Brinks Co Q1 FY2020 Earnings Call

Welcome to The Brink's Company's First Quarter 2020 Earnings Call. Brink's issued a press release on first quarter results this afternoon. 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 Investor Relations section of the company's website 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 is being recorded. Now, for the company's Safe Harbor statement. This call and the Q&A Session will contain forward-looking statements. Actual results could differ materially from projected or estimated results. Information regarding factors that could cause such differences is available 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, Grant. Good afternoon, everyone. On behalf of all of us at Brink's, I hope you and your families are safe and healthy during this difficult environment, and I want to apologize for the delay in starting the call. This afternoon, we reported our first 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, costs related to an internal loss, and costs related to certain accounting compliance matters. We're also providing an analysis of our results on a constant currency basis, which eliminates changes in foreign currency 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 our non-GAAP results. Thank you and I'll now turn the call over to Doug.

Thanks, Ed, and thanks, everybody, for joining us today. First, let me also apologize for our delayed start as we continue to work on loading slides into the SEC filings. Hopefully, all of you have the opportunity to access our slides to follow along today. In light of the crisis period that we're all going through and based on a number of conversations that the company has had with investors, we plan to have an extended period of prepared remarks today. If we don't get to all of your questions today, after the prepared remarks, we'd be pleased to answer those in individual calls. Thank you. This afternoon, we released first quarter results, which, as previously disclosed, were negatively impacted by the COVID-19 pandemic and greater than expected negative currency translation. The pandemic and resultant economic impact began to affect our Asian operations and our global services business in February and moved sequentially from Asia through Europe, North America, and then to South America. The unfavorable FX translation impact increased markedly beginning in March, primarily in developing countries such as Mexico, Brazil, Chile, and Colombia. We believe these currencies were heavily affected by pandemic-driven flight to the safer U.S. dollar. Taken together, we estimate that the pandemic's impact on our operations, along with the translational impact on currency, reduced first quarter operating profit by over $30 million or more than 35%. While the crisis is unlike any the world or Brink's has seen before, we're taking decisive actions to reduce its health and financial impacts. Our balance sheet is strong. We have ample liquidity and a flexible cost structure that we're aligning with expected near-term revenue declines. Ron will provide more information and details on the quarter and our strong financial condition. But before I turn it over to him, I want to offer some introductory comments. In responding to the pandemic, we have three key priorities: one, protecting our employees and servicing our customers; two, preserving cash and optimizing profitability; and three, positioning Brink's to be stronger on the other side of the crisis. We're acting with a great sense of urgency and making great progress on each of these priorities. Our continued and accelerating execution will ensure that we are positioned to deliver the kind of performance that our shareholders have come to expect before the pandemic. While we're taking actions in line with our priorities, it's also important to understand that we have a large, stable, resilient customer base composed of many essential service providers, large institutions, and global retailers with hundreds if not thousands of locations. At the other end of the customer spectrum, we have limited exposure to dining restaurants and other small businesses that, unfortunately, may also be devastated by this pandemic. Unfortunately, the pandemic forced us to postpone the Investor Day that we had scheduled for June 1st. Today, we want to share with you a major theme we had planned to elaborate on during our Investor Day event. This is the first part of a significant opportunity we have with our Strategy 2.0 rollout. We see a huge unserved retail market opportunity comprised of large branded companies that represent a significant and untapped growth opportunity for Brink's, and for the CIT business in general. In the U.S. alone, there are approximately 3.8 million retail locations, and our entire management cash management business, the CIT industry, and Brink's combined only provide services to 10% of these locations. In other words, the other 90% of unvended retail locations represent a significant growth opportunity for Brink's and are the primary target for our Strategy 2.0 strategy. I'll present more on this in a few minutes. During the pandemic period, many of us have heard claims that cash is less safe than plastic debit and credit cards or that cash payments are going away. These claims are just wrong. The data I'll share in a few minutes will support the broad popularity of cash worldwide and the drivers of cash usage that will continue post-pandemic. In fact, cash as a percentage of all payment methods has historically increased during recessions as unemployment and credit card losses arise. Our Strategy 2.0 offers new and innovative service options, and initial feedback from customers, including pilots that we're just beginning, supports our belief that offering new and more competitive cash management services will be very attractive to retailers, starting with our current customers and expanding quickly with many large multi-location retailers that are unvended by our industry. In the near-term, it's impossible to predict the full impact and duration of the pandemic, including the timing of country-level economic reopenings and the slowing of infection-related recovery curves. Based on current information, we expect our second quarter results to be the low point of 2020, targeting a second quarter revenue decline of approximately 25%. As a result, we are targeting adjusted EBITDA for the quarter to be at least $45 million. We expect to see a meaningful improvement in the second half of our cost reductions as revenues pick up from further customer openings, resulting in stronger profit and cash flow growth. Together with our global operating managers, Brink's is taking the near-term actions needed to ensure we make it through the crisis and better position the company after with an improved cost and operating structure. We believe these actions, together with our new strategies and broader global reach from the G4S acquisition, will position Brink's for long-term earnings growth. Please turn to Slide 4 for our priorities. As I stated earlier, we're focused on three priorities. The first and most important is to ensure the safety of our employees and the service we provide to our customers. The second priority is to act decisively to protect our business by preserving cash and reducing variable and fixed expenses in alignment with our cost structure. Unfortunately, doing so has required us to make many difficult decisions, including employee layoffs, furloughs, and salary reductions throughout our company globally. Our third priority is to position Brink's as a stronger company on the other side of the crisis. In addition to rightsizing the business and capturing additional cost synergies through further restructuring, we are sharply focused on completing the acquisition integration of G4S operations as well as the rollout of our Strategy 2.0 initiatives. Priority one is the health and safety of our employees, and we've taken significant actions during these unprecedented times to protect them. We're working with country-level public health authorities to respond to affected employees and implement contact tracing to minimize impacts on others. While we also aggressively clean branches, we remain operational. We're implementing best practices and training for hygiene, sanitation, social distancing, and daily temperature checks for employees. We've purchased and are distributing substantial quantities of personal protection equipment, including masks, gloves, and hand sanitizer. Procuring these items in requisite amounts and on a timely basis has been a challenge for many companies. Fortunately, in the U.S., it appears that the infection curve has moderated, and thankfully many affected employees have returned to work. To ensure that this trend continues and to protect employee health and keep our operations open, we've implemented health screening and temperature checks for all employees and visitors. I want to take a moment to express my sympathy for those who have been affected, as well as their families. I also offer my sincere gratitude to all of our front-line employees for their dedication to ensuring that the critical services we provide as a company remain available to our customers around the world. On that note, I'll turn it over now to Ron.

Thanks, Doug, and good day, everyone. Before I start, I want to remind you that we disclosed acquisitions separately for 12 months, at which time they are mostly integrated into organic results. In the first quarter of 2020, acquisitions include Balance Innovations in the U.S., TVS in Colombia, a small CIT bolt-on in Brazil, the divestiture of a small monitoring business in France, and less than a month of the acquired G4Si secure logistics business. As Doug mentioned, we experienced COVID-19 related volume reductions on our business beginning in Asia in February, Europe in early March, North America by mid-March, and Latin America by mid to late March. We implemented daily activity trackers. As pandemic-related shutdowns began, our organic revenue declined on average by about 30%, with some countries falling by over 50%. Generally, those reductions persisted throughout April. At this time, we're just starting to see improvements as countries begin phased reopening. We do not have a line of sight on how quickly business will recover to pre-crisis levels. Turning to our first quarter consolidated results on Slide 6. In the first quarter of 2020, constant currency revenue growth was 3%, with two-thirds driven by organic growth and one-third from acquisitions. Revenue was reduced by $60 million or 7% due to negative forex, which was more than we expected due to the pandemic-induced flight to the U.S. dollar. Reported revenue was $873 million, down 4% compared to the first quarter of last year. In comparison to the prior year, the first quarter constant currency operating profit declined 4%. Acquisitions added 1%, while negative forex translation reduced operating profit by $18 million or 21%. As countries begin to reopen, we're seeing a strengthening of local currencies versus the U.S. dollar, which will favorably impact our consolidated results. We estimate that the negative impact of COVID-19 on our first quarter operating profit was around $13 million across all of our businesses. We're acting decisively to adjust our cost basis to align with pandemic related revenue declines, but with the execution of these cost measures, it will take several months to see the impact reflected in our earnings. Reported operating profit for the quarter was $63 million, and the operating margin was 7.2%, down by 220 basis points from the first quarter of 2019. Adjusted EBITDA was down 8% in constant currency and down 23% reported due primarily to the reduced operating profit. Earnings per share stood at $0.36, down 33% when adjusted for constant currency and down 56% reported. This decrease was due to lower operating results combined with a much higher projected tax rate of 49.8%. COVID-19 created a perfect storm for our estimated 2020 effective tax rate. We expect our effective tax rate to return to the low 30% range in 2021 if the pandemic is resolved later this year as we all hope. The 49.8% non-GAAP effective tax rate estimate is substantially higher than the 32% rate we guided at the beginning of the year. This significant increase is largely due to COVID-19-related volume projected U.S. taxable income, which will limit our ability to use U.S. tax credits to offset foreign taxes. Further details on our income tax are included in the appendix. Moving to Slide 7, we illustrate the forex and virus impact on first quarter operating profit versus the prior year. Excluding the virus, operating profit in constant currency was $94 million, up 11%, and the operating margin was 9.9%, up 50 basis points compared to the same period last year. Foreign exchange negatively impacted by $18 million or 21%. Our original guidance included roughly $14 million in negative forex in the first quarter. The additional $4 million in negative forex was attributed to significant devaluations in March, which we interpreted as a pandemic-induced flight to the U.S. dollar. In addition, we conducted a comprehensive analysis by country, concluding that COVID-19 revenue declines were responsible for approximately $13 million in lost operating profit. After accounting for forex and the virus impact, reported operating profit was $63 million. Moving to Slide 8, first quarter 2020 operating profit of $63 million was reduced by $19 million in interest, which was $2 million favorable compared to last year since higher debt was more than offset by lower rates. Tax expense also came in at $19 million, remaining flat with last year as lower income was countered by the higher effective tax rate discussed earlier. Minority interest and other expenses accounted for $6 million, resulting in $18 million of income from continuing operations. Dividing this by 51.3 million weighted average shares outstanding, earnings per share was $0.36, which is less than half of last year's amount. Depreciation and amortization costs were $37 million, interest expenses and taxes totaled $39 million, and non-cash share-based compensation was $7 million. In total, the first quarter adjusted EBITDA was $101 million, down 8% in constant currency and down 23% reported as previously stated. Moving to Slide 9, we'll review results by segment. For the quarter, North America grew 2% organically and on a reported basis, and was up 3% in constant currency. Segment operating profit decreased by 25%, primarily due to an organic decrease of 24%. North America's operating profit margin decreased by 270 basis points from 10.1% to 7.4%. In the U.S. and Canada, we started seeing virus-related volume drops in mid-March that impacted our results for the quarter by around $3 million to $4 million. Reduced volumes persisted in April, prompting us to take substantial actions to reduce our costs, which I'll cover in more detail in a few slides. Mexico continued its strong performance in Q1, but began to be impacted by lower COVID-19 business levels in April. Preliminary results in April suggest the commercial impact of the virus may be less substantial than the impact in the U.S. and Canada. South America generated $198 million in revenue in the first quarter of 2020, reflecting organic growth of 8% but was affected by a 22% negative forex impact. Organic growth was driven by Argentina, which was partly offset by decreases in the rest of the region. Brink's Argentina had a strong quarter in local currency, with inflation-driven price increases, ad valorem, and higher volume more than offsetting cost inflation, thereby increasing margins. For the segment, first quarter operating profit rose 27% organically but fell 3% overall due to a 31% negative impact from forex. South America's first quarter operating profit margin increased by 230 basis points from 18.7% to 21.0%. As noted before, we began noticing the pandemic's impact in South America in mid-March, and this issue persisted into April. We estimate the COVID-19 impact in the segment was around $3 million in the first quarter. Like everywhere else globally, we are taking steps to align our costs with projected business volumes. The Rest of the World segment experienced a 4% revenue decline, showing an organic decrease of 3% and negative forex of 2%. Volumes in Asia were the first to be affected by the crisis, particularly Hong Kong. Europe experienced significant constraints shortly thereafter, with France seeing substantial volume losses in the latter weeks of March, which continued into April. The segment's operating profit dropped by 36% organically and 37% reported, with the profit margin decreasing by 340 basis points to 6.5%. France, our largest business in the Rest of the World segment, was significantly affected by the crisis, and our team there is actively managing costs while leveraging government assistance to mitigate the impact. This approach applies to our other businesses in Europe, the Middle East, Africa, and Asia. In the Rest of the World segment, we estimate the virus's impact during the first quarter accounted for approximately $6 million. Our BGS operations, which span all segments and are included in segment results, were similarly impacted by reduced volumes in most areas of operation. Let's turn to Slide 10 to review our financial health and liquidity. The bars on this chart represent the sources of our liquidity, including cash available in our business and capacity in our revolving credit facility. Each bar illustrates a point in time at the end of 2019, March 31, 2020, and at March 31, 2020, pro forma for the term loan A expansion and completion of the previously announced G4S cash acquisitions. At the end of 2019, we had approximately $1.2 billion in liquidity. Historically, we've used cash in the first quarter due to the seasonality of working capital and invested over $100 million in CapEx for the G4Si acquisition. As of March 31, 2020, we had $0.9 billion in liquidity. On April 1, we closed a $590 million expansion of a term loan A with our bank group with the terms and conditions mirroring our existing credit facility. Following March 31, we closed the acquisition of nine G4S cash operations, with eight more planned. In total, we expect to spend approximately $835 million for G4Si and cash operations in 17 countries. Upon completion, we expect to have around $0.8 billion in liquidity, which we believe will be sufficient for executing our SP2 strategic plan. Importantly, aside from 5% annual amortization on our term loan A, there are no significant debt maturities before 2024. We plan to maintain our quarterly dividend but have decided to suspend share repurchases until further notice. Our credit rating remains strong, and we are well-positioned to weather this crisis, even if the impact turns out to be worse than we currently anticipate. Moving on to our cash CapEx on Slide 11, our initial guidance for cash CapEx in 2020 was $165 million, which included $140 million for operating CapEx and $25 million for purchasing cash devices. Since the onset of the crisis, we've instituted a CapEx freeze, allowing only essential asset acquisitions for business operations, safety, and security. We reduced our Brink's cash CapEx target by more than 50%, lowering it to $80 million. We also anticipate an extra $20 million for the G4S acquisition, bringing our total cash target for 2020 on CapEx to $100 million. We will continue to monitor the severity and duration of the pandemic and may revisit our cash CapEx target later this year. Now, turning to cash flow on Slide 12, given the uncertainties surrounding COVID-19, we withdrew our 2020 guidance, including our free cash flow target of $230 million. Cash flow from operating activities comprises adjusted EBITDA less working capital and severance, cash interest, and cash taxes. Free cash flow equals cash flow from operating activities minus cash capital expenditures. Adjusted EBITDA was $564 million in 2019. Cash flow from operating activities was $334 million, and subtracting $165 million in cash CapEx resulted in a free cash flow of $159 million. In 2020, we are not providing adjusted EBITDA guidance, but we have shared targets for other items where we can better estimate annual amounts. These targets include the estimated impacts from the G4S acquisitions. Working capital and restructuring charges amounted to $127 million in 2019, and we're targeting a range of $120 million to $150 million for 2020. Based on pandemic hardships faced by several customers and despite our diligent efforts, we anticipate an increase in accounts receivable days outstanding. We continue to incur restructuring charges related to previous acquisitions, and additional charges will be incurred this year in response to COVID-19 while we integrate the G4S cash businesses. Cash taxes, totaling $24 million in 2019, are targeted at $65 million this year. In 2019, we received substantial tax refunds and made accelerated payments that are not expected to repeat this year. The estimated $65 million in cash taxes this year is $20 million less than our withdrawn guidance, primarily due to lower projected earnings. We estimate cash interest at around $95 million, up from $80 million due to the additional debt linked to the G4S acquisition. Our targeted cash CapEx is now $100 million. The forecast for 2020 total increases in working capital, cash restructuring, cash taxes, cash interest, and cash CapEx is in the range of $380 million to $410 million. Offsetting this, the estimated 2020 depreciation, amortization, and other non-cash items come in at $185 million. This implies that 2020 operating profit will need to exceed $195 million to $225 million for Brink's to achieve positive free cash flow this year. Despite the pandemic uncertainties, we're targeting positive free cash flow in 2020 and maintaining ample liquidity to execute our strategies. Now let's move to Slide 13 to review our cost structure and the decisive actions we've taken in response to the pandemic to protect our profitability and cash flow. On the left, we've illustrated our global cost structure. Labor represents 60% of our costs, and fleet and freight add another 15%. Typically, direct labor and fleet and freight costs are variable based on volume. Hourly workers are paid only for the hours they work. Vehicles incur fuel, oil, tires, and routine maintenance based on the miles driven. This flexibility allows us considerable ability to adapt our costs to match revenue levels. However, during the pandemic, rapid business changes warranted decisive actions to align costs with COVID-19 business levels while preserving the capability to serve customers when volume returns. We've reduced indirect labor costs through headcount reductions, whether via severance or temporary furloughs, and have aggressively managed overtime. Hiring, merit increases, and travel freezes have also been instituted. In addition, we've taken temporary salary and benefit reductions across our global footprint. Some of these actions have been delayed by government mandates or agreements with labor organizations. In some cases, we are able to capitalize on government programs to offset a portion of our labor costs, although those benefits are limited. Regarding fleet and freight, we are optimizing CIT routes, utilizing our most efficient vehicles, and rationalizing maintenance to reduce costs. Our 2020 fleet replacements have largely been postponed. SG&A and other costs represent 20% of our total costs, and we have instituted measures to reduce discretionary spending, including headcount, facilities, professional fees, and travel. Non-cash costs, which consist of depreciation and stock compensation, comprise about 5%. In summary, we are targeting to fully align our cost basis with pandemic-level revenues as we transition into the second half of 2020. This will provide us with material operating leverage when revenues begin to return to normal. Now let's look at Slide 14 to review our actions specifically in the United States. As mentioned previously, we began seeing the impact of the crisis in the U.S. around mid-March. The situation rapidly reduced our volume, particularly in retail CIT, compared to pre-COVID-19 levels. In April, we estimate that Brink's U.S. total volume was down 30% to 35%, but volumes of notes processed fell only 5%. We believe April revenue was down 25% to 30%, and we anticipate this will be the low point of the crisis in the U.S. Retail was disproportionately disrupted compared to financial institutions. Our U.S. management team has implemented many of the cost reduction measures outlined in our global response, which included a 20% to 25% headcount reduction in both operations and SG&A, along with a 10% salary reduction for management-level employees. Additionally, hiring merit increases and 401(k) matching contributions have been frozen. To manage fleet costs, we are rationalizing and optimizing CIT routes, deploying the best of our fleet, and ensuring maintenance costs are only incurred when necessary. We are scrutinizing facility needs and professional fees and have minimized travel to the lowest level necessary for operations. To date, we have not identified any significant government programs benefiting us, but we continue to explore all possibilities. With that, I'll turn it over to Doug to review our global customer base, our views on cash use, and the ongoing execution of our strategy.

Thanks, Ron. Over the last six to eight weeks, during this pandemic, all of us on this call, together with the rest of the country and probably the world, have been experiencing a time like never before, and I’m sure we’ve looked at everything through a different lens. So I wanted to take a few minutes to provide some foundational information about our business, our customers, and the use of cash. Let's start with the customers that drive our business. Slide 16 shows our strong global customer base to assure confidence in Brink's for the future. The next three slides provide a good overview of our customer base, which is diverse, stable, resilient, and in many cases, essential. Our global consolidated revenue is driven by three distinct customer groups: financial institutions, or FIs as we call them; retail customers; and a smaller category named government and others. We've also provided a similar breakdown for each of our top five countries, which make up about 72% of our total revenue. As you can see, our U.S. operations have a breakdown quite similar to consolidated revenue, with Brazil reflecting a similar trend, while Mexico and France are more heavily weighted towards retail customers. Some retailers are facing increasing scrutiny from both investors and the media during this pandemic. Let’s delve deeper into the retail customer base. Since the U.S. is our largest market and mirrors the revenue breakdown of our global business, let's use the U.S. to spotlight our high-quality customer base. Turning to Slide 17, here are three major takeaways. Our U.S. retail customers are large, diverse, and in many cases, essential, which provides a strong base of recurring revenue. As you can see, 44% of our U.S. retail revenue comes from customers deemed essential, meaning they remain operational and have done so since the pandemic started. This group includes supermarkets, pharmacies, gas stations, superstores, and convenience stores. Conversely, we have limited exposure to businesses facing the most significant challenges, as only 7% of our U.S. retail revenue is derived from dining restaurants. Many of these clients are large national and international chains expected to resume operations once the pandemic subsides. Additionally, about 8% of U.S. retail revenue comes from fast-food restaurant chains, which are either partially open or expected to reopen soon. Regardless of their business type, our U.S. retail customers are generally skewed towards massive enterprises; 20% of U.S. retail revenue is from customers with over 1,000 locations, with an additional 30% coming from customers with between 100 and 1,000 locations. It's interesting to note, and we'll elaborate further, that a significant number of large retailers considered essential and open operate over 1,000 locations each, yet Brink's, or any company in the CIT industry, does not service or provide minimal services to these customers. Finally, approximately one-third of U.S. retail revenue comes from CompuSafe customers. This revenue is characterized by long-term contracts and recurring revenue streams. Brink's vast retail customer base, bolstered by large and essential clients, indicates that we do not have broad exposure to numerous at-risk retailers. In fact, it’s important to recognize that the U.S. retail market is considerably larger than most people think, and the majority of retailers do not utilize cash management services provided by the CIT industry. This presents a tremendous growth opportunity for Brink's to bring value through our new 2.0 offerings. Turning to the next slide, alongside the high quality of our retail customer base, our U.S. financial institution customers provide a stable and recurring revenue base. Our FI customer bases primarily consist of significant stable companies that are open and operational. Approximately 66% of our FI revenue is from institutions with at least 50 locations each, and the top 25 Tier 1 banks account for about half of our FI revenue in the U.S. The next largest group includes FIs with 10 to 49 locations, again, making up a significant portion of our FI revenue. Both our large FI clients and smaller banks present us with substantial opportunities for future outsourcing, especially in the post-pandemic world where they are looking to cut costs and focus on their core banking operations. Together, our FI and retail customers form a very stable base that we believe will be resilient during the pandemic and as we emerge from it. The next critical topic to discuss is the continued strength of cash usage globally. These charts show that cash in circulation, both in value and number of notes, continues to grow in the U.S. and Europe at annual rates of 5% to 7%. This growth has been consistent for over 20 years, with compound annual growth rates at similar levels. These rates exceed GDP growth, providing strong support for our business. Furthermore, growth in cash circulation has historically accelerated during recessions. While some may argue that the increase in U.S. cash is driven primarily by underground activities or the cannabis industry, which remains unbanked, the consistent year-after-year growth of over 5% indicates otherwise. In emerging markets, such as those in Latin America, Eastern Europe, and Asia-Pacific, the growth rates for cash circulation are even higher. Turning to Slide 20, cash is, by far, the most widely used payment method, making up 75% of global transactions. Understanding the drivers behind cash usage is essential for grasping its importance, even in developed economies like the U.S., and we believe that these drivers will remain strong even after the pandemic. For instance, one out of every four Americans is either underbanked or completely unbanked. This means that 25% of U.S. households rely on cash as their primary payment method, and in some cases, it may be their only means of payment, despite being in one of the most developed countries in the world. This percentage increases significantly as you move from developed to developing countries. Additionally, cash is utilized by all demographic groups in the U.S., including various age groups and income levels. A recent study by the Fed indicated that individuals in younger demographics actually use cash for a higher percentage of transactions compared to those in older groups. Cash offers consumers privacy, cannot be hacked, and provides anonymity—unlike credit cards, which can be tracked for consumer purchases. Moreover, cash is accessible to everyone without hidden fees or the necessity of personal accounts backing up credit cards, phones, or other apps. Finally, cash serves as the preferred payment method amid crises when power outages occur or during cyber-attacks on financial institutions. In periods of uncertainty, such as the one we are currently experiencing, people tend to hold physical cash as their primary store of value. Looking ahead, as we review the five largest markets on the right side of this page, cash maintains a substantial share of payments in each, accounting for the majority of transactions in Mexico, France, and Argentina. The drivers of cash usage remain similar during recessions, and with the U.S. and global economies likely entering a recession, historical data demonstrates that cash payments as a percentage of all transactions surged by almost 50% during the last great recession of 2008. The growth was driven by increased government stimulus, heightened unemployment, and a decline in consumer credit, resulting in reduced credit card and debit card usage, thus leading to a greater reliance on cash. The more subtle conclusion from this data illustrates that, despite widespread claims of cash's demise, the facts do not support such assertions. Cash usage was around 21% of all transactions prior to the last recession, but has increased significantly since, counter to the common argument that usage would continue to decline. Currently, cash accounts for 26% of all transactions and 32% of in-person retail transactions, especially with trillions of dollars in government stimulus and record unemployment levels in play. The factors promoting cash usage will directly affect how our economy rebounds. In the last recession, from 2008 to 2010, Brink's U.S. experienced minimal negative impact, dipping about 4% at the recession's bottom and subsequently recovering over the following year to maintain compound growth rates during that period. Even during economic downturns, our services are still required, and revenue is not primarily driven by cash volume but rather by services performed. This historical data supports our assertion that Brink's is an essential service provider and is resilient during times of economic stress. Moving to Slide 22, we’ve taken a data-driven approach to address several prevalent misconceptions regarding cash safety. As shown on the left side of this slide, cash generally carries fewer germs than door handles, park benches, or even plastic credit cards. Furthermore, the data on the right side specifies that the COVID-19 virus survives more than three times longer on plastic compared to cash. The virus's survival duration on steel is nearly identical to that on plastic cards, existing three times longer than on cash. Consequently, it's considerably safer to use cash rather than to open doors or handle plastic cards that require contact. In summary, based on available data and backed by various reliable sources such as the European Central Bank and the World Health Organization, which have publicly stated their support for the safety of cash, we believe cash is as safe, if not safer, than other forms of payment. Allow me to transition now to key themes we outlined earlier regarding the large opportunity we see in the U.S. retail market, and globally, as we consider it a remarkable opportunity for Brink's, and we are set to focus on that with our Strategy 2.0. With the right management and cash management solutions, we believe that retail customers, especially the underserved or unvended, will welcome these offerings, and we anticipate that our Strategy 2.0 will provide a meaningful upgrade to these services. As demonstrated on Slide 23, the retail market in the U.S. is enormous, amounting to $5.5 trillion. At the end of last year, nearly 89% of retail purchases were made in person at physical locations. This percentage of online sales, approximately 11% for all of 2019, has undoubtedly risen during the COVID-19 economy shutdown, and we may witness significant increases in online sales as a percentage of total retail sales as we exit the shutdown period. However, even considering any potential reductions in the proportions of in-person retail sales transactions, there remains a tremendous opportunity at stake. Last year, cash payments constituted 32% of in-person purchases. The cash management industry, including Brink's, has historically had extremely low penetration in the total U.S. retail market. On the next slide, we delve deeper into this subject. Remarkably, 90% of retail locations are currently unserved by cash management or the CIT business, meaning they fall under the underserved category. Of the 10% of retail locations that are serviced by our industry, we estimate that Brink's currently services about one-third of these sites. This clearly indicates that significant market share opportunities are present today, as we present a compelling model to the unvended community that has not utilized services from our industry thus far. An intriguing fact is that these unvended customers are not just the smaller mom-and-pop stores; they include substantial numbers of large retail chains that have little or no cash management services from our industry. These are major brand-name chains that operate thousands of stores yet have not appreciated the value of utilizing our services. As illustrated in the lower right section of the slide, many of these retailers generally utilize card companies to process their credit card payments, and do so at a considerably high price. Additionally, this slide illustrates a small portion of the large unvended market, represented by the blue-striped segment in the chart, which we believe is key to target for our new services. This segment alone of large multi-location retailers could potentially enhance our current U.S. retail revenue by over 50%. Moving forward, as previously outlined, cash remains an essential and necessary payment method for retailers, and we believe its importance will persist post-crisis for the reasons and drivers cited. However, we contend that the cash management industry, including Brink's, has historically adopted a one-size-fits-all approach that fails to meet the needs of unserved customers. Retailers have perceived cash management services as expensive, inconvenient, and even risky when contrasted with credit card alternatives. The challenge for Brink's is to design a complete cash management solution that surpasses what retailers currently pay for credit services at a lower cost. Ideally, we need to present retailers with a cash payment solution that is holistic, easy to use, and provides the same or even better working capital benefits for the customer. Such a solution should allow them to convert cash into digital currency efficiently, optimize seamless deposits into their bank accounts, minimize risks and costs associated with both in-store and external losses, lower store labor costs related to managing and depositing cash, and eliminate daily trips to local banks—all of this consolidated from a single source that handles all their cash management and banking needs. Now, let's turn to the next page. I'd like to reintroduce Rohan Pal, our Chief Information Officer and Chief Digital Officer, as well as the head of our Product Technology and Marketing Group, to discuss how Brink's will utilize tech-enabled services to address the needs of our unvended customers.

Thank you, Doug, and good afternoon to everyone on the call today. As Doug pointed out, Strategy 2.0 was built upon changing the customer experience for cash management to better appeal to that large unvended segment of walk-to-bank customers. Our solution needed to be easy to use, comprehensive to include both deposits and change orders, non-intrusive, customer-friendly, and yet provide the same or better working capital benefits to the customer. Thus, we developed a solution known as Brink's Complete to enhance the existing customer experience in our industry. This solution comprises a digital app, a low-cost device tailored to business needs, next-day advanced credit for cash deposits, and change ordered and delivered to the stores—all at a well-defined subscription price targeted to be less than 1% of the value of the customer’s cash transactions. Next slide, please. Here's how it works: Customers utilize the 24/7 app to create a deposit, order change, or track their requests. They place their cash into a specially provided Brink's bag and scan it before depositing it into the device. Brink's assumes custody of the deposit while providing advanced credit to the customer's bank account the next day. Additionally, Brink's continuously monitors the device and schedules pickups when it reaches capacity. Two major enhancements to customer experience warrant highlighting. First, the process to make deposits is entirely digital, removing the need to spend time counting cash and completing manual deposit slips. Second, deposits are made, and credits are received at the customer's convenience, providing clear benefits. This results in no more trips to the bank and waiting in lines, and no distractions for managers from serving customers when Brink's personnel arrive to empty the device. All this comes at an affordable price and provides enhanced value to retailers compared to their current solutions. How does this solution apply today? As Doug and I both noted, there are over 1 million retail locations that have not adopted traditional industry solutions for cash management due to perceived lack of value. We designed a solution aimed at shifting their perceptions toward the ease and cost-effectiveness of cash management solutions. In light of COVID-19, this service is even more pertinent for our retail customers. With bank branches closing, social distancing guidelines affecting bank interactions, and fewer staff available in retail stores, customers who previously spent time daily walking to the bank for deposits now face greater challenges. Managers cannot afford to leave their stores for hours just to maintain cash flow. This is where Brink's Complete fits perfectly: using an app to initiate a deposit, placing cash in a bag, scanning and dropping it into our device, and receiving next-day advanced credit—no hassle, no walking, no unnecessary contact with others in the bank, and acceleration of working capital for stores. Currently, we are piloting this with two large customers who previously walked to the bank for cash deposits, and we have gained interest from many of our existing customers in the Brink's Complete solution. We firmly believe that the Brink's Complete cash management solution addresses a critical market need today and seamlessly extends into the new normal of social distancing, no-touch services, and increasing digital focus.

Thanks, Rohan. To conclude today, I’d like to focus on our third priority, which is to position Brink's to emerge from this crisis stronger than ever, poised for future earnings and revenue growth. Now, during this crisis period, we are aggressively pursuing a new cost structure aligned with the economic realities of the pandemic. Simultaneously, the key to emerging from this crisis and being positioned for long-term growth is continuing to execute on all three layers of our strategy. Our Strategy 1.0, introduced at our Investor Day three years ago, concentrated on internal organic profit growth initiatives. Our successful execution of these initiatives drove much of the profit growth seen during the first three-year strategic plan period and forms a foundation for continued improvement going forward. We now refer to Strategy 1.0 as wider and deeper (WD), indicating that we will accelerate and are accelerating the execution of internal growth initiatives and right-sizing actions across more countries, particularly with the inclusion of 14 new countries with G4S. As part of priority three, we are restructuring and resizing our businesses to better align with revenue projections during the crisis, and to leverage a more favorable margin and stronger earnings as revenue growth gradually resumes. These actions include accelerating implementation of restructuring and integration plans while expanding upon those with newly developed acquisition synergies. We have completed the acquisition of G4S operations in nine out of 17 expected markets, which are now integrated into Brink's operations. We're on track to finalize the acquisition of the remaining eight markets before the end of 2020. So far, our interactions with G4S management teams have been positive—they understand the importance of realizing targeted cost synergies and are enthusiastic about growth opportunities, including our new Brink's 2.0 strategies. Furthermore, we strongly believe that Brink's Complete is the right service at the right time for retailers seeking new cash management solutions that are safe, user-friendly, and comprehensive. Our marketing efforts will initially target existing customers, who are key to boosting our retail market positions. These services are also applicable to current CIT customers, particularly those that offer enhanced value. Additionally, we are implementing pilot programs as Rohan mentioned with selected groups of well-known large multi-location national retailers, which currently receive minimal or no services from Brink's. We continue to roll out additional services as part of our 2.0 Strategy to penetrate this market further, including ATM network management and cash recyclers. Turning to the last page, I will summarize our outlook on Slide 31. In the short term, we are laser-focused on reducing costs while we navigate current market uncertainties. We believe the second quarter will represent our low point in 2020, followed by gradual improvements in subsequent quarters. Although there remains considerable uncertainty regarding the reopening of economies and the ramp-up of our customers' operations, we are targeting at least $45 million in adjusted EBITDA in the second quarter and anticipate positive operating cash flow for the full year. As Ron discussed, we are comfortable with our balance sheet and believe we have sufficient liquidity. Looking beyond the current year to 2021, we are confident that we will emerge from this crisis stronger than ever by leveraging the robust foundation built over the past three years. We will continue to build on the new global network presented by G4S, enabling a new cost structure and strategies while implementing our 2.0 Strategy initiatives. Most importantly, we are incredibly committed to the skills and dedication of our workforce, which will support us through this crisis and well into the future. Please turn to the last page. As an illustration, this image depicts a quiet street in Paris during lockdown, yet a Brink’s truck remains visible—serving as a reminder that the world relies on Brink's. We will now open the floor for questions. Operator? Grant? Thank you.

We will now open the floor for questions.

Any questions?

Hi, thanks, good afternoon.

Hi, George.

Hello. You indicated that organic revenue declines persisted through April, but that you're starting to see some improvement. Can you talk about what weekly revenue trends in April looked like by geography?

George, I'm struggling a little because it's awfully hard to tell you weekly. What we have seen varies by country. That's why we're trying to provide at least a little background regarding when we saw the various regions and how they were affected—starting with Asia, where we did see an earlier impact in Hong Kong but began noticing some improvements in the latter weeks of the month, really leveling out in the initial weeks of this month in Hong Kong. We began observing improvements. Regarding other markets, as mentioned, in Europe, we noticed impacts around the second week of March, and shutdowns in various countries affected our recovery timeline. In some cases, we've not seen recoveries in specific countries due to ongoing shutdowns, while in others, like the U.S., we've just started to see customers and the economy begin to open back up.

Got it. That's helpful. As it relates to Brink's Complete, very helpful overview. Can you elaborate on your broader rollout strategy of this new product if you need to partner with the bank in this product work and how you would frame the longer-term revenue opportunity?

Yes, we’re taking a cautious approach to the rollout. We have already partnered with a single bank for the regions where we're initiating the pilots and rollouts, which allows us to provide working capital management and optimization. Specifically, the daily credit on an ACH transfer basis goes directly to the bank chosen by the customers. With our partnership, Brink's can offer credit to those customers through one of our subsidiaries using an off-balance sheet method. For example, if we consolidate several hundred store locations for a retailer that span multiple states and utilize multiple local banks, it allows us to eliminate all those complexities and provide an ACH transfer to a single bank of the customer’s choice.

Great, thank you.

Thanks. If we think about your rightsizing of the organization and making it leaner for the market post-COVID-19—considering next year, not the remainder of this year—how are you sizing that? If we take January and February, or maybe last year's fourth quarter, as 100%, are you preparing for 95% next year, 85%? How should we think about that?

That’s a very insightful question, and it's one our management team are working on with all of our country managers and functional teams. However, I cannot provide a specific target. We do have set targets across each country. Your concept is valid. We take a look at our fourth quarter as a reference point for 2021 and evaluate how we size the business at a reduced revenue level in the fourth quarter while aiming for improved margin. It’s a challenge. For example, as Ron mentioned during his overview, CIT labor has seen direct labor associated with this down about 25%, which we are aligning with expected revenue in the second quarter. These actions involve real reductions in headcount through layoffs and furloughs. Consequently, if we maintain approximately 20% of SG&A as a cost structure entering the fourth quarter, we hope not to see revenue declines as substantial as seen previously during our recovery. The ongoing recovery, wherever that may lead us, should result in more favorable revenue outcomes than we have experienced in the past.

One other question from me, and I’ll hop back in the queue. In my coverage, your stock has faced the most significant declines year-to-date. I know that your team is acutely aware of this. Are there strategic efforts underway that you can undertake? Or have you been approached by anyone, given we’ve seen private equity transactions at significantly higher multiples and you’ve got innovative strategies that others may lack?

That’s one of the reasons, Tobey, we wanted to dive into the fundamentals of our business. I firmly believe—and I hope after today’s conversation you understand—why cash will not only continue to be crucial but that its usage will likely increase for reasons often misunderstood. The perception is often derived from walking down, say, Second Avenue in New York, where all restaurants and dry cleaners have closed. There's a belief that this must negatively impact Brink’s. The reality is we only serve less than 10% of these customers, as many of them are smaller operations we do not service. In fact, our 44% essential customer figure reinforces that point, illustrating our potential growth. If we see a shift towards more online sales, even with a 10%, 15%, or 20% reduction, an enormous opportunity remains where we're positioned to add new value with our approaching strategies.

Thank you for taking my questions. Hi, guys, how are you doing? I’ll pose this question carefully, recognizing that some competition may be present on the call. Coming out of the last recession, you lost market share, as your value proposition did not hold up, leading to higher charges. Do you believe the current strategies, such as Brink's Complete, offer a viable tool to reclaim that lost share, particularly in financial services?

Well, first of all, Jeff, you are worse than I am with numbers specifying 2.0, 2.1, 2.03, and so forth. I face criticism for that. Setting that aside—what’s critical is that we have improved our service levels, value propositions, and customer focus significantly over the past three years, which I believe has prevented us from losing market share. While we may have lost a few accounts, we've probably overall gained market share. In the FI segment, for example, we’ve added one or two expansive accounts. I can’t comment on the years 2010 or 2011, but in the past 3.5 years since my arrival, we have improved significantly our service and customer relations. Those improvements should position us well as we navigate this current recession. Also, what we aim to add beyond improving service to existing customers, is to stem growth with new customer bases by offering our new services, which our core business will continue enhancing.

One quick follow-up on that. I am interested in your global services business. You mentioned some integration has occurred there. It also felt the recession's impact. Looking forward, will global services be part of the new array of operations you plan to implement for improving share and service, ultimately enhancing margins?

Yes, we’re consistently working on a broad range of plans for that, including the synergies derived from G4S. These present excellent opportunities for us to maintain and hopefully grow our positions in that market.

Hey, good afternoon, gentlemen. Thanks a lot for taking my questions.

Yes, yes.

As we think about the new retail cash solution versus your legacy CompuSafe model, is there a specific customer size in terms of cash needs and volume that necessitates them being a CompuSafe customer? Or is this scalable to meet larger needs? Furthermore, will we likely see this transition to just one Brink’s retail cash management solution, where the only variability from customer to customer involves the size of the device?

Yes, my answer is twofold. This all comes back to what Jeff mentioned about our Strategy 2.1, which is for any customer size that handles reasonable cash amounts with a workable number of point-of-sale positions. Those customers with minimal cash flow and fewer cash management needs fit into this model. Conversely, for larger businesses with extensive cash flow, a different solution will fit their needs. For larger chains, such as Kroger or Walmart, we present a recycling option while still offering a solution that allows additional management oversight to their needs. Our primary focus is on mid-sized and smaller retailers who could greatly benefit and perceive our solution as adding value.

Hi guys, just a couple for me. The first one: on Brink’s Complete, can you share how you plan to price the offering and whether you believe it will yield better margins than your core business currently does?

It will provide margins better than our current core business.

Okay, sure.

Yes, Sam, a lot of it relates to the fleet. We have many body builders globally that have been shut down due to the virus. This made it easy for us to defer this CapEx, and the fleet upgrades represent a vital strategy as we transition to a removable chassis. This upgrade increases benefits, such as cost reductions in labor and maintenance.

Yes, these considerations also relate to what's happening in our services. As we progress towards greater utilization of our 2.0 and 2.1 services, we could also naturally require fewer stops. This flexibility may reduce our future truck requirements. Additionally, this streamlining creates substantial time and cash handling opportunities, meaning cash can be processed more efficiently as Brink’s personnel are the only individuals who manage the cycle.

Okay, great. Thanks very much.

Our conference has now concluded. Thank you for attending today’s presentation.