The Brink's Company (BCO) Q2 2019 Earnings Report, Transcript and Summary

Welcome to The Brink's Company's Second Quarter 2019 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 the projected or estimated results. Information regarding factors that could cause such differences is available in today's press release and in the company's most recent SEC filings. Information presented and discussed 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, Drew and good morning everyone. Joining me today are CEO, Doug Pertz; and CFO, Ron Domanico. This morning, we reported second quarter results on both the GAAP and non-GAAP basis. The non-GAAP results exclude a number of items, including our Venezuela operations, the impact of Argentina's highly inflationary accounting, reorganization and restructuring costs, items related to acquisitions and dispositions, and costs related to certain accounting compliance matters. We are also providing analysis of our results on a constant currency basis, which eliminates changes in foreign currency exchange rates from the prior year. We believe the non-GAAP results make it easier for investors to assess operating performance between periods. Accordingly, our comments today, including those referring to our guidance, will focus primarily on non-GAAP results. Reconciliations of non-GAAP to GAAP results are provided in the press release, in the appendix to the slides we're using today, and in this morning's 8-K filing, all of which can be found on our website. Finally, page three of the press release provides the details behind our 2019 guidance, including revenue, operating profit, non-controlling interest, income taxes and adjusted EBITDA. I will now turn the call over to Doug.

Thanks, Ed and good morning, everyone. Today, we again announced strong second quarter results including reported revenue growth of 11% and operating profit growth of 17% that easily offset the expected impact of negative currency translation, most of which was in Argentina. In constant currency, revenue was up 20% and operating profit was up 41%. We also achieved 8% organic revenue growth above our average of approximately 7% over the last two years. And we achieved strong growth in adjusted EBITDA and earnings per share both on a reported and a constant currency basis. The improved results for the quarter were led by continued momentum in the U.S. were profits more than doubled and in Mexico, which delivered profit growth of nearly 50%. Our U.S. team is doing a great job managing the Dunbar integration from process and systems integration to infrastructure consolidation. We now believe will exceed our targeted annualized cost synergies of 45 million by the end of 2020. And our Mexico team continues to deliver double-digit organic revenue growth, while also more than doubling its margin rate over the last two years, a fabulous example of our Strategy 1.0 in action. As we begin this seasonally stronger second half, we're confident that we'll achieve our full year 2019 guidance, which includes operating profit and earnings growth of around 20%. This is despite currency headwinds and the previously disclosed the addition of $20 million to $30 million in operating expenses to support IP upgrades and the development of our next leg of our strategy, what we call Strategy 2.0. And I will now offer a few comments from our strategic perspective. Our Strategy 1.0 initiatives continue to drive costs lower and customer service levels higher. These initiatives have already driven strong profit growth and we expect that to continue. 2019 year-to-date margins are up 70 basis points, and we're on track to increase our margins by approximately 360 basis points over our current three-year strategic plan period ending in 2019. Our Strategy 1.0 initiatives are also beginning to pay off in the form of account share gains with several of our U.S. financial institutions. In fact, a major U.S. Bank recently awarded us additional business that when fully transitioned in 2021, we'll make Brink's its lead provider in the U.S., almost doubling our revenue with this account and giving us a large majority of its total account share. This new business, along with additional share gains that we are pursuing with other financial institutions will be part of an important base for driving growth in our next three-year strategic plan. In summary, our 1.0 operational excellence strategy is now beginning to drive revenue growth that will further leverage the significant cost improvements that we have achieved over the last 2.5 years. On top of our 1.0 profit growth, our Strategy 1.5 on acquisitions are also expected to drive growth well beyond the current three-year period of time ending this year. During the quarter, we completed two small acquisitions, one in the U.S. and one in Brazil and purchased the assets of another business. Over the last two and half years, we've completed 12 acquisitions plus added asset purchases. Our pipeline of new opportunities continues to be strong and I want to emphasize that we already completed acquisitions, we will continue to drive additional cost synergies and profit growth into 2020 and beyond. For example, we expect the majority of the synergies from the Dunbar acquisitions to be realized after 2019. For those investors who may be concerned about future growth and margin improvement, let me be clear, we fully expect Strategies 1.0, 1.5 each of which have already delivered significant profit growth that easily exceeds our initially targets to continue to drive strong growth and continued margin improvement throughout the next three-year strategic plan period. And beginning in 2020, we expect that the third layer of high-margin growth from the execution of our Strategy 2.0 initiatives, which are targeted at developing new high-tech enabled services and expanding our presence in the total cash ecosystem. We will disclose more detail about Strategy 2.0 in a future investor day, but we're not waiting until the start of our next strategic plan period to begin providing new services and offering them to our customers. For example, we recently entered into an agreement with BPCE the second largest banking group in France, under which we will own and manage their entire network of 11,600 ATMs. This is a long-term managed services agreement and the first of its kind in France. While we'll not start receiving material revenue from the BPCE agreement until late next year and we should be transitioning fully by the end of 2021, at which time we expect to generate $50 million in annual recurring revenue and this is in addition to our current ATM cash fulfillment service as we provide today. During the second quarter, we also acquired balance innovations or BI as we call it. BI is a U.S.-based software company that provides cash management software and other services to a national footprint of more than 11,000 retail locations. This acquisition immediately enhances our ability to deliver tech-enabled end-to-end retail cash management service and integral part of our 2.0 strategy. These transactions will not materially change our 2019 results, but there are critical elements to our next chapter of our strategy. Our new three-year plan will combine ongoing organic profit and margin growth from Strategy 1.0, continued acquisitions related growth from our Strategy 1.5 and a new layer of growth from Strategy 2.0. We believe this powerful multi-layered strategy will continue to create substantial value for our shareholders well into the future. I'll discuss more on our strategy after Ron's financial summary, but I first want to briefly cover our U.S. results and outlook. Similar to the first quarter, U.S. results were up 54% in the second quarter, heavily driven by the Dunbar acquisition, which is not in the prior year results. Operating profit more than doubled increasing our margins by 260 basis points to 7.7% for the quarter and we remain on track to achieve our 2019 exit rate of margin targets of approximately 10%. Our Dunbar integration team continues to make great progress. We've rebranded about 85% of our facilities, trucks and uniforms, consolidated more than a dozen CIT branches and launched more than 150 one-person vehicle routes. We’re very pleased with our progress to-date on the integration and in fact we're more optimistic than ever about our long-term outlook. As I just mentioned, we believe we will exceed our target annualized cost synergies of $45 million. This year, our combined U.S. operations should generate close to and maybe a little bit more than $1.2 billion. Assuming a conservative growth rate over the next two years, U.S. revenue should exceed $1.3 billion by 2021, with a target margin as we stated in the past of about 13%. The strong operating leverage that we're achieving is expected to continue to drive profit growth throughout our next year. Our next three-year strategic plan. Our U.S. teams on both sides of the integration efforts are working together to build a common culture focused on the customer and driven to continuously improve customer service. As the results are showing up not only in higher profits, as we've seen in this quarter and so far, this year, but also in achieving the achievement of account share gains that I mentioned earlier. I'll turn it over to Ron for additional financial review.

Thanks, Doug, and good day, everyone. Second quarter results include revenue growth of 11% and operating profit growth of 17%, which reflect a margin rate increase of 50 basis points to 9.7% versus last year, we absorbed $5 million in Strategy 2.0 and its investment and an incremental $4 million in non-cash stock-based compensation. We achieved these results despite negative currency translation that reduced revenue by $74 million, operating profit by $19 million in earnings by $0.25 per share. During the quarter, the U.S. dollar continued to strengthen against most currencies. But most of the unfavorable ForEx was related to the Argentine pesos, which devalued by 47% versus last year. On a local currency basis, Argentina continued to deliver organic growth in both revenue and operating profit. So, the underlying health of this business remains strong. Our revenues and expenses are almost exclusively in country. So, foreign exchange is translational, not transactional. Consequently, our true operating performance is best measured on a local currency basis. In constant currency, revenue was up 20%, operating profit grew 41%, adjusted EBITDA was up 30% and EPS was up 40%. These results are a testament to the successful execution of our strategy to drive profitable growth both organically and through accretive acquisitions. And we have additional opportunities to continue the revenue and profit momentum that we've already achieved. Turning the slide six, our year-to-date results include revenue of 8%, operating profit up 18% and double digit increases and adjusted EBITDA and EPS. And constant currency, revenue was up 19%, operating profit grew 45%, adjusted EBITDA was up 36% and EPS up 50%. And, as Doug noted, historically, our second half is much stronger than the first and we're very comfortable affirming our full year guidance. Slide seven bridges first half 2019 operating profit to income from continuing operations, and then to adjusted EBITDA. The variance from the prior year is shown at the bottom of the slide. First half operating profit of $174 million, was reduced by $46 million of net interest expense versus 2018, the $20 million increase in that interest expense were driven by higher net debt associated with the acquisitions of Dunbar and Rodoban. Estimated taxes remain relatively unchanged from last year, as higher income is expected to be offset by 120 bps reduction in the non-GAAP effective tax rate, down to 33%. Last year's buyout of our minority partner in Colombia cut non-controlling interest in half. Year-to-date, income from continuing operations of $83 million divided by $50.9 million weighted average diluted shares outstanding generated $1.63 in earnings per share, an increase of 12% versus last year. For the full year, we expect EPS at the midpoint to increase 21%, as second half operating profit and should grow by 21%. On that interest expense only grows by 7%. Depreciation and amortization were $79 million, up 16% versus prior year due to acquisitions and the investments in our breakthrough initiatives. Interest in taxes discussed previously were $85 million and other is primarily comprised of non-cash stock-based compensation. First half 2019 adjusted EBITDA was $265 million, an increase of 16%. Slide eight was introduced last quarter to provide perspective on Argentina's currency devaluation, and its impact on Brink’s. In 2018, the Argentine pesos lost about half of its value to the U.S. dollar. We expect the peso to continue to devalue, but the impact of that devaluation, as you can see on the chart should decrease each quarter versus prior year comparisons. The bars on the top of this slide show the negative devaluation impact on reported U.S. dollar operating profit. The actual and forecasted 2019 quarterly average exchange rate is shown on the top of each bar, with the corresponding 2018 rates below each bar. This quarter, the devaluation of the peso had a negative impact of $17 million on reported profit. The bars at the bottom of the slide illustrate the year-over-year change and reported U.S. dollar operating profit. In the second quarter, inflation driven price increases, operational improvements and additional macro synergies offset about two-thirds of the devaluation resulting in a year-over-year decline of $6 million in reported U.S. operating profit. Year-over-year Argentina U.S. dollar operating profit is expected to be positive next quarter, but down approximately $10 million for the year. Based on past performance, we expect to return to pre-hyper devaluation profit levels by mid-2020. Our 2019 guidance is based on a full year average exchange rate of 45 Argentine pesos to the dollar. The scenarios on the right side of the slide illustrate the estimated impact of potential changes in the value of the peso. For everyone peso change in the full year average exchange rate, the impact is approximately $2 million or $0.02 per share. Importantly, we have no issues repatriating pesos into dollars, and do so frequently. Let's move to slide nine, free cash flow. We're making dramatic progress. Our 2019 guidance of $220 million in free cash flow is almost quadruple the amount generated only two years ago. Despite the growth in revenue, we're looking to maintain absolute levels of working capital. This will require continued improvement in ZSO and DPO which is tied to a component of the annual bonus. Cash taxes should benefit from a lower effective rate, utilization of foreign tax credits in the expected timing of tax refunds. Higher interest expense, higher CapEx and higher restructuring costs are each primarily related to the completed acquisitions, especially Dunbar and Rodoban. Nevertheless, we anticipate significant improvement in our free cash flow conversion metrics in 2019. It's important to note, that while operating profit and earnings are historically skewed to the second half, cash flow is even more so. Turning the slide 10. We illustrate our net debt and leverage position, both historically and assuming synergies from completed acquisitions through 2020. Our net debt at the end of 2019 is projected to be approximately 1.3 billion. That's up about $100 million over year-end 2018, as approximately $200 million invested in acquisitions is reduced by cash flow after dividends. At the end of 2019, our pro forma leverage is based on trailing 12 months, fully synergized EBITDA should be approximately two turns. Since early 2017, we've invested about $1.1 billion in acquisitions. Today, our deal pipeline remains robust and we want to illustrate the impact of another billion dollars in potential acquisitions at an average 7.5 multiple. The gray bar on the left shows the potential incremental investment could be funded entirely by debt. The gray bar on the right illustrates that pro forma adjusted EBITDA, including 12 months of estimated synergy should increase by about $135 million, and leverage would be about 2.9 turns. We expect that cash flow from our existing business combined with the additional acquisitions could reduce leverage back to two turns within three years. With the U.S. stock market near record highs, we've been getting questions about how the company could perform across economic cycles. Our revenue is highly recurring, with most business under multiyear contracts. Many contracts include, fuel surcharges and or CPI escalators, which protect margins. Cash grows through all cycles, but especially when credit tightens and should unemployment increase, we would expect workforce benefits through greater retention and moderated wage inflation, but ultimately, the strength of our balance sheet should facilitate success throughout economic cycles. With that, I'll turn it back over to Doug.

Thanks, Ron. Now turning to our strategy again, in slide 11. As we close in on the end of our current three-year strategic plan period, our Strategy 1.0 organic growth initiatives are on track to deliver $310 million of operating profit and $480 million of adjusted EBITDA in 2019. And these strong results were achieved despite the significant currency translation headwinds that we've already faced in or projected to phase through the rest of this year. The projected $480 million in organic only adjusted EBITDA for 2019 represents compounded annual growth rate of approximately 12% organic only. And as I said earlier, we saw a lot of runway for the future organic growth and margin improvement in these organic initiatives. We refer to the next phase of our 1.0 plan as taking 1.0 wider and deeper. It includes the wider execution of new operational excellence initiatives and continued execution of our current initiatives deeper into current countries and throughout the rest of our global enterprise -- our global footprint, all focused on continuing improve margins and grow organic revenue. Strategy 1.5 is focused on accretive acquisitions and in 2019, we expect it to drive an additional $105 million of profit growth and $120 million of EBITDA growth from our 12 completed acquisitions to date. It's important to remember that these amounts include only partial cost synergies gain from our density, infrastructure overlap and other efficiency improvements. In most cases, it takes two to three years to achieve all the cost synergies from an acquisition. Our largest acquisition, Dunbar was completed less than a year ago. And we've only own Rodoban for less than six months. When all 12 acquisitions are completed, when all 12 of our acquisitions completed to date are fully energized, we expect to add at least $185 million of EBITDA, of which $65 million will be added in 2020 and beyond. And like Strategy 1.0, 1.5 also has lots of runway for additional future growth. During the second quarter, we closed two more small acquisitions, BI in the U.S. and one in Brazil bringing this number - this year to three. In Brazil, we completed the acquisition of CONF [ph] a financial services company with a network of 500 plus locations increasing the footprint of our payments business in Brazil. Additionally, while not classified as an acquisition, we purchase all of the CIT assets from a security provider in Brazil, increasing our market share in the profitable and strategically important North Eastern Region of that country. In total our 1.0 and 1.5 strategies are expected to deliver $600 million in EBITDA this year, representing a compound annual growth rate of 21% over the three-year strap plan period. And this is well ahead of our Investor Day 2017 targets that we provided a $475 million. Later to this year, we planned to disclose the next layer of our plan Strategy 2.0 focused on two broad objectives. Our first objective is to increase share and provide enhanced value to our existing customers by offering our broader array of high margin, higher value services that expand our presence across the total cash ecosystem. Our acquisition of BI and our agreement to take over the management of BPCE’s ATM network are two really examples of our 2.0 strategy in action. Our second 2.0 objective is to expand our reach to serve new uninvented and under-served customers across the total cash ecosystem. As discussed in our first quarter call, we currently serve about 100,000 retail locations in the U.S. And we estimate that the entire industry provides services to less than 400,000 retail locations in the U.S. To put this in perspective, there are approximately 3.8 million retail locations in the U.S. and the top 100 retailers by revenue account for less than 10% of these locations. This means that there are more than 3 million smalls to medium sized retailers, locations in the U.S. that are totally uninvented by our industry. In addition, a significant number of the top 100 retailers are also either uninvented or under-served, meaning they currently only use limited cash management services. We see an opportunity to add new growth by penetrating this uninvented or under-served markets and by simultaneously providing new services to our existing customers. In addition, we estimate the Smart Save and Recycler markets which offer high value total cash management solutions have only been penetrated approximately 20% and 10% respectively in the U.S. We believe we can develop and offer new high margin tech-enabled solutions to uninvented or under-served retailers with a high value proposition that is very compelling compared to currently available alternatives. Our acquisition of BI and its retailer driven software is an additional and important step to helping seed this opportunity. Turn to slide 13. Our 2019 guidance includes overall revenue growth at 9%, including 7% organic growth. We expect full year operating profit to increase 20% to $415 million at the midpoint, reflecting a year-over-year margin rate increase about 100 basis points to approximately 11%. Adjusted EBITDA is expected to grow by 17% to $600 million at the midpoint. And earnings per share do increase by 21% at the midpoint to $4.20 per share. Unlike the first half, as Ron suggested, second half 2019 EPS is expected to grow faster than op income growth as interest cost as a percentage of earnings declines. Our guidance includes FX rates as of the end of 2018 for all countries except Argentina, where we maintain or assumption that the peso to U.S. dollar exchange rate will average 45 for the year. The average rate in the second quarter was 44 and for the first half or a year-to-date was 41. We estimate that the negative currency translation impact on 2019 revenue and operating profit will be $215 million and $60 million respectively. Through mid-year, the negative translation impact was $171 million on revenue and $41 million on operating profit or $0.54 on EPS. As we've disclosed on our first quarter call, it's important to note that the guidance includes an expected $30 million of additional OpEx investment in the year. $20 million dedicated to developing Strategy 2.0 and $10 million related to developing our underlining tech infrastructure in the year. Slide 14. This closing slide illustrates the dramatic growth in operating profit, EBITDA and margin rates we expect to achieve over the three-year strategic plan period including our 2019 guidance. Even with significant FX headwinds, operating profit is projected to almost double to $415 million in 2019. This represents the $24 million compound annual growth rate and improvements of 360 basis points in margin, together with our 21% compound annual growth rate for EBITDA. In summary, Brink's has changed a lot over the last three years. And not just in terms of improved financial results. Our ongoing strategic and cultural evolution is key to our continued success. Looking forward, I want to make it clear that we're not and they will not be satisfied with what we've already accomplished, or with just incremental change. As I stated in past, we intend to transform the industry by changing who we are and how we serve our customers. The iconic Brink's brand has symbolized trust, security and integrity for over 160 years. Our goal is to add innovation and technology to this list of attributes that are top of mind when customers and investors hear our name. That's what Strategy 2.0 is all about. With that, I'll open it up for the questions. Thank you. Drew, please open up the questions.

We will now begin the question-and-answer session [Operator Instructions]. The first question comes from Jamie Clement of Buckingham. Please go ahead.

Gentlemen, good morning.

Good morning, Jamie.

Great. Doug, Ron, I don't know who wants to take this. But in terms of the $30 million in investment spending this year, how much, I'm not sure, I caught this. How much was spent during the second quarter and kind of where you are year-to-date?

We’ve mentioned that we spent $5 million of that investment in the second quarter. And because it's a ramp up, we only spent the $1 million to $2 million in the first quarter. So, we do -- we're on track to spend the 20 plus the 10 in the full year, but again, it is a ramp up, and we're on track.

For sure, thanks. And then, Doug, I obviously, you have the balance sheet and acquisition kind of capability slide. It’s been a little while since you've done what I call like a medium sized acquisition, you talked about the pipeline being robust. What's preventing you in your opinion from being more active, is it availability of properties, or is it valuation expectations. Can you kind of delve in a little bit more on that for us?

Well, Jamie, as you know, these are lumpy things, at least for the larger ones, or the mid-sized properties, like you are suggesting, and so what we want to do is, obviously, judiciously get the returns that we need to and make sure that we do it smart. So, it's a combination of what you suggested. They're going to be lumps. They're going to be times in which we do smaller ones, more strategic ones, like we've announced this quarter. But we also know there is a pipeline, and we think that you'll see, our investors will see, and we’ll continue to it. But we're dedicated to assuring that we get the appropriate returns, which can be from the back of the envelope viewed as to date we've done most of on a post-synergy basis that are in the six to seven times range. And we want to continue to be able to get returns that are similar to that going forward. If you look at the specific that Ron suggested on the chart on page 10, we were looking at that, even with that type of leverage at a 7.5 ratio. So, you can look at that and say that's relatively conservative what we've done so far, but we want to maintain that type of return.

Okay. And then the final thing, the new business that you referred to in both France and in the United States, obviously, you don't have to name customer names or anything like that. But can you talk with us a little bit about, why a customer particularly in the U.S. might be willing to devote more work back to you guys, whereas two or three years ago, they weren't?

Very good question, Jamie. And I am very pleased that we were able to at least talk about this at this time. And I think in the past, you’ve seen not only in terms of some of our written objectives, our top three strategic objectives of accelerate profitable growth was one of those. But also, we've spoken about it with prior calls, so this has been part of our objective, I'm very pleased, that we’re at least able to now allude to and talk to a specific win. I think the real fact is, is that we've been focused as a team and the U.S. has done a very good job of improving our operational excellence as part of our key objective, increasing our operational excellence. And that has resulted in better results and better service levels to our customers. That better service level is what our customers have been waiting to see, and make sure that we have, and I feel very good about where we are with that, and what we'll be able to continue to do going forward for those customers. That combined I think, with our future strategy makes us a very attractive alternative, and hopefully the best alternative, as we're starting to see with some of our large financial customers in particular.

Okay. Guys, thank you all very much for your time as always.

Thank you, Jamie.

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

Thank you. I was hoping you could comment broadly on the pricing environment in your major markets, particularly the U.S. and France, but if you touch on numbers that would be helpful also. Thank you.

Tobey generally, these are done in cycles. And in the U.S., it's usually in the latter part of the year and we spoke about that in the fourth quarter last year in the first quarter results, and nothing has materially changed since then. So, let me reiterate, I think where we were, we had nice price increases that were consistent with not only our cost of labor in various markets, which had been going up and continue to be pushed up some in some of those specific key markets. But our pricing is consistent with that and very nice and we're very pleased, at least in as comparison to several years ago, where that has been, but nothing has materially changed since the cycle of the fourth quarter and the first quarter. In France, which is your other question is, we have seen some price increases there, which is possible, but they're just beginning to see some impact in the first quarter of this year. And we'll start seeing more of that as we go throughout the year.

Thank you very much. If we've looked at your existing businesses, particularly the CIT business, how do you envision the company's market share and its existing markets evolving over the next few years that in absent acquisitions, which obviously changed things, but is the operational performance such that you think, the company is positioned to win customer market share over the next several years?

Well, Tobey, I think that the announcement that we made of additional account share in the U.S. is a great example of that. That account share translates into market share. And so like, I do think that's the case. We started this at the beginning of our 2017 strategic plan period that we're in today, to improve operational excellence. That means improving our margins. But more importantly, it means better focused on the customer, it means assuring that we are meeting and better meeting the needs of our customer through on-time delivery, through fewer errors, and meeting the metrics that our customers are looking for. We've seen significant improvements with that. We're not there yet. In fact, we never there because it always continues to be the next level of what we need to do for our customers. But I would suggest to you that -- our culture, and our operations are continuing to evolve and get better. And that is making a difference with customers. And they’re starting to see that as an example of what the account share gains with EFIs, and as we continue to do that will not only improve our margins and get that leverage, but probably more importantly, should continue to gain business. Now it's taking that then, and leveraging that as part of our 2.0 strategy as well to say, how do we do this differently? How do we tech-enable this? How do we make it something different than just stay pure CIT stop?

Right. It makes sense to me. And last question, maybe kind of a housekeeping one. At this point, are you able to approximate when the Investor Day will be or are, we still thinking back half perhaps early next year?

The last part of your sentence is probably right. We will come out with something in probably, I don't know a quarter or less, but back half of this year, early next year.

Thank you very much.

Do you want to say anything more on that?

No.

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

Hi. Good morning, gentlemen. Thanks for taking my questions. Good morning. Starting with Dunbar and synergies. So basically, what I wanted to understand was what's changed versus your expectations, and where are the additional synergies coming from? And now you've been in the process of quite a lot of acquisitions. So, you've been through the process of quite a lot of integrations as well. So, I wanted to understand, have you developed some in-house capability or a template for integrating acquisitions. So, when we look for acquisitions going forward, maybe you're prepared to pay a slightly higher multiple than your 6 to 7 times because you can extract more synergies out of it? So that's my first question. And the second question is on LATAM margins, you talked about a bit about it briefly. So, 20 basis points reported improvement year-on-year, despite the Argentinian FX. I think that is masking quite a lot of strong underlying improvements in some other countries. So, if you could individually talk about what's happening in some of those other countries, what's happening to volumes, is its operational efficiency on your front? What’s driving the margin progression there? Thank you.

Ashish let me take your first one regarding Dunbar. We are pleased, as I said earlier about the progress we've made. I think more than any other country and any other focus obviously, because of the size and the importance to our overall business and to where we want to be going with the U.S. So, we have a larger, more sophisticated project management team and resources on the Dunbar acquisition. So, it probably is a good prototype for that. However, at the same time, we've learned from other acquisitions prior to that, what's needed and what sort of the focus needs to be as an example of what we need to do and systems integration and what systems we use as we do that and the timing associated with that that we learn from other missteps if you will or not as positive as we should be integrating other acquisitions. I won't get into specifics on that. But we've learned some and the U.S. I think is benefiting from some of that. So that’s why what we are stating in the quarter and what we have laid out here is we're comfortable and confident with the numbers that we publicly laid out the past that we will be able to at least meet or exceed those going forward based on all the things that were doing. So, there is a template I think it's getting better and we evolve that over the course of years that doesn't suggest we're going to overpay for businesses and on the hopes, we’re going to get more synergies. We'll evaluate the synergies as we look at any additional acquisition and the question for future acquisitions is how much is core, core and how much is core with adjacent geographies and that gets us to our target still trying to be in that post-synergy number that’s in that seven or so on a post-synergy basis. That's really how we evaluate, and we'll continue to do that, and I think we'll continue to see additional acquisitions going forward that will be different from the past, but still hit those basic parameters and as the company hopefully will be better at them.

In Latin America, we typically do not release the margins country-by-country because it is a very intense competitive environment. I will tell you that we've been successful with the rollout of our Strategy 1.0 initiatives wider and deeper as Doug discussed in his comments and were also continuing to rollout Lean in the operations and the impact of those initiatives are having in a positive effect on our margins in each of the countries. And so, it's no one country in particular, it’s the continued rollout of our strategies and the Lean initiatives that are improving the margins in each of the countries.

Thank you.

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

Thank you. I'm wondering if you talk about get a little bit more specific about the investments you're making in - going forward in technology, customer facing technologies and in improving some of the smaller what we call SMB types of technologies and I’m thinking about [indiscernible] things like that. That would be incremental not just to the business, but to your ability to get your brand out there more.

It’s a great question and the real answer Jeff is. I'll talk a little bit more what our strategy and our objective is but not necessarily the specifics on it. We're not prepared at this stage to talk about the specifics around that. But you're exactly right, if you will and in the way that you phrase the question as to what our objectives are and our objective is to use technology so that we end up with is a way to provide a complete solution its more complete, if you will versus what we have there is out there today and be able to reach more customers and provide better value to our customers. You know we've really released our app, which is the Brink's app, it’s called the 24/7 app which allows customers to review where their services are that we provide to them on a real-time basis, which is tied together in many countries with our track and trace technology around that. The BI acquisition that we spoke to that we just completed allows us to provide more that especially in the cases with larger retail operations both on a branch and revised service basis, as well as on an enterprise basis and all the way from the POS system back through then linked to our system and the technologies related around that that provides then a complete view to the customer. So this is part of putting the pieces together anywhere from like you're suggesting that small customer with our technologies will be integrating to the larger customer on a total by store enterprise wide basis and all the way from the POS till if you will all the way through our operations to evolve the money processing to the vault. So that's the direction and we think that is adding greater value and providing the opportunity to provide that greater value to a wide variety of customers that we reach today, as well as other customers that are uninvented or that we or the industry doesn't reach today. That’s our challenge, that’s our objective and stay tuned as we do more of this development work and launch later this year, targeting for benefits starting next year.

Okay. Thank you. I know you don't want to get into the specifics of the cannabis business, but I'm thinking that since a portion of that is going to be facilitated by Global Services, and for a number of years, Global Services was flat or down slightly because of how many diamonds and how many other types of high end goods were being transported? I'm wondering if you could speak a little bit to what you see as the role of Global Services and the value proposition that may -- I'm not going to say been tarnished, but the fact that the Global Services really wasn't growing for a while. What can you do to increase the use of Global Services, since it's a high margin business for you?

So let me Jeff, a couple things. Global Services did grow last year, you’re correct that from year-to-date, we do see swings in the diamond and jewelry business and if there is not a -- if there is too much stability throughout the globe in precious metals and so forth, they don't grow as much as we do see those swings, BGS did grow last year. So, I am not sure I would paint it as dire as you did. On the other side, the BGS is a component of our overall offering that I think will be uniquely positioned to blend together with our cash management services, that really nobody else I think in the industry can for the cannabis business and particularly as you look at something like what we do with our partner in Canada, and that is because there is significant transportation of both the raw product as well as the finished product on the distribution side which we do with long haul trucks, that we're uniquely positioned to do in Canada. And so that's kind of unique from that standpoint, and then coupling that together with our cash management services, we can offer a great solution. That's Canada and that's been the primary focus so far. And as you probably know, the Safe Banking Act is now in Senate to hearings, and we hope we'll get an opportunity to see that become reality. So that the federal laws will be -- I don't know what the right word is, but set aside for those states that have legalized marijuana in the U.S. for recreational purposes, which will then allow federally chartered banks as well as then those who support that which would include us to be involved with the cannabis business in the U.S., and we'd be able to put those same sorts of strong resources and capabilities that we have and apply it to the U.S. We don't have that in the plan, we don't participate in that today, and we comply with all the laws in the U.S. We'll see where that goes, and we'll be ready certainly to do that.

Okay. One final question and that's about, Asia Pac, there has not been much discussion about it, because it's a small portion of the company. Is there a - you have competition out there, obviously in each and every country. And the question is, what - essentially, what is your long-term views toward - you've done a spectacular job in North America and in Mexico and obviously in South America, you're expanding and you're expanding in Asia Pac that you've obviously had to adjust your priorities to where you've had the focus for investors. So, I guess the question is, what is your priority, or what is your strategic opportunity that you see over there?

Well, I think Asia Pac is a great market for both cash and for BGS, we have a strong BGS business in Asia Pac. We have a limited number of countries that we are in currently on the ground, in the cash business in Asia, but we think it's a great market with the opportunity for strong cash usage and growth in those markets. If we have the opportunity to grow either through acquisition or domestically through organic growth, we will do that. So, we think it's a great platform. We like to do more there. I personally love the area as well. So, I think hopefully we'll see more with that, but it's certainly not one that we're focused. Another is at the exclusion of Asia Pacific.

Okay, finally, one quick question on the new chassis that you have out there. The new cab and chassis. Are there any new iterations that you are looking at coming out with that will take it, you want to call it, you want to call it cab chassis 2.0 or something like that?

Well, I think there is two things associated with it. One of them is a potential for additional suppliers in other countries in particular, that will help us ensure that we have local content but with a similar sort of design and intent, an objective for that design, similar to what we started out with the U.S. That will then facilitate the reduction of potential manning in those additional countries, whether that'd be Canada, which we've already done, or Mexico or other countries. So that's one piece. The second piece to it is the continued technology additions to that. Including in the U.S. but other locations as well and we are developing additional technology, working with some other technology partners to drive new technology that will provide us better video, better capabilities with AI associated with that, to end up with a safer environment for our employees, our messengers and drivers, and hopefully for our customers as well. So, both of those things we continue to really push forward on. And will be part of our next strategic plan in which I call wider and deeper obviously, that will give us the ability to not only reduce costs but improve our efficiency and improve our safety going forward.

Thank you very much. I appreciate it.

Thanks, Jeff.

The next question comes from Sam England of Berenberg. Please go ahead.

Good morning, guys, couple for me. The leverage slide shows of scenario modeling a billion dollars in acquisitions. Is that something that's just illustrative to show us the impact that billion dollars acquisitions would have, or would you actually be comfortable spending that much and levering up to close to three times?

Well Sam, I think we've had the question from many investors as what our leverage would be in the future. We've done $1.1 billion in acquisitions, since we started about two and a half years ago. And so, this is illustrative of doing something similar to that going forward. And we picked around billion-dollar type of number. But I think we are comfortable in going up to 2.9 turns, especially if you turn around and look at the pay down that Ron suggested over the course of year that gets us back down to that We have nice strong free cash flow generated from this business and those things combined. We're interested in improving shareholder returns. And we don't feel but returns on our balance sheet is something that will be negative without strong free cash flow and with very judicious spending of acquisitions.

Thanks. And then the second one was just on the balance innovations acquisition. Is that something you're expecting to cross-sell widely amongst the customer base and deliver replace an existing platform that you already have? And then if I didn't generate any revenues in time, right? Or is it just a surface that layers on top of all the other stuff that you do?

It generates revenues is all right, as a business and returns on his own right. It is a technology that expands our technologies and integrates well into our technologies in our systems. It was a base of 11,000 locations in the U.S. already, it clearly opens up doors to something broader than we have today. So, it's a great platform for it and it doesn't negatively impact anything that we do today is expands that and give us the platform for part of our 2.0 strategy going forward both in terms of customers and technology going forward.

Great. Thanks very much.

And now our final question for today comes from Marleen Piero [ph] with Bank of America. Please go ahead.

Hi. Thank you for taking my questions. Most of them have been answered. But one quick follow-up question on the leverage slide. Would you be willing to go above three times for the right deal?

Well, I think we wanted to show an illustration that we would go up to this level. We spent $1.1 billion, as I said before, in the last 2 years, I don't really want to project that we're going to spend more than that again. But we're suggesting, we spent that yet again, doubling what we spent to-date, this would get us in that three range, and not more. And it allows us with our free cash flow to pay that down over a reasonable period of time. Therefore, I think we're reasonably comfortable with it, to speculate that we're going to go substantially higher than that. I don't know this worthwhile this time.

Fair enough. Thank you.

And ladies and gentlemen, this will conclude our question-and-answer session. And we'll also conclude our conference call for today. We thank you for attending The Brink's Company second quarter 2019 conference call. And at this time, you may disconnect your lines.