The Brink's Company (BCO) Q2 2017 Earnings Report, Transcript and Summary

Welcome to The Brink’s Company’s Second Quarter 2017 Earnings Call. Brink’s issued a press release on second 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 slides are available on the company’s website at brinks.com. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [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 results. Information regarding factors that could cause such differences is available in today’s press release and in the company’s most recent SEC filings. Information presented and discussed on this call is representative as of today only. 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, you may begin.

Thanks Carrie and good morning, everyone. Joining me today are CEO, Doug Pertz; and CFO, Ron Domanico. This morning, we reported results on both the GAAP and non-GAAP basis. The non-GAAP results exclude certain retirement expenses, reorganization and restructuring costs, certain items related to acquisitions and dispositions, and tax-related adjustments. Our non-GAAP results also exclude Venezuela, due to a variety of factors, including our inability to repatriate cash, Venezuela’s fixed exchange rate policies, and continued currency devaluations, and the difficulties we face operating in a highly inflationary economy. We believe the non-GAAP results make it easier for investors to assess operating performance between periods. Accordingly, our comments today including those referring to our guidance will focus primarily on non-GAAP results. Reconciliations of non-GAAP to GAAP results are in the press release, the appendix of the slides we’re using, in this morning’s 8-K filing, and on our website. Please note that Page 1 of the press release provides a summary of our 2017 guidance with additional details on Page 2. I’ll now turn the call over to Doug.

Thanks, Ed, and good morning everyone. Thanks for joining us. I'm going to provide a brief review of what we believe was a very good quarter, cover our increased guidance, and update you on our strategy to further accelerate profitable growth through accretive acquisitions. Ron will follow with a more detailed financial review and then we will open it up for questions. This morning we reported another quarter of strong year-over-year results including organic revenue growth of 6%, an operating profit increase of 52%, and a 64% increase in earnings per share. These results reflect strong margin improvement and operating leverage in our North and South America regions. Profit in North America more than quadrupled versus the prior year second quarter and South America's profit was up 68%. This growth was led by significant margin improvement in the U.S., Mexico, Brazil, and Argentina. Our U.S. operations which represent our single greatest opportunity for organic profit growth delivered a profit swing of about $7 million versus a year ago loss. Year-to-date the U.S. is ahead of our last year by about $15 million. We expect U.S. profits to continue to ramp up in the second half of this year as our breakthrough initiatives and investments continued to gain traction and as our normal seasonality uptick occurs. We expect our full year margin rate in the U.S. to be about 4.5% up from less than 1% in 2016. And our 2019 margin target remains at 10% or better. In Mexico our team delivered very strong results including organic revenue growth of 11% and profits that more than doubled over last year reflecting an operating margin of 10.4% up from 4.4% last year. With its mid-year margin at 8.2%, Mexico is well on its way of achieving its 10% margin goal for 2017 and we're still targeting a 15% margin in our 2019 strat plan. It is important to remember that we are only two quarters into our 12 quarter strategic plan but we are off to a great start in terms of executing on our strategy to accelerate profitable growth both organically and through acquisitions. So in addition to organic profit growth, a big part of the story today is about executing on our strategy to make synergistic and accretive acquisitions in our core businesses. Thus far in 2017 we've completed four acquisitions with the largest and most recent being our purchase of Maco in Argentina which closed last week. And we're actively pursuing several other acquisition opportunities. In fact yesterday we announced that we expect to close on our Temis acquisition in the fourth quarter. Temis is a French CIT and cash management business that will immediately increase our route density and other -- and our customer base in Paris metro area. So it's another example of our commitment to strengthening our position in our core markets. Given our strong year-to-year, excuse me, year-to-date results our expectations for organic growth and the accretive impact we expect for the four acquisitions we completed to-date we announced significant increases in our 2017 and 2019 guidance. For 2017 we raised EPS guidance by $0.40 to a range of $2.95 to $3.05 per share, a 34% increase over prior year with $0.09 coming from acquisitions completed to-date. We also correspondingly raised operating profit by $35 million to a range of $270 million to $280 million, a 30% increase over prior year. And our 2019 targets now include adjusted EBITDA of $560 million, an increase of $85 million over our prior target which assume no impact from acquisitions. We now expect about $60 million of this increase to come from these four acquisitions we completed. Ron will provide additional information on our increased earnings guidance. Let me review a little bit more on our actual performance so far to-date. The second quarter organic revenue growth was 6%, on track with our prior guidance for the year and slightly above the 2019 strategic plan assumptions. Operating profit of $60 million was up 52% over last year's second quarter. The operating margin of 7.9% represents an improvement of 240 basis points and that's on top of a similar year-over-year increase in the first quarter. Adjusted EBITDA for the quarter increased 31% and earnings came in at $0.64 a share which is a 64% increase versus last year. Slide 6, summarizes our expected operating profit growth over the three-year plan period similar to the slide that we provided to investors in March. In fact we’ve not changed the profit targets over this three year segment, in each of the three segments which together should add about $210 million of operating profit or about 500 basis points of margin compared to our base 2016 financials. What we have changed is on the right side of the chart, we reduced the contingency by $25 million to reflect the raised organic guidance for 2017 and our performance for the first two quarters of our 12 quarter planned period. We also added $45 million of profit we expect from the completed acquisitions which equates to an additional 80 basis points of margin. The result in our three year, excuse me, the result is our three year 2019 operating profit target of $400 million, an increase of about 89% over 2016 and a 21% increase over our prior guidance. Our original OP margin target was 10% and now it exceeds 11% with our remaining potential upside of about 170 basis points left in our contingency and there's even more potential upside to be gained from additional acquisitions on top of those done to date. Organic growth and operating profit is supported by our key breakthrough initiatives. Here's a quick review of some of the major initiatives we’re implementing, not only in the U.S. but in many other countries throughout our network. Our fleet investments are already starting to have an impact on our results in the form of lower repair and maintenance cost. It's important to note that putting hundreds of new trucks into operations is not a linear process. In fact in the U.S. it's been a fairly uneven process. Yet we believe that by the end of this year we'll hit our target of about 400 new trucks on the road and I'm very happy to report that starting this month July we began taking delivery of our newly designed next generation Brink’s trucks that feature a separable body and chassis. We expect to put about 200 of these next generation trucks which can accommodate one and two person crews into operation in the second half of this year. All the new trucks additions will support continued reduction in repairs and maintenance costs and lower one person labor cost. Our efforts to reduce crew size are already beginning to pay off in the form of lower labor costs in the U.S., Mexico, and Canada. The first phase of our U.S. network optimization initiative is the installation of high speed money processing equipment which is just beginning to ramp up in the second quarter. For example we've seen significantly reduced labor costs in Chicago and we expect similar results in Brooklyn and several other U.S. locations as we put new equipment that comes in online later this year. Our approach to sales and marketing especially in CompuSafe and managed services has been strengthened with the addition of the 18 new hunters in our U.S. sales force. Most of these people came on board in the first quarter of this year so the initial investment should start paying off in the second half of this year. The significant change we made in Mexico in cooperation with our unions are also certainly beginning to show results as indicated by the markedly improved first half result in that country. In summary we're really just starting on these and other initiatives around the world. The biggest single impact obviously will be in the U.S. where we continue to expect these initiatives to have a profit impact of about $75 million in 2019. The acquisitions we completed to date demonstrate the accelerating profitable growth with synergistic and accretive acquisitions in our core markets is one of our major objectives. The first priority as we said before is an acquisition strategy that we call core to core. We seek businesses that align with our existing operations and our existing geographic markets and that offer synergies related costs, route density, and growth in our customer base. On our first quarter call we disclosed two relatively small acquisitions; one in the U.S. and another in Brazil. And the initial returns on both are favorable and in line with our expectations. During the second quarter we completed another relatively small acquisition of a CIT and cash management business in Chile called LGS and last week as we said we completed our largest acquisition to date when we purchased Maco in Argentina. And yesterday we announced that we expect to close on the acquisition of Temis in France during the fourth quarter. As I mentioned earlier before completing acquisitions I expect a significant positive impact on revenue operating profit and net income. In each case we expect the significant operating synergies to result in a post integration enterprise value to EBITDA multiple that is in the six times range. So they should be nicely accretive. We made considerable progress on our growth through acquisition objectives so far this year. All additive to our 2019 financial targets and I'm comfortable and confident that there's more to come. Before I turn it over to Ron I want to cover Maco in a little more detail because it's a large example of our core businesses and core markets acquisition strategy. As I said before last week we completed the Maco acquisition for approximately $209 million purchase price. This final purchase price may change based on post synergy, excuse me, post closing adjustments. Maco's cash in transit and money processing operations will be integrated with our existing operations in Argentina, the fastest growing country in our most profitable segment, South America. Over the last twelve months Maco had revenue of about $90 million and adjusted EBITDA of about $24 million resulting in a purchase multiple of about 8.7 times adjusted EBITDA. We will move quickly to achieve substantial cost synergies over the next two years which should result in a post integration multiple of about six times adjusted EBITDA. We're excited about Maco and our future in Argentina. Maco solidifies our already strong number two position and will immediately strengthen our customer base and route density. We expect it to be slightly accretive to net income this year and as demonstrated in our increased 2019 guidance, a significant contributor to future earnings and cash flow. While I am pleased with our accretive -- excuse me with our accelerated progress on acquisitions, I am equally pleased with the improved results in our organic business. On that note I'll turn it over to Ron.

Thanks Doug and good day everyone. At our Investor Day in March I discussed Brink's value creation strategy. The first building block of that strategy is credibility. And our commitment was to reduce complexity, to increase transparency, to set aggressive targets, and to deliver consistently. It's only been two quarters but our performance demonstrates real progress. Profitable growth is the second building block. In the second quarter organic revenue grew 6% and the four acquisitions completed to-date and the one announced yesterday will accelerate growth further. The third building block of our value creation strategy is margin expansion and the second quarter operating margin of 7.9% as Doug said was up 240 bps versus last year. The fourth building block is increasing returns. Investment in our breakthrough initiatives and disciplined accretive acquisitions are driving higher ROI and higher shareholder returns. The momentum we've developed has enabled an increase in our 2017 guidance and our 2019 outlook. Our country and segment organic targets remain unchanged but, we were able to reduce the contingency that was built in. We've also added the accretive impact of the completed acquisitions. Let's take a deeper look at our 2017 performance. Please direct your attention to slide 12. Adjusting for FOREX the businesses we exited in 2016 and the acquisitions we completed in 2017, revenue in the second quarter increased $43 million from $717 million in 2016 to $760 million in 2017, an organic increase of 6%. South America delivered 16% organic growth driven by price increases in Argentina and volume growth in Brazil. North America revenue grew organically 4% with Mexico up 11% and the U.S. up 2%. Mexico delivered growth from retail customers and price increases. The U.S. growth was lower than the 8% achieved in the first quarter of 2017 which included higher sales of onsite cash recycling services to a national retailer. The rest of the world grew organically by 2% as a 3% reduction in France due to tenders lost to pricing was more than offset by growth in our other European businesses and a 9% increase in Asia Pacific. Revenue FOREX in the second quarter was $3 million unfavorable versus the same period last year. Declines in the Mexican Peso, the Argentine Peso, and the Euro were mostly offset by a much stronger Real in Brazil. Our second quarter revenue increased by $6 million from the two acquisitions that we told you about last quarter, a small armor tractor trailer company in the U.S. and a small payments business in Brazil. This increase was partially offset by the businesses we exited last year. While the impact from acquisitions has been relatively insignificant through June 30, we expect that 2017 full year impact of completed acquisitions to be approximately $90 million of revenue, $10 million of operating profit, $20 million of adjusted EBITDA, and $0.09 of earnings per share. Turning to slide 13, second quarter 2016 non-GAAP operating profit was $39 million. FOREX was $2 million unfavorable and our net acquisition and disposition activity generated $1 million favorable comparison. So the adjusted second quarter 2017 operating profit grew organically by $22 million or 55% to $60 million. South America grew organic profit $15 million driven by margin expansion in Argentina and Brazil. North American operating profit was up $13 million organically from the turnaround in the U.S. which continues to benefit from the breakthrough initiatives and productivity improvements in Mexico. The $2 million organic decrease and rest of world was due to lower results in France due to the lost tenders slightly offset by a $2 million increase in Asia Pacific. Segment operating profit growth was partially offset by higher corporate expenses. Cost reduction actions taken during 2016 had a $2 million positive impact on corporate expenses including $1 million on salary expense. But the $5 million increase in the second quarter of 2017 versus prior year was due primarily to an accrual for higher incentive based compensation associated with the significantly improved year-to-date performance. Operating profit as a percent of revenue increased 240 bps from 5.5% in the second quarter of 2016 to 7.9% in the second quarter of 2017. The improvement was driven primarily by lower labor costs and lower vehicle expenses associated with the break through initiatives. Moving to slide 14, this slide bridges operating profit, income from continuing operations, and adjusted EBITDA. The variance from the prior year for each part of the bridge is included at the bottom of the slide. Second quarter 2017 non-GAAP operating profit of $60 million was reduced by $7 million of net interest expense and $2 million of minority interest. We continue to expect our 2017 non-GAAP income tax rate to be around 35% down from 37% in 2016. The decrease is due primarily to the rise of the BCO stock price and the associated deductibility of stock based compensation. The lower tax rate was more than offset by higher earnings and second quarter 2017 taxes were $19 million, up $6 million from last year. The net was $33 million of income from continuing operations, this equates to $0.64 per share in the second quarter 2017 which was up $0.25 per share or 64% higher than the second quarter 2016. Second quarter depreciation and amortization was $34 million up only $1 million from last year. Adding back interest and taxes resulted in adjusted EBITDA of $91 million for the second quarter of 2017, this was up $21 million or plus 31% versus the same quarter last year. Onto slide 15, the strong results in the second quarter continued the momentum from the first quarter. For the first six months of 2017 versus the first half of 2016 organic revenue was up 7%, operating profit of $113 million was up 57%, while the operating profit margin of 7.5% was up 240 bps. Adjusted EBITDA was $174 million up 32% and the EBITDA margin was 11.6%. Earnings per share of $1.21 was up 73% versus $0.70 per share in the first six months of last year. Turning to capital expenditures on slide 16, excluding CompuSafe and including our completed acquisitions we are projecting to invest approximately $180 million of CAPEX in 2017. Capital expenditures facilitate our breakthrough initiatives and include new generation armored vehicles, high speed money processing automation equipment, IT productivity improvement, and other investments to drive operating profit growth. Capital expenditures in the first half of 2017 excluding CompuSafe were $70 million. In addition there was $23 million in CompuSafe investment. The 2017 CAPEX outlook anticipates a rate of investment throughout the rest of the year that is higher than the first half. Moving to slide 17, this slide illustrates Brink's debt and leverage position. The bars on the left side of the slide represent our debt at June 30, 2016 at the end of 2016, and at the end of June 30, 2017. The height of each bar represents gross debt. The top part of each bar represents our cash position and the bottom part of each bar represents the net debt position. As of June 30, 2017 our net debt was $360 million, up $47 million from a year ago and up $113 million from year-end 2016. This increase is due to normal seasonality, the acquisitions we completed in the first and second quarter, and increased capital expenditures. The Maco acquisition in Argentina will add approximately $220 million in net debt during 2017. Around $210 million from the purchase price and $10 million for integration costs. A portion of the payment to the sellers will occur in 2018. To fund these acquisitions we expect to borrow under our U.S. revolving credit facilities and the debt will be serviced from the cash flows from the acquired businesses. Based on our current and anticipated financing costs, we expect additional interest expense of $3 million in 2017 and an additional $6 million to $8 million in 2018. On the right side of the slide the bars illustrate our trailing 12 month or TTM adjusted EBITDA at the end of 2015, 2016, and at June 30, 2017. Above these bars is the financial leverage ratio of net debt divided by TTM adjusted EBITDA. Our financial leverage at June 30, 2017 was 1.0 increasing from 0.9 at March 31, 2017. Including the additional $220 million of net debt to be incurred with the Maco acquisition and assuming $30 million of trailing 12 month EBITDA from our completed acquisitions, our financial leverage on a pro forma basis would be 1.4 times. Even at the pro forma leverage our balance sheet enables us to continue making disciplined investments in capital expenditures and accretive acquisitions to accelerate profitable growth to close the gap and to increase shareholder returns. Turning a slide 18, we believe that adjusted EBITDA is the most meaningful non-GAAP metric for stakeholders to assess cash flow. We calculate adjusted EBITDA on a trailing 12 month basis. TTM adjusted EBITDA at June 30, 2017 was $375 million. This was a 32% increase versus 2016 and was driven by the organic growth and operating profit. The adjusted EBITDA margin as a percent of revenue increased 250 bps to 12.5% and Brink’s enterprise value divided by adjusted EBITDA resulted into 3.9 turn expansion in the multiple from 6.1 times to 10 times. Including the additional $220 million of net debt to be incurred with the Maco acquisition and assuming the trailing 12 month EBITDA plus synergies from our completed acquisitions, our pro forma multiple at the end of 2017 would be approximately 8.5 times. Perhaps the greatest relevance in the past year, the BCO stock price has risen about $39 per share up approximately 135%. Looking at the right side of the chart on the top you can see how the Brink's multiple has increased over the last six quarters. Below that you can see that we've eliminated the valuation gap with some of our peers but, we have a ways to go to match our most successful peer. We believe this gap will continue to close as we further implement our strategy and consistently achieve projections. Turning to slide 19, given our strong start, the acquisitions we've completed, and currency rates that are better than we initially assumed we are raising our 2017 outlook. We now expect revenue to be approximately 3.2 billion up from around 3 billion from $92 million in favorable FOREX and $52 million from acquisitions. We've raised our operating profit outlook $35 million, $20 million from organic growth, $5 million from currency rates, and $10 million from acquisitions, to a range between $270 million and $280 million. EBITDA is now projected to be between $415 million and $425 million up $45 million. Earnings per share is expected to be in the range of $2.95 to $3.05. More details on our 2017 guidance can be found on the first two pages of our press release. Turning to slide 20. As Doug mentioned we're also raising our 2019 targets to reflect the 2017 improvement, the acquired businesses, and the synergies we expected to achieve through integration. 2019 revenues is now expected to be $3.55 billion up $275 million from $3.3 billion. The operating profit target has increased to $400 million up $70 million primarily due to the $45 million expected from the acquisitions and the balance from the 2017 organic momentum. The EBITDA target has been raised by $85 million to $560 million with $60 million of the increase from acquisitions. And new 2019 EPS target is $4.25 up around 21% from the original target of $3.50 per share. The entire Brink’s team has embraced the strategy. Their execution has exceeded our expectations in both performance and speed. There's a sense of urgency, teamwork, and excitement driving organic growth and the acquisitions are significant and accretive. With that I'll turn it back over to the Doug.

Thanks Ron. You know when Ron and I first joined Brink’s about a year ago we said one of our first objectives is to restore credibility and confidence among our three key constituents; our investors, employees, and our customers. Doing this begins with delivering on our commitments to our customers and our investors. We still have a long way to go but we're off to a good start and the opportunities for additional growth and improvement are substantial. As Ron mentioned we now expect 2017 fully organic revenue growth of about 6% with an additional 3% growth coming from acquisitions for a total of about 9% revenue growth. Full year operating income is expected to grow by 30% over last year and our expected operating margin is expected to increase to between 8.5% and 8.8% versus last year's margin of 7.3%. This is an approximate margin improvement of 130 basis points and remember we are up 240 basis points so far in the first half of this year. We raised our 2017 adjusted EBITDA to a midpoint of 420 million, up about $87 million or 26% over 2016. And we raised our full year EPS to a range of $2.95 to $3.05. This represents a 34% increase over 2016 EPS. In our first quarter call in April we said we expect accretive acquisitions to add materially to our growth over a three year strategic plan period. But we intentionally did not include any of the impact of these acquisitions in our 2019 financial targets. In other words we saw acquisitions as upside to our initial targets. We believe that upside is just starting to become a reality. We now expect to grow 2019 revenue by about 8% annually, that's annually over the next three years to $3.6 billion or an increase of close to $650 million over the 2016 base. Our 2019 operating profit target is now expected to grow by an annual rate of about 27% as Ron mentioned the $200 million to $400 million with a margin exceeding 11%. That's an increase of about 130 basis points over our prior guidance. And we're now targeting adjusted EBITDA of 560 million, an increase of 68% over the three year plan period. With the midpoint of our 2017 EBITDA of 420, we're forecasting to deliver $140 million of additional growth over the next two years that's 2018 and 2019 to hit our updated strategic planned target. And remember our one year guidance for EBITDA growth in 2017 over 2016 is $87 million, obviously more than half of $140 million. Finally we're targeting earnings per share of $4.25, a 90% increase versus 2016. We started to demonstrate significant operational improvement in our U.S. business and throughout our global businesses. With our acquisitions strategy just starting, just underway, we believe we're just beginning to deliver sustainable growth in revenue, earnings, cash flow, and value creation for our investors. The success we've achieved so far in 2017 is tempered by the fact that we're only two quarters into our 12 quarter plan. But I firmly believe our accomplishments to date are a good indication of the opportunities that lie ahead. I also want to take this opportunity to thank our global Brink's employee team for all their hard work so far and their increased sense of urgency that has helped achieve our results and also with their increased customer focus that is helping improve our responsiveness to our customers as well. It truly is making a difference. As I stated in the past I firmly believe that we have the right leadership, the right strategy, and the financial flexibility to drive superior shareholder returns over the next three years. Carrie, lets now open it up for questions.

[Operator Instructions]. The first question comes from Jamie Clement of Macquarie. Please go ahead.

Doug, Ron, Ed guys good morning and thanks in advance for taking my questions. In no particular order so on Argentina it was never reported separately by Brink's because it wasn’t a top five revenue country but I suspect towards the end it may have been a top five operating profit company. How quickly has that market been growing in the last couple years, I would imagine that might be in terms of your significant market, that might be the fastest growing, one of the best if not the best so can you comment on that?

We haven't commented in the past. It has been double-digit Jamie. Some of that's been driven by inflation but a lot of it's been driven by organic growth, real volume growth, and something which is also a factor in the pricing there which is ad valorem where we get paid a percent of the value that we're carrying in our vehicles, so a combination of those two things. The inflation has been partially offset as you know by the devaluation of the Peso over time but net-net it's been a positive certainly for the past couple of years.

We also think Jamie it is also worthwhile, when we talked about the in my comments that the profit increases in the key countries that I pointed out, which included Argentina that was actually done in order. So you are talking about growth and I appreciate that but I am - a little side note to that is the profit increases over prior year as it is laid out there was actually in order. In other words U.S., Mexico, Brazil, and Argentina. So while Argentina obviously is growing very nicely on the top line offset by some FX it also -- profits are going nicely but it is not our strongest in terms of profits percent increase.

Sure, but although -- I mean although margins in Argentina over the last couple years have been much stronger since some of the countries that have been on the list I would imagine?

Certainly and the U.S. yes. No, –[Indiscernible] case Jamie.

Okay, changing gears a little bit Doug comment about I think you said 200 of the newer independent chassis trucks hitting the fleet in the U.S. I think you said in the second half, what’s the functional difference between those trucks and the newer trucks that you all were adding in the U.S., the lighter bodied one towards the end of last year?

Yeah, this is a very good question and this is something obviously we always kind of get into, what is our strategy and how it was really having an impact. Let me first start by saying both of the types of our new trucks, in other words the ones that we put in the first half of this year that were really carryovers from last year as well were not the separable body, not the new design but they still were the design that reduced the initial cost versus the more expensive diesel trucks as well as they were gas powered and obviously they are new so there are reduced costs associated with the repair, maintenance, and operational cost. So they get all of those benefits and almost all of those have the ability also to be operated by either a one or a two person crew. So all of those benefits were there but what we really wanted to do was go for this new design that had not only the ability to separate the chassis and the body which gives us the ability to change out the chassis in the timeframe that optimizes if you will, minimize, optimizes our cost associated with their maintenance. So it's pretty obvious, without using specific numbers it's pretty obvious that if we have diesel chassis, diesel trucks that are 12 to 14 years of age their cost of operation and that if you will that repair and maintenance and overall cost and is starting to spike and is very, very significant. And as we then have the ability in the future to manage the age of our chassis which is the repair and maintenance cost down to somewhere in the six to seven year range and then supplement that, in other words add to that with our new chassis that have extended warranties on our engines, have extended warranties on our drive chains, and on other chassis components that will materially reduce our repair and maintenance cost and will ensure that we can maintain those lower repair and maintenance costs versus the much more expensive costs that we have in place today. And then on top of that when we then come back you know, whether it be six or seven years depending on when we hit our mileage, when we start seeing our extended maintenance period expire we can now take 40% of that cost and replace it versus the total cost that was higher before on the complete chassis and body. So it's a material change in our cost, material change in our CapEx expense, our ability to manage the age of the fleet at a much lower cost overall, and then be able to manage our repair and maintenance and overall truck cost. So the three years in our strat plan will allow us to bring down the age of our fleet materially, it will allow us to change most of these core route trucks to ones that are either capable of one or two person which will allow us to materially reduce our labor cost with a one person vehicle routes. And on top of that has superior technology associated with it and better ergonomics for our drivers.

Okay, great and then last question if I may, you all talked since you joined Brink's, a decent amount about opportunities among retail customers in the U.S. and you've also mentioned Mexico, you haven't really at least based on my kind of view, you haven’t really talked about it much with respect to Brazil and Argentina, is that because retailers are not that big a piece of the business there, are they potentially going forward, what's kind of -- how should we think about retail in those countries?

Well certainly in Brazil you should think about retail as being a key piece of our growth and we're moving forward with it. So it's not that we've not tried, does not talk about it particularly in Brazil, it is a key piece and we saw a nice organic growth in Brazil as well driven by retail heavily in Brazil as well. So we're very pleased with that, it is driven by retail and we're very pleased with that. The growth in Brazil was just slightly under on a percent increase basis versus Mexico, so very nice.

Okay, great. Alright guys, thanks very much for your time as always, appreciate it.

Thank you, appreciate it.

The next question comes from Jeff Kessler of Imperial Capital. Please go ahead.

Thank you and a good - congratulations on a great quarter and also the guidance. This sounds like a soft question but it's actually I think an important question, the companies that are in the integration area and those larger companies in the lock and access control areas that are doing the best right now relative to their peers are the ones that have aligned the culture of their business with their clients, each client specifically. Brink's was pretty much misaligned with a lot of its customers several years ago either by sales force or by the technology that it was using employing with those guys. What have you folks done to align the company with your largest customers so that those customers are going to stay with you longer and pay you more for more value added?

Wow, I'm not sure that's a softball question, it is a very, very valid and…

It was a soft question not a softball question.

Well said.

That's what I really meant. Look I think that we are clearly trying to drive a change in our culture and I think that our team as Ron mentioned and I did as well is excited about that change in the culture. And a key piece of that it is being more customer focused than we have been in the past. That varies by country. Clearly the U.S. needs to be more customer focused than we have in the past. We think that that is not only supported in the desire to service the customer better and be part of that customer driven culture, but it also comes with the rewards for our key managers as we mentioned before that is heavily aligned with our shareholders and with the equity that goes along with that. So it's a combination of those things, it's helping drive and change that culture. Sense of urgency, customer focus, really making things happen, being excited about the direction that we're going but the focus on the customer is really key. Taking it a little bit more dissecting around that, what we did starting the first of this year as I mentioned before is we started aligning our sales force closer in the U.S. anyway, closer to the customer verticals. In other words the addition of retail focused CompuSafe and what I call solutions sales people which really focuses on the customer more than what we did before is really key. That's an example of that and you'll see more and more of what we're looking to do not only in the U.S. but in other markets is a focus on solution selling to our customers not just a pure commodity that is not creative, is not looking for how we can improve our margin, is not looking for improving the solutions for our customers but working in partnership with our customers to not only provide the best solution for their issues and requirements today but also working with them for the future requirements and strategies with them in partnership. So you'll see a change in the way that we're operating and hopefully that will lead to an improvement in not only our view by our customers of who we are and where we're going, be more customer driven but, also in terms of an improvement in our margins and in terms of our revenue. So I think you'll see that as we go through this and I think that's going to be a key piece that's going to help change who we are and how our customers perceive us in the future.

Okay, thank you. And as we go along with the acquisition strategy that you've put out, interesting to note the comment from your Iberian competitor about this being very interested in the Maco acquisition given that it does seem to be not just an aggressive and a proactive point to get more revenue out of Argentina but it's also the sense in a way. Are you looking at strategies in South America which is very fast growing to make -- to try to make sure that there's two major competitors as opposed to three or four or five?

We're looking to take markets that present opportunities for strong growth as well as profitability and then significant synergies. And all of those things combined are a good example of what we're doing with Maco. It's also an example of LGS in Argentina, excuse me, in Chile and we're looking at other opportunities like that as well.

Okay. Final question, it's not -- it is no secret that a lot of the growth that G4S is getting in this business is coming from cash recycling and also let's call it some of the other solutions that you just talked about in your earlier statement. I'm wondering how you folks are going to position, the culture aside, how you folks are going to position that -- the higher margin cash logistics business as either a way to get into the company or way to get higher margins out of your clients or just a way to get your brand out there since it is a -- since it seems to be -- appears to be a higher valued service ultimately, maybe not in every South American country but in a lot of countries it is?

Again that goes back to your first question, we are clearly looking at switching a significant piece of our business and hopefully the growing portion of our business to the what we call the cash solutions, the full solutions that's not just a single CIT or money processing but everything is combined with that. And then adding additional services that really provide the solutions that are above and beyond what our customer wants and needs today such as cash forecasting. Again recyclers is a great example of that but, it goes beyond just recyclers it goes to how do we reduce the amount of cash within the customer's system. How do we reduce the amount of losses, how do we reduce -- I mean these are all things that are supported by the total solutions selling and process and the different -- the improvements in cash forecasting and other services we provide. It includes things like recyclers but it's the full systems that go along with that. So it was only through will be would be presenting.

And is any of what you just said, the thought process, has this gone into your 2019 forecast or is this above and beyond it?

Well we've been very clear about the improvement in the percent of our total business that will be in things such as CompuSafe. And therefore that component is and I would consider that more of a basic solution selling versus a pure CIT commodity selling because it includes the package of the equipment and the CIT, the money processing, and the next generation of that will be cash forecasting and so forth that goes along with it. We also think that we have the ability and we think it is good if not better than competition to provide more sophisticated solutions such as recyclers above and beyond that and even more that we will be working at as the solutions to meet our customer's needs beyond that. So the answer is some of that is but the next generation of our solutions selling probably is not.

Okay, great. Thank you very much and thank you for taking the questions.

Thanks Jeff.

The next question comes from Tobey Sommer of SunTrust. Please go ahead.

Thanks, wondering if you could comment about what you've seen in terms of competitive responses to reinvigorated Brink's across the globe, you had cited I guess some pricing in France but are there other kind of reactions to a more energized Brink's among your competitors that you could share with us?

Yeah, I'm not sure that France is necessarily a reenergized Brink's, it is just more of large FI's flexing their muscle as their three year contract or a five year contract terms come up. So I'm not sure it's necessarily having a change one way or the other. I think it does help particularly in France where we provide similar to the last question that Jeff had, the solution selling that we have in France helps mitigate some of that. Not all of it obviously and we are seeing some of the ups and downs associated with that but it helps mitigate that and provides not only a buffer versus competition in that especially the smaller competitors but also the ability to get a little bit more margin and value out of that. I'm trying to think through other areas like that where we've seen -- where there are markets where they are more competitive depending on the competitor specifically or depending on how we have seen renewables of FI particularly bids and so forth. We had a very tough bidding situation in Canada that we lost and that was disappointing.

Okay, thank you. In the hiring of various sales teams, could you give us a little more color on where you are in those processes and in terms of being able to go out and stimulate growth across the different offerings, thanks?

Yeah, so I think we have disclosed before the increase, what I call the operational investment, operational OPEX investment we made particularly in the U.S. which was the 11 hunters, sales hunters that we added the first of this year, really in the first quarter primarily in the U.S. all focused on hunting CompuSafe business. And we're starting to see a good ramp of that especially in the last month or two, it has really started to ramp up to the levels that we'd like to see and we anticipate as we go out of this year it will be at or above the levels that we'd like to see on an ongoing basis which is exactly where we want it to be. So that's very good. So that group is there. The other group that we hired as well in the U.S. again was focused hunters in the FI segment, what we call the sub-tier one financial institution segment that had not really been covered as much of in the past and that's starting to ramp up as well. Again I see both of those as a fairly significant investment that is cost to some in the first half of this year, that will start seeing benefits and returns on in the second half of this year going forward. Now on top of that about 60 days to go now, I'm losing track of specifically of the timing but we also hired a new head of sales for the U.S. and very pleased with Tim Witt joining us from Diebold where he obviously knows the industry well and came from the managed services portion of that business which is consistent with what Jeff and others are asking questions about on our future in the managed service piece of the business and so it comes with a very strong background there. So we're beefing up our team to focus on that, to move more and increase our position in CompuSafe and managed services as well. We will continue to see I think the improvements with CompuSafe and we'll continue to see the lumpiness and the ups and downs in our recycler business as we continue to improve on that. In other areas, other countries we did add a new sales person, head of sales in Mexico as I think maybe we mentioned before. I have to go through other countries specifically but those are some examples.

And you've consummated some acquisitions and indicated that you have opportunities to continue that process, I'm curious are there any geographies or countries in which you don't see as many acquisition opportunities and therefore you may think about pruning the company's footprint or is it really kind of a function of you like what you have now geographically and you just need to find a way to grow and improve the profit across the board?

I think it’s the latter. We’re not looking at pruning in our core businesses. That's a different obviously mindset and strategy than what the prior management team I think had. We’re growing the business particularly in the core to core side of it. We will be looking as well at places where we have core businesses in non-core geographies today would be probably the next area. And so we may pay a little bit higher post integration multiples in those areas to get into there because we don't have as many upfront synergies. But we're not looking at pruning in our core businesses in any geographic locations at all and we see a well rounded look at how we might be able to expand and not looking at all geographic locations except for those that we may not be able to go into because of regulatory issues.

Thank you very much for help.

The next question comes from Ashish Sinha of Gabelli. Please go ahead.

Hi, good morning. Thanks for taking my questions. So I wanted to start by digging a bit deeper into your 2019 operating profit guidance range and if I start by the building block which you kind of put forward in that slide which included contingencies, so it's been like five months since you presented the plan. All of the global breakthrough initiatives you talked about they're running on track. Your organic growth has been has been good 6%. So what I'm trying to understand is what causes you to release let's say 25 million out of those contingencies today and then going forward there's still 67 million of contingencies on the operating profit, are there any threshold in terms of operating margins or organic sales growth which need to be reached before some of those 67 million contingencies could start to be released? That's my first question. My second question is on your acquisitions especially in a country and the reason is -- I'm asking is because of Temis given the unique situation in that country. So you acquired these small businesses and after a lot of synergies they generate a pretty healthy multiple. So I'm assuming they started off with very low profitability. What I wanted to try and understand is why couldn't you have gone after Temis’ business organically and i.e. you know that putting more volumes through your system could give you synergies or could give you a profit uplift. So why didn't you go after Temis’ customers rather than buying itself or similar companies in similar geographies and then what is the risk that some of those customers decide to walk away and when you make large acquisitions for example Maco do you speak to customers in advance to get some kind of a feeling that they'll stick with you? That's all, thank you.

Thanks. Ashish, its Ron let me take the first one on the contingencies. So the way the contingency was created was we went to our three segments and asked them for their commitments by 2019. And those are the numbers that you saw on slide number 6 in Doug's presentation. Then the separate from that we determined what we needed to deliver as a company to have a 10% operating margin and regain leadership globally and that's where the target came from and the difference between that role up and our corporate objective was the contingency box. And as we've gotten momentum both in the absolute performance and in the acceleration of our own expectations on the breakthrough initiatives we felt compelled to take the year-to-date performance to at least as a reduction to that contingency box. But it's important that everybody understands where the contingency came from it's not based on any particular risk or uncertainty. It's just the difference between the commitments from the segments and what we needed to get to a 10% margin. So as we see we're progressing along with the segment performance where we're confident in reducing that contingency.

And Ashish to kind of emphasize that we did not put any more on the organic side in than what we have increased guidance for the first two quarters that we saw as actual performance. Therefore we're comfortable that as we've exceeded our targets for op income margins and growth in profitability that's all we put into our improvements on our organic basis. And then the 45 million additional is only from the four acquisitions and not others. In other words it doesn't include Temis on a projected basis yet or other acquisitions either. That's your first question. Your second question was why buy versus just fight, take the business, right.

I mean they are marginal players in the economy given that particular country so...

Yeah, so we always make that decision based on what the returns will be for shareholders. Speed of getting it, the ability to keep customers, what their margins are, and what the synergy are associated with them, etcetera. And we had a conversation in the last call about what business we lost in some of the tenders in the first half of this year in France or alluded to it anyway. We also gained some and in the second half we're gaining some as well. We're gaining that from other customers so that's going on all the time and we will continue to do that. But I think to suggest that you think Temis is as an example that we could pick up a substantial piece of that business by just competing in the marketplace would not necessarily give us the same returns that we're looking at getting in this case. And I think that's the judgment call and we think that the investments that we're making, the returns, the IRRs in these investments are very good for our shareholders and improving our value. And the indicative indicators of that are the post synergy multiples. So we do that evaluation and we still move forward with being aggressive in the marketplace and increasing our revenue and our profitability in a very rational and a strong competitor as well.

Understood. Thank you.

The next question comes from Wayne Archambo from Monarch Partners. Please go ahead.

Yes, good morning, thank you. Just on the leverage ratio, where do you see that going over the next couple of years, where are you -- how high do you want -- can that go where you're still comfortable?

It's not a question we've commented on before. We have peers that are as high as eight times levered and that just scares us and there is no way we're getting there. I would say the most successful peers we have are in the two times levered. We think in our type of business there's an optimal shareholder return between debt and equity somewhere around the three times plus or minus a turn. And so while we haven't stated an objective, if I just look at the marketplace where we're able to optimize shareholder value by leveraging the company to a point where we are prudent, conservative, and get the returns on the incremental investment, I would say an eventual target sometime that would optimize shareholder returns will be at 3 plus or minus return.

And then secondly when you get in -- as you make acquisitions in countries like France do you find it more difficult optimizing the labor element in a country like that where labor obviously has a lot of clout and difficulties in laying people off and what not, is that a different dynamic to you in countries such as that or are you looking at the same way as you do in the U.S.

We look at every acquisition uniquely. We do involve heavily our local management team in the identification, evaluation, and the synergy targets for each deal. And in those assumptions we do factor in the unique labor characteristics and all the unique characteristics of each individual market. And so in the numbers that we've disclosed for Temis and for all our acquisitions in aggregate they do include the cost required to achieve the synergies based on the local market.

And the timing and the process it will take to go through that in the approvals. So, that's all taken into consideration and part of using France as your example, it's not only about acquisitions but it's also sizing the business and our cost associated with the business on an ongoing basis anyway. In other words we're always looking at improving our cost base in these markets and France is one of those which we'll continue to do on top of the acquisitions.

Right, thanks guys. Thank you.

Thank you.

And this concludes today's question-and-answer session and also concludes today's conference call. We want to thank everybody for attending today. You may now disconnect your lines. Have a good day.