Hello, and welcome to The Brink's Company First Quarter 2021 Earnings Conference Call. Brink's issued a press release on first quarter results this morning. The company also filed an 8-K that includes the release and slides that will be used in today's call. For those of you listening by phone, the release and slides are available on the Investor Relations section of the company's website, brinks.com. [Operator Instructions]. 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 those projected or estimated. Information regarding factors that could cause such differences is available on today's press release and the company's most recent SEC filings. Information presented 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's now my pleasure to introduce your host, Ed Cunningham, Vice President of Investor Relations and Corporate Communications. Mr. Cunningham, you may begin.

Thanks, Keith. Good morning, everyone. Joining me today are CEO, Doug Pertz; and CFO, Ron Domanico. This morning, we reported first quarter results on both the 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, costs related to an internal loss and costs related to certain accounting compliance matters. We're also providing our results on a constant currency basis, which eliminates changes in currency exchange rates from the prior year. We believe the non-GAAP results make it easier for investors to assess operating performance between periods. Accordingly, our comments today focus primarily on the non-GAAP results. Reconciliations of these results are provided in the press release, in the appendix of the slides and in this morning's 8-K filing, all of which can be found on our website. With that, I'll turn the call over to Doug.

Thanks, Ed, and good morning, everyone, and thanks for joining us today. This morning, we announced first quarter results that we believe clearly demonstrate the increased earnings power and resiliency of Brink's. Our strong first quarter results were driven by the ongoing successful integration of the G4S acquisitions and our fixed cost reductions, which more than offset the impact of extended pandemic shutdowns, mostly in Europe. On a reported basis, revenue was up 12%. Operating profit grew 43%, reflecting a margin increase of 200 basis points to 90 -- 9.2%. Adjusted EBITDA was up 32%, with margin improvement of 210 basis points to 14%, and EPS grew 64% to $0.82 per share. It's important to remember that we're comparing to a year ago quarter that was not materially affected by COVID-19. In fact, not until the last week or so of March did we start seeing those impacts. So we're quite encouraged by the fact that on an organic basis, this year's quarter revenue was down only 6%, while operating profit increased 30%, reflecting an operating margin improvement, as we said earlier, of 200 basis points, and we expect this leverage and margin expansion to continue as revenues recover. We forecast organic revenue and profit growth to accelerate as we move through this year, 2021, especially in the second half, supported by continued recovery from the pandemic. During the quarter, we completed the final phase of the G4S acquisition. These businesses, which span 17 countries, have been largely integrated well ahead of schedule, and we're on track to exceed our original synergy targets of $20-plus million. On April 1, we completed our purchase of PAI for $213 million, reflecting a pre-synergy purchase multiple of about 7x EBITDA. PAI provides managed services for approximately 100,000 ATMs and brings its strong management,…

Thanks, Doug, and good day, everyone. Slide 7 is a format that we include each quarter that covers the 4 key metrics of 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 on the next 2 slides. Turning to Slide 8. Please remember that we disclose acquisitions separately for the first 12 months of ownership, at which time they are mostly integrated, and then they're included in organic results. Our results for this quarter include the February 2021 acquisitions of the G4S cash businesses in Macau, Kuwait and Luxembourg, which completed the G4S acquisitions announced last year. Starting in the second quarter of 2021, our results will also include the recent PAI acquisition. 2021 first quarter revenue was up 13% in constant currency as the pandemic-related organic decline of 6% was more than offset by a 20% contribution from acquisitions. Negative ForEx reduced revenue by $9 million or 1%, as strength in the euro was more than offset by weakness in Latin American currencies. Reported revenue was $978 million, up $105 million or 12% versus the first quarter last year. In general, revenue recovery was consistent with the fourth quarter 2020, except for Europe, where lockdowns were reimposed by governments in response to a post-New Year's wave of the pandemic. First quarter operating profit was up about 50% in constant currency, with organic growth contributing 30% and acquisitions added 20%. As I noted last quarter, we believe that the fact we achieved organic operating growth despite an organic revenue decline is a testament to our proactive cost realignment. Forex reduced operating profit by $5 million or minus 8%. Reported operating profit for…

Thanks, Ron. Let's talk a little bit now of strategy. Slide 15 summarizes our current strategic plan, SP2, which builds on the proven initiatives executed in our first strategic plan that covered the 3 years through 2019 and resulted in 8% annual revenue growth on a compound annual basis during this period of time and compound annual growth rate for operating income of over 20% per year. The bottom layer outlines our 1.0 initiatives to supporting core organic growth and cost reductions. Our SP2 target is to achieve over $70 million of cost reductions and productivity improvements by 2022 driven by our lean initiatives and core Brink's continuous improvement culture. 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 affiliate savings, route optimization, money processing center standardization and more. These initiatives are supported by dedicated lean experts in each country as part of the newly introduced Brink's business system. Sustained cost reductions of SG&A and other fixed expenses have been realized through our recent restructurings and last year's priority 3 targeted cost takeouts. These cost reductions and structural changes are driving operating leverage, as demonstrated this quarter in the higher OP margins versus last year and 2019, even with lower revenue levels. The benefit of operating leverage will continue to be material as organic revenue recovers from the pandemic yielding higher margins going forward. This leverage is evident in our 2021 earnings guidance, which shows a margin improvement of 100 basis points from the low end of the guidance, with margins at 11% to the high end of the guidance at 12%. As organic revenue continues to recover, operating leverage is expected to add over 150 basis points to our profit margin by 2022, and…

[Operator Instructions]. And the first question comes from George Tong with Goldman Sachs.

You indicated that the high end of your 2021 guidance assumes a return to 2019 revenues on a pro forma basis. Can you discuss what trends you're seeing with market share gains, market penetration and pricing across each of your 4 geographies that support this outlook?

Well, George, that's a pretty significant question if you're looking at all the geographies and looking at the pricing and everything else. I think what we really are seeing is a recovery that is quite different in many other geographies, but will start to accelerate at different paces through each of the geographies. What we saw in the first quarter was the U.S. not accelerate dramatically, but continue to improve, and we think that's a very good sign. If you think back, as an example, in the U.S., while things seemed like they have come a long way, it's only really in the start -- the latter part of February that we started rolling out true vaccines of any consequence in the U.S., but they started to really make a material improvement in the economy and where things are going. And the U.S. clearly is ahead of most other countries, not all, like Israel, but I think that's what we will continue to see that will drive organic revenues back to 2019 levels and beyond. Remember, I didn't suggest that our guidance for the year will be that. That's our high end of our guidance, and what we're really suggesting is the midpoint is closer to about 5% below the top end of the range. But clearly, we expect to see significantly increased acceleration in the second half of this year as we see economies come back. And as we said in our comments, and I think as most people have seen, this was a tougher-than-expected quarter for European markets, and particularly with government shutdowns and mandated lockdowns, which we start -- we're starting to see some light of the tunnel in Europe from those government-mandated lockdowns in the latter part of this quarter.

Got it. That's helpful. And just a follow-up on that question. Can you discuss the relative potential growth in each of the 4 geographies? In other words, where do you expect the recovery to be the quickest? And then where do you expect it to be most lagged or most mixed in performance?

Again, I think we'll see steady recovery in our markets in the U.S., and it's ahead of other countries. Israel probably is one that, because of the vaccination rate, it jumped ahead, but not until the end of the quarter when they really reopened the economy in Israel, and that's an interesting example of that. So I think it's -- if you take Europe as a whole, It's lagging at least by 1/4 of the U.S. and maybe some other markets, but that will be the key drivers when vaccinations happen and as they move forward. We expect, though, to continue to see strong cash usage in places that we have new platform positions in like Eastern Europe, in Asia. Certainly, South America continues to be extremely strong and it varies. Brazil is lagging in terms of its recovery, but the use of cash in all those locations, including Mexico and other countries in South America, is extremely strong. And in some of those countries, we're at or back at 2019 levels for revenue already.

Got it. That's helpful. And then secondly, on the cost side, you're expanding your cost initiatives into more countries to help drive margin expansion. Can you elaborate on where you see most opportunity for cost savings outside of North America with your wider and deeper strategy? And what EBITDA margins can expand to longer term?

Well, we won't share what our EBITDA margins will expand to longer term until we get to Investor Day, and I think that's the appropriate time to provide that across the board. But in the comments and in our numbers on Page 15, we did provide some indication of the improvements, and we laid out that the layering of the cost reductions that we've laid out some targets on with the expanded rollout to more countries. Remember, we're in 50-plus country now on the ground. So as we roll out to more of these countries, including the additional 14 new G4S countries, we're rolling out a lot of the same initiatives that have been proven to be significant cost improvements and implementing our lean strategies, which drive both cost and capacity improvements, and those give us the ability in those countries to continue to improve our margins. This is not a 1-year, 2-year and then it ends. This is a way that we do business. This is part of the culture and that we'll continue to roll and continuously improve our capacity, improve our service to our customers and improve our costs going forward. But in the short term, we've laid out this year and next year, $70 million associated with cost savings related specifically due to the wider and deeper programs as well as then the cost leverage improvement, the margin improvements that we suggested would be -- we project to be probably 100-plus basis points through next year, depending on where revenues recover to. And those two combined give us the base with then adding to that the 100 -- or excuse me, the 1.5 acquisition benefits from synergies and then growth from those additional countries as well. That's our core business, and that's what's going to continue to drive double-digit growth this year and next year. And then on top of that, we're laying on these new strategies that we'll talk more about in October and that I did speak a little bit about already today with the 2.3 strategies. I think the key piece here, and I want to emphasize this, is that this is part of the culture. This is part of where we're going. And in 2023, we'll be talking about more cost reductions as a result of 1.0 wider and deeper and the way that we move forward.

And the next question comes from Tobey Sommer with Truist Securities.

Could you talk about your ATM transaction, some of that data you cited? How much was the value of transactions up in the U.S. in the quarter? And could you explain the leading indicator and nature of this metric for core CIT in the U.S.?

Yes. Tobey, I think what we -- with the acquisition of PAI, it -- we gained some additional insights that we really didn't have before, a good-sized ATM player in terms of the transactions that go through. And so we just wanted to provide some additional insights. This is effective of the same-store sales, in other words, same ATM locations that were opened last year, and the increase of withdrawal transactions. And as we said, the number actually for dollars going through was up even a little bit higher than the 18%. So we think that's a good indicator. And I think most of the many industry analysts suggest that ATM transactions and the amount that's being put into the economy is a good indication. That is a good indication of where the economy is going and the amount of cash that we see going forward. Our primary purpose of continuing to provide this information is not to suggest that when we see a 4% or 5% or 8% or 10% increase in our numbers or a 17% increase in cash and circulation that we should see a 17% increase in our revenue. Unfortunately, I kind of put it that way. Our model in the U.S. is not directly tied to the amount of cash that is going through the economy, which, unlike credit card and debit cards, it is. But it does give a very strong and, I think, very positive indication that, that number is not flat. It's not going down, and it's greater than the historical numbers have been, which is suggesting the cash is not going away. In fact, in no way is it going away. It's just the opposite. That's the primary message and point here, which means that our opportunity is strong, our business opportunities are strong. And in fact, there's significant white space, what I'd like to call it out there, of transactions that are using cash that don't have any services -- vended services by a third-party provided to them, and that's the message that we're trying to get to, and that's the opportunity in the future. So our core business is very much intact. Margins are improving. We see the growth opportunities with recovery in the economy. And then on top of that, there's an opportunity to go after these additional white space of cash payments that have not been tapped to into the past.

Yes. And I know the vaccination program in the U.S. has been very fluid and it's very recent, but has the increased vaccination rate translated into an ability to roll out your pilots and beta customers for Strategy 2.0 in a better and perhaps faster fashion, so they'll be able to get up and running and use the service and start to assess what it means for them?

It's starting to, Tobey. As I've said, what, two months ago when we talked about the end of our fourth quarter result at the end of February, we're disappointed, if you will, in the lag times and the delays. A lot of this is caused in the program. It's also given us some time to make sure that we get things right as well. But I think we're just starting to see that. I was just speaking with some of our team over the last week, and what they're seeing is a refocus of many retailers to start taking a look at what can we do to improve efficiencies going forward, rather than just how do I survive through the pandemic time frame, how do I focus on restarting my business which, in those types of situations, which is what we're just starting to get out of, retailers are that is. In those types of situations, what you end up with is the focus is not as how do I materially change my processes or how do I put new things and to improve my productivity and efficiency. I think they're just starting to take a look at those things, and we'll start seeing a refocus on that. And that's going to also be, I think, hastened by the fact that, I think, the focus is going to be more on labor, ability to get labor, and stores are going to be more focused on making sure that labor and their people support this significant, I think, increase in retail sales.

Great. And I had one other question. With respect to free cash flow conversion from EBITDA, thanks for that bridge for 2021. That's helpful. Could you give us a sense for what a normalized free cash flow conversion range might look like as the business kind of continues to bounce back post pandemic if the 2021 range is appropriate for out years as well?

Yes. Tobey, if you look at Slide 11, where we went through the free cash flow, as Doug showed on his concluding slide, and it still may be up on the screen, we see post pandemic based on all the initiatives that we just discussed, both the cost initiatives, the WD, the Strategy 2.0, continued growth in our adjusted EBITDA. We do not see continued growth in restructuring. That's primarily tied to acquisitions. And so in 2021, that yellow bar has quite a bit of restructuring in there, and we will continue to have working capital needs as the revenue grows, but that first box should be smaller cash taxes. We don't talk much about it, but we have years of NOLs and tax attributes that we can utilize that will keep our cash taxes about at the $100 million range in the future, even as earnings and EBITDA grow. Interest is going to get a little bit higher when we have a full year impact of the incremental debt that we assumed with the G4S acquisition, primarily the incremental $400 million in June of last year. When that rolls over, you're going to see an incremental increase in cash interest. Interest rates, we do have a lot of it locked in fixed, and we're going to be able to keep the rate pretty flat, despite what you're hearing in the market about increased rates generally. And then finally, the cash CapEx, we mentioned in my prepared remarks that 2021 is going to be at 4%. As we start coming up in the next few years to the anniversary date of some of the new generation trucks where we can replace just the chassis and not the entire truck, we're going to get what I call a CapEx holiday. And you'll expect that CapEx number to decline below 4% of revenue. We're targeting at least 3.5%, but it's yet to be seen. So you'll see CapEx as a percent of revenue decline. And then dividends, we look at that all the time. So far, what we've heard for the past few years is our investors prefer us to redeploy capital through CapEx and M&A, which has much higher returns. And so the Board obviously looks at that regularly, certainly on an annual basis. But right now, at $30 million to $35 million in cash CapEx, it's not a material number. So I think I've given you all the pieces, but the main driver of our free cash flow conversion metric is going to be the growth of EBITDA, where these other metrics are relatively flat or declining.

But Tobey, I just want to reemphasize. We're looking at EBITDA going up at least $100 million this year versus last year and 2019 on a midpoint basis. And so it's not only these other areas that we're reducing CapEx spend and managing working capital, reducing any restructuring expenses going forward. But also we're growing that top line fairly materially. $100-plus million a year is pretty material.

[Operator Instructions]. And the next question comes from Sam England with Berenberg.

The first one, I was just wondering, should we expect that future M&A is going to focus more on adjacent markets, like the PAI deal? Or is core-on-core CIT still the main focus of M&A? Or are you envisaging it being a bit of both going forward?

We look at absolutely everything, Sam. We have a record of being highly disciplined, but a lot of this is based on what's in the market at a certain time. So the ability in the 14 additional geographies that we got with the G4S acquisition to do bolt-ons in our core business is something that we're exploring, but none of these are really going to be large deals, but you could expect some transactions in the future in the new geographies. To accelerate the growth and the impact and the timing of our 2.0 initiatives, we're also looking at potential acquisitions there. But again, we're highly cognizant of Brink's multiple -- in the multiple that some of these more fin-served acquisitions have make a lot of acquisitions in that space highly challenging to be accretive, and we do focus on our shareholders and the returns. So you're probably going to see a lot of continued organic growth, but our eyes and ears are open, and we do look at a lot of different things.

Said kind of another way, in our core 1.5-type acquisitions, the bigger elephants have already -- most of those have been taken, but there are still opportunities for nice tuck-ins if they're accretive and they make a lot of sense. And the PAI, I think, though, is a good example of one that we think gives us a platform. Tied together nicely, it gives us great synergies at least on the top line, which weren't as much as what we were focusing on with the core acquisitions we've done to date, but gives us that opportunity for expanding our organic growth, cross-selling, et cetera. And we think we did that at a pretty reasonable multiple, staying consistent with a post synergy that's going to be closer to the 6s and, therefore, good value for investors as well. It's a good example.

Great. Yes, I was going to come on and talk about the PAI deal. I just wondered if you're seeing interest already from existing customers in that offering and how long you're thinking it will take to get to the full sort of cross-selling benefit from that deal?

We already have seen interest from customers on both sides, and I think the ability to put the package together to expand where we go out with this, both in what I'm saying is a complete package, will be very interesting. I think it will take some time to ramp that up, but we're already starting to get the organizations aligned to do that and having the conversations with a lot of the customers on both sides. So I think it will be exciting and compelling, and a complete package gives us much more latitude and options and ways to put it to a complete package to customers.

Great. And then one more.

Yes. Go ahead. No, go ahead, please. Go ahead, Sam.

Actually, I believe his line did disconnect. So as there are no further questions, ladies and gentlemen, that will conclude our call for today. You may now disconnect your lines.

Thank you. Thank you very much, everybody. Appreciate your comments.