The Brink's Company (BCO) Q1 2022 Earnings Report, Transcript and Summary

Hello, and welcome to The Brink's Company's First Quarter 2022 Earnings Call. Brink's issued a press release on first quarter results this morning. The company also filed an 8-K that includes the release and the slides that will be used in today's call. For those of you listening by phone, the release and slides are available in the Investor Relations section of the company's website brinks.com. [Operator Instructions] 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 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, Keith. And good morning, everyone. Joining us today are Executive Chairman, Doug Pertz; CEO, Mark Eubanks; and our CFO, Ron Domanico. This morning we reported first quarter results on both the GAAP and non-GAAP basis. The non-GAAP results exclude a number of items, including the impact of Argentina’s highly inflationary accounting, reorganization and restructuring costs, items related to acquisitions and dispositions, valuation allowances on tax credits and changes in certain allowance estimates. We’re also providing our results on a constant currency basis which eliminates changes in foreign currency exchange rates from the prior year. We believe the non-GAAP results make it easier for investors to assess operating performance between periods. Accordingly, our comments today will focus primarily on the non-GAAP results. Reconciliations are provided in the press release and 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. I'll now turn the call over to Doug Pertz.

Thanks, Ed. And good morning, everyone and thanks for joining us today. This morning, we reported record first quarter results with revenue growth of 10%, a strong start to the year, despite a slower than expected start in the quarter due to Omicron-related shutdowns in many of our markets. Revenue continued to recover versus pre-COVID 2019 levels, as we progressed through the quarter, starting at 92% in January and ending with 97% in March. And preliminary, April revenue suggests continued momentum. We also achieved record operating profit, EBITDA and EPS with operating profit up 24%, reflecting 120 basis point margin improvement. Adjusted EBITDA up 21% to $165 million and EPS up 46%. We are affirming our full year guidance, which includes revenue growth of 8% to 11% and EPS growth of 16% to 26%. We expect continued momentum throughout the year to propel full year 2022 organic revenue to at least pre-COVID levels supported by continued recovery from the pandemic, organic volume growth, price increases and accelerating contributions from our Strategy 2.0 digital solutions. Reported full year revenue is also expected to include more than $900 million from acquisitions completed since 2019. We anticipate operating profit growth of 16% to 23%, reflecting about a 100 basis points of margin expansion driven by our lean cost initiatives and leverage from our lower cost –fixed cost base. Despite our slower than expected start to the year due to Omicron, our full year guidance is clearly supported by our first quarter results, 10% revenue growth, 24% operating profit growth and 46% EPS growth. Mark and Ron will review our first quarter results and full year guidance in more detail in a few moments. During the pandemic, there was much speculation about its potential impact on retailers, and consumers and their spending habits. Many investors were concerned that there would be a permanent shift of retail sales moving online, and that the new normal would be that e-commerce sales would eventually be greater than in person retail sales. That just didn't happen. U.S. in-person retail sales are higher now than they were in 2019. And eCommerce sales as a percent of total retail sales are close to pre-pandemic levels, and we're just starting to come out of the pandemic. The graph on Slide 4 shows recent quarterly trend for both eCommerce and in-person retail sales in the United States. The blue bars on the graph show that the size of in-person retail sales in total dollars is much larger than it was before the pandemic growing from $1.2 trillion in the fourth quarter of 2019 to $1.5 trillion in the fourth quarter of 2021, a substantial increase of 20%. It's important to note that while eCommerce sales accelerated in 2020, during the pandemic, this growth has since slowed materially. In the second quarter of 2020 mid-pandemic, eCommerce moved to 15.7% of total retail sales. Since then, eCommerce sales has slowed considerably as shown by the dotted line while in person sales growth has picked up as shown by the solid line with eCommerce dropping to 12.9% of total retail sales in the fourth quarter of 2021. This 12.9% eCommerce percentage is close to the levels we saw before the onset of the pandemic. Furthermore, the most recent estimates for eCommerce penetration in 2025 have been materially revised downward from 24% to 20% of total retail sales. This means that in 2025, about 80% of retail transactions will still be in-person where cash is a preferred payment method. The data suggests that the in-person retail market is even larger than we expected and would be post-pandemic. More importantly, the permanent shift of retail sales moving online that many expected just didn't happen. According to MasterCard, eCommerce sales in March were down 3% versus the prior year, while in-person sales were up 11%. The stock market, which always looks forward, is finally factoring in at least one part of this equation. Just look at the long list of stocks that benefited from projections of a pandemic, new normal in their businesses only to see in recent months as the pandemic impacts started to recede and these realities were not really the new normals. Valuations for many of these companies are now reverting back to pre-pandemic levels. Conversely, the long-term forecast for in-person retail sales remains strong and should support an increased growth company valuation for Brinks post-pandemic. Pandemic also raised investor concerns of cash would dramatically decline as a payment method. And the new normal would be the credit cards, debit cards, and other forms of digital payments would permanently become the primary forms of payment. What we expected with the onset of the pandemic in 2020 cash payments, as a percent of total in-person payments in the U.S. declined from being the highest form of payment used to the payment level, similar to other credit and debit cards, all three in the 29% to 32% range as shown on this slide, Slide 5. In the latest Federal Reserve study just released, the data showed that in October, 2021, when the Delta variant was still in full force, cash as a percent of total in-person payments remained strong at 29% of all transactions. U.S. in-person sales growth of 20% since the start of the pandemic, together with a solid 29% of in-person transactions being in cash, supports our view that cash payments will continue to be a growth business well into the future. And when you consider that only 20% of U.S. locations currently use are industry services, we believe that our digital cash payment solutions are well positioned to drive even stronger growth as customer acceptance and markets continue to grow. On that note, I'll turn it over to Mark. Go ahead.

All right. Thanks Doug. And good morning, everyone. Our non-GAAP results include first quarter revenue growth of 10%, operating profit growth of 24%, adjusted EBITDA growth of 21% and EPS growth of 46%. The operating profit margin for the quarter was up 10.4%, up 120 basis points over last year. The adjusted EBITDA margin was 15.4% up 140 basis points over last year. Excluding the prior year gain of $0.05 related to our equity investment in MoneyGram, EPS grew 55% to a $1.15 per share. Ron would cover more details on our record quarter in a few minutes, but these results put us squarely back on track to deliver our 2022 guidance. Now turning to the next slide. Slide 7 shows the steady revenue recovery we saw in each quarter of 2021 through the first quarter of 2022, by segment and in aggregate versus pre-COVID 2019 levels. It includes comparisons on both the U.S. dollar and local currency basis. The strong local currency recovery rates demonstrate the underlying resiliency of our business, while the U.S. dollar recovery rates factor in the impact of foreign currency translation, which is how we ultimately report our results. On the right hand side of the slide, you can see that the first quarter revenue of the total company recovered to 95% of 2019 pre-COVID levels, a continuation of the improvement we saw in 2021. Looking over on the left hand side of the slide with North America, you can see the sequential improvement last year from 93% to a 100% from the first to the fourth quarter and an increase in the current quarter to a 102%. Moving to the right, Latin America local currency recovery has been significantly stronger in other regions – than other regions. Excluding Argentina Q1 local currency recovery was at 102% of pre-pandemic levels, largely on the strength of our business in Mexico. This was a sequential improvement of 4% versus Q4 of 2021, even with a significant impact of Omicron on January and February volumes in Brazil, Columbia and Chile. In Europe, sequential improvement this quarter versus Q4 of 2021 was flat on a local currency basis at 95%. Many European countries are continuing to relax their restrictions and we expect consumer spending and retail markets there to continue to improve throughout 2022. After nearing full recovery in Q4 of 2021, revenue recovery in our Rest of World segment, jumped above the full recovery this quarter, at 101%. This was driven by growth in our global services business. Reopenings still remain delayed in a few of our key markets, primarily in Asia-Pacific. In aggregate, our U.S. dollar revenue versus pre-pandemic levels recovered to 95% in the first quarter of 2022, which was flat versus the prior quarter, despite the lingering impact of the pandemic in the first half of the quarter. Now let's look at more detail in the next slide. Slide 8 shows 2022 revenue for the total company versus pre-OVID 2019 levels on a U.S. dollar basis. Starting on the left hand side of the graph, January U.S. dollar recovery was at 92%, followed by 96% in February and 97% in March, which averaged out to 95% in the quarter. The 95% first quarter USD recovery was sequentially flat with a seasonally strong fourth quarter of 2021, but even higher on a local currency basis, which was at a hundred percent excluding the inflationary impact of Argentina, two percentage points higher than the fourth quarter of 2021. Given the impact of Omicron in many of our markets, especially in Latin America and Asia-Pacific, the first quarter of recovery trend was more favorable than we expected. This acceleration demonstrates the resiliency of our business and supports our guidance, which is based on the recovery to at least pre-pandemic levels for the full year. The middle of the right side of the graph shows quarterly revenue recovery in 2021 represented by the blue outlines. Our first quarter recovery last year was 89%, 92% in the second quarter, 93% in the third quarter and fourth quarter recovery was at 96%. We are forecasting a similar acceleration of improvement as we progress through 2022 with each quarter higher than the prior year and a run rate in the second half of the year that exceeds 100% recovery and gets us back to our full year guidance of approximately $4.6 billion at the midpoint or 100% of 2019 pro perform levels. Now turning to Slide 9. This slide summarizes some of the macro factors currently affecting operations in many of our global markets, including inflation, the pandemic and rising interest rates. One topic that we all continue to hear about is supply chain disruptions. As a service business with locally sourced assets and people, we are not subject to the same global supply chain disruptions that many industrial service businesses are. Our exposure to these pressures is fairly minimal, but where necessary we've secured strong partnerships with global suppliers and made early purchases to avoid any potential disruptions related to our 2.0 digital solutions pipeline. Labor is by far our largest cost component followed by fuel and freight costs. Most of the other cost components in our business are generally not subjected to these global inflationary pressures. It's important to note that rising fuel costs generally have not had a material impact on our profitability, as most of our customer agreements have fuel surcharge clauses as a cost recovery mechanism, which enables us to recover these inflationary increases in fuel. To address our main cost input, labor, we are continuing to take a discipline and in many cases higher than historical pricing actions to offset the rising wage costs we've seen globally. In addition to pricing, we continue to drive our lean cost productivity programs to maintain our profit improvement trajectory. We implemented several price increases in our U.S. business that went into effect in 2021 and the beginning of 2022, both of which were well above our historical annual averages. As we move through the year, we expect further pricing actions to continue to offset any inflationary pressures. Our businesses have not been significantly impacted by the Ukrainian-Russian conflict as we don't have any operations in the Ukraine and less than 1% of our revenue was generated in Russia in 2021. Throughout our Eastern European markets, though, we saw a significant increase in demand for cash through increased ATM usage. This shows the cash continues to play a crucial role in society that consumers turn to in times of uncertainty. As the world's largest cash management company, we have a critical role in protecting cash and facilitating the global cash ecosystem, especially in times of crisis. As I mentioned on the prior slide, our global business was impacted by the pandemic more than we expected in January with revenue growth trending up as we move through February and March. As Doug mentioned, we are already seeing this continued trend in April. Despite the operating challenges presented by the delayed reopenings and lockdowns in several markets, we saw steady improvement in each segment during the quarter. And as revenue continues to recover throughout the year, we are well positioned to capture additional margin leverage with the sustainable productivity improvements we've been implementing. History has also shown that during periods of recession and economic stimulus, whether caused by the financial crisis or pandemic, the percent of payments in cash and cash in circulation actually increase. Cash payments, as a percent of all payments, grew significantly during the 2008 recession by almost 50% from the pre-recession cash usage levels, driven by government stimulus, higher unemployment, and the drop in consumer credit. With rising interest rates, people begin to lose access to their credit, which causes them to rely even more on cash. It's also important to note, even during times of an economic slowdown or recession, our services are critical to individuals as well as national and global economies. The cash management services we provide are not only essential to the functioning of financial institutions and retailers. They also enable global economic inclusion for the world's unbanked and underbanked population who are heavily reliant on cash as a primary payment method. Slide 10 summarizes our first quarter results at the segment level. While the recovery's been uneven around the world, we saw continued revenue and profit growth in all segments. I'm encouraged by the performance of our global leadership team as they continue to successfully navigate today's challenging macro environment. I'm happy to announce that we recently strengthened our executive leadership team with the addition of Daniel Castillo, who will join Brink's as the North American Segment President. In North America first quarter revenue – reported revenue grew 16%, which includes 6% organic growth and 10% from the impact of the PAI acquisition that we did last April. As disclosed in the first quarter of 2021, an accrual adjustment was made that resulted in a $12.3 million positive for the North American segment with a corresponding offset to corporate expense resulted in no impact to our consolidated operating profit for the quarter. Excluding this adjustment 2021 first quarter operating profit in the North America segment would've been $20 million reflecting a 6.3% profit margin. On this adjusted basis current year operating profit was up 22% with a margin improvement of 30 basis points. Now to Latin America, where reported revenue was up 8% driven by organic growth of 12% partially offset by 4% unfavorable impact from currency primarily the devaluation of the Argentine peso. Operating profit was up 14% on an organic basis and the margin was down slightly versus the prior year at 21.6%. Double-digit organic revenue growth and profit growth in the segment was driven by price increases and volume growth in Mexico, as well as inflation based price increases in Argentina revenue. Revenue recovery has been slower in several South American countries including: Brazil, Columbia and Chile with January and February volumes in these countries below the pre-pandemic level due to the omicron variant. However, we saw strong recovery across these economies in March, which helped offset the difficult start to the year. In Europe we saw strong revenue growth, operating profit, and a significant margin improvement of 180 basis points. The result of higher volumes as a result of the progression in the revenue recovery throughout the quarter, the continued strong cost management and the rollout of BPCE ATM managed services project in France. France was a bright spot again in the quarter with their fifth consecutive quarter of year-on-year margin expansion. For the rest of the world segment revenue increased 9% driven by organic growth in our global services business, which offset the lagging recovery of our local cash businesses we saw in Asia Pacific as a result of government mandated lockdowns. Operating profit was up 9% also with a slight margin improvement of 10 basis points. I'll now turn the call over to Ron for his detailed financial review. Ron?

Thanks Mark. Good day, everyone. On Slide 11, please remember that we disclose acquisitions separately for the first 12 months of ownership. After 12 months they're mostly integrated and then included in organic results. Acquisitions for this quarter are primarily PAI and about 2% of the former G4S cash businesses. Please also remember that our business is seasonal. Historically our revenue and margins increase each quarter throughout the year. 2022 first quarter revenue was up 13% in constant currency with 9% organic growth versus last year and 4% from acquisitions. Foreign exchange was a 3% headwind. Reported revenue was $1.74 billion, up $96 million or 10% versus the first quarter last year. First quarter operating profit in constant currency was up 29% versus last year. Organic growth was 21% and acquisitions added 8% each increased at least twice the revenue growth rate reflecting strong operating leverage. Negative ForEx was $4 million. Reported operating profit was $112 million and the operating profit margin of 10.4% was up 120 bips versus the first quarter 2021. As noted in our press release excluded from our non-GAAP results our $58 million benefit from the reduction of valuation allowances predominantly associated with new IRS regulations and a $17 million negative accounts receivable allowance associated with a change in the estimate methodology to reflect primarily the impact to customers during the pandemic. Additional information is available in our 10-Q filed this morning. Moving to Slide 12. First quarter interest expense were $28 million, up $1 million versus the same period last year, due to higher debt associated with the completed acquisitions and the $200 million in share purchases. Tax expense in the quarter was also $28 million, $6 million higher than last year driven primarily by higher income and partly offset by a 140 bip reduction in the effect of tax rate. $112 million of first quarter 2022 operating profit less interest expense, taxes and $1 million in non-controlling interest and other generated $56 million of income from continuing operations. This was a $1.15 of earnings per share, up 46% on a reported basis, and up 55% excluding the mark-to-market gain on the MoneyGram shares we held last year. Share repurchases reduced the weighted average diluted shares outstanding versus prior year by $2.2 million or about 4.5% and accounted for about a $0.04 increase in Q1 EPS. First quarter 2022 adjusted EBITDA was $165 million, up $28 million or plus 21% versus prior year. And as Mark mentioned, EBITDA as a percent of revenue was 15.4% up 140 bips versus the first quarter 2021. Turning to free cash flow on Slide 13. Our 2022 full year free cash flow range is estimated between $280 million and $315 million. Pro forma is $10 million higher when adjusted for 2021 payroll taxes that were deferred due to the pandemic. Adjusted EBITDA is expected to range between $755 million and $790 million, and at that the midpoint would be up about $90 million versus last year. We expect to use about $70 million of cash for working capital restructuring and the $10 million in deferred tax payments. Cash taxes are estimated to be $110 million, up $26 million versus last year due mostly to higher income, as well as the timing of payments and refunds. Cash interest is expected around $115 million, an increase of $9 million versus 2021 to the incremental debt associated with the 200 million of share repurchases, the PAI acquisition and higher variable interest rates. And as disclosed at our December 2021 Investor Day, net cash CapEx is targeted at $180 million. 2022 pro forma free cash flow represents an adjusted EBITDA conversion ratio of 40% and equates to approximately $6.35 per share. To Slide 14, this slide illustrates our actual net debt and financial leverage at year end 2021 at the end of the first quarter 2022 and our estimate for year-end 2022. The approximate $150 million decrease in net debt from year end 2021 to 2022 is expected to be driven by free cash, partly offset by dividends, financing leases and other Strategy 2.0 device investment. While we have authorization for another 250 million in share purchases, nothing has been built into this estimate. Dividing our estimated $2.15 billion, 2022 year-end net debt by the midpoint of our expected EBITDA range should generate a net debt leverage ratio of 2.8 turns. Our 2021 secured leverage ratio was 2 turns and we expect that to decline to 1.6 to 1.7 turns by the end of 2022. Our bank covenants include a secured leverage ratio maximum of 3.5 turns more than twice our year-end estimate. Moving to sustainability on Slide 15, at our Investor Day last year, I spoke about Brink's commitment to sustainability and ESG and our progress continues to accelerate. And while that progress is meaningful, what really differentiates Brink's is the world's largest cash management company is our global leading role in facilitating economic inclusion, especially for the most vulnerable in society. Those who do not have access to credit or debit, or even a bank account rely on cash, which means they rely on Brink's. We've identified our inaugural sustainable development goals for the United Nation's global compact and we continue to implement initiatives to support our pledge to CEO action for diversity and inclusion. We are optimizing our operational efficiency by embedding lean, wider and deeper in our legacy businesses and combined with Brink's Complete and ATM outsourcing we are reducing stops and optimizing routes. Our fleet is adding electric, dual fuel and alternate fuel vehicles. All of these efforts and others to modernize our fleet are taking thousands of diesel trucks off the roads and reducing carbon emissions. We're also adding solar panels to select trucks and branches and further expanding our LED lighting penetration and recycling programs. In June we plan to issue Brink's first corporate sustainability report and in the near future we expect to begin participating in ESG impact investor conferences. We're excited to share more about our sustainability commitment, our targets, and our progress. With that I'll hand it back over to Mark.

Thanks Ron. Slide 16 summarizes our three-year strategic plan. Strategy 1.0 the bottom layer is our organic growth and operational excellence and our base cash logistics business. This accounts for three quarters of our expected organic growth in 2022 coming from higher volumes, pricing and additional recovery from the pandemic. We're improving our margins with our wider and deeper program by executing this breakthrough initiative's globally in a more transparent and systemic way across the company. This is supported for our continuous improvement culture and dedicated lien experts in each country. We're also continuing to sustain the improved cost structure we implemented over the last few years to capture even more margin leverage as revenue continues to grow. Strategy 1.0 provides a strong foundation for introducing our digital solutions and ATM managed services, which represent the Strategy 2.0 later at the top of the slide. We expect Strategy 2.0 revenue to double this year and represent about 5% of our total revenue in 2022 and we're targeting a $0.5 billion in incremental revenue from 2.0 initiatives in 2024. Brink's Complete, our digital cash payment solution transforms the customer experience for retailers and allows us to drastically reduce our on-premise stops. This creates operational capacity and enables us to expand our addressable market to grow faster and at higher margins. We saw increased booking momentum in the quarter with over a 100% increase year-over-year in new 2.0 customer location signed. Even more encouraging is the interest that we see from new customers highlighted by the fact that our new order pipeline is a multiple of our installed current installed base. In total revenue from our new 2.0 and our existing tech enabled solutions grew by more than 20% over the prior year, and now represents over 14% globally of our core cash revenue. This figure is over 20% in the U.S. Last quarter we mentioned our partnership with Clover a platform from Fiserv, a global leader in providing cloud-based point of sale platforms for small and medium businesses. This quarter, we launched our Brink's Complete BLUbeem Solution on Clover's app marketplace, officially integrating our solution from managing cash payments into the Clover experience. Using the BLUbeem app retail merchants now have the access to a single platform to process, reconcile and track cash receipts that's easier, safer and more efficient. Brink's Complete continues to gain traction with new customers and we're continuing to work on additional channel partnerships and point of sale app integrations for 2022, which allow us to leverage additional sales channels and merchant relationships. On the ATM managed services front we recently signed an exclusive agreement with a major bank in the Baltic's and acquired a bank focused managed services provider in our U.S. market. Additionally, the ramp-up of our BPCE business in France is on-track and our pipeline for additional customer agreements in 2022 is strong. Remember this BPCE agreement is one of the largest bank ATM outsourcing projects in our industry and a milestone in our strategic journey to capture this growing trend. The global market for ATM managed services is expanding. It currently stands at around $7.5 billion and is expected to be at $10 billion by 2027. We're well positioned to capitalize on the opportunity with our already strong global financial institution relationships. Moving to Slide 17, we are affirming our 2022 guidance with revenue expected to grow 8% to 11%, a range between $4.5 billion and $4.6 billion. Revenue in this range would put us above the 2019 reported levels by close to a $1 billion. Due to the successful acquisitions of PAI and the majority of the G4S cash businesses, which included 14 new geographic market to our footprint? We expect 2022 operating profit growth of 16% to 23% to a range between $545 million and $580 million reflecting a margin increase of approximately 100 basis points versus last year and 150 basis points versus pre-pandemic levels. We expect 2022 adjusted EBITDA to be in the range between $755 million and $790 million, and earnings are expected to be between $5.50 and $6 per year. Our strong first quarter results, which include 10% revenue growth and 24% operating profit growth clearly demonstrate the resiliency of our business and support our confidence in achieving our 2022 guidance. Our Strategy 1.0 organic revenue growth along with our operational excellence initiatives and our operating leverage from cost alignment are the key drivers of our expected revenue and profit growth in 2022. We also expect Strategy 2.0 digital solutions to add approximately 3% more revenue growth, add accretive margins with Brink's Complete and ATM managed services ramping up as the pandemic subsides and more economies reopen. The right side of the slide illustrates that we're well positioned to achieve the three year strategic plan targets we presented at last year's December Investor Day. As a reminder, those targets include organic growth of approximately $1.2 billion over the three-year period, represented a compound annual growth rate of revenue of 8% to 9%. Annual margin improvement of approximately 100 basis points were operating profit of approximately $800 million in 2024 and adjusted EBITDA around a $1 billion growth of more than $300 million by 2024. With our record results in the first quarter and our proven ability to execute as economies continue to reopen, I'm confident in the strength of our core business and the strategic plan to expand our presence in the cash ecosystem with digital solutions and ATM managed services. Keith, let's now open it up for questions.

Yes. Thank you. [Operator Instructions] And the first question comes from Tobey Sommer with Truist Securities.

Thank you. I wanted to ask a couple questions about Brink's Complete. You gave –what kind of metrics do you think you're going to provide to us on a sort of a regular basis so that we can track and understand going forward? And then I was curious of the goal for this year. What is the proportion of sort of Greenfield tapping previously unvended customers versus transitioning prior retail customers? Thanks.

Thanks Tobey. You are breaking up a little bit, but I think what you were asking was metrics we're going to track Brink's Complete progress, as well as what does the mix look like between sort of quarters converted customers who are currently vented to the unvended market? So maybe I'll address...

That's right. Thank you.

Okay, sure. So the first question we continue to provide as much information as we can to make sure everyone understands that we are making progress and where we're making progress. I think this quarter we talked a little bit about the revenue contributions and again, as we think about a three-year strategic plan between Brink's Complete and ATM managed services. We'd like them both to be $0.5 billion, but likely would target sort of 50% contribution kind of from both of those. I'd say let's move into the sort of vented unvended, our current examples we've given I think in the past five below was one where we talked about specifically a completely unvended customer that gave us more than 1,000 locations really proved out the business model and the value proposition we think for Brink's Complete. But that being said, we're also seeing customers that are currently vendor that appreciate one, the flexibility of the on-demand as well as faster access to their cash. Our goals internally as we set is we're looking at sort of 50/50 there as well on conversions of our – of existing CIT customers, whether they're hours or a competitors. And then on the other side would be tapping into that unvended market. That's sort of how we think about it. Doug or Ron any other?

Well, I think Tobey, I think your question is a good one in terms of how do you split the replacement of a better value solution for our existing CIT customers, therefore it's replacement revenue versus the new sales we laid out in Investor Day that we're looking for $500 million in incremental sales that's on top of our existing sales, or those will not be replacements through the three-year strap plan period of time for the 2.0 strategies. So I think that's a reasonable metric that will continue to talk with, provide some detail around as we go through each of the years. And I think that's a little bit of what Mark addressed. We'll be more, I think specific about that, but I think that's the way to look at that as what is the incremental revenue versus like you're suggesting both the replacement revenue which would give us better margins but not be additional revenue growth. And that's why we also specifically stated that we look for our overall revenue growth to be in the 2.5% to 3% range each year, that's new revenue driven by 2.0.

Thank you. With respect to inflation and wage pressure. Could you describe the, and give some more color on your pricing strategy? I guess I'm focused in the U.S., but a global comment would be fine as well? Thank you.

Sure. Tobey, I think this has been quite – a topic of conversation for every earnings call I've been here and we continued to see wage pressure in Q1. And in fact, we hired almost 1,000 new associates in the U.S. Tobey just not only to get back to capacity or increase our capacity, but also competing for talent in the logistics and transportation world. That pressure did continue as we talked about last year and will continue to position; we will be out in the marketplace with price increases and in fact have already been out this year with new – with fresh price increases to combat the pressure we saw in Q1.

And I'd say globally, this is a, lets it's not quite the same issue, although there is – there is some inflation around I'd say most of that is being handled on an annual basis, both from a pricing as well as from the labor perspective.

Thanks. If I could just ask two broad ones, could you give us some color and comments on Brink's Global Services sort of the high value areas, some color about performance? And then are there any particular markets, countries where the company is sort of excelling in sort of taking market share and anywhere the company is perhaps lagging, thanks?

Sure. On the Global Services' side we continue to – we've got a pretty strong position there, Tobey. I think as you know, and so we're still happy – very happy with the business, but the mix of the business has changed as the world macro environments changed. And last year I think we talked about a lot of gold movement and storage, precious metal storage was sort of the market trend. This year we're seeing a lot of global bank note movement in sort of a maybe the counter cyclical side of that, but, but still a lot of activity on, on both sides of that. And we are working on some newer interesting business models and whether that's storage of let's say Crypto-Keys or even some underlying NFT assets, these are some interesting business models that we're looking to expand to try to grow not only the market share, but actually grow that market.

Thank you very much.

Sure.

Thank you. [Operator Instructions] And the next question comes from George Tong with Goldman Sachs.

Hi. Thanks. Good morning.

Good morning, George.

You mentioned that you do expect to offset inflationary pressures with pricing increases. Can you elaborate on whether you expect to see a timing gap between the impact of cost inflation with when your pricing increases will actually be implemented? And then quantify the extent of pricing and input cost inflation that you're seeing in the business?

Sure. Thanks for the question, George. Typically our pricing does have a lag, maybe of a quarter. I think last year in the third quarter we got a little further behind. It took us to end of the year to get caught up, but we got out in front of that in Q1 as well as now in Q2 to ensure that we don't let that slip any further. I think the one other piece of input cost on other than labor is fuel. As I mentioned we have clauses in our contracts. Usually those are backward looking and either lagged by a month or even lagged by a quarter so there can be some catch up. And we would expect to see that in Q2 and Q3 as we come out of the first quarters, I mentioned again, a little bit, some labor pressure as well as fuel. From – to quantify that it varies and I'd say it's U.S. and globally it varies, let's say mid-single digits kind of pressure we'd see on average that that we would expect to mid-to-high-single digs we would see back in the marketplaces as price increases as well.

Got it. That’s helpful. And then within your guidance, which you reiterated, can you elaborate on some of the macro assumptions you've included? In other words, since your guidance include some probability of a macro slowdown and how would you anticipate that impacting different parts of the business?

Sure. We have not assumed some big macro slowdown that would impact our business. And I think part of my comments – prepared remarks were addressing what we've seen in some of these recessionary times in the event that we did see a recession, where we actually see people become more dependent on cash and lose access to credit, especially in a rising interest rate environment. So let's put that there for one second. The big macro lift for us, we believe is again, the recovery back to pre-COVID activity in both retail markets, but also travel. We continue to see the summer travel numbers, I think, everyone has seen all the bookings of whether it's airlines or cruise lines or hotels increasing this will have a direct impact on our business, certainly in a positive way. And as we laid out, we don't give specific numbers, but we expect to see sequential improvements back to greater than a 100% of 2019 revenue levels as we continue to recover.

Got it. That's helpful. And then lastly, could you talk a little bit about the labor market and impact from labor market tightness on your business, whether or not you have any difficulty recruiting drivers or other workers in order to keep pace with demand?

Yes, certainly. This has been an issue for us, George and I think we started seeing this really in the second quarter of last year. We're not completely satisfied where we are, we're pretty close to being at capacity now, but it's definitely been a slower recovery than we thought when we were sitting in the third quarter last year talking about recovering by year end. But we feel good about our capacity now here in at the end of the – as we exit the quarter. And also, two things there, one is attracting talent, new talent into the business, the other is retaining the talent you have and we're seeing both of those metrics improve. Of course, a lot of the outflow of talent is driven by the wage increases, driven by the tightness in the labor market. But certainly we think we've got our hands around that. And again, matching that cost side on the inflation side to get our capacity, with price increases on the other.

Very helpful. Thank you.

Great. Thanks, George.

Thank you. And the next question was a follow-up from Tobey Sommer.

I was hoping you could give us a comment about how your business is doing in Europe, in particularly Eastern Europe in light of the Russia Ukraine war? Just kind of want to see if there is any canary in the coal mine about economic slowness in those geographies.

Sure. Thanks Tobey. Yes, I briefly touched on it in the prepared comments, but we've certainly seen, I mean, the first instance we saw of the disruption was a positive for us is people were really using ATMs at an accelerated rate in those border countries, both in the Baltics and Czech Republic. But we really haven't seen a slowdown per se in the other European markets. And predominantly this slowness that we saw maybe in the end of the year, or early in the quarter was related to the pandemic still. We're jaded sometimes by the time lag that we're talking, 60 days ago France and the Netherlands were just, you know, just talking about reopening their economy. So, this is something that, I think, is we continue to see progress and don't really see any large disruption there.

Thanks. And I know we're at the height of sort of wage inflation and tight labor supply, but could you remind us what the impact of a kind of a bountiful labor supply has on the company? Because, I think, people are looking at the stock market and rising interest rates, wondering what a recession looks like. So, what's that kind of impact on your labor expense, and recruiting and training?

So you say is that a labor supply demand question or is it a recession question?

Specifically labor supply demand, when labor is abundant you don't have to work as hard to fill the jobs nor raise wages as much, how does that impact the income statement?

Well, it certainly should help. I think as we think about things that we're doing now to offset wage pressure and labor tightness, yes, there is price increase we've talked about, but the other is really driving our lean productivity initiatives. And again, at a heightened sense of urgency, given the challenges that we have, in the business, we expect to maintain that's kind of level urgency and that's leadership's job to do, to continue to drive productivity, even in the face of, let's say, flattening or lower wages. I think there is a cost benefit Tobey in other areas besides just recruiting and on boarding, but it's also the lack of productivity on training. And we’ve hired someone, it takes us several weeks to get them up to speed and get them trained and fully productive. And of course, when they are more productive or have more experience, it enables us to again drive our lean culture to benefit the bottom line.

So let me go back if I can just very quickly to one of the earlier questions that both Toby you had, as well as George related to the revenue progression if you will. And I just think that's an important one. If you look at a recession and the impact it potentially could have, if we go into that, I think, Mark has answered that very well, but what's more important, I think, is that what we saw in the progression and the openings of countries throughout the quarter gives us a strong, comfortable position for achieving the revenue numbers that Mark has gone through. The first quarter historically has always been our slowest, our lowest quarter throughout the year with growth throughout as we go progress through the year. And in this case, the Omicron and countries were closed fairly significantly in January and February as Mark laid out. So that gives us the comfort level as we go through the rest of the year with openings being the primary driver and economies being the heavy driver, and then on top of that more travel and economies opening up So I think that's the key to look at our progression, our revenue and then the support for our guidance for the year.

Okay. Last question for me is kind of a numbers related one. CapEx, based on the progress you have on various initiatives including Complete, do you continue to have visibility to CapEx with percent of sales declining in coming years?

Yes. I mean, as we said at the Investor Day, and we continue to reiterate, our focus is to lease these devices so that they become a cost of services sold and not an upfront CapEx. We have success around the world. In some countries it's a challenge, but we’re making progress even there. So yes, as we continue to do that and exclude that from our calculation of cash CapEx, we do see a continued reduction of CapEx as a percent of sales. And the targets we presented at Investor Day are very achievable.

Thank you very much.

Thank you.

Thank you.

Any other questions, Keith?

No. There is nothing at the present time. So that concludes both the question session as well as the event. Thank you so much for participating today. You may now disconnect your lines.