Brinks Co Q2 FY2020 Earnings Call

Good morning and welcome to Brink's Company's Second Quarter 2020 Earnings Call. Brink's issued a press release on second quarter results this morning. The company also filed an 8-K that includes the release and the slides that will be used in today's call. For those of you listening by phone, the release and slides are available in 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, Chad. Good morning, everyone and welcome to our call. Joining me today, our CEO, Doug Pertz; and CFO, Ron Domanico. This morning, we reported second quarter results in both GAAP and on a non-GAAP basis. 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 also provided an analysis of our results on a constant currency basis, which eliminates changes in foreign currency exchange rates from the prior year. We believe the non-GAAP results make it easier for investors to assess operating performance between periods. Accordingly, our comments today will focus primarily on 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. Finally, while we have not provided any specific guidance for 2020 or 2021, Page 3 of the press release does provide sensitive models that included a range of potential revenue and adjusted EBITDA levels for both users based on recent trends and customer data. I'll now turn the call over to Doug.

Thanks, Ed, good morning and thank you for joining us. Given the challenges and uncertainties of the ongoing COVID-19 pandemic, our second quarter results were much better than expected when we reported our first quarter results on May 5, 2020. On a sequential basis, compared to the first quarter we delivered strong growth in operating profit, adjusted EBITDA, and EPS. We reported an operating profit of $73 million with a margin rate of 8.9%. Despite negative currency translation, this impacted revenue by $86 million, and operating profit by $18 million. This negative FX impact on operating profit was more than offset by aggressive variable cost reductions in the quarter and the initial contribution from the G4S acquisition. Compared to 2019, our reported revenue, which includes the acquired G4S business operations in the quarter, was down 10% and was flat versus last year on a constant currency basis. Like most companies, our sequential and year-over-year results were heavily affected by the global pandemic, both in terms of reduced revenue and profit and added cost of operations. When we reflect on where we were in April, we're very encouraged by the progressively positive impact of our cost reduction actions and what they have had on implementation during the quarter. We are also encouraged by the strong revenue recovery we saw in June, as economies began to reopen. For example, total company revenue, including acquired G4S businesses, was down 20% on a reported basis, versus last year's prior April, and revenue recovered to be up 3% in June. Excluding G4S businesses, which may be a better comparison for the market recovery, the April decline at the bottom was 29% compared to a 14% decline versus the prior year in the month of June, a 50% recovery. Looking at the U.S. alone, there was a similar 50% plus improvement during the quarter from a 24% decline in April in revenue to an 11% decline in June. Both Ron and I will provide more detail on the quarter. But first, I want to address some investor concerns that we heard after releasing first quarter results. On February 25, we announced the acquisition of the majority of the G4S cash business. We believe this is a great acquisition and early results clearly support this. But with the subsequent onset of the pandemic, the timing was less than ideal. Despite the attractive valuation for the acquisition, our increased borrowings in the face of the pandemic raised investor concerns about our debt covenants. We addressed these concerns by amending our debt covenants through the first quarter of 2024. And we expanded our liquidity to over $1.3 billion. The G4S acquisition is now 80% closed and with the acquired businesses performing well and $20 million of annualized synergies expected to fully be realized in 2021. The G4S operator made a strong contribution to our second quarter results and with additional ongoing cost realignment, we expect further profit growth going forward. In March and April, the impact of the pandemic, the sudden downturn of economies globally, and the resultant effect on our short-term earnings and cash flows are all unknown, and therefore potentially significant investor concerns. In response, and as part of our priority two initiatives, during the quarter we made substantial and timely progress in reducing cost on a global basis. Ron will provide more details. The results of these cost reductions were targeted reducing variable cost in line with expected near-term revenue reductions and are evident in our comparatively strong second quarter results. These cost reductions had increasing impact as they were implemented through the quarter. And together with additional longer term cost reductions, they should be key drivers for margin growth in the second half of this year and even more in 2021 when we also expect additional revenue recovery. Investor concerns about our exposure to retail customers, which comprise about 45% of our total revenue, are certainly understandable as well. However, it's important to understand that we have a very stable base of large retail and financial institution customers. Furthermore, overwhelming majority of retailers do not do business with Brink’s or other cash management services. In fact, we estimate only approximately 10% of the U.S. retail locations are vended, which gives us a great opportunity to serve these locations by offering a better cash management solution for these customers, which we're in the process of doing with our strategy 2.0 initiatives. We believe the stability of our FI customers, the revenue recovery we're seeing, and the new 2.0 service offerings for a very large un-vended retail market will limit our downside exposure during these types of times. About 45% of our retail customers in the U.S. never closed because they were considered essential businesses, just as we are. Of those, they have closed many have reopened and the customer locations that have reopened are generating revenue for us at or near pre-crisis levels. And contrary to what many of you have been hearing, every one of our U.S. customers that has reopened is accepting cash from its customers. Furthermore, cash in circulation has shown a significant increase since the onset of the pandemic. We'll provide more details in a few minutes. With the recent July data indicating continued revenue recovery above the June revenue levels, which was at 86% of last year’s revenue level on a comparable basis, we believe revenue for the full year 2021 could recover to a range around 100% of 2019 revenue levels, or potentially higher. It's too early to provide guidance for 2021, but with our cost reductions, adjusted EBITDA in 2021 could be in the $700 million range, and even higher if 2021 revenue is greater than comparable 2019 levels. For 2020, we expect continued improvement, especially as our cost reductions further take hold and drive adjusted EBITDA margin improvement, with our sensitivity model showing a range of between 14% and 14.5% EBITDA margins for the full year of 2020. Before going further, I want to briefly remind everyone about our top three priorities as we manage through the COVID-19 crisis. The first and most important is to assure the safety of our employees, their families, and to ensure a safe working environment. In addition, we assure that we provide the essential services to our customers and communities we serve. During the pandemic, we did just that, maintaining our essential services to our customers, thanks to all of our 70,000 plus employees globally. The second priority is to act decisively to protect our business by preserving cash and reducing variable and fixed expenses to align our near-term cost structure with reduced volumes and revenue caused by the mandated shutdowns globally. Unfortunately, doing so has required us to make many tough decisions including employee layoffs, furloughs, and salary reductions throughout the company. However, the aggressive and decisive actions taken supported by our dedicated employee teams globally produced better-than-expected second quarter financial results. Our third priority is to position Brink’s to be a stronger company on the other side of the crisis. This priority is focused on right-sizing the business and capturing significant additional fixed cost reductions through restructurings that include headcount reductions and other structural cost takeouts. The sustainable fixed cost reductions are expected to drive higher margins at lower revenue levels and create greater earnings leverage that results in even higher margins as revenue continues to grow. We're also sharply focused on completing the acquisition and integration of G4S operations, including synergies, as well as the rollout of our strategy 2.0 initiatives. We're acting with a great sense of urgency and making solid progress on each of these priorities as proven by our results and our future margin targets that we're sharing with you today. Now for a quick summary of quarterly results; as I mentioned earlier, our reported revenue declined 10% in the quarter, including the significant negative impact of translational FX partially offset by the G4S acquisitions completed in the quarter. On a constant currency basis without the negative FX impact, our revenue was flat versus last year. Organic revenue was down 17% versus last year. This excludes the addition of the G4S businesses that were added in the quarter and is probably a good indicator again of the pandemic's impact in the quarter. Operating profit as reported of $73 million declined 18% with the entire decline due to $18 million of negative currency translation. In constant currency, profits were actually up 3% versus last year’s second quarter on flat constant currency revenue growth. The strong operating margin of 8.9% in the quarter compares well with last year's 9.7% margin and on a constant basis was actually higher than last year. These results show that our aggressive cost reductions had a very favorable impact in the quarter and positioned us well for the future. Adjusted EBITDA fell 6% to $125 million, but reflecting a 15.2 margin rate, an increase of 60 basis points over last year's same quarter. Earnings declined 22% to $0.67 per share reflecting a negative currency translation and higher tax rate. In constant currency, earnings were up 3%. Ron will cover more of this in a few moments. Turning to Slide 6, predicting the future impact of the pandemic on our business, almost any similar service business is very difficult. And we acknowledge these uncertainties. Just as government-mandated closings of our customers negatively affected our revenue and therefore our profits, the re-openings provide a path to recovery, with the key question being the timing and slope of the revenue recovery. This slide shows year-over-year revenue changes for April and June for a variety of markets and the overall company. As you can see, most of these countries are recovering from their lowest level of revenue in April to June, the most recent month after reopening started in many countries. In aggregate, our consolidated recovery, including the acquired G4S businesses with their respective pre-COVID-19 levels, shows a recovery from down 29% versus 2019 levels in April to a 14% decline in June on approximately 50% plus revenue recovery. These June numbers represent only partial re-openings and in general, additional openings continue beyond the middle of June and into July, further pushing the overall revenue levels higher than the 86% of last year. Without knowing the timing of future economy openings, or the impact of possible resurgence of the virus in the U.S. and other countries, the June revenue of 86% of 2019 revenue seems to be a reasonable starting point for modeling future 2020 results. The consolidated bar on the far right of the graph shows reported revenue, including the acquired G4S businesses, compared to only the Brink’s businesses in 2019. This comparison shows revenue down 20% in April and actually up 3% in June. This illustrates that future earnings will not only be driven by core business revenue recovery from the pandemic but also by the added G4S acquisition revenue both in the second half of this year and in 2021. Here's a closer look at U.S. CIT volumes measured by stops, as well as by actual revenue. At the low point in April, stops were at 68% of pre-COVID level or down 32%. And they have already recovered to an encouraging 83% of pre-COVID level. More importantly, the corresponding revenue recovery has also been rapid and equally encouraging. At the April low point, U.S. revenue was down 24%, and it's climbed back to 89% of pre-COVID levels in June. And with additional retail openings since the middle of June, it is currently higher than that level. The data gives us confidence that with more customer reopenings, we're on track to approach and hopefully exceed 2019 revenue levels. Most of the reopenings are for non-essential services such as clothing, general merchandise, retailers, as most of the essential service providers remained open during the pandemic. Dine-in restaurants and entertainment locations such as sports venues, theaters, and casinos have been particularly hard hit by the pandemic and may continue to be delayed in re-openings as and if the virus continues. These customers, in total, represent only about 3% of our pre-COVID revenue. Since the pandemic hit, I often hear that our retail customers will not be accepting cash in the future and consumers, in fact, will not use cash in the post-pandemic world. Contrary to popular belief and what is often heard in the media, every one of our customers that has reopened since being closed by the pandemic is continuing to accept cash from their customers. This includes a large well-known department store chain that media indicated would not accept cash when they reopened. Our revenue with these customers is back close to pre-COVID levels. In our U.S. retail business, we bill our customers in several ways, based on the number of stops on a monthly flat rate basis on a subscription basis, such as we do with CompuSafe. We do not build based on volume of cash handling. Typically, our customers average two to four stops per week or as needed in the case of CompuSafe. In the second quarter, due to the State mandated closings, many of our customers that are on flat rate service or CompuSafe subscription agreements temporarily closed, even though our agreements stipulated that they would continue to pay. Invoices sent to these customers were equal to approximately 11% of overall second quarter U.S. revenue. However, these invoices were not included in our second quarter reported revenue but are included in our accounts receivable ledger. As customers pay these invoices over the next quarters, those invoices will be booked as revenue without additional cost. If these invoices were recognized as revenue in the second quarter, U.S. reported revenue would have been down about 10% versus the reported 20% decline in the quarter. And the estimated operating income would have been over 12%. As disclosed in our last earnings release, significant cost reductions were planned and implemented in the U.S. in April and May. These cost reductions have resulted in the U.S. operating margins of approximately 10% in June, even with revenue down 11% in June versus the prior year. Before I talk directly about Slide 8, I'll remind you that the charts we shared in the past regarding cash in circulation are included in the appendix and in other recent investor presentations. Those charts show the cash in circulation both in value and number of notes continues to grow in the U.S. and in Europe at annual rates of between 5% and 7%, well ahead of GDP rates. This growth has been consistent for the last 20 plus years providing a strong underpinning for our business. They also show that cash in circulation and percent of payments in cash historically has increased during a recession, which we're in. While this pandemic is unprecedented, this new slide for 2020 clearly demonstrates that U.S. cash in circulation has increased sharply from pre-COVID levels at a rate much higher than the historical 5% to 7% annual rate. It also shows a corresponding increase in the volume of notes that Brink’s processes before and after COVID-19 supporting the stability of our financial institution customers and demonstrating the increased use of cash as a method of payment. It is our strong belief that cash is and will remain a very popular form of payment in the U.S. and in the rest of the world. In fact, in emerging markets, like those in Latin America, Eastern Europe, and Asia Pacific growth rates in cash and circulation and cash as a percent of all payments are even higher than in the U.S. and Europe. I'll turn it over to Ron for a financial review.

Thanks, Doug and good day, everyone. Before I get into the results, I want to remind you that we disclose acquisitions separately for the first 12 months of ownership, at which time they are mostly integrated, and then they're included in organic results. In the second quarter 2020, acquisitions include G4Si for the entire quarter and a partial quarter for the G4S cash acquisitions in the Netherlands, Belgium, Ireland, Romania, the Czech Republic, Cyprus, Malaysia, Hong Kong, the Philippines, and the Dominican Republic. Acquisitions in the second quarter also include balance innovations in the U.S., TVS in Colombia, a small CIT bolt-on in Brazil, minus the divestiture of a small monitoring business in France. As Doug mentioned, we experienced COVID-19 related volume reductions in our businesses beginning in Asia in February, Europe in early March, North America in mid-March, and Latin America by mid to late March. We implemented daily activity trackers, and as pandemic-related shutdowns began, our organic revenue declined on average about 30%, and in some countries by over 50%. Generally, those reductions persisted throughout April. During May and June, as Doug said, we started to see improvements as countries began phased reopening. Those improvements appear to be holding and when combined with our aggressive cost realignment initiatives generated results better than we originally expected. Turning to our second quarter results on Slide 9. 2020 second quarter revenue in constant currency was flat, as pandemic related 17% organic decline was offset by acquisitions. The organic decline was realized across the globe. But as Doug mentioned, the recovery is underway, and the June organic decline was only 7%. Negative Forex reduced revenue by $86 million or 9%, and was driven by the pandemic-induced ply to the U.S. dollar. Reported revenues $826 million down 10% versus the second quarter of last year. Second quarter operating profit was up 3% in constant currency as acquisitions more than offset an 18% decline in organic results. The fact that the percent organic operating profit decline was in line with the percent organic revenue decline is a testament to our aggressive cost management and realignment. We were also helped by government COVID-19 assistance in several countries that partly offset the impact of revenue declines and government mandated delays in executing some of our cost reduction actions. The constant currency OP margin of 10% was up 30 bps versus last year. Negative Forex reduced OP by $18 million or minus 20%. Reported operating profit for the quarter was $73 million, and the operating margin was 8.9%, down 80 bps from the second quarter of 2019. Segment results are included in the appendix and in our press release. However, the impact of responses to the pandemic is unique in each country. Corporate expense in the second quarter was $20 million favorable to 2019 driven by lower headcount related IT expense, reduced salaries, bonuses and non-cash stock-based compensation, and much less travel partly offset by higher insurance costs. Many of the savings are part of our fixed cost realignment and support the sensitivity modeling that we're illustrating for 2020 and 2021. Moving to Slide 10, second quarter interest expense was $23 million, up $2 million versus the same period last year, as higher debt associated with acquisitions was partly offset by lower variable interest rates. Tax expense in the quarter was $21 million equal to last year, as lower income was offset by a higher projected effective tax rate. As you saw in our press release, the full year ETR is based on pandemic related assumptions that fluctuate widely. Our pre-pandemic guidance was a 2020 ETR of 32%. In the first quarter, the estimated full year ETR was 49.8% and in the second quarter, the estimated full year ETR was 37.5%. Effective tax rate volatility is due to changes in assumptions about our ability to utilize tax attributes at varying projected income levels. The G4S acquisition was also constructive in moderating the ETR. Minority interest and other was positive $5 million, primarily due to a $6 million gain in our equity investment in MoneyGram that reverse losses that we recorded in the fourth quarter of 2019 in the first quarter of this year, reducing the $73 million of second quarter 2020 operating profit by $23 million in interest and $21 million in taxes, plus $5 million in other generated $34 million of income from continuing operations. Dividing this by $51 million weighted average diluted shares outstanding generated $0.67 of earnings per share versus $0.86 in 2019. In the second quarter, depreciation amortization was $42 million, interest expense and taxes were $44 million, and non-cash share-based compensation was $5 million. In total, 2020 second quarter adjusted EBITDA was $125 million down 6% versus 2019. Now let's move to Slide 11 to review the decisive actions that are underway in response to the pandemic to realign our cost structure to protect our profitability and cash flow. As soon as it became apparent that COVID-19 was virulent and that it was spreading beyond China, we took immediate action to develop and implement our three priorities that Doug shared with you on Slide 4. Sourcing and deploying PPE for our employees worldwide was an immense challenge, and our sourcing team really stepped up to make it happen. While 60% of our cost structure is variable, we had to put measures in place to reduce direct labor hours, at the same time, into at least the same magnitude as revenue decreased. We also took decisive action to realign our fixed costs so that we could generate similar or greater absolute levels of profitability if the pandemic caused a permanent 10% reduction in revenue. We did this while maintaining the capability to serve our customers when volume levels returned. On the left side of the slide, we have listed some of the actions we've taken to address both our variable and our fixed costs. We've reduced direct and indirect labor costs by executing headcount reductions, either through temporary furloughs or severance, and we're aggressively managing overtime. We instituted freezes in hiring, merit increases, and travel. We took temporary salary and benefit reductions across our global footprint. As I mentioned before, some of these actions have been slowed by government mandates and our agreements with labor organizations. In some instances, we've been able to take advantage of government programs to offset a portion of our labor costs. We're optimizing our CIT routes, utilizing our most efficient vehicles, rationalizing maintenance, and optimizing our facilities footprint. Our 2020 fleet upgrades have been mostly put on hold. Non-labor, SG&A and other represent 20% of our cost structure. We've taken actions to reduce discretionary spending at all levels, putting headcount, facilities, professional fees and travel. The right side of the slide illustrates that our cost realignment actions are expected to reduce headcount by approximately 5,500. We expect approximately $65 million in one-time costs associated with taking these actions and we anticipate about $85 million in ongoing annualized savings at a revenue level equal to 90% of 2019 pro forma results. Now let’s look at CapEx on Slide 12. Our regional guidance for 2020 cash CapEx was $165 million, which included $140 million for operating CapEx and $25 million to purchase cash devices. Since the start of the crisis, we’ve frozen most CapEx and only purchase assets that are essential to our business operations, safety, and security. We've cut the legacy Brink’s cash CapEx target by more than 50% down to $80 million. We also expect to spend an additional $20 million related to the G4S acquisition bringing our total cash CapEx target for this year to $100 million. Year-to-date, we've invested $54 million in cash CapEx expenditures. We will monitor the severity and duration of the pandemic and we may revisit our cash CapEx target later in the year. Turning to cash flow on Slide 13. Cash flow from operating activities is comprised of adjusted EBITDA produced by working capital, cash restructuring, cash interest, and cash taxes. Free cash flow equals cash flow from operating activities less cash capital expenditures. In 2019 adjusted EBITDA was $564 million, cash flow from operating activities $334 million and subtracting the $165 million in cash CapEx produced free cash flow of $169 million. Due to the pandemic, we went through our 2020 guidance including our original free cash flow target. As Doug will review with you shortly, we've now provided a model to estimate a range for 2020 adjusted EBITDA given various revenue scenarios. We are using that range on this slide to illustrate estimated free cash flow. Working capital and cash restructuring charges in 2019 totaled $127 million. Due to the addition of the G4S cash businesses, an anticipated COVID-related increase in DSO and our aggressive cost realignment initiatives, especially severance, we are now estimating a range of $140 million to $160 million for 2020. Cash taxes, which totaled $24 million in 2019, are estimated at $65 million this year. We received significant tax refunds and accelerated payments last year which are not expected to repeat. We anticipate cash interest to be about $100 million due to the incremental debt associated with the G4S acquisition. Cash CapEx, as we just reviewed, is targeted at $100 million. Based on a range of 2020 adjusted EBITDA of $465 million to $515 million, and the cash items we just discussed, free cash flow should be in a range of $40 million to $110 million. Let's move to Slide 14 to review our debt, liquidity, and covenant headroom. The bars on this chart represent the source of our liquidity, cash available on our business, and capacity in our revolving credit facility. At the top of each bar, you can see our cash below the cash is our credit facility both drawn and available and below that our debt and financial leases. The bars each represent a point in time at 2019 year-end at June 30, 2020, and June 30, 2020 pro forma for the completion of the G4S cash acquisitions. At year-end 2019, we had approximately $1.2 billion in liquidity. Year-to-date, we have paid $651 million for approximately 80% of the acquisition of the G4S businesses. On April 1, we closed a $590 million expansion of the term-loan A with our bank group. And on June 22, we issued $400 million in new five-year senior unsecured notes. This drove liquidity to $1.5 billion on June 30. Pro forma for the completion of the acquisition of the G4S cash businesses, liquidity at the end of the second quarter would have been $1.3 billion. Other than the 5% annual amortization of our term-loan A, we have no significant debt maturities before 2024. Our variable interest rate, including the expanded term-loan A is L plus 175 with a LIBOR floor of 75 bps on only undrawn revolver borrowings. On June 9, we amended our bank agreement through February 2024 to replace the total debt leverage covenant with a secured debt leverage covenant. The 2020 max of the new covenant is 4.25 times and our June 30 pro forma secured leverage ratio was approximately 2 times. We don't anticipate approaching our covenant limits at any time in the foreseeable future. We plan to maintain our quarterly dividends. Our credit rating remained strong. We have the capacity to weather the pandemic even if the impact turns out to be worse than we currently anticipate. Let's look at our net debt and leverage on Slide 15. This slide illustrates our actual net debt and financial leverage at the end of 2017, 2018, 2019, and at June 30, 2020. Our net debt at the end of the second quarter was $1.95 billion, that was up about $600 million over a year-end 2019 due primarily to the G4S acquisition. At June 30, 2020, our total leverage ratio was 3.7 times, our fully synergized leverage ratio was 3.3 times, as I just mentioned, our fully synergized secured leverage ratio was about 2 times. With that, I'll hand it now back over to Doug.

Thanks, Ron. As I mentioned earlier, predicting the future effects of the pandemic is quite challenging, and we understand the concerns regarding the resurgence of the virus in the U.S. and elsewhere. While we cannot forecast the timing or speed of revenue recovery, we can offer adjusted EBITDA sensitivities based on various potential revenue scenarios. In the earnings release and accompanying slides, we provided modeling based on the significant cost reductions implemented and those in progress this year. These decisive actions are within Brink’s control. The sensitivity model for adjusted EBITDA for 2020 suggests a revenue range for the second half of the year between 85% and 100% of last year’s second half revenue. Since June 2020, our revenue has been at 86% of 2019 levels, and re-opening efforts have increased since then. We believe this range is a reasonable estimate for the second half. The blue segments of the bar represent actual revenue and EBITDA for the first half of both 2019 and 2020, while the colored areas indicate the 85% to 100% sensitivities relative to the second half of 2019 revenues. Last year, our total revenue was $3.7 billion, which included $1.9 billion in the second half. Achieving 85% to 100% of that second half revenue would yield adjusted organic growth, revenue from the G4S acquisition, and account for the negative FX effects based on current currency rates. Considering all of this, we project a potential revenue range for 2020 of $3.3 billion to $3.6 billion. The slide also shows a corresponding EBITDA range between $465 million and $515 million, reflecting a margin rate of 14% to 14.5%, primarily driven by cost reductions that more than mitigate the significant FX impact we are observing. Slide 17 presents a similar approach to model adjusted EBITDA based on anticipated revenue for 2021. In this model, we are using a revenue range of 90% to 110% of last year’s revenue, with an EBITDA margin rate of 15.8% at the 100% level of 2019 revenue, which is a 50 basis points improvement compared to the 2019 margin. The margin improvement chart indicates that at 100% of 2019 revenue, we expect our cost realignment actions to provide more than 250 basis points of margin improvement, offsetting unfavorable translational effects projected at around 170 basis points, resulting in a net margin improvement of 50 basis points. While some variable cost cuts may adjust as revenue recovers, we anticipate that our focused reductions in fixed costs will be more enduring, enhancing operational leverage in 2021 and beyond. For example, at 110% of 2019 revenue, margins should improve by another 50 basis points to about 16.3%. At 90% of 2019 revenue, the model reflects an EBITDA of $615 million, and at 110%, EBITDA could exceed $800 million. As stated previously, there is still considerable uncertainty that prevents us from reinstating guidance. However, we believe these models offer a reasonable framework for investors to estimate future revenue and EBITDA ranges, which also accounts for the potential negative FX impacts we're currently facing. It's crucial to point out that neither model reflects any benefits from our 2.0 strategy initiatives, which, if successful, could yield additional revenue and margin growth in 2021 and thereafter. In summary, we are encouraged by the better-than-expected second quarter results and the revenue recovery to 86% of pre-COVID levels by June, highlighting the stability of our customer base in the financial sector and the resilience of our retail partners. We expect ongoing revenue improvement in the second half of this year, and due to our aggressive cost-cutting measures, this revenue will come with higher margins. Despite the considerable unfavorable FX situations we've faced, the G4S operations are anticipated to continue contributing to revenue and margin growth alongside ongoing cost synergies throughout this year. We expect the acquisition to be fully completed by the end of this year, with synergies realized next year. The sensitivity model for 2020 suggests a full-year EBITDA between $465 million and $515 million, based on second half revenue being between 85% and 100% of last year, starting with revenues at 86% in June. For 2021, our goal is to ensure that Brink’s emerges from this crisis as a strengthened company with substantial opportunities for revenue, earnings, cash flow, and higher margins, along with improved return on invested capital. Our confidence stems from a robust strategic plan, a solid balance sheet, sufficient liquidity, an expanded global presence, and a realigned cost structure. We look forward to reporting results for 2021 that reflect improved margins due to the optimized cost structure and the full contribution of G4S along with the revenue recovery expected next year. As seen in the second quarter, we've made substantial progress in a cost-reduction strategy focused on variable costs. We are also implementing additional cost alignments aimed at sustainable fixed cost reductions which are expected to enhance margin leverage as we transition into next year and beyond. While we are not ready to provide guidance for 2021 just yet, sensitivity models indicate significant potential for margin leverage as revenue grows. Furthermore, this model does not factor in the contributions from our 2.0 tech-enabled cash management solutions, which we believe will provide improved safety, convenience, and lower costs for our customers—attributes we anticipate will be highly valued in a post-pandemic economy. For instance, our new Brink’s Complete service offering is beginning to gain traction with both existing customers and new retailers that hadn't previously utilized cash management solutions. Although the pandemic has somewhat slowed our marketing efforts and rollout, it has also created new opportunities as retailers resume operations. We currently have several pilots and customer trials in progress and have agreements to support approximately 1,500 locations with a variety of well-known retailers, many of which plan to expand our solutions to thousands of new locations that have not previously adopted cash management options. We look forward to updating our progress when we announce our third quarter results. That concludes our presentation. Chad, let’s now open the floor for questions. Thank you.

Thank you. We will now begin the question-and-answer session. At this time, we will pause momentarily to assemble our roster. The first question will come from George Tong with Goldman Sachs. Please go ahead.

Hi, thanks. Good morning.

Good morning, George.

You have indicated that total legacy revenue is at 86% of 2019 levels through the month of June. Can you detail how revenue trends have performed since June? So through the month of July, how the rate of improvement has progressed?

Yes, George, as we stated there's two indicators, we really don't have reported revenue for a period after June. That's why we provided the jumping off point for June. If you kind of look at the June number and obviously in comparison to April, which was at the bottom of the pandemic, it would be effectively an average look for the month of June. We do have some indications and we provided some look at that continued re-openings have continued since then which would suggest additional revenue increases, but we don't have specific revenue data associated with that.

Okay, got it. Well, any business activity data around the?

We've observed more re-openings, which vary by region. Europe has experienced strong re-openings recently, while in the U.S. the pace has been slower compared to June. In South America, the situation has remained stable, with no decreases, although it's not accelerating either.

Got it, that's helpful. And then, as a follow-up, you indicated that you expect your 2020 cost actions to generate $85 million in annualized savings, can you elaborate on how much of this represents permanent versus temporary cost savings, and how these actions might change your long-term EBITDA margin target?

We provided our 2021 numbers and the sensitivity model on Page 17, which outlines our targets, including our sustainable fixed cost reductions. Our main focus is to achieve these long-term fixed cost reductions, which are fundamentally different from our previous business operations, allowing for increased margin leverage. As revenue grows, this model demonstrates that it will not only counteract the negative impact of foreign exchange rates projected at 170 plus basis points for 2021 but will also lead to higher margins. As shown on that page, you can observe some margin leverage, confirming that we have reduced fixed costs. Consequently, each extra dollar of revenue contributes at a higher margin percentage than before. At 100% revenue, the margin is over 90, and at 110%, it is 50 basis points above the earlier revenue margin. This margin leverage indicates that we are upholding our fixed cost reductions, which is our primary objective.

And then any commentary on longer term EBITDA margin targets especially compared to competitors? I know in the past you have indicated EBITDA margins targets in the high teens or low 20s. So how did these cost savings affect those long-term targets beyond 2021?

Well, we felt we are pretty aggressive in providing 2021 modeling for you. It's not guidance, it's modeling. But I think what we are suggesting here as we take these costs out depending on what happens with effects you will see these types of margin and this leverage going forward. So if you were to project out that additional recovery in revenue whether it's organic growth, it's price growth on a global basis or you see additional increases because of our strategies of 2.0 etc. that answer this, we will get improved margins with those alone. Let alone our additional strategies that we have already laid out on 1.0 wider and deeper initiatives or the cost takeouts going forward. So we would anticipate although we are not going to provide guidance on it or modeling on it. We would anticipate that we will continue to see stronger margin leverage in the future than we had in the past based on the actions we have taken or will continue to take.

That's very helpful. Thank you.

Thank you. The timing of the G4S acquisition, as you said at the beginning, may have not been the best, but on the other hand talking to other companies I've just reported looking at the human aspect of recovery, it appears that both Europe and Southeast Asia have done a far better job than the United States in dealing with the coronavirus. Is it fair to say, and we take a look back at that chart in which you showed the potential of the - of that relative to what you have been earning that in terms of revenue that the recovery that you've been receiving in the second quarter has been a little bit skewed toward those areas? Let's call it the rest of the world, particularly Southeast Asia and Europe, relative to the United States?

I believe Jeff articulated it well regarding the recoveries we've observed since the downturn and re-openings, which began at different times. However, the recoveries have generally been stronger in Europe and parts of Asia, although some regions started later, as late as June, resulting in a faster recovery trajectory than in other markets. I agree with this assessment and we are pleased with these recoveries. The data provided on Page 6 compares legacy data to legacy data, ensuring it is unbiased and offers a baseline for assessing revenue recovery. This allows you and the investors to model the types of recoveries to consider. Overall, we are satisfied with the recoveries we have seen, which appear to be slightly better in those regions. Our point is that had the pandemic not occurred, the growth on top of the figures we secured during the deal closure would present a much more favorable situation than what we currently see. However, this is not true across the board. We remain excited about our management team’s performance in different countries and businesses, including G4S. We have implemented proactive measures to establish stronger and sustainable cost structures in those countries, as we have across the Brink’s business, and we are pleased with these initiatives. Collectively, this positions us well for a robust combined business moving forward as we navigate through these challenges.

The second question is about the U.S. market, given that you're familiar with it and many investors are closely watching developments there unless significant international events occur. How have your operations teams on the ground reported on your market share and your value proposition in the U.S.? Have there been any changes in the last quarter or two that would make you feel more or less optimistic compared to your competitors, who might not be able to reduce costs as significantly as your company has? Many of them had already streamlined their operations, so there might be limits to how much leaner they can get. This gives you an opportunity to potentially offer more incentives to customers to retain their business or engage in new programs like 2.0, which others may struggle to match. So, how do you assess your position in the U.S. in relation to your competitors, considering the market changes during the pandemic? I understand that you focused on your internal cost structures initially, but in terms of service provision and market share, how has your performance been over the past quarter and a half?

I believe our market share and customer position have remained strong. In our view, we haven't lost ground. Our primary focus has been on serving our customers to help them restart effectively. Many of our customers are concentrating on resuming operations and navigating through the crisis. The more we can assist them in this effort, the better. Regarding the 2.0 Brink’s Complete offering, many customers are prioritizing the restart process over new or enhanced solutions, although we believe our offerings provide significant value. They are focused on aligning their operations and managing costs, rather than seeking new systems. Nevertheless, many customers have expressed that what we offer now better addresses their needs and concerns in a post-pandemic environment compared to previous options. They appreciate the value and features of Brink’s Complete, which we expect to enhance and gain traction quickly, setting us apart from competitors. We possess financial strength and operational capabilities and are focused on improving our margins and cost structure.

Okay.

I hope that answers much of that.

Yes.

We did talk about some of our invoicing and so forth in the quarter. I think that's something to take a hard look at we'll see how that washes out over the following quarters.

And just quickly, are your people on the ground in Texas, Florida and California evidencing any concern about business there as it stands today given those places seem to be hotspots?

We are not observing any significant retrenching at this time. Most of what we have noticed is related to the reopening of retail establishments. The concerns we are hearing seem to be more focused on dine-in restaurants and entertainment venues, such as theaters, which have not reopened to the same extent as retail locations.

Thank you. Thank you very much.

Thank you.

Good morning, Tobey.

Good morning.

Good morning. I have a general question about the various items and themes from today's quarterly update. What do you find to be the most surprising aspect of the business's performance compared to the previous quarter's results and call? What stands out the most?

We suggest looking at this in two ways. First, we were uncertain about the timeline and recovery curve concerning our customers returning and the revenue impact when we provided our outlook. While we had some expectations, we tried our best to estimate the lowest point we could expect. Seeing a recovery to 86% of June's revenue numbers, along with continued re-openings, gives us a solid foundation for predicting future trends, which was previously an unknown. Secondly, the cost reductions we discussed, particularly regarding variable costs to address near-term revenue drops, were crucial. These reductions began to be implemented in April and May, especially in the U.S., and while we hadn’t quantified them at that time, we have since done so. We have also provided guidance on the aspects we can control, namely cost reductions, which include significant restructuring charges that Ron explained, to support sustainable margin improvement. These are controllable factors we can now measure and predict based on current observations and our trajectory. The combination of these insights represents a significant change for investors. While I understand that uncertainty was a challenge for investors in the past, we now have much clearer quantifications to discuss.

Thanks. With respect to Brink’s Complete, could you give us a little bit more color on progress and pilots or betas, and at this point the extent to which you see sort of the transition of your book of traditional legacy CompuSafe business towards that complete solution?

Yes. I believe we have two distinct groups of customers as we initiate the rollout, particularly in the U.S. One group is very interested in our offerings and the benefits involved, but they are primarily focused on getting their operations up and running and ensuring their business stays afloat. The other group is quite enthusiastic. Even among existing and new customers, many recognize the value and are eager to engage with the value proposition instead of delaying. As we continue to evolve and as reopenings become clearer, we will likely gain more traction and evidence of the value moving forward.

I appreciate. I just wanted to follow up on and I think you touched on, but maybe ask it a different way. With respect to the Company's position in the marketplace from a competitive perspective and opportunity to take share, how would you describe it on a geographic place basis where maybe there are some markets with more mom and pops and is that where there's more opportunity or is it markets with larger firms that may have stumbled one reason or another? Thanks.

So are you talking about 2.1 and our complete solution or just in general?

In general. Thank you.

Yes. In general, it varies dramatically by country and where we are. Our objective over the last quarter has not been to go out and take market share. It's been to improve our cost structure, but more importantly, to service our customers, help them get back, service our customers, and make sure we provide the service levels we transition with our costs and structures going forward, we service our customers. We think that will take care of things. We're not looking to reduce price and go out and get more other issues and take share as a result of price and not at all. We're looking to service our customers based on our value equation to gain more business. And we think we're in both the strongest financial position, as well as our operational position. And then on top of that, we are starting some of our other actions of ATM outsourcing such as the announcements were made in Ireland. And we will see more of that going forward. More outsourcing from banks that we're starting to see as well, even financial institutions in the U.S. where we're seeing more outsourcing of vaults. We'll see more of that going forward. So all of that will be great opportunities and not necessarily to take competitive share, but to grow through that additional outsourcing with customers, as well as we see the opportunity, especially with our unique value propositions going forward to grow in the unvented space as well. Customers, I think, as a result of the pandemic will not go and say we don't want more help in cash, whether it be retail or FIs, they're going to be saying just the opposite. We want more help. We want you to find a better solution. And that's what we started to see that the customers retail customers as an example that are only partially vended today, I think they're going to become a lot more vended, because we have a better solution for them. I think with banks have suggested whether it be ATMs or vaulting is currently done in-house that will be outsourced. So those present growth opportunities as we go forward as well as taking market share, but that's not our focus on competition at this stage.

Thank you.

Hi, guys. Just a couple for me. The first one, could you talk a bit about your expectations for South America and particularly Brazil in the second half? It was obviously a region that was later to be impacted by the pandemic. Brazil clearly held up very strongly in Q2 given that didn't enter full lockdown. So I was just wondering how you're thinking about that region for the second half?

I’ll answer that. I believe South America is performing well considering the circumstances. First, I want to mention that we have seen more of our employees affected health-wise by COVID, and we are concerned and focusing more on that. From a business perspective, we think Brazil, and South America overall, has more than stabilized, and we might not see as steep or fast a recovery as in some of our other markets. However, we do believe it has flattened out. The data indicates that Brazil, specifically, has done very well financially during this period, and we expect continued improvement, although it may not be as rapid as in some of our other markets.

If you look at Slide six, you can see that Mexico declined the least. That's basically because the country didn't shut down. As Doug mentioned, the business toll was probably the lowest, but the human toll was the highest within Brink’s. So we're concerned about that. You say South America, but it's really country-by-country as I mentioned in my remarks. I would say, Mexico was the least responsive and then followed by Brazil. I would say Argentina has been the most disciplined with an incredible lockdown followed by Colombia. So it really is on a country-by-country basis. We continue to monitor. It's not day-by-day in all cases, but certainly on a weekly basis we have war room meetings with every country to determine what's happening and how we can respond. But, again, on a case-by-case basis, you see that Mexico was the least impacted and it's starting to be impacted now just because of measures the country did not put in place.

Great. Thanks. And then the second one was, I was wondering what you're seeing on consumer credit availability at the moment and whether we're seeing the usual recession or shift into higher cash usage. I suppose how much of a benefit do you think the cash market is seeing from stimulus checks here in the U.S., but also actions in other countries to support unemployed people?

I think it's more with re-openings than it is with actual cash in circulation. I mean, there's all the statistics that show cash is increasing, that show availability to credit is declining. But if people are not leaving their homes and going into establishments to spend anything, whether it's cash or credit, you're going to see a delay in reaction. But as Doug mentioned in his comments, we are not compensated on the volume of cash or compensated in other ways whether it's a number of stops, fixed monthly buildings, subscription fees, things like that. So we'll see the revenue increase as customers reopen. And that's more of a driver than actual growth of cash.

You can see the growth in cash, which is contrary to many predictions. Credit card companies and banks have projected greater losses on credit cards than what occurred in 2008 and 2009. This implies that consumers may find it harder to obtain credit, leading to increased cash usage during a recession. We believe this trend is evident in the numbers.

Great. Thanks very much, guys.

Thanks, Sam.

Ladies and gentlemen, this will conclude our question and answer session. And we'll also conclude our conference call for today. We thank you for attending the Brink’s Company's second quarter 2020 conference call. And at this time, you may disconnect your lines.