Mark Eubanks - Chief Executive Officer Kurt McMaken - Chief Financial Officer Ron Domanico - Former CFO, President of Brink's Capital & Sustainability Ed Cunningham - Vice President of Investor Relations - : George Tong - Goldman Sachs

Welcome to the Brinks Company, Third Quarter 2022 Earning Conference Call. Brinks 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 those of you listening by phone the release and the slides are available in the Investor Relations section of the company's website www.brinks.com. At this time all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. Now, for the company's Safe Harbor statement. This call and the Q&A session will contain forward-looking statements. Actual results could differ materially from the projected or estimated results. Information regarding factors that could cause such differences is available in today's press release and in the company's most recent SEC filings. Information presented and discussed in this call is representative as of today only. Brinks assumes no obligation to update any forward looking statements. This call is copyrighted and may not be used without written permission from Brinks. It is now my pleasure to introduce your host Ed Cunningham, Vice President of Investor Relations. Mr. Cunningham you may begin.

Thanks Andrea and good morning everyone. Joining me today are CEO, Mark Eubanks and CFO, Kurt McMaken. Also joining the call is Ron Domanico, former CFO and current President of Brink's Capital and Sustainability. This morning we reported third quarter results on both the GAAP and non-GAAP basis. The non-GAAP results excluded a number of items including the impact of Argentina's highly inflationary accounting, reorganization and restructuring costs, items related to acquisitions and dispositions, cost related to frozen retirement plans. Charges related to an antitrust matter in Chile, valuation allowance on tax credits is in certain allowance estimates. We're also providing our results on a constant currency basis which eliminates changes in foreign currency exchange rates from the prior year. We believe the non-GAAP results make it easier for investors to assess operating performance between periods. Accordingly, our comments today will focus primarily on the non-GAAP results. Reconciliations are provided in the press release in the appendix of 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 Mark.

Thanks Ed. Good morning, everyone, and thanks for joining the call today. This morning we reported strong third quarter results, including double digit organic growth in revenue, operating profit, adjusted EBITDA and EPS. We achieved these results in a macro environment that continues to be challenging, demonstrating the resiliency of our business. We remain on track to achieve the mid-point of our full year guidance for adjusted EBITDA and earnings per share of approximately $775 million and $5.75 respectively. Full year revenue and operating profit are now expected to be at the low end of the prior range, due primarily to the impact of foreign exchange translation. Our guidance includes full year organic revenue of about 12% and strong double digit growth in operating profit, EBITDA and EPS, reflecting approximately 100 basis points of margin expansion driven by our organic growth, lean cost initiatives and leverage from the lower fixed cost base. Through the first nine months of 2022 we achieved 8% revenue growth, 15% operating profit growth, a 14% increase in adjusted EBITDA and EPS growth of 23%. We delivered these results despite a slower than expected start to the year due to the Omicron related shutdowns around the world, a war in Europe and an aggressive global monetary tightening trend, all of which have led to extreme movements in FX as the U.S. dollar continues to strengthen. We expect the operational momentum in both organic growth and profit expansion to continue through the fourth quarter, which has historically been our strongest quarter. It’s important to note that our 2022 guidance does not include any contribution from a recent acquisition of Note Machine, which we expect to be accretive to our results starting in the fourth quarter of this year of approximately $0.04 per share. In addition to the…

Thanks Mark. As I'm approaching my planned retirement, it's been my honor and privilege to work with you and to onboard my successor. Kurt McMaken joined as Brinks CFO in August and has hit the ground running. As I've been transferring my institutional knowledge, our experienced team of professionals continue to provide exceptional support. While this is my final earnings call, I'll retain a significant investment in Brinks, knowing that the company is in great hands. Kurt.

Thanks Ron. It's been great to work with you on this transition and thank you for all you've done for Brinks. Good morning, everyone! Let's move to slide 10, which provides more details on our Q3 revenue and operating profit versus the prior year. As Mark mentioned, revenue versus the prior year was up 14% on a constant currency basis, almost entirely from organic growth of 13%. Our organic growth benefited from price increases, further implementation of our AMS rollout in France and strong Brink's global services volumes. Foreign exchange translation was a headwind of 8% versus the prior year, driven primarily by the Euro and Argentine Peso. The reported revenue was $1.1 billion, up $61 million or 6% versus the third quarter last year. Next, turning to operating profit, which in constant currency was up 23% versus last year. Organic growth was 22%. Acquisitions added another 1% and 4x was a 14% headwind, resulting in reported operating profit of $127 million and an 11.2% operating margin, which was 40 basis points above last year and 30 basis points higher sequentially. Our organic operating profit growth was primarily driven by revenue growth and was partially offset by an increase in security losses, including the previously discussed $10 million related to the jewelry robbery in Los Angeles and expenses related to variable compensation. I think it's interesting to note that this is our fourth consecutive quarter of double digit constant currency growth in revenue and profit, and the second consecutive quarter of double digit organic growth and revenue and profit. Now, let's turn slide 11. Starting with our operating profit and walking left to right, third quarter interest expense was $34 million, up $7 million versus the same period last year, primarily due to higher interest rates and to a lesser…

[Operator Instructions]. And our first question will come from Tobey Sommer of Truist Securities. Please go ahead.

Hey, good morning! This is Jasper Bibb on for Tobey. My first question was just on the revenue guidance. Beyond FX what factors would you say came in above or below your expectations for the second half and also could you quantify how much of revenue you expect Note Machines to add in the fourth quarter?

Sure Toby. Good morning! It’s Mark. I’ll…

Jasper.

Jasper, sorry. Good morning. We – relative to the guide we really are only seeing sort of volumes soft this year really in FX. I think there are some pockets of strength in the business and back and forth and I'd say the global services business in Asia continued to perform in the quarter in particular as more and more metals and bank notes continue to move around the world, but nothing really fundamental for us underlying in the business of seeing that weakness. I think that you can see the organic growth in the single digits in Europe, which was not double like everywhere else, but all-in-all fundamentally I think our growth model organically is still intact. This is really just an FX issue that we see coming out of the quarter and as rates moved from our last call, you know or end of last quarter to into this quarter and that's what we're projecting forward into Q4.

Thanks. And then I was just hoping you could update us on your ‘24 margin targets with the context of what you're seeing in labor cost inflation, and also I guess the restructuring initiatives you announced this morning.

Sure. You know I think our pricing and cost relative inflation posture will remain the same, not only in the year, but across the strategic planned period into ’24. We expect to continue to match those and drive productivity, but also put those through the market relative to pricing. The restructuring, you know we'll continue to do when we see fit given the market outlook, but our framework is intact. As we mentioned earlier this morning, 100 basis points a year mid to high single digit organic growth is still our expectation and we feel good about it. I think there is from a restructuring perspective, you know part of it could be market specific restructuring down the road depending on what happens in local economies, but I think it's more about realigning our cost structure. As we begin to shift our business mix to higher margin services, whether that's in our Digital Retail Solutions or our ATM Managed Services, those are the areas we want to invest more in and free up cost in the rest of our business, particularly as we're driving a more efficient business model that allows us to do that with our core infrastructure.

Jasper, this is Kurt McMaken. I think you asked about Note Machine revenues in the fourth question in your original question. I think maybe the way to think about that is, if you take the Note Machine revenue that we disclosed of $131 million and divide it by four, that will give you directionally where you need to be for the fourth quarter.

Okay, got it. And then following up on AMS, you know up 50% organically this year is pretty impressive. Could you maybe contrast for us why you think your business is doing so well there while it seems like some of the ATM hardware companies in the same market have really struggled this year?

Sure, it’s a – maybe there's one common word in there which is ATM, but they are definitely different business models. From our perspective, you know the ATM companies that you referenced are largely seeing I think issues on the manufacturing side, best I can see from the outside and this has to do with not only global supply chain, but inflation as well. So I think that's a separate issue from what we're seeing on the managed services side. I think you know the 50% organic growth for us, while it's a big number and it feels really good, this is really several, singles and doubles along the way in our base business, whether it's PAI or the rest of our global footprint, but it's also a big step up as we're bringing on the BPCE network that we previously announced in prior year. But we're now bringing all that on and expect to have that implemented, kind of on full run rate by year end.

Last one for me, would you say the current macro uncertainty is impacting your customers behavior at all at this point? And then do you think that macro might be also influencing your ability to sell new equip counts on the Brinks complete year end solution.

Sure. I don't know that there's been a big shift due to the macro environment. Listen, I think people are definitely getting pressured with inflation and with currency devaluations in markets, particularly outside of the U.S., but I think this is still a function of, as I mentioned, regardless of sort of where the economy – if the economy is down 5% or 10%, you know there’s still 80%, 90% or you know 90%, 95% of the money still has to be picked up and still cared for and processed. I will say though that you know as people, particularly retailers are focused on streamlining their business, and by the way, this varies from retailer-to-retailer depending on how they did with inventory forecasting through the pandemic, you know some retailers are playing offense, but certainly I think some are certainly batting down the hatches to make sure they got their cost structure in line, have their store footprint in line, which might create some apprehension. I think the sales cycle on any solution that is different or replacing a long standing service, you know has a long gestation period, particularly when you think about pilot programs and getting you know sort of through the pipeline. But you know we don't see any real aversion to listening and/or piloting. And in fact I'd say on both, DRS, but even more so on the AMS side, or the ATM Managed Services side. We're continuing to see pilots all over the world and this is not just aggregating around PAI or only around BPCE, although we're seeing opportunities in those markets. We're seeing them in markets where we are a trusted adviser let's say for our banking partners, that have allowed us to have the opportunity to move upstream you know in the ATM Managed Services side and we think this is a real opportunity going forward.

Okay, I appreciate the detail there. Thanks for taking the questions guys.

The next question comes from George Tong of Goldman Sachs. Please go ahead.

Hi! Thanks. Good morning.

Good morning, George.

On slide eight you provided – hi. On slide eight you provided a history of how Brink's responded to various economic cycles. As you look at prior performance leading into or heading into a recession, what are some of the indicators or responses that you would typically see from a customer in the event of a pullback, and how quickly would those signs of a slowdown show up in the business?

You know, I’d like to say that there is notes processed or how many stops, but in fact that really probably isn't a great lean indicator, because for instance you know in the pandemic our volumes actually went up as we nosed into, you know into the middle of 2020, just given the fact that banks and central banks wanted to make sure there was cash available in the marketplace for consumers, and so we wouldn't necessarily see that. I think what we would see George would be customers either canceling locations, closing down stores, especially you know larger national accounts that have multiple stores if you start to see store closures or less frequency, you know maybe of staffs, if we're servicing customers three, four, five times a week if maybe they pulled back. It's not something we've seen yet. In fact we're continuing to see sort of an expansion of that, but for us our answer and as we think through any potential situation, first of all we want to look at – we’ve looked at our cost structures we announced to restructuring, to you know get ready for something that might happen just in case. But also you know shifting to Brink's Complete and you know our tech-enabled solutions, particularly in the traditional CIT Money Processing Business is a benefit for us and we have the opportunity create benefits for customers relative to allowing them to reach maybe a better price point down the road.

Great, that’s helpful. And then as we think about your pricing power in the current inflationary environment, how would you compare it to historical trends? Has your pricing picked up commensurate with inflation and how does your organic revenue growth split between volume and pricing?

Sure. I’d say pricing is – the pricing environment has been I'd say consistent George in the last, certainly since I've been here, but I’d say you know even in prior times. You know Ron can speak to that if we need to. But I would say that this inflationary environment has certainly touched all industries, including our customers, and I think this is where the conversation with customers is one that is – well, no one wants to see increased costs. I think they also clearly understand, because they are seeing it in the same place, you know inside their own four walls. The other side of that though is, you know we've got a responsibility to also drive use productivity as our lever and mix to drive profitability and deliver our commitment to our shareholders and not just put that on the backs of customers. That's not what we're doing and not what we've intended to do. I'd say the environment itself has been – you know globally has been consistent relative to moving inflation through. I think in some markets like Europe, we tend to see a lag in inflation to price realization. It could be a quarter or two and we have seen that, but I'd say that no difference in sort of the pricing posture. On the other side, you have to – it’s sort of about the volume versus price. We've said this, you know historically it's been about 50/50. It's largely in that similar range and maybe it's in some markets, particularly in North America we've seen that move, you know not quite to 60/40, but closer to that, you know towards that, but we really haven't seen a big shift there to be perfectly honest.

Very helpful. Thank you.

Great.

This concludes our question-and-answer session. I would like to turn the conference back over to Mark Eubanks for any closing remarks.

Thanks Andrea and thanks everyone. We appreciate the questions and certainly appreciate your support. I look forward to speaking to you next quarter. Thank you.

The conference is now concluded. Thank you for attending today's presentation and you may now disconnect.