Hello, and welcome to the Brink's Company's Third Quarter 2023 Earnings Call. This morning, Brink's issued a press release detailing its third quarter 2023 results. The company also filed an 8-K that includes the release and slides that will be used in today's call. The release and slides are available on the Investor Relations section of the company's website at investors.brinks.com. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. As a reminder, this conference call is being recorded and will be available for replay. 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 are available in the footnotes of today's press release and in the company's most recent SEC filings. Information presented and discussed on this call is representative 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. I will now turn the call over to your host, Jesse Jenkins, Vice President of Investor Relations. Mr. Jenkins, you may begin.

Thanks and good morning. Joining me today are CEO, Mark Eubanks and CFO, Kurt McMaken. This morning, Brink's reported third quarter 2023 results on a GAAP, non-GAAP and constant currency basis. Most of our comments today will be focused on our non-GAAP results because we believe these results make it easier for investors to assess operating performance between periods. Reconciliations of non-GAAP results to their most comparable GAAP results are provided in the press release, the appendix of the presentation and in this morning's 8-K filing. I'll now turn the call over to Brink's CEO, Mark Eubanks.

Thanks, Jesse. Good morning all, and thanks for joining us. Starting on Slide 3. I'm pleased to report another quarter of strong growth in revenue, profit margin and free cash flow as we execute on our strategy. Total revenue was up 8%, including organic growth of 6%. Our cash and valuables management business grew organically 4% and the ATM managed services and digital retail solutions customer offerings were up 18% organically. Operating profit of $166 million was up 38% organically, with margins expanding 230 basis points to 13.5%. Adjusted EBITDA was up 22% with margins expanding 220 basis points to 18.8%. These margins represent historic hikes for the third quarter and reflect the discipline of our teams to deliver strong cost productivity and improved price mix as we continue to ship more of our business to AMS and DRS. I'm happy to report we're well on our way to our year-end free cash flow and leverage targets. Cash generation continues to accelerate, with year-to-date free cash flow up almost 200% from the third quarter just a year ago. The cash generation is strengthening our balance sheet with leverage down two-tenths quarter-on-quarter to 3x adjusted EBITDA at quarter-end. Looking at the key revenue drivers. We delivered solid volume growth in our AMS and DRS offerings and executed strong pricing actions across all lines of business. We've also seen foreign exchange move against us a bit since our last market update with the dollar strengthening considerably across most major currencies where we operate. Margin expansion was highlighted by good progress in North America, where margins expanded 240 basis points year-on-year as we continue to prioritize customer profitability and efficiency across all of our operations. We are leveraging the Brink's business system to further instill our lean culture into our daily work and…

Thanks Mark. Beginning on Slide 6. Organic growth was split roughly evenly between cash and valuables management and AMS/DRS. As a reminder, customers will move between these two organic lines as legacy customers convert from traditional CIT and ATM replenishment offerings into AMS and DRS offerings. This was also the final quarter of acquisition revenue from NoteMachine, which will roll into the organic result of AMS/DRS starting next quarter. Organic revenue growth from pricing and AMS/DRS volume was partially offset by translational FX headwinds primarily in Latin America. Shifting to operating profit. $72 million of organic revenue became $49 million of organic operating profit for an incremental margin of 68% in the quarter. The high flow through was driven by three main items. First, cost productivity initiatives leveraging the Brink’s Business System. Second, the benefits of revenue mix now with 20% of revenue coming from AMS and DRS, and finally, the continued benefits of the restructuring program we announced in 2022. The quarter also benefited from the lapping of a large loss event and other corporate expenses in the prior year that we don’t expect to repeat in the coming quarters. FX translation reduced operating profit by $15 million. The high flow through impact from currency was due to headwinds in the higher margin Latin America segment, partially offset by benefits in the Europe segment. Looking at the current FX rates, we expect this high margin flow through from FX to continue into the fourth quarter. Turning to EBITDA and EPS on Slide 7. Starting with our operating profit and walking left to right. Third quarter interest expense of $54 million was up $19 million versus last year, primarily due to expected higher interest rates year-over-year. Tax expenses were $41 million with an effective tax rate of 30% in the…

Thanks, Kurt. As we approach the last few months of the year, we remain focused on fulfilling our commitments in the near-term, while continuing to advance our long term strategy. So far this year, we’ve improved the quality of our revenue, with over 20% of our base now being in higher margin AMS and DRS revenue. Second, we’ve improved our profitability through the global deployment of the Brink’s Business System, leveraging our lean culture, resulting in continued repeatable efficiency initiatives across our global business operations. And third, we’ve improved our cash generation by delivering CapEx efficiency and diligent working capital management. We continue to consistently deliver on our commitments, and I’m confident we remain on the right path. I look forward to building on the momentum we’ve generated and execute on our strategy into 2024 and beyond. Now let’s open up for questions. Operator?

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

Hi. Thanks. Good morning. You saw 4% organic growth in your cash and valuables management business in the quarter. Can you discuss how much of that growth came from pricing actions and how volumes progressed over the course of the quarter?

Yes. Hey, George, it’s Kurt. Let me just kind of address kind of the price volume mix. We typically target in the 50-50 range for price volume. And last year what we saw – what we’re seeing consistent this year is that we’re heavier on the price versus the volume piece. And we expect that to be the case for the full year. So it’s really a consistent message. And what’s driving that is we continue to see inflation in the business that we are working to overcome with price and make sure that we’re not only overcoming the inflation, but maintaining margins. I’d say, too, we continue to have really a lot of opportunities with strategic pricing going forward, as we’ve talked about. And so we think that this continues going forward as we look ahead.

Hey, George, this is Mark. The only other thing I would say is, as we think about the strategic pricing piece, that’s going to be as we look at different segments within specific markets to ensure that we’re getting equivalent returns customer to customer. I think the other thing that Kurt mentioned is inflation does continue to be persistent globally, and that’s why our pricing posture continues to be strong there. And frankly, we thought, like most, that inflation would subside. And we thought, as we talked about in Q3 and in Q1 that our pricing might subside, but we would remain vigilant in the market in the event that inflation continued and it has. And so have we.

Okay. Got it. Just to clarify, of the 4% growth, is it the 50-50 split between price and volumes currently?

No, it’s not. It’s skewed more heavily toward price. I think that was the same discussion we had in Q2.

So the takeaway, George, it’s a consistent message. We haven’t seen really a change. We expect that to be that way for the full year.

Okay. And then what about the volume trends over the course of the quarter? Were they stable, improving, or inflecting lower?

Sure. Maybe I should just to do that. Maybe I can spin a little bit around the region, George, the regions to give you some color. First, in North America we continued to see good momentum in DRS and continue to have a healthy pipeline there, a pipeline, as I mentioned, up 20% and those activity and bookings continue to exceed prior quarter and prior year. So that’s all good. Obviously very strong margin improvements. We’re very happy with that 200 bps year-to-date and 240 basis points Q3 on Q3. I wouldn’t say we’ve seen demand change much in North America in the marketplace, although I think what we did see was a very strong GDP print, which may be in some cases you can see a little bit counterintuitive some of the retailers that you’ve seen out there. But from our side we really haven’t seen much demand change. And the other good thing here is our leadership team is clicking very well here in the region. LatAm again a good pricing market, a lot of inflation in that market, particularly as you think about foreign exchange and the impacts there. But certainly we’re seeing markets that have really good penetration. DRS continues to be healthy. We’ve got several large customers doing AMS pilots with us today where we actually have full stack services in pilot of multiple ATM units to continue to drive there. We are seeing a little bit, as we mentioned in Q1 and Q2 continued to see some economic headwinds, let’s say in Brazil been well documented, I think as they’ve lowered interest rates and continue to try to manage their fiscal policies there. Obviously some continued – as I mentioned in the comments, continued weakness in our global services business, which is really precious…

Got it. Very helpful. And then a quick follow-up on the cost side. Productivity and cost initiatives contributed to 200 bps of margin expansion in the quarter. Can you elaborate on additional levers to drive productivity gains in which geographies you're focusing most of your efforts on to improve margins?

Sure. I'd say we're focused everywhere, George. And one of the biggest levers for us, again, as we talked about, is this shift of our business model from a scheduled pickups and services to a managed services environment, whether that's with ATMs or whether that's in the retail environment with DRS. Those are – as we drive more penetration there, we continue to not only create more productivity, i.e., more revenue across our existing cost base, but also allows us to be more efficient with our CapEx as we go forward. The other really significant lever, again, we've mentioned last quarter is the stabilization of our labor force. And that really is predominantly a North America issue, but we see that in other markets as well, where we've been able to create more tenure with employees that allows us to drive more productivity and, frankly, avoid the churn of hiring and retraining of employees.

Got it, very helpful. Thank you.

Yes, great, thanks George.

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

Hey, good morning. This is Jack Wilson on for Tobey Sommer. I have a quick question, a couple of sort of one-time events, sort of the heist in Canada went on would that be a 4Q impact? And then sort of looking out to 2024, with sort of the additions made in France, can we expect the Olympics to be a sort of one-time driver in the summer?

Yes. So Jack, let me make sure I understand the question on the Toronto situation. So that was something that impacted our Q2 results. We had an event last year in Q3 that was in Los Angeles that impacted our Q3 results. So we have a year-over-year lower loss impact. It's one reason why you're seeing a lower corporate cost come through in the quarter. But I want to make sure I'm addressing your question.

So I was more interested if the lawsuit that was filed?

Yes. So simply with that is like we do in every situation, and we're really just trying to pursue recovery, but we don't comment on ongoing cases.

Maybe to answer any cost that would be – a part of that are fully contemplated in our outlook for Q4.

And we do not have any recovery in our outlook for Q4.

Yes. Second question was the Olympics. Yes, I'll take that. This is Mark. Yes. Certainly, we would expect more traffic, more travel into France, particularly as a localized impact for our business. I don't know how much that would impact the broader continent. But certainly in France, we would expect to see increased activity and increased volumes during those periods and leading up to those periods. Particularly around the ATM managed services space.

Thank for the color there. And sort of on the AMS and DRS front, so we mentioned you reached over 20% in the trailing 12 months revenue. Is there sort of a ceiling on that, that you see in the near-term and maybe the long-term as a share of total revenue?

Yes. No, I don't see that. In fact, we expect to continue to march that number up as we – that's our focused area. It's where our preferred services would be. Listen, we'd love to be 100%. I don't know that that's always going to be possible because certain customers will want some of these specific services. But we expect that number to continue to grow. And maybe it bumps up and down along the way, a point or two up, a point or two down, but we think that the continued upward trajectory would be again, going up and penetrating a higher percentage of our business. Maybe you could see some seasonality in Q4, just given the retail environment, there's not a whole lot of work gets done in stores during the shopping season around Christmas, particularly in Latin America, North America and Europe, maybe in Asia similar around Chinese New Year that you might see that bump around, but nothing that we would say would be – that wouldn't continue to take us upward trajectory. So no ceiling.

Yes, thank you. And this concludes the question-and-answer session. I would like to turn the call over Mark Eubanks for closing comments.

Great. Thank you all for joining us today. We appreciate all your support and we look forward to speaking with each of you soon. Have a great day.

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