The Brink's Company (BCO) Q3 2017 Earnings Report, Transcript and Summary

Welcome to The Brink's Company's Third Quarter 2017 Earnings Call. Brink’s issued a press release on third quarter results this morning. The company also filed an 8-K that includes the release and the slides that will be used in today's call. For those of you listening on the phone, the release and the slides are available on the company's website at 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 projected or estimated results. Information regarding factors that could cause such differences is available on 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. This 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.

Thank you, Keith. 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, dispositions, tax-related adjustments and the recent debt refinancing. On September 29, we filed an 8-K summarizing changes in non-GAAP reporting to exclude acquisition-related intangible amortization expense. Current and prior year results, as well as our guidance have been adjusted accordingly. In addition to these items our non-GAAP results 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 in 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 and the appendix to the slides we're using today, in this morning’s 8-K filing, and on our website. Page 2 of the press release provides a summary of our 2017 guidance. Once again, please note the current and prior-year financials have been adjusted to more closely align with how and many of our investors analyze performance and are consistent with the metrics used in our new debt agreements. Today, we updated our July 26 guidance to reflect the changes in our reporting and to include higher interest expense in the fourth quarter related to recent borrowings. The result is slightly higher 2017 guidance that Doug will review in a few minutes. Specifically, the following guidance-related items have been updated. Operating profit increased by $10 million to reflect the exclusion of acquisition-related intangible amortization expense. Adjusted EBITDA also increased by $10 million to reflect the exclusion of share-based compensation expense and lower forecasted depreciation, and non-operating expense increased by $5 million to reflect the additional interest expense on our recent borrowings. I'd now turn the call over to Doug.

Thanks, Ed, and good morning, everyone. This morning we reported another strong quarter including revenue growth of 13% and a 21% increase in operating profit. These results were driven about equally by organic growth and acquisitions. On an organic basis, revenue was up 6% in line with year-to-date organic growth. And organic operating profit increased 11%. This organic growth was supplemented by the positive impact of the five acquisitions we’ve completed to-date in 2017. The previously disclosed acquisition of Temis in France is scheduled to close on October 31. Our operating margin for the quarter improved 60 basis points to 9.2% and adjusted EBITDA margin increased 80 basis points to 13.5%. Third quarter EPS was $0.83 per share, up 22% from last year's third quarter, and year-to-date EPS stands at $2.06, up 47% versus last year. Ron will cover our year-to-date results in more detail, but I wanted to note that our operating margins through the nine months year-to-date, have improved by 180 basis points to 8.2%, and our adjusted EBITDA margin has improved by 190 basis points. This reflects an increase of approximately $65 million in EBITDA, or up 28% to just under $300 million. Looking in the next slide to our segment results. Profits in North America were up 90% and revenue growth of 7%. The improvement was driven primarily by another very strong quarter in Mexico where organic revenue growth continued to be double-digits and operating margin more than doubled from 5% last year. With this year-to-date margin approaching 10% and with what is typically the strongest quarter yet to come, Mexico is well on its way to meeting our – or exceeding actually our target of 10% margin for 2017. And we're still targeting at least 15% margin in our 2019 strat plan. In the U.S., profits in the quarter came in ahead of a year ago results but were lower than we expected for a variety of reasons. Profits were negatively impacted by the items including significant wage adjustments in key markets that have been experiencing very tight and highly competitive labor conditions, higher than expected medical expenses, one-time legal expense settlement cost from prior year claims and the effect of hurricanes that reduced revenue and increased costs in both Texas and Florida. In the beginning of the fourth quarter, we implemented significant price increases in key markets to offset the third quarter wage increases, plus we also implemented an across the board national annual price increase. Third quarter results were negatively impacted from the wage increases that did not have accompanying price increases. However, these price increases are expected to have a significant impact on the fourth quarter and into next year. The U.S. breakthrough cost improvement initiatives outlined in our three-year plan are progressing well and are on track to meet our 2019 profit targets, reduce fleet repair maintenance cost and lower one-person vehicle labor costs are on target for 2017. These are supported by our investments in new trucks and delivery of our newly designed trucks which feature a separate body and chassis – a separable, excuse me, body and chassis and support our one-person vehicle technology started in July. CompuSafe orders continue to ramp up in the quarter and we expect to meet or exceed our 2017 plan of 3,000 to 3,500 new orders and we're confident that the stronger third and fourth quarter order levels will support an annualized rate well above 4,000 units per year. We’ll provide an update on all four of our U.S. breakthrough initiatives when we report year-end earnings. Year-to-date U.S. operating income is up more than $15 million compared to 2016, reflecting a margin slightly under 3%. And our full year U.S. margin rate is now expected to be 3% or better. Our fourth quarter results in the U.S. will add to this profit turnaround, and we expect continued improvement in 2018 and 2019 in line with our planned targets. Last week, we announced that Ray Shemanski joined Brink’s as president of the U.S. reporting to me. This is part of a planned transition and I’m very pleased that Ray is onboard to provide the added leadership in the U.S., which also allows me to focus on my other roles. Ray joins us from Johnson Controls where he successfully led several multibillion dollar businesses over the last 20 years, including most recently as general manager of a $4.5 billion power systems or battery business. Over the last year, our U.S. team has made great progress in developing strategies, strengthening operations, and implementing breakthrough initiatives to accelerate profitable growth. Ray’s strong experience in operations, logistics and P&L improvement will help drive the U.S. into its 2019 targets and beyond. One final note on our North American segment. We’ve reached agreement with our unions in Canada to employ two-person crews in Ontario, our largest market in that country and the last market to convert to the smaller crews. This was an important breakthrough for us as our competitor has been using two-person crews for many years. We also made similar progress in Mexico. We’re converting from four-person crews to three-person crews to match competitive practices. As evidenced by the results in Mexico and our agreements with our Mexican unions, we're also driving reduced overtime, route optimization and improved branch insufficiencies. South American segment profits were up 36% on revenue growth of 33% due primarily to continued strong organic growth in Argentina and supported by improved performance in Brazil and Colombia. South America organic revenue growth continues to be driven by the expanding focus on retail vertical and on higher cash in circulation. Organic performance was also supplemented by the acquisition of Maco in Argentina. In the Rest of World segment, revenue and profits were relatively flat, negatively impacted by the expected lower revenue and profits in France. Excluding France, the Rest of the World revenue growth was in the high single digits and operating profit growth was in the teens. Just the middle of the year, France has gained several new key customers and results are expected to improve markedly by the end of this year and into 2018. The continued implementation of the France’s strategic plan combined with the close of the Temis acquisitions scheduled for October 31 should result in France exceeding its 2019 margin target of 12%. And finally on a year-to-date basis, revenue is up 9%, operating profit is up 40% and EPS is up 47%. Now, let's move to our near term outlook on Slide 6. We continue to expect 2017 revenue of about $3.2 billion reflecting 6% organic growth from announced – and growth from announced acquisitions and favorable impact on currency to date. Our guidance has been adjusted, as previously disclosed, with full year operating profit expected to be in a range of between $280 million to $290 million. Earnings are expected to be between $3 to $3.10 per share reflecting the disclosure reporting changes, as well as additional interest expense related to our borrowings in the fourth quarter. Adjusted EBITDA in 2017 is expected to be between $425 million and $435 million. And our preliminary 2018 adjusted EBITDA target is in the range of between $500 million and $525 million. It's important to point out that our EBITDA target for 2018 does not include any contribution from future acquisitions with the exception of Temis in France which is expected again to close this next week. Given our preliminary 2018 adjusted EBITDA estimate of $500 million to $525 million and our plan to invest $400 million in accretive acquisitions per year in both 2018 and 2019, we're confident that our 2019 target of $560 million in adjusted EBITDA will be revised upward. This 2019 EBITDA target was increased after the second quarter earnings call and included only the five acquisitions completed before Temis. We’ll provide detailed guidance for 2018 and update our 2019 targets when we report our fourth quarter results. We're now 3 quarters into our 12-quarter strategic plan, and we'll continue to make progress in our efforts to drive operational excellence and provide high-quality service to our financial institutions and our retail customers, which in turn will drive organic profit growth over the planned period. Our investments in fleet and reduced crew vehicles are already having impact on repair and maintenance and labor cost as well, in the U.S., Mexico and in Canada. We’ve installed high-speed money processing equipment in several of our U.S. branches, with additional installations planned this year and next year. I mentioned earlier, that we expect CompuSafe sales to ramp-up to annual rates of at least 3,500 units per year by the end of this year. And we're expanding CompuSafe sales in other countries as well. We successfully addressed critical structural competitive labor issues in Mexico and Canada, paving the way for cost and service improvements. In summary, I'm confident we're on-track to exceed our revised 2019 organic growth targets, that we laid out in our three-year strategic plan. With our organic initiatives gaining traction, we're just beginning to layer in growth through acquisitions in our core lines of business. Our inorganic strategy, dubbed 1.5, focus on acquisitions in our core businesses and in our core geographies or what we call, core on core. As well as on adjacent geographies or core on adjacent. We have a strong pipeline of core acquisition targets that offer new opportunities to increase route density and new customers and capture cost synergies with strong returns. This year, we've already paid or committed $375 million on six acquisitions. Excluding Temis, our five completed acquisitions to-date added $40 million of revenue. $7 million of operating profit and $0.07 per share in the third quarter. And we expect a greater contribution in the fourth quarter, when we also see the full quarter impact from Maco in Argentina. With our recent capital raise and new credit facility, which gives us $2.1 billion in total debt capacity and it gives increased flexibility, we're well-positioned to make additional core accretive acquisitions. And as I mentioned earlier, we plan to complete additional acquisitions at a rate of about $400 million in enterprise value per year over the plan period. Valuations will vary based on geography and growth potential, but we remain disciplined in our goal to achieve full synergy multiples below 7 times EBITDA. Our new debt structure and capacity will also offer flexibility should larger core acquisitions become available that would add significant strategic value through synergy capture and/or enabling us to enter into higher growth markets. Our plan 2018 EBITDA target for a range of between $500 million and $525 million includes the projected impact of Temis and reflects the $370 million spend in acquisitions in 2017. However, again, it does not include the added EBITDA from acquisitions expected to be completed in 2018. As I close, with a reminder that early next week – excuse me, that earlier this week, we announced changes in our board of directors. Dan Henry was appointed as an Independent Director effective October 21. And Peter Feld informed the board of his intention to resign as a Director effective November 11. Dan is a former CEO of NetSpend Corporation and is also a Co-Founder of Euronet, a global leader in ATM ownership and operations and in processing secure electronic financial transactions where he served as President and Chief Operating Officer. Dan brings value experience and insight to our board, and we look forward to working with him. We also want to thank Peter for his main contributions since joining the board in 2016 when Starboard Value was our largest shareholder. Starboard has clearly been an important catalyst for positive changes at Brink's, both at the senior management and operational levels, as well as helping us install a renewed focus on operating performance, efficiency and profitable growth. Peter informed us of his desire to resign as Starboard has significantly reduced its ownership position in light of the dramatic appreciation in Brink’s stock since they became a shareholder. I'd like to personally thank Peter for all his support during my tenure and his tenure at the company. I'll now turn it over to Ron for his financial review.

Thanks, Doug. Good day, everybody. During the third quarter, we continue to pursue The Brink's value creation strategy that consists of four building blocks; enhancing credibility, accelerating profitable growth, margin expansion and increasing returns. We are making progress in each area and see plenty of opportunity for continued improvement. The entire Brink's team has rallied to deliver organic results ahead of our strategic plan, and the completed core acquisitions are already accretive with more in the pipeline. We just completed a comprehensive debt refinancing with attractive rates, extended maturities and investment-grade covenants. But more importantly, it expands our capacity to execute our strategic plan through additional, disciplined and accretive acquisitions and further investments in organic breakthrough initiatives. Doug provided you with the preliminary view of 2018 EBITDA that shows we are clearly on track to exceed the 2019 targets we share with you during the second quarter earnings call. We have a lot of momentum. Now, let’s take a deeper look at our 2017 performance. Please direct your attention to Slide 11. Revenue ForEx in the third quarter was $12 million favorable versus the same period last year. The euro, Mexican peso, and Brazilian real were stronger versus the U.S. dollar, while the Argentine peso was weaker. Adjusting for ForEx, revenue in the third quarter increased $82 million from $747 million in 2016 to $829 million in 2017. Organic revenue growth was 6% and the net impact of the business as we exited in 2016 and the acquisitions we completed in 2017 increased revenue 5%. South America delivered 15% organic growth driven by price increases in Argentina and price increases and BGS volume growth in Brazil. North America revenue grew organically 4% with Mexico, up 16% on growth from new retail customers and price increases. The U.S. was flat as the third quarter 2016 included higher revenue sales on – for on-site cash recycling to a national retailer which did not recur in 2017. The rest of the world grow organically by 2% as a 3% reduction in France due to tenders lost to pricing was more than offset by growth in other European businesses and a 4% increase in Asia Pacific. Our completed 2017 acquisitions that are prior year dispositions added $37 million, but most of that coming from Maco in Argentina. Turning to Slide 12. In the third quarter 2017, we faced several one-time unusual challenges to operating profit. Legacy claims in several countries for prior year’s payroll taxes, legal fees and settlements cost approximately $5 million. Historically, third quarter retroactive price increases in South America were postponed to the fourth quarter, and we impacted - we were impacted by natural disasters in the U.S., the Caribbean and Mexico. In addition, the improved business performance resulted in increased incentive-based compensation expense over $5 million. Nevertheless, third quarter 2017 operating profit was strong, and we are affirming full year 2017 guidance as adjusted for the amortization change. Third quarter 2016 adjusted non-GAAP operating profit was $63 million. 2017 third quarter operating profit grew 21% to $76 million, with $7 million of the growth being organic and $7 million from acquisitions. South America operating profit grew organically 25% or $9 million driven by margin expansion in Argentina. In Brazil results in 2016 included a favorable social tax credit. And in 2017, there was a negative impact from a 1994 tax withholding case. North America operating profit was up 76% or $7 million organically, primarily from productivity improvements in Mexico related to labor costs. As Doug described, the U.S. improves slightly despite some unexpected costs related to legacy claims, hurricane impacts, and the timing of salary increases related to the tight labor market. The $1 million organic decrease in rest of the world was due to lower results in France from lost tenders slightly offset by improvements in Asia Pacific. In total the segments had operating profit growth of 27%. That was partly offset by $8 million in higher corporate expenses through the incentive-based compensation accruals and legacy claims mentioned previously. Cost reductions taken during 2016 had a $1 million positive impact on corporate cost this year. Operating profit as a percent of revenue increased 60 bps from 8.6% in the third quarter of 2016 to 9.2% in the third quarter of 2017. The improvement was driven primarily by performance in Argentina and lower labor and vehicle cost associated with the breakthrough initiatives, partly offset by higher corporate expenses. Moving to Slide 13. This slide bridges operating profit, income from continuing operations, and adjusted EBITDA. The variance from prior year for each part of the bridge is included at the bottom of the slide. Third quarter 2017 non-GAAP operating profit of $76 million was reduced by $8 million of net interest and non-operating 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 from the associated deductibility of stock-based compensation. The lower tax rate was more than offset by higher earnings and third quarter 2017 taxes for $24 million, up $3 million from last year. The net was $43 million of income from continuing operations. This equates to $0.83 per share in the third quarter of 2017, which was up $0.15 per share or 22% higher than third quarter 2016. Third quarter depreciation and amortization of fixed assets was $34 million, up $3 million from last year. Adding back the $31 million of combined interest in taxes and $4 million of noncash stock-based compensation resulted in adjusted EBITDA of $112 million for the third quarter, 2017. This was up $19 million or plus 20% versus the same quarter last year. Onto Slide 14. Through nine months of 2017, we generated organic revenue growth of 6%, organic operating profit growth of 37% to $191 million, with margin expansion of 180 bps to 8.2%. Adjusted EBITDA was $295 million, up 28%; and the EBITDA margin was 12.7%, up 190 bps. Earnings per share of $2.06 was up 47%, versus $1.40 per share in the first nine months of last year. Turning to capital expenditures on Slide 15. Excluding CompuSafe and including our completed acquisitions, we're 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 and capital-lease additions in the first nine months of 2017, excluding CompuSafe, of $120 million. In addition, there was $28 million invested in CompuSafe. Slide 16 illustrates Brink’s debt and leverage position. The bars on the left side of the slide represent our debt at the end of 2015 and 2016 and at September 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 September 30, 2017, our net debt was $570 million, up $323 million from year-end 2016 and up $301 million from year-end 2015. The majority of this increase is due to our 2017 acquisitions. Normal seasonality and increased capital expenditures also contributed to the increase. On the right side of the slide, the bars illustrate our trailing 12 months or TTM adjusted EBITDA at the end of 2015 to 2016 and at September 30, 2017. As a final reminder, adjusted EBITDA no longer includes stock-based compensation and all prior periods have been similarly adjusted. Above the EBITDA bars is the financial leverage ratio of net debt divided by TTM adjusted EBITDA. Our financial leverage at September 30, 2017 was 1.4 turns, increasing from 0.9 turns at June 30 2017. Including a full year of pro-forma trailing 12 months EBITDA of $40 million from our completed acquisitions, our financial leverage ratio on a pro forma basis would be 1.3 turns. Moving to Slide 17, to facilitate the execution of our strategy, we needed additional debt capacity. Last week we closed new bank credit facilities and notes offering for a total of $2.1 billion. On October 17, we entered into a five-year $1.5 billion credit facility that includes a $1 billion revolver and a $500 million term loan A. The current interest rate is approximately 3%. The interest rate is based on LIBOR plus a margin that fluctuates based on our financial leverage. The facility matures in October of 2022 and the $500 million term loan A amortizes 5% per year through maturity. On October 20, 2017, we issued $600 million of 10-year unsecured notes that their interest at 4.625% and mature on October 20, 2027. Proceeds from the term loan A and the notes were used to repay most existing indebtedness and costs related to closing the transactions. Proceeds in excess of those amounts are currently held in cash and liquid investments and are expected to be used during the remainder of 2017 and 2018 to fund acquisitions for capital expenditures and working capital needs. The billion dollar revolver is undrawn. Turning to Slide 18. This slide illustrates Brink's debt capital structure. The height of each bar represents that capacity. The top part of each bar represents availability and the bottom represent debt outstanding. The two bars on the left represent our actual debt situation at December 31, 2016 and September 30, 2017. The last bar on the right is a pro forma representation of debt at September 30, 2017 assuming the new credit facility in notes. With the financing and subject to the terms of the credit facility, we have increased our total availability to approximately $1.5 billion. As you can see on the top right side of the slide, our credit rating remains strong. The credit facility gives us the flexibility to borrow in several currencies to reduce foreign transaction rate exposure. And based on today's rates, we expect that our weighted average cost of debt pretax will increase by 40 bps to around 4.7% in 2018. This cost includes the amortization of fees associated with the refinancing. On the Slide 19, this slide illustrates our net leverage history and outlook at the end of each calendar year. Prior to the implementation of our acquisition strategy this year, net leverage was less than one term. Our new debt facilities give us credit for the pro forma TTM impact of our completed acquisitions, including synergy. And as I mentioned on Slide 16, applying that methodology would generate net leverage of approximately 1.3 turns at year end 2017. If we complete additional acquisitions approximating $400 million in enterprise value each year in 2018 and 2019 and we maintained CapEx spending around $180 million per year, we expect that net leverage will remain in the range of 1.3 to 1.4 turns. This implies that adjusted EBITDA is growing at about the same rate as net debt. 2017 year-to-date net cash provided from operating activities was a $116 billion, more than double last year. And now, Slide 20. We believe that adjusted EBITDA is the most meaningful non-GAAP metric for stakeholders to assess cash flow. We calculated adjusted EBITDA on a trailing 12-month basis. TTM adjusted EBITDA in September 30, 2017 was $407 million. This was up 29% versus 2016 and was driven by the organic growth in operating profit. Adjusted EBITDA as a percent of revenue increased [110] bps to 13.1%. Applying a new credit facility methodology for completed acquisitions to our reported results would add approximately $40 billion of EBITDA and $180 million of revenue. Our adjusted EBITDA margin as a percent of revenue would have increased by another 50 basis points to 13.6%. As Doug mentioned, our preliminary target for 2018 EBITDA is around $500 million to $525 million. At the bottom of the slide, you can see that the BCO stock price has increased more than 125% in 12 months and has doubled this year. 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 to Doug.

Thanks Ron. I hope it’s clear that we’ll continue to make great progress on our plans to deliver on our commitment to our customers and to our investors. We still have a long way to go, but the good news is that our opportunities for additional growth and improvement are substantial. With one quarter to go, we expect 2017 full year organic revenue growth to be about 6% with an additional 3% growth from completed acquisitions for a total of 9% revenue growth in 2017. Full year operating profit is expected to grow by about 32% over the last year to a range of between $280 million and $290 million, and our expected operating margin is expected to be in the range between 8.8% and 9.1% versus last year’s margin of 7.4% or an improvement of 150 basis points year-over-year. We expect and estimate 2017 adjusted EBITDA to be in the range of $425 million to $435 million, which is up about $88 million or 26% over last year. Our full year 2017 EPS is expected to be between $3 and $3.10 per share with about 16% expected from completed acquisition. This represents a 34% increase over 2016 in EPS. And our preliminary 2018 adjusted EBITDA target range is $500 million to $525 million in EBITDA. And we’re forecasting to deliver based on this between $75 million and $100 million in additional growth in EBITDA next year. And this does not include the contribution for future acquisitions which we do plan to make. We’ll provide more specifics as we said before, on our 2013 guidance and we'll revise our 2019 target probably upward when we release our fourth quarter earnings. In summary, we started to demonstrate significant operational improvements in the U.S., Mexico and other businesses throughout the company. I’m pleased with the performance that our team has made year-to-date and I know that they're excited and up to the task of continuing our drive to achieve our strategies, our targets and what comes ahead. With our acquisition strategy just getting underway, we believe we're just beginning to deliver sustainable growth in revenue, earnings, and cash flow to our investors. With that, Keith, let's open it up for questions.

[Operator Instructions] And the first question comes from Jaime Clement with Macquarie.

Doug, if I could start with you if that's okay. I think you've all been very clear in terms of the financial parameters that you're looking to work in with respect to acquisitions, but strategically and operationally, as you evaluate a core acquisition like in Argentina, like in France, in addition to just pure route density, which is just obvious to me, what are the other strategic and operational things that you look at to say okay we're going to do this or we're not going to do this?

I think that, Jamie, that’s a good question and I think we have to start with the – first of all, the ability of our team to execute both in terms of the process related to the acquisition but, more importantly, execute and be committed to the integration of the businesses and the improvement of the businesses going forward, in other words, commit to the synergies, their numbers, and then to be able to implement those synergies. Frankly, if the team is not ready and excited and buying into the acquisitions in that country, then it’s not the appropriate place and time to move forward with that. But clearly, we think that's the case in Argentina and France and other locations to do that based on the acquisitions we've done to-date. So, that's a very important piece on it. In terms of the strategy, we clearly look to see, does this help support both our strategy in terms of customer, customer base and improvement in that geographic footprint and overlap is another thing to look at and then, obviously, how does it drive the business in terms of cost synergies. Route density is obviously – and obviously, it is an obvious one around that, but that density is not just route density, it’s a branch density, it's a customer overlap, it's a lot of things that then move on back to the rest of the costs associated with operations of our businesses are very capital - labor-intensive, and the rest of the indirect costs offer significant synergies as well. So, I hope that gives a little bit of background, but I think what's important is that we are disciplined in a way that we look at this. We are working clearly very closely with the local management, and it's their acquisition. It's their deal that then drives to where we're going. Just as an aside to that and not to extend this one, but just as an aside to that, I was very pleased to sit down with our French team. Ron and I were there a week and a half ago, and we’re reviewing, obviously, what was going on this year, with the improvements in some of the recent tenders and business that we won obviously with disappointment in the first half of this year because of the flat sales and reduced profitability. But looking forward to the latter part of this year and in the next year, of the current nearer-term business, how it’s improving very nicely and we have greater confidence in that, as I said in my remarks. But also, in the relook at our strategic plan that was laid out for France that was driving cost down as well as growing the business. And now layering on top of that, the Temis acquisition, which will be closing next week there, will give us the opportunities for all of the things that we just went through of cost synergies, but also market and customer synergy improvements as well. It will give us the opportunity to markedly improve our target margins in our strat plan period that we talked about before. And then that’s a really nice magnifying impact.

If I could just - just one more question and then I’ll get back in the queue. With respect to the U.S., obviously in the quarter, you had some bad guys that kind of went against you a little bit and obviously I think most companies are dealing with a tight labor market. But one of the things you didn't address on the call, and I was just curious, is how are service levels looking? Like, what are conversations with customers sounding like these days? I mean I know that you and your team have really only been there for a year, but – and maybe that's too early to start seeing real improvement there, but can you give us a little color on that subject?

I think, Jamie, in general, we've continued to improve our service levels to customers over the last - well, I’d say throughout this year. They do go up and down by region and by where we have the tighter labor markets and so forth. And that's one of the reasons why we took the actions that we did. We took them before getting the price, but we thought they’re important to manage our service levels and make sure we continue the improvement in our processes, in our service to our customers. But that being said, we still have a long way to go, we still have a lot to do to not only change our culture and continue to improve our culture where we need to go, but to operationally continue to improve our service levels with our customers, as well as assure that we come out with new products and new services that address our customer needs and also work as part of our strategy to provide customer-facing technology, which will be part of our push for next year as well. So, I think the answer is yes, we’re improving, but we still have a way to go, and I think we have a team that's very much focused on that. I think that bringing Ray on will also help accelerate the pace of both the cultural change as well as probably operational improvements.

And the next question comes from Tobey Sommer of SunTrust Robinson Humphrey.

This is Kwan Kim on for Tobey. Thank you for taking my questions. First off, could you give us an update on expanding your business among small to mid-tier banks both in CIT and CompuSafe businesses? Have Brink’s been gaining traction at a pace you would like it to be? And in which geographic areas are you having the most success? Thank you.

Kwan, the question, I think that is derived from part of our focus that we started in the beginning of this year that we’re heavily focused on, like you said, CompuSafe, and also reaching below our Tier 1 FIs with our additional sales team and, what we call, hunters in that sales team. So, yes, we are gaining traction. Is it to the level that I'd like it to be? It never is. I'll never be happy with that but we are getting traction and as I said in my comments, so we’ve seen material improvements in the ramp up in sales from our hunters as well as the rest of our sales organization. We’ve materially increased our CompuSafe sales in our ramp up acceleration of our order rate for that, that I’m very pleased with. And what we’ll be able to show, I think by the end of this year, that we’ll have achieved our sales rate for CompuSafe which is heavily also and focused on the smaller FY's, as well as mid-tier customers. And we'll be at sales rate for those that will put us above the ramp up rate that we are hoping to get to. Now, it doesn’t mean there’d be sales in this year, but it’ll mean that we're going to 2018 with the sales level and order level that will give us the ability to install those and sustain that type of level and more which is in our plan.

And with the appointment of U.S. president, could you talk about the other roles you’ll be focusing on that you mentioned earlier in the call?

You kind of take me back there. I am CEO of the overall business. So, we have 40-plus other countries and a lot of other business that we'll be focusing on, so I'll primarily be focusing on my CEO role.

And the next question comes from Jeff Kessler with Imperial Capital.

Could you talk a little bit about the various – you have various, obviously, portions of your business that you've thought – that you've mentioned in passing. But could you get – drill down a little bit more and talk about by, like, geographies which businesses specifically are looking – have been looking stronger than you expected? Which businesses are you finding a little bit more? And, obviously, cash in transit that the margins go up when you pull out – when you finally able to pull out a person. But you’ve been talking a lot about CompuSafe as well this morning, particularly as a product in the mid-markets. But you haven’t talk – you haven’t broken it out to give us a sense of which areas of your products and service business are really – have really picked up, which areas are you still trying to develop. It sounds like you’re still investing heavily in stuff like cash recycling and new stuff, which may not be to the point at which you want.

Well, that's a…

It’s a multifaceted…

It's a multifaceted question. Well, I think we try to give you some background and some detail in the comments on a geographic basis. And you see the overall numbers and so forth on a segment basis. Be glad to talk a little bit more specifically on that, but not provide tremendous detail by country. South America as a segment continues to be very strong and good strong growth, driven heavily by the vertical of retail in key markets there. Obviously, supported by continued strong cash and circulation as I mentioned. And our vertical of retail, we through most of our businesses as probably the greatest opportunity of the different verticals that we participate in. And CompuSafe is a key solution for retailers from that standpoint. And as I’ve said before, CompuSafe or retail solutions, which include the more sophisticated recyclers that you mentioned are really highly unvented in many markets. In other words, the market, as an example in the U.S., for those type of solutions that offer customers great returns on their investment and the ability to effectively outsource more – most of their cash requirements with a good return, the market is highly untapped and is not – and that's primarily –currently supported by vendors such as us. And so, that presents a great opportunity, and that's why we talk about CompuSafe, that’s why our competition talks about CompuSafe, and the size of the market and the ability to penetrate that. And we've put plans in place, as we've spoken about in our strategic plan to go after that market and do continue to expand and grow our sales and our efforts in those areas, and we're continuing to do that. So, our four key breakthrough initiatives in the U.S., three of those were heavily focused on cost. Fleet were two of those our branch operations and our efficiency and productivity and the money processing side is the third, those are cost-focused improvement efficiency customer service objectives. And then our fourth one is in the area of improving our penetration, our support and our sales heavily focused in the retail side, although we want to do more with outsourcing on FY's as well. I hope that is something…

That was well done and exactly what I was looking for. Thank you. Also in terms of making the entire organization more efficient Have you – when looking at procurement, realizing that in some cases you can have worldwide procurement in some cases the procurement goes country by country and maybe region by region, what areas in terms of creating a greater level of efficiency from procurement to essentially physically geolocating your trucks? What areas still remain to have a lot of leeway in them for you to move those numbers up?

So, we don’t call a procurement anymore. Strategic sourcing means the same thing, but it sounds better. That being said, we have looked at many things, for example, with Brink's when we joined throughout the company in all of our businesses, there were 175 varieties of security bags that were used by our messengers to transport cash between the armored truck and the customer. That number has been reduced now to 20, and we’ve got global sourcing on those varieties. That’s just one example. The design of the armored trucks, we can't use a lot of the exact same truck country by country because they have different specifications for armoring, et cetera. But that the information sharing, you know, there is a series of things that our procurement team is working on. Right now, I would say the biggest impact they are having is in fleet and in the maintenance of that fleet as they optimize the fleet management systems and the role of actually purchasing the vehicles and then servicing them.

Can you give any type of indication about how much this has saved you in terms of bps? Or is that too interwoven with the other parts of your cost saving program?

Just like most areas of the company, if you added up all the savings, they would outperform the entire business. That being said, we haven't disclosed the impact, they are incorporated in business and it's intertwined. And it's hard to determine specifically where the savings are coming from, is it sourcing, is it efficiency from the operations, et cetera. So, instead of trying to nail that down, we do actually review a sourcing profitability each year and it's a significant number on paper. But again, if I added up the savings from every project we did, it would exceed the profitability of the company. I'm sure you've never seen that before. So, it's material, but instead of trying to isolate that, we let each of the country managers own the improvement efficiency metrics that they're driving for in each quarter.

[Operator Instructions] And our next question comes from Ashish Sinha with Gabelli.

Thank you for taking my question. I had a couple. So, I just wanted to expand on Jamie's question earlier about the labor situation in the U.S. And what I wanted to understand was is there any changes in your staff attrition ratio in the U.S.? That’s the first part of it. The second part of it is, how much makes your using of temporary workers in the U.S. was as permanent, and where I’m trying to get at is if there is a change in temporary workers and you have to onboard a lot of new temporary workers. Is there a risk that you need to up the training cost to maintain your service levels? That’s my first question. The second question is essentially on LatAm volumes. Could you talk about within the organic growth the break up between volumes and pricing and could you also talk about your market share in LatAm? What that's doing? Thank you.

So, Ashish, let me take your first one in terms of the attrition rates and so forth. So, what we saw, which is very consistent in a lot of these key markets. It’s very consistent with what many other countries – companies, excuse me, have seen, and I think you've heard on the news, and you probably heard from a number of your other companies that you cover is significantly tightening markets especially in our type of business, in our type of employees that we employ in the U.S. We see unemployment rates that are getting to full employment type of levels, and specifically when you're competing against Amazons and others in the area that the markets were improving, we’re tightening. So, therefore, we saw that in the second quarter and we took action in the third quarter. Again, as I said, prior to taking any price action, we increase wages particularly in significant number of markets that helped us get in front of some of these issues or at least respond to it. So, we didn't have service issues to any great degree. Now, what that has done actually is to reduce the turnover of the front line employees. So, these are the employees that are messengers and drivers and has actually work to reduce that, which would then reduce our training and other costs associated with that. So, that’s actually positive. We’ll start seeing that benefit, as I said, in the fourth quarter and beyond, probably more as we bring on the employees in the third quarter and see the benefits going forward. The temporary employees are more in areas such as money processing and so forth that help us support the spikes or the business shifts of volumes, and more in the money processing, not as much at all in the outside. So, we don’t use temps for drivers and messengers. That has not changed. In fact, it’s probably gone in the other way. We’re trying to reduce the number of temps, so we don’t see that as an issue. And that shift has not change, so there no additional cost associated with that. I think that was your specific question. I think the key thing here is we responded here. It is a problem. Others are seeing the same problem and I think our competition is probably seeing similar sort of issues that we have, and hence the response with the first of the fourth quarter price increase that we’ll start covering this as well as give us going forward. LatAm. I think - we don’t break down volume and price. As Ron suggested that pricing generally is in many of the countries is done on a basis of reviewing where inflation is or has been over a prior period. And as the unions and as an industry, then price increases are negotiated in line with that and follow a general pattern, and generally that happens in the third quarter in several of the countries in South America, those were delayed this year and therefore, we didn’t see the impact in the third quarter. We’ll see more of it in the fourth quarter and we’ve continued to see volume increases in cash transported which does have an impact on improving our volume. So, it's a combination of both volume as well as price and all of the prices is as much as we would have liked and anticipated going forward as a result of that. In terms of market share…

Maybe I can jump in there. On our Investor Presentation on our website from our August 7th deck, on Slide 9, we give as much detail as we're able and willing to give on market share. That does show the impact of the latest acquisitions in Argentina and France and it's a representation that's pretty accurate but we have not disclosed and will not disclose what we believe the exact numbers are for ourselves and for our competitors. But Slide 9 in the August 8, sorry the August 7th Investor Presentation is a pretty accurate representation.

Okay. Thank you.

I think to that, the combination of us and one other major competitor in South America especially in the key markets that we participate in now are the key competitors.

Next question comes from Joan Tong with Sidoti & Company.

I have two questions. First, I'm going to ask you about the operating environment and you are specifically related to the financial industry. There's some noise obviously this quarter, actually in the past couple of quarters. People get excited about the budgetary improvements that we anticipated after like in the election. And obviously, that excitement has sort of died down a little bit. And then we have seen some other vendors, not specifically in your space, but also like in the ATMs and the cash space that they are not doing exactly well. So, just want to get an idea like how you, guys, in the operating environments in the U.S. for financial services, we are talking about like a flat revenue growth for this particular quarter in U.S., for you guys so…

There's two parts to your question, Joan, I think the first one is the volume of business, and we've been seeing an increase. As you would expect, every financial institution has services by an armored truck. So, that market is full and stable. The growth is coming primarily on the retail side, as Doug explained, from the smaller CompuSafe to the larger recyclers. And we see that that vended market is about 20%, the unvended part is about 80%. So, we have the volume opportunity, specifically on the retail side. On the pricing side, Doug mentioned in his prepared comments, the environment is as good as it's been in recent years. In addition to the annual price increases because of the tight labor market which you referenced, we've been able to get – we've had to increase pricing in wages for our colleagues, and we've been able to announce a supplemental increase to pass a portion of that on to the customers. So, the market, as you're describing, is positive both on the volume side and the pricing side in the United States. Globally I would say it's different by country, and as Doug mentioned, a lot of it's driven by inflation in countries that have higher-than-average rate. But I would say generally around the world, we see volume increasing, and we see pricing going up.

Let me add to that just briefly, Joan that I think most of the FIs know and understand what's going on in the labor markets, and they recognize that in their own businesses. And they recognize that these are important issues that need to be addressed and are supportive of that. So, that’s not saying something necessarily specific, but I think what it is, is suggesting there's a general understanding of that the pricing needs to go up in line with this, and I think the industry is knowledgeable of that as well. That's one thing. And the second thing that banks know that cash is very important to their business and to their customers. They also know that's not necessarily where they longer term want to focus, and, therefore, our ability to provide them not only the best services but the ability to provide additional services that provide them the opportunity to outsource more of all of the issues and services around cash that they do today. It’s not only what they outsource today knowing what they have others do like us today. But beyond that what they do in-house will be where the future goes with FIs, and I think that's a good opportunity on top of where we are today for our industry.

And then my next question is related to recycler. You guys had a pretty sizable contract last year, and just want to get an idea in terms of the pipeline, sales pipeline and then the sales cycle. I assume that is pretty long, and do you expect, like, any larger contract, like, in the near to medium term?

I think you’re right on a couple of points there. We’re very pleased with the whole contract, it was pretty upsized, it’s produced and they will even say as a customer. They purchased those units and these six-year plus recurring revenue streams of services, because it provided them a very good return and cost savings. And that is something - it’s a great testimony, rather companies in the grocery business, as well as other large retailers like that. That pattern should repeat itself, because it is a good return and because it makes a lot of sense. And we think that that will be the case and therefore we have a number of things in the pipeline, but it is a long period for the sales process. And while we have sold some smaller one-offs and done some prototypes so far this year. Obviously, we don't have anything yet to announce of the size like the Ahold.

But definitely good job in ramping up the CompuSafe order rate. And so, we’ll wait and see, like what's going to happen next year. Thank you so much.

And the next question is a follow-up from Jeff Kessler with Imperial Capital.

I just wanted to piggyback on a couple of things that were – I asked before. And one was, if you take a look at Mexico and you take a look at Latin America, it's been primarily and historically a CIT market. What are the types of extra services that you think you can introduce successfully into those markets? Over the course of the next, let’s call it, the medium-term the next two to three – next two to four years, that would get – not just incremental revenue, but incremental margin, then leverage the cost savings that you've taken out already?

Good question. And I think it’s a similar pattern to what we're seeing in countries like the U.S. and France. It will be a pattern although it's very embryonic and in the early stages of retail solutions that they could be similar to and we're already starting to sell and we have significant ramp-up plans for South America, including Brazil and Mexico in particular, particularly in the retail space in CompuSafe and CompuSafe-like products. So, again, highly advantaged more so than other places, highly-cash-related societies. Therefore, there's a great need for this. Greater risk, which makes a lot of sense as well, and good solutions that we can provide. But they may be a little bit differently tailored than what we have in the U.S. or in France that are a bit more – I’m sure sophisticated is the right word – but tailored a little bit differently. So, I think that's where our great opportunity is from that standpoint that we are focusing on, and we'll continue to see greater opportunities there as well as outsourcing on the FI side that I think needs to change as it is in other markets, more developed markets as well. You want to talk about the payments?

Jeff, in addition, as you're aware, in South America and Central America, it's a much more cash-based economy. And we have initiatives underway to expand our payments business down there, including an extensive network of correspondent banks in Brazil, the PagFacil acquisition was a great addition there. The improvement in revenue and profitability is significant on a small basis, but you're talking about the future. And as Doug said, this is embryonic. But we're in Panama testing four different models on how we best serve the unbanked in a way that brings them into a modern economy, enables them to actually make electronic transactions by passing cash to us. And we're doing that through different models including kiosks, self-service electronic units, having employees at grocery stores actually handing our transactions. And again, that's all the early stages, but we're excited about the potential of serving such a large market in an effort to bring them into a more modern economy. And we see a lot of potential there.

I just want to quickly say that I've been talking nonstop CompuSafe with this company for over 10 years. This is the first quarter that I'm really getting optimistic about it. This is a - congratulations, guys, because this has been on the come for so long, and it seems like you've finally making a success of it.

Well, hopefully we will support that next quarter even more.

Thank you. This does conclude The Brink's third quarter results conference call. Thank you for your participation today. You may now disconnect your lines.