Brinks Co Q3 FY2020 Earnings Call

Welcome to The Brink's Company's Third Quarter 2020 Earnings Call. Brink's issued a press release on third 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, Sarah, and good morning, everyone. Joining me today, our CEO, Doug Pertz; and our CFO, Ron Domanico. This morning, we reported third quarter results on both the GAAP and the 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 are also providing our results on both a constant currency and pro forma basis. Constant currency eliminates changes in foreign currency exchange rates from the prior year and pro forma revenue includes this year's G4S acquisitions as if they’ve been part of Brink's in both 2019 and 2020. We believe the non-GAAP results make it easier for investors to assess operating performance between periods. Accordingly, our comments today will focus primarily on the non-GAAP results. Reconciliations of results are provided in the press release and the appendix to the slides we're using today and in this morning’s 8-K filing, all of which can be found on our website. I'll now turn the call over to Doug. Doug?

Thank you, Ed. Good morning, everyone, and thanks for joining us today. On behalf of all of us at Brink's, I offer our best wishes to all of you and your families during these difficult times. The strong third quarter performance we reported this morning is a result of outstanding execution by all of our global management team, which has been sharply focused on three priorities since the onset of the COVID-19 pandemic, starting with the health and safety of our employees and their families. And I want to personally thank all of our people for their dedication in providing our services, which are so essential to customers and economies around the world. Our results reflect the team's successful execution of our second priority as well, which is to preserve our financial strength and reduce costs in line with the short-term revenue declines we experienced in the second quarter. We've made great progress in right-sizing our business without sacrificing service levels and quality to our customers that they expect. Our third priority is to position Brink's to be stronger and more profitable on the other side of this pandemic. This priority is focused on permanent cost reductions that have combined with a successful integration with the G4S acquisition and the initial rollout of our Strategy 2.0, which has positioned us to continue to deliver long-term value to all of our stakeholders. We believe that as our revenue recovers and surpasses 2019 levels, our realigned cost structure will provide the operating leverage to drive up margin rates and margin dollars to new and higher levels in 2021 and beyond. Our performance since the onset of the pandemic in March, including our strong third-quarter results and our expectation of an even stronger finish to this fourth quarter, is a testament to the disciplined execution on these priorities, and as important, the resilience of our business. Turning now to Slide 4. Our strong third-quarter results were driven by continued revenue recovery from our April lows, significant cost reductions, and the successful integration of the G4S acquisition to date. Results include a reported revenue increase of 5% or 11% on a constant currency basis, driven by a revenue recovery in September to 90% of the year-ago level and the addition to the G4S cash business. Operating profit of $100 million reflects a margin rate of 10.3% in the quarter. Adjusted EBITDA of $147 million and EPS of $0.86 per share. Given the ongoing impact of the pandemic, our sequential results are a good gauge of the progress we're making. Compared to our strong second quarter results, our third-quarter revenue was up 17%, and operating profit grew by 36%. These results clearly demonstrate the impact of our realigned cost structure, coupled with our revenue recovery. Our results together with publicly available information on cash and cash data demonstrate the resilience of cash and our business in general. The strong revenue recovery in the third quarter to 88% of 2019 pro forma levels and the 78% in the second quarter is very encouraging, given the retail shutdowns and overall economic weakness caused by the pandemic. Since April, we've seen steady monthly increases in the number of retail customers and customer locations that are reopening, and we're processing more cash per location, both in terms of volume of notes and total value. Our total cash processed in the U.S. is also up significantly from pre-pandemic levels. Independent data suggests that cash as a percent of payments has not materially changed from 2019 levels. Looking ahead, we expect continued improvement in the fourth quarter as ongoing cost reductions, organic revenue growth, and additional contributions from the G4S acquisition drive operating profit and margin rates higher. As a result, we've reinstated 2020 guidance that exceeds the top end of the model we disclosed with second-quarter results, with respective midpoint operating profit and EPS of $348 million and $3 per share, respectively. This guidance is supported by a fourth-quarter operating margin target of approximately 11.5%, which we see as a strong jumping-off point for 2021, when the full-year benefits of permanent cost reduction realignment and the G4S acquisition are expected to supplement the continued revenue recovery. Slide 5 provides a more complete summary of our sequential results thus far in 2020. As I mentioned, we believe the second-quarter results were very strong, especially when you consider that the initial and most damaging effects of the pandemic occurred in April and May. Our third-quarter results were even stronger, and they underscore the impact of increased operating leverage as operating profit grew by 36%, more than double revenue growth of 17%, reflecting a margin increase of 140 basis points to 10.3%. The revenue increase was driven mostly by organic growth, with some additional revenue from the G4S acquisition. Adjusted EBITDA was up 17% to $147 million, and EPS was increased by 21% to $0.86 per share. Turning to Slide 6. This slide provides more detail on the revenue recovery rates across a variety of our global markets. After hitting a low point in April, almost all of our markets experienced strong recoveries in June, and most continued to recover in the third quarter, although at a slower rate than in June. The U.S. revenue, as you can see on the left-hand side of the chart, recovered in the third quarter to about 91% of 2019 levels, up from 81% in the second quarter. U.S. operating profit margin was up as well, up 160 basis points compared to the 2019 third quarter, and this is even as revenue was 9% lower in 2020 versus 2019. The right side of the chart shows that on a pro forma basis, which includes both Brink's and G4S results for 2019 and 2020, our total third quarter revenue was about 88% of 2019, again, up from 78% in the second quarter and 71% in April. Revenue recovery continued in the third quarter, although at a lower recovery rate, with September pro forma revenue at about 90% of 2019. While we're encouraged by the recovery rates, given the fluctuating impact of the pandemic on economies around the world, predicting future revenue levels is at best difficult. As a result, the low end of our 2020 guidance assumes a revenue recovery rate of about 85% in the fourth quarter to accommodate a potential further deterioration in the external environment. I'll now turn it over to Ron for his financial review. Ron?

Thanks, Doug, and good day, everyone. Doug reviewed our sequential third quarter results versus our second quarter results. I'll now review our third quarter results versus the third quarter last year. Before I do, please remember that we disclosed acquisition separately for the first 12 months of ownership, at which time they are mostly integrated. And then they were included in our organic results. In the third quarter of 2020, acquisitions include for the entire quarter G4Si and the G4S cash businesses that we purchased in the Netherlands, Belgium, Ireland, Romania, the Czech Republic, Cyprus, Malaysia, Hong Kong, the Philippines, and the Dominican Republic. During the third quarter, we acquired G4S cash businesses in Estonia, Latvia, Lithuania, and Indonesia, and those results were included from the month of acquisition. Acquisitions in the third quarter also include TVS in Colombia and exclude the impact of the divestiture of a small monitoring business in France. Looking at Slide 11. 2020 third quarter revenue in constant currency was up 11% as the pandemic-related 9% organic decline was more than offset by a 20% contribution from acquisitions. Negative ForEx reduced revenue by $56 million or 6%, driven by the pandemic-induced flight to the U.S. dollar. Sequentially, on average exchange rates improved slightly during the third quarter. Reported revenue was $971 million, up 5% versus the third quarter last year. Third quarter operating profit was up 19% in constant currency as acquisitions more than offset a 1% decline in our organic results, significantly improved from the second quarter organic decline of 18%. The fact that the percent organic operating profit decline was much better than the percent organic revenue decline is a testament to our proactive cost realignment. Negative ForEx reduced OP by $22 million or minus 22%. This included a $10 million charge on the conversion of Argentine pesos to U.S. dollars, using the chip swap markets. Reported operating profits for the quarter were $100 million, and the operating margin was 10.3%, down 80 bps from the third quarter of 2019, but up 30 bps if you adjust for the Argentine conversion. Segment results are included in the appendix and in our press release and later today in the 10-Q. Corporate expense in the third quarter was $2 million unfavorable versus 2019 driven by negative ForEx, primarily the $10 million Argentine peso conversion costs and higher bonus accruals, partly offset by bad debt and reduced expenses for IT, professional fees, and travel. Our reported results include more than $4 million in incremental expenses in the third quarter for personal protective equipment, additional cleaning, and other measures to keep our employees and our customers safe. Moving to Slide 8. Third quarter interest expense was $27 million, up $5 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 $24 million, $1 million better than last year as lower income was mostly offset by a higher projected effective tax rate. During the quarter, we revised our estimated full-year ETR down to 34.1% from 37.5% in the second quarter, reflecting our expectation of higher earnings. 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 has been constructive in moderating the ETR. $100 million of third quarter 2020 operating profits was reduced by $27 million in interest, $24 million in taxes, and $6 million in minority interest and other, to generate $43 million of income from continuing operations. Dividing this by 50.6 million weighted average diluted shares outstanding generated $0.86 of earnings per share versus a $1.05 in 2019. Our EPS comparison was negatively impacted versus 2019 by about $0.15 from the Argentine peso conversion and $0.04 due to the higher ETR. Our EPS comparison was positively impacted versus 2019 by $0.01 from the third quarter 1.1 million share purchase, which reduced our outstanding shares by about 2%. In the third quarter, depreciation and amortization was $44 million, interest expense and taxes were $51 million, and non-cash share-based compensation was $9 million. In total, 2020 third quarter adjusted EBITDA was $147 million, up 1% versus 2019. Slide 9 summarizes the four metrics I just reviewed: revenue, operating profit, adjusted EBITDA, and EPS. This is a format that we've used repeatedly and is included here for reference. Turning to Slide 10. As we discussed last quarter, as soon as it became apparent that COVID-19 was virulent, we took immediate action 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 reduce 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 return. On the left side of the slide, there are listed some of the actions that we've taken to address both our variable and fixed costs. The right side illustrates that our cost realignment actions are expected to reduce headcount by approximately 6,500, 1,000 more than our estimate last quarter. We now expect approximately $70 million in 2020 costs associated with these actions, and we anticipate about $90 million in ongoing annualized savings, each up $5 million versus our projection last quarter. We estimate that over half of our cost reductions are permanent and will generate positive operating leverage as revenue levels continue to recover. We continuously monitor and utilize government programs around the world, and we're able to offset a portion of our labor costs in certain countries. However, these programs are diminishing and the benefit was materially less in the third quarter compared to the second quarter. Now let's look at CapEx on Slide 11. Our original guidance for 2020 cash CapEx was $165 million, which included $140 million for operating CapEx and $25 million to purchase cash devices. At the start of the crisis, we rationalized CapEx to only purchase assets that are essential to our business operations, safety, and security. We cut the legacy Brink's cash CapEx targets 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 $79 million. Due to the catch-up CapEx, we invested since 2017 and the implementation of our Strategy 2.0 initiatives that require less capital investment, we expect our new normal maintenance CapEx level to be down to about 4% of revenue. Turning to cash flow on Slide 12. Cash flow from operating activities is comprised of adjusted EBITDA reduced by changes in working capital, cash restructuring, cash interest, and cash taxes. Cash flow from operating activities, less cash capital expenditures equals free cash flow. In 2019, adjusted EBITDA was $564 million, cash flow from operating activities was $334 million, and subtracting the $165 million in cash CapEx resulted in $169 million of free cash flow. We have reinstated 2020 full-year guidance, and as Doug will review with you shortly, we estimate annual adjusted EBITDA of $520 million to $535 million this year. We expect working capital to be negatively impacted by pandemic-related increases in DSO receivables collection. And we have high cash restructuring charges related to both the G4S acquisition and our Priority 3 cost realignment actions. Together, they should consume $140 million to $160 million in cash this year. Cash taxes, which totaled only $24 million in 2019, are estimated at $65 million this year. We received significant tax refunds last year, which are not expected to repeat at the same level this year. We anticipate cash interest to be around $95 million due to the incremental debt associated with the G4S acquisition. Cash CapEx, as we just reviewed, is targeted at $100 million. All-in, 2020 free cash flow should be in a range of $100 million to $135 million, up materially from the $40 million to $110 million we modeled last quarter. And as noted previously, during the third quarter, we used $50 million of cash on hand to repurchase and retire approximately 1.1 million shares. Let's move to Slide 13 to review our debt, liquidity, and covenant headroom. The bars on this chart represent the source of our liquidity. The cash available in our business and the capacity in our revolving credit facility. At the top of each bar, you can see our cash. Below the cash is our credit facility available and drawn and below that our debt and financial leases. The bars each represent a point in time at 2019 year end at September 30, 2020, and at December 31, 2020, pro forma for the completion of the G4S cash acquisitions. At the end of last year, we had approximately $1.2 billion in liquidity. On April 1, we closed the $590 million expansion of the term loan A with our bank group. And on June 22, we issued $400 million in new 5-year senior unsecured notes. Year-to-date, we used most of those proceeds to complete approximately 90% of the G4S acquisition and the balance increased liquidity to $1.5 billion on September 30. We expect that free cash flow in the fourth quarter will exceed the cash necessary to complete the remaining G4S acquisitions and liquidity should remain around $1.5 billion at year-end. 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, increased 25 bps in September to L plus 200, reflecting the increased financial leverage associated with the pandemic-related EBITDA reduction and the increased borrowings related to the G4S acquisition. 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, the new covenant is 4.25x, and our September 30 pro forma secured leverage ratio was 2.0x. 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 remains strong, and we have the capacity to weather the pandemic even if conditions worsen. Let's look at our net debt and leverage on Slide 14. This slide illustrates our actual net debt and financial leverage at year-end 2018, 2019, and at September 30 this year. The fourth bar on each side estimates our net debt and financial leverage at this year-end. Our net debt at the end of the third quarter was $1.95 billion. That was up about $600 million over year-end 2019 due primarily to the G4S acquisition. At September 30, 2020, our total leverage ratio was 3.7x, and as I just mentioned, our fully synergized and secured leverage ratio was 2.0x. With that, I'll hand it back over to Doug.

Thanks, Ron. Slide 15 provides important context regarding e-commerce in the U.S. retail market. As a leader in cash management globally, we recognize that the pandemic has pushed e-commerce adoption ahead by several years. However, if we look at the overall landscape, studies indicate that over 80% of retail revenue will still come from in-person sales. In 2019, total retail sales in the U.S. were around $5.5 trillion, with 89% of transactions occurring in person and e-commerce accounting for about 11%. This year, e-commerce growth is projected to be around 35%, raising its share to approximately 15% of total retail sales, which means 85% will still be in-person. Experts suggest that even with e-commerce growth by 2022, in-person retail sales will remain significantly above 80%. In the second quarter, at the peak of shutdowns, Walmart reported a 97% increase in e-commerce sales, yet these sales represented just over 11% of their total revenue. Similarly, Target's e-commerce sales grew by an impressive 195%, but they still accounted for just over 17% of total sales, indicating that 83% of Target's sales were made in-store, which saw an 11.5% year-over-year increase in the second quarter. These outcomes align with the broader retail sales figures displayed on the chart. In summary, the notion that we are moving towards a cashless society overlooks critical information. As we will show in the next slide, we are actually observing higher cash levels in U.S. retail. We believe the opportunity for in-person retail will continue to expand in the coming years. Slide 16 presents data backing our claim that cash as a percentage of total payment methods has remained close to pre-pandemic levels in the U.S. This data is sourced from both external studies and our internal metrics. From a significant annual survey conducted by the Fed, we learn that cash remains the most preferred in-person payment method, covering 35% of all transactions, outranking credit cards and debit cards. The Fed also prepared a special COVID-19 report examining consumer payment behavior during the height of lockdowns in April and May, noting that cash use for in-person purchases was on par with pre-pandemic levels, with 90% of respondents reporting that cash was accepted at the stores they visited. The survey conducted among Square's sellers provides compelling confirmation of cash's reliability. Square noted that since the pandemic began, the percentage of cash transactions has held steady in the mid-30% range, in line with the Fed's pre-pandemic findings. Although the cash share of Square's total payments fell from 37% to 33%, it remained stable at 33% in both April and August. Moreover, 85% of their sellers plan to continue accepting cash long-term, a figure that has risen since their 2019 survey results. Complementing this data, our internal analysis of cash levels shows that our retail clients have been steadily reopening, with over 90% of locations back in operation by September. During this same time, we have been processing more cash per retail location than pre-COVID benchmarks. This supports our viewpoint that cash usage as a payment method has not changed significantly and is corroborated by independent sources. This demonstrates the resilience of cash and solidifies the future of our business, as we are currently handling more cash than prior to the pandemic, with cash in circulation in the U.S. at a record high, having increased by about 10% since March. Now, moving to Slide 17, this slide outlines our strategic plan, which builds upon our initial strategic plan, referred to as SP1. The new initiatives are layered on top of the previous organic growth efforts and successful acquisitions, forming a robust foundation for ongoing growth. From 2017 to 2019, our SP1 initiatives contributed an additional $75 million in operating profit through organic improvements and added $100 million from our $1.1 billion investments in 13 acquisitions. This year's acquisition of G4S increased our total strategic investments to $1.9 billion. Our SP1 initiatives resulted in a 27% revenue increase, with an average annual organic growth rate of 7%. We improved operating profit by 81%, resulting in a 22% compounded annual growth rate over the three years through 2019. Adjusted EBITDA rose by 65%, while EPS jumped by 71%, representing a 19% compounded annual growth rate. The Brink's team has a strong history of execution, and despite challenges from the pandemic, we anticipate continuing to build on this foundation in SP2. The original initiatives expand in SP2, focusing on broader and deeper improvements. In the first three years, our initiatives primarily targeted the U.S. and Mexico, and we are now extending these enhancements to our footprint in 50 additional countries while also driving operational efficiency and cost improvements. Additionally, during the pandemic, we restructured our business with an emphasis on permanently reducing fixed costs, expected to yield greater operating leverage and higher margins. The 1.5 initiatives introduced in SP2 include the integration of G4S, adding 14 new markets with high cash demand in Eastern Europe and Asia. The new top layer, dubbed Strategy 2.0, aims to broaden our presence in the global cash ecosystem and establish a path toward digital payment solutions, starting with Strategy 2.1, which introduces our Brink's Complete offering. Moving on to Slide 18, Strategy 2.1 specifically addresses our Brink's Complete service, designed for unvented and underserved retailers while also being offered to our current clients. The cash management sector has increasingly faced commoditization, relying on efficiency via scale to compete on price, which has hindered our ability to provide an easy and comprehensive cash management solution. To illustrate this need, consider that while 33% of Square's total payments are in cash, their services do not accommodate cash management. In contrast, Brink's Complete is tailored as a subscription-based, fully developed digital cash management service ideal for retailers of all sizes. This service includes a digital app, a cost-effective tech-enabled cash deposit safe, and next-day credit for cash deposits. Brink's Complete is an excellent solution for many of our existing clients and retailers that currently do not utilize cash management services. This encompasses large retail chains that currently transport cash to local banks, as well as smaller retailers using Square. Although the pandemic delayed the rollout and retailer engagement with Brink's Complete, we have already secured agreements for about 2,500 devices across our current client locations. Recently, we gained traction with larger underserved retailers, initiating pilot programs with six nationally recognized brands collectively operating over 50,000 locations. We are convinced that Brink's Complete provides significant benefits, revolutionizing how retailers manage their cash in a manner similar to their other payment methods. Though the pandemic posed challenges to our rollout, we are accelerating the introduction of Brink's Complete, which we believe will drive organic growth and improve margins in forthcoming years. Now, transitioning to Slide 19, it displays our actual revenue recovery rate alongside our strong operating margin growth for the first three quarters this year, along with our forth quarter and full-year guidance. The consistent improvement in margins showcased on the right side highlights the successful cost realignment efforts we've undertaken this year, emphasizing permanent reductions in fixed costs. We're setting our margin target at over 11.5% for the fourth quarter, representing at least a 120 basis point sequential improvement, laying a strong foundation as we move into 2021. As I previously mentioned, significant uncertainties regarding the pandemic's impact and possible political changes might influence the pace and scale of our revenue recovery. Thus, our full-year 2020 guidance incorporates multiple recovery rate scenarios, estimating around 85% recovery in the fourth quarter at the lowest point. Slide 20 provides an outlook for modeling non-GAAP operating profit based on projections for 2021 revenue as a percentage of 2019 pro forma revenue. Our model ranges from 90% to 110% of 2019 revenue. We are already approaching the 90% recovery mark, with September revenue reaching 90% of 2019 levels. If we hit the low end of the range, our model indicates operating profit of $425 million and EBITDA of $615 million. At the 110% revenue mark, operating profit could increase to $615 million and EBITDA to over $800 million, reflecting margin improvements driven by operational leverage. At the midpoint, anticipating recovery to 100% of 2019 revenue and an expected operating margin of 11.5%, we forecast a profit of $550 million and an EBITDA exceeding $700 million. The chart on the left illustrates the factors contributing to margin improvements. By achieving 100% of 2019 revenue, we expect cost reductions and G4S synergies to offset an unfavorable foreign exchange impact of about 170 basis points on margin, resulting in a 90 basis points margin rate improvement. Variable costs will rise as revenue rebounds, but we anticipate our fixed cost reductions to persist, driving greater operating leverage in 2021 and beyond. Thus, we estimate that at 110% of 2019 revenue, margins could enhance by another 100 basis points to 12.5%. It's crucial to emphasize that this model does not factor in potential benefits from our Strategy 2.0 initiatives, which, if successful, could deliver additional revenue and margin growth in 2021 and beyond. In conclusion, we are optimistic about our third quarter results, the positive margin effects of our cost actions, and the robust revenue recovery, which showcases the resilience of our business. We are also encouraged by the ongoing strong utilization of cash as a primary payment method, remaining equivalent to pre-pandemic levels, and the heightened levels of cash we are processing and circulating in the U.S. We look forward to completing the G4S cash acquisition by the end of this year, leading to full synergies realized and significant earnings contributions in 2021. We anticipate a strong finish to the fourth quarter, prompting us to reinstate our full-year 2020 guidance to exceed previous high estimates, anticipating adjusted EBITDA in the range of $520 million to $535 million. I am confident that Brink's will emerge from the current challenges as a more robust company with ample growth opportunities for revenue, operating profit, adjusted EBITDA, earnings, and cash flow. This confidence stems from our strong balance sheet, ample liquidity, an expanded global footprint, a reorganized cost structure, and a comprehensive strategic blueprint aimed at enhancing our presence in the cash ecosystem through tech-enabled services like Brink's Complete. We anticipate reporting 2021 results that will reflect the advantages of a full year's contributions from the G4S acquisition and related synergies, consistent revenue recovery rates, and continued margin growth driven by our realigned cost structure. Sarah, let's now open the floor to questions.

Hi. Thanks. Good morning.

Good morning, George.

Organic revenue trends continued to improve in the third quarter. Can you discuss how organic revenue has performed on a monthly basis moving through the quarter and exiting the quarter? And what organic revenue ranges are incorporated into your full-year guidance?

Yes, it varies by country and globally. Generally, we observed that in the second quarter, especially in June, we experienced the most significant revenue recovery. Throughout the third quarter, we noticed a steady monthly improvement. This is why the starting point from September into the fourth quarter is higher compared to the average for the full quarter, indicating that the revenue recovery trend remains positive. The U.S. exemplifies this, although the growth rate is considerably lower than what we saw in the second quarter. Regarding your question about the third quarter, we cannot predict exactly what will happen with revenue. Based on current observations and forecasts, we see our revenue guidance ranging from approximately 85.5% to 86% to the low 90s. The September starting point was around 90%, and in the U.S. it was about 91%. We believe this is a realistic range, though the future remains uncertain. Nonetheless, it offers some downside protection for revenue growth in the upcoming quarter.

Got it. That's helpful. And stepping back, can you talk about how customer demand for services might be affected by the resurgence of COVID cases? And specifically, if you're seeing any change in the number of pickup and drop-offs?

It's still too early to make any definitive statements. The recent changes in media have clearly influenced the markets in the past few weeks, but they are quite new. The recent shutdowns, often referred to as the second wave, have primarily targeted restaurants, bars, gyms, and other gathering places. Unlike the earlier shutdown in April and May where retail faced significant closures, this time there appears to be less emphasis on shutting down retail establishments. We hope to see both essential and non-essential retail remain open more than they did during the first wave. However, we anticipate that dine-in restaurants will be significantly affected, as many of these establishments have not fully reopened yet. Consequently, we have not returned to our previous reopening levels, although we did reach about 90% capacity in the U.S. as an example.

Got it. Very helpful. Thank you.

I hope that helps. What’s important is that even at these levels, we've managed to achieve cost reductions that align with service standards and reopening levels. This not only balances our operations but also gives us the opportunity for leverage, which we observed in this quarter. We expect to see that again in the fourth quarter as we continue resizing and eliminating certain aspects of the business. We're very excited and confident about what we accomplished as a team in the third quarter and what we expect to achieve in the fourth quarter. Ron mentioned some of those numbers in the U.S. Achieving margin increases in the U.S. by 130 to 140 basis points, despite a 9% revenue decline compared to last year, is a testament to our efforts.

Hey, good morning. This is Jasper Bibb filling in for Tobey. I was hoping you could speak to what you're seeing in pricing in your major markets and also how your labor expense trend is tracking versus prior years amid higher global unemployment. Thanks.

Every country is different, Jasper. In the U.S., the fourth quarter is usually when we implement price increases. Generally, around the world, most price increases occur in the second half of the year. These increases are happening, and we haven't faced much resistance. Similarly, on the labor front, it's surprisingly a challenge to keep and retain employees even in this market. We can quickly reduce our variable labor costs globally, but we've also been prompt in decreasing our fixed and permanent labor to levels that support margin expansion. Overall, the price increases we anticipated are on track, and we haven't encountered anything to suggest otherwise.

Thanks. And then, I wanted to ask about what trends you're seeing for outsourcing work with financial institutions. Do you see the pandemic kind of accelerating an outsourcing trend more broadly? And how would you describe the RFP environment there?

Yes, I think generally the pandemic has accelerated a lot of the trends that we anticipated in the global cash management ecosystem. So we have been prepared for this. Right now, most businesses, including financial institutions, are just dealing with how to cope with the pandemic, which changes on a daily basis. What they will see in the new normal is a compelling case for additional outsourcing. We're planning on that and we're planning to be a leader to influence them to use Brink's for that outsourcing.

I appreciate it. Thanks for taking the questions, guys.

Thanks, Jasper.

Thank you.

Good morning, Jeff.

Good morning. And I don’t usually say this, but just excellent, excellent execution in these last couple of quarters. You've done a lot better than obviously than people expected and also did a lot better than most of my comparable companies that I'm covering in your area.

Thanks, Jeff. We’ve had a great team and they're really focused during this pandemic, in particular.

You are now significantly larger due to G4S compared to your nearest competitor. In fact, you are likely about twice the size, not just in relation to one competitor but across the board. How do you plan to leverage this scale advantage? I understand this may seem like an easy question, but the success of 2.0 is crucial because it would merge your scale with technology. What obstacles and milestones need to be addressed to demonstrate that achieving this will lead to market share gains, especially since you haven't fully recovered share from some institutions? You still face challenges in utilizing your scale alongside new technology. How do you intend to navigate this process?

Well, Jeff, that's quite a question to be, to be honest, and I appreciate your comments upfront. I also think that your strategy, your thought process is exactly where we are, and is a key piece of what we call SP2. I would start off by saying, unfortunately, the pandemic has negatively impacted, if you want to call that from the standpoint of slowing things down. It is, if you will, put some timing constraints both from our standpoint of implementation as well as from customers' receptiveness, openness, willingness to engage and may make change because their focus like ours has been heavily focused on the business. I think the good news from our standpoint and our focus, you can see the results of the focus in the second and third quarter. And we anticipate that you'll continue to see those results in the fourth quarter and our leverage going forward. But now we need to come back and we will come back as part of SP2 to put in what we call our 2.0 strategy that is layered on top of that and accelerate that. So our focus to answer your question needs to be to accelerate our efforts with all of the various areas, including our 2.1, which is part of our Brink's Complete. The rollout of that both in the U.S and on a global basis, accelerate that, and use that as leverage as well as all the rest of our 2.0 strategies that we are aggressively working on to roll on. You can see as part of the strategies as an example, the outsourcing of ATMs. You can see the very significant win that we have in France that will start coming on next year, which is the outsourcing of a completed state to what we are doing in Ireland that we won another 500 units there. These are all key outsourcing. These are things that will start rolling. If they're not ones, they're not projects, and they're not changes the banks or financial institutions make overnight, and they take time to do that. But you can start seeing gain traction and we have now the global platform to do that. The biggest piece and the best answer to your question, I think, is that we do have, by far the largest platform, we have 50-plus countries. We have the global platform that is much larger than we can scale and roll these strategies, these solutions out on. And that's the benefit. And I think you'll see that as we start getting the acceleration of our 2.0 strategies to end up with higher organic growth, higher than that 7% organic growth that we had compounded over the last 3-year period of time. We'll have higher organic growth. It'll take some time to do it, but organic growth as a result of our strat plan. You'll see higher margins because these are complete total services to our customers that can and should demand both higher pricing and I should say higher value for the complete services in the supply chain as well as then lower CapEx. And the ability to roll this out in our scale on a global basis and to use our scale for the cost management and the unique tech-enabled ways that we do this, I think we'll have a tremendous impact as we roll out of the pandemic and as we see the acceleration of these strategies. So I think that will be unmatched, which is not in the numbers we're talking about. The numbers that we're talking about that you saw in the second and the third quarter that you're going to see in the fourth quarter have been primarily because of the strong focus of this management team of our company on what we've been able to accomplish as we've gone through the pandemic.

In my experience covering Brink's, the market tends to favor the focus on U.S. operations, with Mexican operations being of secondary importance. However, with G4S, you've expanded into not only Eastern Europe but also several Southeast Asian countries that have managed the pandemic much more effectively than we have. The presentation you shared highlighted this for Malaysia, the Philippines, and similar regions. Are you considering adding any new revenue services in those areas? Will we see an increase in revenue and possibly improved operating margins in those countries acquired from G4S, especially since they are less affected compared to the United States, Mexico, France, and South America?

Well, I'm not sure the answer to your question is absolutely, yes. We're going to improve, which is our 1.0 wider and deeper, our leveraged strategies. We're going to improve margins in those countries in the core base businesses. And we're going to leverage 2.0 new services, added services in these markets. I'm not sure I fully understand or agree with the question around the pandemic, is that it changing how we're going to roll them out in those countries versus others. In other words, we're not looking at just over the next quarter. Over the next year, we think we have the opportunity to start rolling out in many, many of the countries our 2.0 strategies and the pandemic is going to impact it as it has some already in slowing some of that down. But that doesn't mean it's still not a great solution. In fact, in many cases, a lot of the solutions we're talking about make a heck of a lot more sense. So I understand there'll be ups and downs associated with that. And your evaluation of Hong Kong is an example. You can see Hong Kong stayed about flat or within a couple of percentage points of revenues over that period of time. That's why there's not much different and change in color there. And Singapore continued to improve, and it was back at levels that like you said were like pre-pandemic or better. So Malaysia has continued to improve. So you're correct in terms of your analysis there. But we're not going to let that stand in a way of any place to really say we shouldn't be aggressively implementing our 2.0 strategies and our continued 1.0 strategies to improve our business as you're seeing this year.

Okay. Let me ask one last question. Are we moving away from the CompuSafe brand? Will CompuSafe not be included in 2.0, or will it still be sold separately as a standalone entity?

Well, if you think about CompuSafe or think about other smart safes that are offered in the classic CIT system like we did and others do, it's a different offering. It's not a complete offering. And the value proposition for the customer is not as strong. Therefore, I think that the market will move over to our Brink's Complete system. It will include all the same benefits if there are significant benefits of a smart safe that's out there today, but it will also be a complete fully managed system, providing daily credit from one source including Brink's as one source plus all the integrated benefits associated with that. So the answer is it will transition. I think that...

Good morning, guys. Yes, just building on one of those last questions. You mentioned the broadening of Strategy 1.0 cost improvements globally. But I just wondered which markets you think represent the best opportunities for that? Is it mainly the developed European markets that you've acquired with G4S? And then are you planning to set a longer-term margin target at some point, similar to the original 1.0 plan, presumably once things get less volatile?

We absolutely plan to hold an Investor Conference in the future, where we will present some targets, as we have committed in the past. Our strategy includes ongoing wider and deeper initiatives focused on cost and productivity improvements that support our customer service efforts across all countries. This approach reflects our belief that continuous improvement is essential and part of our culture, allowing us to enhance both customer satisfaction and operational efficiency. Each country has specific targets for cost reduction, margin improvements, and productivity enhancements that ultimately benefit our customers. Additionally, our leverage initiative, a key part of our pandemic strategy, helps us manage and reduce permanent fixed costs. We aim to ensure that every country contributes to these efforts, and you will see the advantages of this approach. We will announce these plans prior to any developments related to 1.5 beyond G4S, and they will complement our rollout of the 2.0 strategy.

Okay, great. And then if you've got time for one other quick one, I just wondered what happened with the revenues you talked about in Q2 that have been invoiced for, but not recorded in the numbers. And I think it was within the U.S. retail business. I didn't see anything mentioned about it. Sorry, if you talked about it.

Yes, we were able to invoice some of those, but it's now a much smaller part as those customers return. We apply credit memos to offset negotiations on a customer-by-customer basis, which resulted in a slight benefit in the third quarter. However, this is also balanced out by the credit memos and bad debt reserves. So while there is some benefit, it is very minimal, and that will continue to decrease moving forward. I think that …

Ladies and gentlemen, this …

Yes, please go ahead.

This will conclude our question-and-answer session, and it also concludes our call for today. We thank you for attending the Brink's company's third quarter 2020 conference call. And at this time, you may disconnect your lines.