit was up 17%, which included $45 million of negative foreign currency impact.

The 26% constant currency growth included 23% organic growth.

In total revenue growth of $335 million and operating profit growth of $80 million delivering an incremental margin of 24% increasing the all in operating margin to 12, 1%, a 90 basis point improvement over prior year.

Adjusted EBITDA grew $106 million or 15% to 788 million with a margin of 17, 4%.

Incremental EBITDA margins were just over 30%.

EPS of $5.99 per share.

Improved by 26% on a reported basis.

Excluding the prior year 24 state gain on the sale of M. G. I E. P S would've grown 33%.

As a reminder, the gain on an M. G I shares in the prior year is now fully behind us as we move into 2023.

Turning to slide five.

You can see our strong 2022 performance an early look at our outlook for 2023 compared to our recent history.

I'd like to highlight a few key actions we undertook this year to deliver strong revenue and profit growth.

First we established defined processes and procedures to address inflationary pressures across many of our lines of business I'm.

I'm happy to report that we were able to effectively recover the cost inflation we experienced.

The foundational capabilities, we built during the Covid impacted inflationary years, 2021 and 2022 will allow us to take a much more disciplined approach as we look ahead.

As we continue to drive value for our customers to improve service quality and customer focused digital solutions. We believe there's an additional opportunity to drive profitability through strategic pricing in the coming years.

Secondly, we were able to accelerate growth in our tech enabled service platforms, both digital retail solutions, where Drs and ATM managed services or a M S.

As I'll discuss on the next slide in more detail our strategy on how best to capture more than our fair share of these growing markets continues to evolve.

N D. R. S. We are encouraged by the success, we've seen to date in all of our regional segments across both small and mid sized businesses as well as the larger multi site enterprise customers.

While we expect the North America, and Europe to be the primary adopters of these solutions, we have been encouraged by the uptake in other geographies.

Our products offer in India in solution that provides fast access to working capital through bank agnostic provisional credit that has resonated worldwide.

The ability to tailor our solution to the size and budget of our customer has create exciting opportunities in underserved channels that have not previously considered brink's traditional C. I T offering.

And ATM managed services, we leveraged our internal talent from a 2021 acquisition of P. AI and promoted David Dove to be our global leader of Ams.

David and his team are working closely with the segment leaders to develop opportunities across all geographies to complement our strong existing Ams presence in both North America and Europe .

Yeah, the a M S strategy aligns well with the outsourcing trend were seeing from financial institutions and retailers as they search for cost effective solutions to outsource ATM management in order to focus on their own core services.

In addition to the outsized revenue growth we saw in the year. We were also able to post operating margins at the highest level in recent history.

Our higher margin services like D. R S and Ams as well as global services were contributors to the performance and we also continue to drive operational efficiencies throughout the business.

During 2022, we expanded the <unk> business system globally.

Under the <unk> business system, we develop and apply best practices and standard processes across the global business to achieve operational excellence.

Using a lean continuous improvement framework, we closely examine and create efficiencies in many aspects of our operations.

While the future applications of Bbs are wide ranging areas, where we saw early results in 2022 included standardized workflow employee turnover and staffing and route optimization.

These initiatives delivered fleet and labor efficiencies, allowing us to expand operating margins by 90 basis points in the full year.

Strong profit margins in Latin America over the last few years can be partially attributed to the early phases of lean and the <unk> business system and over the course of 2022 we scaled the best practices, we developed in the region to other parts of the world.

The most tangible success story, we delivered through Bbs. This year came in employee turnover and in North America.

Labor markets in the U S had been extremely tight over the last 18 to 24 months with unemployment rates recently, posting 53 year lows.

Despite the challenging labor market, we delivered a 22% year over year reduction in turnover in the fourth quarter.

The turnover an improvement led to a 97% staffing levels in the business as we exited the year and was a clear driver of revenue growth margin improvement and improved service quality in the North American segment.

While turnover remains higher than we would like we are happy with our progress.

We will continue to introduce standardized playbooks and kpis in areas like capacity planning and fleet excellence that will drive our efficiency journey and allow us to meet our 100 basis point margin expansion goals for 2023.

Look forward to sharing additional progress under the Brinks business system as we move forward with this important initiative.

I'm also pleased with the progress we've made on restructuring that we announced last quarter.

We now estimate the program to generate about $10 million more than our original estimates, bringing the expected savings to approximately $50 million of permanent cost structure improvements by the end of 2023.

I'm excited about the improvements to the business. We've made that have generated double digit organic growth and strong margin improvements this year, but I'm, even more excited about the benefits. These enhancements will deliver in the future as they scale and optimize over time.

With this strong 2022 performance as our backdrop, let's turn to slide six and discuss how we continue to improve our financial model in 2023.

Here on slide six we plan to focus our efforts this year on three primary lines of business, each with different growth expectations and financial benefits.

The traditional cash logistics and valuables management portion of our business had a great 2022 with 9% organic growth.

This line of business includes our cash and transit operations as well as our Brink's Global services business. These services form the foundation of our 163 year old company.

An important part of our continued success.

Our strategy in this area is to continue our operational excellence journey, while developing deeper relationships with our customers.

Deepening these customer relationships is moving us from simply being a vendor to a strategic partner providing opportunities to innovate our offerings into better solutions for our customers and higher profit margins for brink's and for our shareholders.

Digital retail solutions are a natural extension of our legacy business as we innovate with our customers to provide solutions that make cash acceptance as easiest debit and credit often at more cost effective price points than a traditional it service.

We provide retailers with full visibility to their cash ecosystem and fast access to working capital.

Digital visibility of cash volumes do these solutions also allows us to optimize our own resources only scheduling stops when the need arises producing fuel usage and carbon emissions and driving better margins, while allowing for lower price points for our customers.

Drs comes a longer term recurring revenue contracts that create better inherent retention rates.

We're seeing growing customer demand for these solutions across all of our reporting segments and we continue to see an opportunity to expand our addressable market to customers that don't currently have access to a cash management solution.

2022 was another strong year for Drs with organic revenue growth of 25% and we see a robust pipeline of opportunities with both existing and new customers eager for these solutions.

Finally, ATM managed services or Ams is an additional innovation on top of our traditional ATM replenishment services.

These offerings provide a flexible turnkey solution that enables financial institutions and retailers to move beyond just in time cash replenishment to our holistic outsourced model, which reduces costs and improves performance.

Leveraging expertise and infrastructure from recent acquisitions, we are building out a global team focused both on financial institutions and retail customers in the EMS space.

Our strong existing relationships and brand reputation in the markets around the world make us a logical choice for customers looking for an outsourced option.

We've recognized a meaningful shift in the market from financial institutions towards reducing their branch footprints, while maintaining connectivity to customers through Atms.

Our ATM managed services solutions meet the needs of our banking customers as they pivot resources away from the store fronts and into the digital banking channels.

With our size and geographic presence, we offer a range of solutions that differentiate us from other providers.

2022 organic growth in Ams was 50% and we expect strong growth in this line of business in 2023, both organically and Inorganically as we continue to integrate the October acquisition of note machine.

Our success in these areas line of sight to future growth prospects.

Favorable external market factors inform our outlook for 2023.

We expect total organic revenue growth between 7% to 11%.

S and Ams are expected to grow faster than our traditional cash logistics and valuables management business as we graduate gradually shift our business mix from traditional services to higher margin solutions.

With the shift to higher margin revenue continued efficiencies gained through lean initiatives as part of the brakes business system.

And the additional benefits from our restructuring plans, we plan to expand our operating profit margins by approximately 100 basis points in 2023.

Above historical average growth and record operating margins for the business are expected to generate free cash flow of approximately 40% of our adjusted EBITDA in 2023.

I'm confident in the strategic initiatives, we have in place and the market opportunities. We see in front of us that will allow us to deliver profitable growth in 2023 and for years to come.

I'll now hand, it over to Curt Mcmackin, our CFO to walk through the finer points of the quarter our capital allocation priorities.

More detailed review of the 2023 guidance I will return with some closing comments.

<unk>.

Thanks, Mark and good morning, everyone.

Slide seven summarizes the strong revenue profit EBITDA and EPS growth that we achieved in the fourth quarter.

Revenue versus the prior year was up 8% and up 16% in constant currency with organic growth of 12% and acquisition growth of 4%.

Partially offset by a 7% negative impact from FX.

Operating profit was up 22%.

Quite a difficult comparison to a strong quarter last year.

Organic profit growth of 30% and acquisition related growth of 4% were partially offset by negative FX of 12%.

On a constant currency basis operating profit grew 34%.

Adjusted EBITDA was up 18% and up 28% in constant currency.

With a margin of 28% 170 basis points higher than last year and the first time in history, our quarterly EBITDA margin has exceeded 20%.

Fourth quarter, EPS was up 25% over the year ago quarter and up 42% in constant currency.

Next we'll move to slide eight which provides more details on Q4 revenue and operating profit versus the prior year.

Revenue was up 16% on a constant currency basis, primarily from organic growth of 12%.

All segments performed well with double digit organic growth in North America, Latin America, and our rest of World segment, and 8% organic growth in Europe organic.

Organic growth benefited from strong Ams and Drs growth volume growth and Brink's global services and price increases across all service lines and segments.

Our reported revenue was $1 2 billion up $93 million or 8% versus the fourth quarter last year.

Next turning to operating profit, which in constant currency was up 34% versus last year with organic growth of 30% and acquisitions, adding another 4%.

FX was a 12% headwind, resulting in reported operating profit of $187 million up 22% versus last year.

The operating profit margin for the quarter was 15, 7% an improvement of 170 basis points over last year, driven by strong operating leverage including pricing discipline and cost efficiencies.

Excluding a prior year onetime gain in Europe related to litigation and our Romanian business.

We saw a year over year margin expansion in all four geographic segments.

And as Mark mentioned earlier, our North American segment achieved record high profit margins this quarter exceeding 15% for the first time in history.

I'd also like to note that this is our fifth consecutive quarter of double digit constant currency growth in revenue and profit in the third consecutive quarter of double digit organic growth in revenue and profit.

Now, let's turn to slide nine.

Yeah.

Starting with our operating profit and walking left to right.

Fourth quarter interest expense was $44 million up $15 million versus the same period last year.

Primarily due to higher interest rates on our floating rate debt and to a lesser extent higher levels of debt.

Next tax expense was $45 million up $1 million versus last year as the impact of higher income was partially offset by a reduction in our effective income tax rate.

The full year effective tax rate of 33% was 330 basis points lower than the 2021 right.

This was favorable to expectations in prior year due to the geographic mix of income and higher than anticipated deductions in certain foreign jurisdictions.

And as we look to 2023 the tax rate is expected to remain somewhat consistent to our 2022 right.

In total $187 million of operating profit less interest expense taxes.

And Noncontrolling interest in other generated $100 million of income from continuing operations up $17 million over last year.

Fourth quarter EBITDA of $247 million was up $38 million or 18% versus last year, primarily due to the flow through of higher operating profit.

And as I noted on our prior slide EBITDA as a percentage of revenue was 28% up 170 basis points versus Q4 of last year.

Finally, a note on our shares and earnings per share as noted earlier, we generated $2.10 of earnings per share up 25% versus last year on a reported basis.

Share repurchases reduced our weighted average diluted shares outstanding by about one 6 million shares versus last year or.

We're about 3%.

And accounted for about a 6% increase in EPS.

Our lower effective tax rate provided about nine versus last year. The remainder of the EPS increase was driven by higher profit and partially offset by higher interest expense.

Next we'll turn to free cash flow on slide 10.

Starting on the left adjusted EBITDA was $788 million or 106 million better than the prior year.

Working capital cash usage of $164 million was above our expectation in the prior year.

There were several items that led to increases, which we largely expect to normalize over 2023.

First as we have previously discussed we saw an increase in accounts receivable balances and DSO mix predominantly related to Mexico.

We continue to make solid progress in Mexico. After the regulatory change to invoicing requirements and drove meaningful improvements in DSO quarter over quarter.

But we remain about $40 million above the prior year.

We don't foresee material collection risk and expect to return to more normalized levels in early 2023.

Second, although we have yet to see major impacts from our supply chain the difficulties that impacted our industry and many others. During 2021 in early 2020 to.

Led us to make a strategic investment in tech enabled devices.

With the strong customer demand and Drs you felt it was important to maintain adequate supplies of devices on hand to protect our revenue growth and profitability assumptions into 2023.

Consistent with prior quarter discussions we see this as a onetime increase in working capital and do not foresee additional increases in subsequent years.

And finally in the normal course of business, we process change orders for our customers when filling cash deliveries that require us to advance our cash stock in order to expedite service.

Electronic reimbursement of the advanced can take a few days to return to our accounts.

Saw a several unusually large change orders on the last business day of 2022 to position cash for the weekend that settled in early January due to the year and falling on a Saturday.

As you can see in the 2023 targets across the bottom of the page, we expect to use about $45 million of cash for working capital and restructuring which includes some benefits from the recovery of these items.

We also have working capital improvements from our mix shift to more drs in Ams as they have more recurring and subscription payment models versus our traditional stock based billing model.

2020 to cash taxes of 128 million were in line with our expectations and up $44 million versus last year.

We estimate 2023 cash taxes of approximately $130 million roughly.

Roughly flat in dollars to the prior year, but an improvement from a tax rate perspective, due to expected jurisdictional mix of payments and income.

Cash interest was $116 million $10 million higher than last year, primarily due to higher variable interest rates on the 40% of our debt is floating and higher debt levels.

Flowing through the rate and that increases to the full year of 2023, resulting in $175 million in cash interest and increase of $59 million.

Net cash Capex was in line with expectations at $177 million and slightly below 4% of revenue.

2023 cash Capex is expected to remain relatively flat at about $180 million despite volume growth.

The rate decrease is a result of the shift in our business mix to more digital retail solutions.

Which require less capex and allows us to streamline our infrastructure by optimizing routes and right sizing our logistics fleet.

In total 2022 free cash flow of $203 million with a conversion of 26% was negatively impacted by the short term working capital items I just mentioned.

We expect those to normalize over 2023, leading to between 325 and $375 million of free cash flow generation for conversion of approximately 40%.

Recognizing the importance of free cash flow and value creation, we're aligning the organization behind improved free cash flow generation by adding specific free cash flow targets to our 2023 annual bonus plan for our managers.

Next turning to slide 11, I'd like to spend a few minutes on our priorities for capital allocation.

Our strategy begins with organic investments in our businesses that drive profitable growth and strong cash flow returns.

Those investments largely come in the form of operating expenses that we've factored into our operating profit guidance for next year like the build out of our Ams and brings business system teams that Mark mentioned earlier.

And through efficiencies of the businesses that we have achieved as we shift to Ams and Drs revenue. We expect total capex cost to remain below 4% of revenue or approximately $180 million in 2023, as we discussed earlier.

Next we're targeting a leverage ratio between two and three times adjusted EBITDA.

Adding in the full year EBITDA from our note machine acquisition in October we are currently at three one times just over our target.

If we assume the midpoint of our 2023 free cash flow and adjusted EBITDA and further assume all cash was utilized to reduce debt level.

Leverage were to be approximately two six times by the end of 2023.

This capacity creates flexibility for shareholder returns, while ensuring we land within our targeted range by year end.

And capital returns, we have $198 million in remaining capacity on our existing share repurchase plan with.

With debt levels, reducing into our target range. During 2020 'twenty three we have the flexibility to continue share repurchases on a more consistent basis. When the market is attractive while also providing for regular modest increases to our existing dividend.

And finally on the M&A front, we continue to explore accretive deals that fit within our existing geographic or service offering base and are manageable within our free cash flow profile and leverage targets.

Our capital allocation priorities are committed to driving long term shareholder value by investing in growth initiatives.

Having robust earnings generating cash and returning excess cash to our shareholders.

Yeah.

Next to slide 12.

Slide 12 provides a summary of our 2023 guidance as well as a framework around our 2024 targets.

Our strong performance in 2022 provides solid momentum into next year in 2023, we expect to achieve revenue growth of 6% to 9% driven.

Driven by organic growth of 7% to 11%.

Partially offset by an FX headwind of around 4%.

Based on rates from year end.

Operating profit growth of 12% to 21%, reflecting strong operating leverage and a margin increase of approximately 100 basis points.

And at the midpoint of our guidance. We also expect to deliver double digit increases in EBITDA free cash flow and earnings per share with free cash flow conversion of approximately 40%.

Our original three year financial framework of mid to high single digit organic revenue growth.

And 100 basis points of annual operating margin improvement over the three year period remains intact.

We also expect EBITDA growth to generate a free cash flow conversion approaching 50%.

Factoring in FX acquisitions, and current interest rates on our debt.

Given our strong performance in 2022, along with our continuous improvement framework through the <unk> business system and our growth strategy for the business I'm confident that we'll deliver on these targets.

With that I'll hand, it back to Mark for a few closing remarks.

Thanks Kurt.

On Slide 13, you can see our core strategic objectives, and our foundational strategic pillars.

Embedded within each pillar is our commitment to sustainability.

Our investment in each of these pillars will drive revenue growth and margin improvement and position Brink's is an innovative business partner and employer of choice for years to come.

Customer service has been a long standing part of Brink's and we're working hard to fully embrace a customer centric mindset by considering our customers at every single decision we make.

In action, we take to improve both growth and customer loyalty, we're working to create a consistent and exceptional experience across all service lines to become a trusted business partner with our customer.

These deeper relationships with our customers allow us to partner in innovation, we continue to innovate with tech enabled hardware and software solutions to create value and address our customers' biggest challenges, including our digital retail solutions and ATM managed services.

We must remain agile and capitalize on the emerging opportunities to drive new revenue streams in the evolving payments landscape.

With a focus on operational excellence, we are advancing a continuous improvement culture focused on improving the customer experience and eliminating waste.

Under the leadership of the <unk> business system team, we wish your systems and best practices across our global operations that expand our operating margins and improve our service rates.

And finally, our business is only as strong as our people, establishing a workplace and an employer brand that attracts develops and empower diverse talent will ensure that we have the best people and perspectives to achieve our goals.

I'm proud of the efforts of our team in delivering a strong 2022.

And 'twenty three we will grow brings by delivering a superior customer experience and driving continuous improvement throughout our operations.

I'm excited about the opportunities we have in front of us and encouraged by the strong momentum we're carrying into the year.

I'm confident in our ability to create long term shareholder value as we execute on these strategic priorities.

I'll now turn it over to the operator to facilitate the Q&A answer session.

Operator.

Ladies and gentlemen at this time well begin the question and answer session.

I'll ask a question you May press Star and then one using a touchtone telephone to withdraw your question you May Press Star two.

If you are using a speaker phone we do ask you. Please pick up the handset prior compressing the keys to ensure the best sound quality.

Once again that is star and then one to join the question queue.

Our first question today comes from George Tong from Goldman Sachs. Please go ahead with your question.

Hi, Thanks, good morning.

Hey, good morning, George Good morning, George.

Relatively healthy 12% organic revenue growth in 2022 can you provide an update on what youre seeing with volume trends among retailers in the current macro environment.

That can support continued solid performance in organic revenue growth and how the average number of stops per week per retailer is changing if at all.

Sure George I'll take that this is mark good morning.

We really haven't seen any significant demand signals that would indicate that we're seeing softness in retail in fact.

The retail story is largely playing out with.

In sort of two different areas with the big retailers and you've heard a couple here lately talking about the shift really from consumers are purchasing goods to moving toward services, obviously services.

An area for us we like given that that's largely in person, which is where cash is a preferred payment method and whether that's hospitality or retail <unk> or just travel and of course, you see some of those demand signals for the future with the airline businesses with Airbnb in some of the.

Forecast for summer travel so.

<unk> things give us some confidence going forward.

But actually we don't see any real data around that.

You know around demand.

Destruction or or or retreat I think the other thing to remember on the stops and the average stops per customer is that as we deploy more and more drs as we optimize more and more of the full line ATM managed services, we're able to optimize our routes and stops are better which again allows us.

Not only to drive.

Productivity on our asset utilization across our footprint, but also allows us to provide.

A more seamless integration with our customers with a full stack solution.

Got it.

That's helpful and related to that last point.

In your Tech enabled solutions portfolio, we saw significant growth with digital retail solutions up 25% in E. P. M managed services up 50% over the past year can you discuss your initiatives to further scale. Your tech enabled solutions, where are your priorities currently from a growth perspective.

Sure.

We are we're focused in all areas and I'd say, it's broad based.

Specifically around Drs, we've got of course, a big footprint there we're in our traditional business.

Many markets around the world almost on every continent.

We're seeing opportunities not just.

In the conversion of our existing customers, which which I think is encouraging and we talked about this at Investor day in 'twenty, one about the <unk> and underserved space, we're seeing those opportunities globally and in fact today.

We're seeing probably more opportunity in international markets than we probably expected early on which is giving us a balanced view.

And a balanced outlook on Drs growth relative to ATM managed services.

You know that that also is <unk>.

Broad based in activity and of course, we've got a strong footprint.

With our traditional business.

All of the markets I think the opportunity we've seen most recently has been in North America with our <unk> acquisition as well as in Europe with our note machine acquisition, but those two acquisitions are really they're not the basis for which we are driving growth. They are the basis for how we are driving.

The development of capabilities and skill sets and infrastructure to allow us to drive organic growth you can the numbers, we're talking about our organic growth.

We've chronicled some of those wins in the past whether that be with BPC E on the outsourcing their network or in the baltics or other areas of course in North America, but this is this is a good.

A good backdrop for us going forward and our pipeline is healthy with more and more discussions not only with our current customers, but as banks are evolving their footprint and their strategic outlook. Both in Latin America as well as in Asia Pacific, We're seeing more of those organic opportunities unfolding.

Our next question comes from Tobey Sommer from <unk> Securities. Please go ahead with your question.

Thanks, I was hoping you could speak to free cash flow in the arc of that.

This year in out in the future and maybe just give us the contours of the things that are within your control because I know, we don't we don't get to choose rates.

What's sort of your capex trends with the move to digital means in terms of optimization for that in any other things that are sort of within your control that will contribute to a higher free cash conversion.

Yeah, Hey, Tobey its Kurt let me, let me take take that and Mark can.

Can add on so.

I think when you look at our free cash flow the biggest component, obviously as our EBITDA and <unk>.

We feel very good about the trajectory of that and you know.

As we look ahead kind of what we're looking to deliver and then when you go beyond that you know you look at the other components. Let me just pick up on on Capex next.

We've basically said our capex is going to stay largely flat.

Going forward and the reason for that is because we really feel like our mix of business and changing our business model, allowing us the operational efficiencies to enable the fact that we don't need the same levels of Capex as we did before.

When you look at it as a percentage of revenue.

So that gives us leverage off of that so that's.

Well within our control.

If you look at the working capital components.

Next.

We talked about the fact that we had.

We consider it kind of a temporary drag at the end of the year here that we.

We see turning into into 'twenty three for a number of items.

And all of those well within our control.

As you know as we go into the year, we tend to ramp on free cash flow, it's lower in the first half of the year and picks up in the second half of the year.

It is very normal for us and we would see that that would continue.

The other components, I mean interest and taxes from a cash basis I mean, we're pretty.

I would say again on interests well within our control because were.

As we've said, we're going to target between two and three times on our leverage.

And so.

We'll keep that in check and then on the taxes.

You know working to to make sure that our cash taxes remain consistent we've guided pretty pretty much flat with.

'twenty two.

We think that's very achievable.

I mean, I'll, just add a little bit to that.

Toby just thinking that you asked about the Ark in in 'twenty two into 'twenty three and beyond.

First and foremost I think the cash conversion percentage for 2022 is a bit misleading at 26% given the fact that we had these one times.

No.

Getting through these are these temporary working capital drags that kind of a nominal you'll say 30, low 30%, 33% 34%.

Cash conversion on the 'twenty, two number which makes it a 40% conversion on 23.

So daunting and by the way that's consistent with our history previous to 2022.

Mid to low 30% conversion rates I think the other thing that we are confident about is a larger a large part of that working capital improvement for next year.

<unk> is built into some of those items Curt mentioned, whether it's $40 million and they are recovery in Mexico.

That he mentioned or some of the things that are already resolved themselves here in January relative to the timing of year end and change orders. So we feel good about that I think the other piece.

Of the business as we go forward.

Is around our DSO mix of businesses and so as Ams and Drs continues to become a bigger penetrate our existing portfolio and become a bigger piece of our revenue. We've got better terms there based on subscription based models versus the.

The traditional stop model and so you know.

That that backdrop.

With some other improvements and I think Kurt referenced the incentive plan change, where we think that we can drive behavioral changes and of course management of Tianjin with.

No.

Specific cash flow conversion tied to there to there.

Incentive plan I think it is.

It sets the right change management perspective going forward.

So that makes a lot of sense to me and as a follow up on that last point do you expect.

Our focus and incentive comp.

Free cash to be a feature of incentive comp.

This year or is it something that's sort of philosophically or strategically do you think is an appropriate tool to drive the improvement.

Absolutely Tobey we think this is.

Gotta be affirmative piece of our.

Of our compensation.

<unk>. So I think during the pandemic the company was focused on preserving profitability and as well as maintaining.

Our growth lean this year going forward, we think cash cash as a permanent piece of our our go forward.

Not only go forward management incentive, but frankly, it's a it's a go forward component as part of our value creation for shareholders.

Right.

You give us some color on the drivers of growth and what sort of strong.

<unk> the weaker elements.

Great Global services, it's something we don't always talk a lot about on these calls but.

I'd love to get sort of an update on how you see that business evolving this year.

Sure.

We continue to have a.

Our strong position Tobey in moving precious metals Bank notes.

Due to our network and <unk>.

Frankly global relationships.

In this industry and so as we continue to see whether it's interest rate regimes move.

Disruption, whether it's wars.

Pandemics. We are we are part of that ecosystem that allows investors to move in and out of specific types of valuables.

As we look at coming out of the pandemic where commodity.

Prices.

We're.

Logistics, specifically gold and silver were working.

High demand.

Had a lot of that.

Revenue, whether it was movement or storage or so forth around precious metals in the pandemic as but at the same time, we saw banknote repatriation and movements around the world contract. What we're seeing that shift back now as we're seeing more people move around the globe more cash moving around the world.

As well as interest rates moving that.

That drives central bank.

And government our country to country currency flows and so that we've seen a significant uptick there.

In the banknote business this year.

And last question from me, saying that you would highlight as the most.

Most likely areas.

Financial.

Institution.

Outsourcing.

This year and next is there a focus area that youre hearing from customers the biggest.

Biggest opportunity for our company.

Well, we certainly are in.

The ATM managed services is our.

Is really the platform to receive that and frankly, we.

We've seen more and you saw that the growth the organic growth number.

Had an in 'twenty two and we would expect continued strong growth from sorry from our Ams business and it's coming from bank financial institution outsourcing and as I mentioned before we've while we have big.

<unk>.

Footprint in North America, and Europe were seeing this activity widespread around the world where banks are entering into discussions whether public.

A request for proposal or whether it's private negotiations with us and I'd say, we're or and others by the way I'd say, we're a logical partner for many of these <unk>.

Customers given the fact that we provide.

Such a large amount of service in the value stream with their currently in source ATM management and so for US we're a logical partner for that first discussion and part of that for US is to make sure. We're ready for it which is why we're building out what I mentioned was our global infrastructure we appointed.

David job these are our global ATM.

Residents and built out some infrastructure around that both on the business development as well as technical capability to be able to have those discussions and.

Purposefully enter into good exploratory discussions with these customers to find the best solution and by the way that solution.

<unk> has a wide varying range of services, but.

All of those cases.

This is an accretive business to our base margins and continues to help us as we look forward drive our mix as part of our profit improvement and a 100 basis points framework year on year.

Thank you.

Yeah.

Okay.

And ladies and gentlemen, with that we're going to conclude today's question and answer session as well as today's conference call. We do thank you for joining today's presentation. You may now disconnect your lines.