Brinks Co (BCO) 2017 Q1 法說會逐字稿

Welcome to the Brink's Company's First Quarter 2017 Earnings Call. Brink's issued a press release on first quarter results this morning. The company also filed an 8-K that includes the release and the slides that will be used in today's call. For those of you listening by phone, the release and slides are available on the company's website at brinks.com. (Operator Instructions) 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.

Thank you, Denise. Good morning, everyone. Joining me today are CEO, Doug Pertz; and CFO, Ron Domanico. Morning, we reported results on both the GAAP and non-GAAP basis. The non-GAAP results exclude certain retirement expenses, reorganization and restructuring costs, acquisitions, dispositions and tax related adjustments. In addition to these items, our non-GAAP results exclude Venezuela due to a variety of factors including our inability to repatriate cash, Venezuela's fixed exchange rate policies and continued currency devaluations and the difficulties we face operating in a highly inflationary economy. We believe the non-GAAP results make it easier for investors to assess operating performance between periods. Accordingly, our comments today, including those referring to our guidance will focus primarily on the non-GAAP results. Reconciliations of non-GAAP to GAAP results are in the press release and the appendix to the slides we're using today in this morning's 8-K and on our website.

Finally, please note that Page 1 of the press release provides a summary of our 2017 guidance with additional details on Page 2. I'll now turn the call over to Doug Pertz.

Thanks, Ed, and good morning, everyone. This morning we reported much improved year-over-year first quarter non-GAAP results, including organic revenue growth of 7%. The 62% increase in operating profit and an 84% increase in earnings per share. These results reflect organic revenue growth above our 2017 full year guidance and strong operating profit leverage in each of our 3 geographic segments. I'm especially pleased to report that the U.S. operation's continuing to improve, with revenue growth of 8%, operating profit of $5 million and a margin of 2.6%. This compares with a year ago loss of $2 million in the U.S. So the $7 million swing in profitability was an important contributor to the company's overall profit growth. Our full year margin goal in the U.S. remains in the 4% to 5% range, compared to less than 1% last year. We expect additional margin ramp up in our improvement initiatives in our investments as they kick in, and our overall stronger second half will also take hold to improve our margins.

Results in Mexico also improved over the year-ago quarter, with organic revenue growth of 7% and an operating margin of about 6% up from 5% last year. The improved results reflect growing revenue from retailers, improved productivity and strong progress in our efforts to address labor-related issues that have historically tilted against Brink's. Mexico's 10% margin goal for 2017 is not changed and similar to the U.S, we expect productivity initiatives to have increasing impact throughout the year. While the U.S. and Mexico are on track, our first quarter results also included organic revenue growth in all segments and more importantly, strong operating leverage in all segments and in most countries and lines of business.

In South America, Argentina and Colombia are good examples of operating leverage and margin expansion. In Asia, Hong Kong and India, are other examples, along with our Brink's Global Services business, which improved its margins globally.

At the corporate level, we are now expecting a lower full year tax rate. As a result, we increased our non-GAAP earnings guidance by $0.10 to a range of between $2.55 to $2.65 per share. Given the strong first quarter results, we should be near the top of this higher range and in a strong position to meet our or exceed our 2017 targets. And we've established early momentum for the growth and cost initiatives that drive our 3-year strategic plan and those financial targets.

Since the beginning of the year, we completed 2 small but synergistic acquisitions and have several other near-term opportunities in our pipeline. By the end of 2019, we believe that accretive acquisitions will add materially to our growth on top of our current revenue and profit targets that we've laid out to you.

Now let's take a summary look at our quarterly results. Organic revenue growth was 7%, which more than supports our 6% guidance for the year and our 5% strategic plan target. Operating profit was $53 million, an increase of $20 million or 62%. Again reflecting solid improvement in all 3 segments. The operating margin of 7.1% compares to 4.7% in last year's first quarter, an improvement of 240 basis points that lends credence to our full year guidance of about 8% margin. Especially, when you consider seasonality and the growing momentum in our planned initiatives. EBITDA increased 34% over last year's first quarter.

Earnings came in at $0.57 per share, an 84% increase over the last year, this includes the benefit of $0.02 for the improved tax rate. We're encouraged by the strong start to 2017, especially when you consider that the 2 quarters are historically our weakest and we're just starting to implement our strategic planned initiatives.

This slide, Slide 6, summarizes our outlook. Our full year revenue guidance of $3 billion has not changed. Our operating profit guidance range increased by $5 million due entirely to a change in accounting rules. I want to stress that this change has no impact on revenue, earnings or adjusted EBITDA. We now expect operating profit to be in the high end of a range between $235 million and $240 million, up about 13% from reported 2016 results and up 22% on a constant currency basis.

We continue to expect adjusted EBITDA to increase about 13% and up about 20% on a constant currency basis to a range of between $370 million and $380 million. And as indicated earlier, we now expect our 2017 earnings to come in near the upper end of the range of between $2.55 and $2.65 per share. On a constant currency adjusted basis, this translates to an increase of 27%.

Our full year guidance assumes a negative year-over-year impact from foreign exchange of $80 million on revenue, $15 million on operating profit and $0.18 on earnings per share. Therefore, adjusting 2016 results on a year-end exchange rate basis for constant currency, we expect growth in excess of 20% in operating income, EPS and EBITDA this year.

Our strategy. At Investor Day on March 2, we disclosed a detailed 3-year strategic plan that includes our 2019 non-GAAP financial targets. The plan places a lot of emphasis on the largest countries, especially the U.S. But I want to stress that the growth initiatives and targets that were developed were done on a country by country basis, in concert with our country leadership. We recently convened our entire global leadership team in Dallas where we shared initiatives, metrics that will enable us to have -- to allow our operating leaders drive new initiatives that reach beyond the current revenue and profit goals. The board and top management demonstrated their commitment to operating management and to these targets by awarding additional equity-based incentives that further align their interest with those of shareholders. These equity awards are much broader and deeper than prior awards and are tied, specifically to achievement of our 2019 targets. Our country teams are already beginning to execute on these respective plans and we're all highly focused on delivering shareholder value.

Our overall strategic plan has 3 core objectives, as shown on Slide 7. The first is to accelerate profitable growth or APG. In the U.S and in other countries, we have a good opportunity to not only gain account share with our major financial institutions, but also to increase penetration of smaller Tier 2 and Tier 3 financial customers. Not only in the core CIT and ATM services we offer but also in higher margin cash processing services we believe can and should be outsourced to Brink's.

We also have good growth opportunities in the retail market, spearheaded by our CompuSafe Services. This includes our recent entry into the cash recycler business, which is already generating monthly recurring revenues at favorable margins. To demonstrate our commitment to the profitable growth, we strengthen our U.S. sales organization and marketing efforts to aggressively pursue new business with other retailers and with financial institutions. The second objective is what we call CTG or close the gap. This is really all about achieving operational excellence, driving down cost while optimizing safety, security and customer service. We've recently made solid improvements in our service-level performance, a key metric that will help us increase account share and drive margins to levels that meet or exceed competition.

Our third objective is to introduce differentiated services or IDS. This means leveraging technology not only to support our operational excellence efforts but also to provide new services such as customer portables and real-time track and trace capabilities. For more details on our strategy and our financial targets I urge you to take a look at our full Investor Day presentation. The centerpiece of our strategy in each country includes breakthrough initiatives to drive operational excellence and increase our margins. As most of you know, our greatest near-term opportunity is the U.S, our largest market. Our breakthrough initiatives in the U.S. are aimed at reducing our overall fleet and labor cost, operating our branch network and optimizing our branch network and reinvigorating our sales and marketing efforts. Each of these initiatives has clear return targets that build towards achieving an overall margin of 10% or better by the end of 2019. It's early to provide updates on each of these initiatives but we're beginning to see some real traction. For example, in the U.S., our investments in new trucks and one-person vehicles yielded more than $2 million in year-over-year savings in the quarter related to repair, maintenance and labor expenses. Our plan to add more than 1,000 new trucks over the next 3 years and -- our plan is to add more than a 1,000 new trucks over the next 3 years in the U.S. And based on the first quarter, we're ahead of that schedule. Sales and recyclers along with a monthly strong recurrent revenues added new revenue growth and profit again of more than $2 million compared to last year's first quarter. These gains were partially offset by investments in expanding our sales force, where we added 18 new sales professionals in the quarter to drive new business and profitable growth with retailers and FIs. The majority of these new sales professionals are hunters, dedicated solely to our CompuSafe Services business, and we expect growth in this area to accelerate as the year progresses.

As stated earlier, we expect U.S. margins to be in the 4% to 5% range this year, and I'm confident that these and other initiatives along with an expected seasonal uptick will get us there. Looking beyond the year, here's a summary of our 2019 financial targets we disclosed in March. We're assuming annual or growing revenue growth of about 5%, which could prove to be a bit conservative when you consider that we had organic growth of 6% in 2016 and 7% in the first quarter of 2017. We expect operating profit over the next 3 years to grow by at least 65% or comp annual growth rate of almost 20% to 200 -- excuse me, $325 million with a margin of 10%. Supporting this operating profit in the first quarter, alone, we were up 62% with a 240 basis points improvement in margin to 7.1%. And we've targeted 50% increase in adjusted EBITDA to $475 million.

Our 2017 EBITDA guidance of $375 million, the midpoint of our range, is up $60 million from 2016 on a currency adjusted basis, leaving $100 million of additional growth over the next 2 years to hit our strategic plan target. Again, these targets assume no inorganic growth from acquisitions. We've already completed 2 relatively small acquisitions this year. One in the U.S. that supplements our Brink's global services high-value transportation business, and another in Brazil that expands our payment services business and we have more in the pipeline.

On that note, I'll turn it over to Ron for a financial review. Ron?

Thanks, Doug, and good day, everyone. In the United States, it's Administrative Assistant's Day. And before I begin, I would like to thank the professionals who support us 24/7. At our Investor Day on March 2, we laid out Brink's value creation strategy. The first building block of that strategy is to grow credibility. Credibility is developed by reducing complexity, increasing transparency, setting aggressive targets and meeting or exceeding those targets consistently over time. Our earnings release this morning was designed to achieve those objectives and incorporated the feedback we received from many of our stakeholders. We reduced complexity by reporting how we manage the business in 3 segments: North America, South America and rest of the world, and we significantly reduced the size of the press release. We increased transparency by adding condensed balance sheet and cash flow information to the press release by isolating the impact of foreign exchange, M&A and accounting changes, focusing commentary on business drivers and corporate expense and we continue to provide clear reconciliations between GAAP and non-GAAP results. The targets we set are aggressive but they are necessary for Brink's to close the gap to meet and then exceed the performance of our most successful competitors.

Our first quarter results are early confirmation that focusing on a few breakthrough initiatives is the correct strategy and that our execution is gaining traction.

Please look -- direct your attention to Slide 11. Adjusting for ForEx, acquisitions and the businesses we exited. Revenue in the first quarter increased $50 million from $690 million in 2016 to $740 million in 2017, an organic increase of 7%. South America delivered 17% organic growth driven by price increases in Argentina and solid growth in Brazil. North America revenue grew organically 6% with the U.S. up 8% and Mexico up 7%. The U.S. growth was primarily due to sales of on-site cash recycling services to a national retailer, along with increased volume from the global services business. The rest of the world grew organically by 2% as a 3% reduction in France due to the exit of select guarding contracts was more than offset by a 14% increase in Asia-Pacific.

Revenue ForEx in the first quarter was $7 million favorable versus the same period last year. This was driven primarily by a much stronger real in Brazil, which was partially offset by the post-U. S. election impact to the Mexican peso, a weaker euro and continued but slower devaluation in Argentina. Concerning acquisitions and dispositions, you will recall that last year we exited businesses including Ireland. These businesses had approximately $6 million in 2016 first quarter revenue, which is a negative comparison to this year. In mid-March, we acquired AATI, a small armored tractor-trailer company to augment our BGS fleet and services in the U.S. Due to the timing of the transaction, this acquisition added less than $1 million in revenue in the first quarter 2017.

Last week, we completed another acquisition. PagBrasil is a payments business in Brazil with over 2,500 locations that will be combined with our ePago business and process approximately $100 million transactions per year. The combined business is expected to generate over $60 million in annual revenue. Cost and IT synergies should generate an IRR above 20%.

Turning to Slide 12, before I discuss our operating performance, I want to inform you of an accounting change that was made in the first quarter of 2017 and will be described more fully in our first quarter 10-Q filed at the close of business today. We adopted ASU 2017-07 improving the presentation of net periodic pension cost and net periodic post-retirement benefit cost. This accounting standard separates service cost from other pension costs. The service costs are recorded in operating profit and the other pension costs are recorded below the line. We believe that this treatment is more similar to how our closest peers report their results. The adoption of the standard will increase our 2017 full year non-GAAP operating profit by approximately $5 million. It will also increase our nonoperating expenses by the same amount, so there's no impact on net income or earnings per share.

Quarterly results for 2015 and 2016 have been restated to reflect the adoption of the standard, so all results are comparable. We've updated our 2017 operating profit outlook to reflect this change.

Now to the results. First quarter 2016 non-GAAP operating profit was $33 million, whereas ForEx was positive for revenue due to mix, it was $3 million unfavorable for operating profit. $1 million loss in the disposed businesses in Ireland last year generated a favorable comparison to this quarter. So the adjusted first year -- first quarter 2016 operating profit was $31 million. First quarter 2017 non-GAAP operating profit grew organically by $22 million or plus 67% to $53 million. South America grew organic operating profit $15 million, driven by margin expansion in Argentina and Colombia. North America OP was up $7 million organically from the turnaround in the U.S. and the $6 million organic improvement in the rest of the world was led by a $4 million increase in Asia-Pacific and a $1 million increase in France. Segment operating profit was partially offset by corporate expenses which increased $6 million in the first quarter of 2017 versus prior year. $4 million of the increase was the result of segment allocations and reserves for bad debt that were at $3 million credit in the first quarter of 2016 and a more normalized $1 million debit in the current quarter. Security losses, stock compensation and global strategy meeting expenses each added $1 million in unfavorability. Cost reduction actions taken during 2016 had a $1 million positive impact on corporate salary expense.

Operating profit as a percent of revenue, increased 240 bps from 4.7% in the first quarter of 2016, 7.1% in the first quarter of 2017. As a percent of revenue, the improvement was driven primarily by lower labor costs and lower vehicle expense.

Moving to Slide 13. This slide bridges operating profit, income from continuing operations and adjusted EBITDA. The variance from the prior year for each part of the bridge is included at the bottom of the slide. First quarter 2017 non-GAAP operating profit of $53 million was reduced by $6 million of net interest expense and $1 million of minority interest.

Last year, our non-GAAP effective income tax rate was 37%, due primarily to the rise of the BCO stock price and the associated deductibility of stock-based compensation, we have lowered our 2017 ETR to 35%. The lower tax rate will increase EPS approximately $0.09 and we've updated our 2017 EPS outlook to reflect this change. We expect interest and effective tax rates to remain at approximately these levels throughout the rest of 2017.

The lower tax rate was more than offset by higher earnings and first quarter 2017 taxes were $17 million, up $7 million from last year. The net was $29 million in income from continuing operations. This equates to $0.57 per share in the first quarter 2017, which was up 26% -- $0.26 per share or 84% higher than the first quarter 2016. Up only $1 million from last year, first quarter depreciation and amortization was $33 million. Adding back the $21 million of combined interest and taxes, resulted in adjusted EBITDA of $83 million for the first quarter 2017. This was up $21 million or plus 34% versus the same quarter last year.

Turning to Slide 14. As we told you on Investor Day, excluding CompuSafe, we are projecting to invest approximately $180 million of CapEx in 2017.

Capital expenditures will facilitate our breakthrough initiatives and include new armored vehicles, high-speed money processing automation equipment, IT productivity improvement and other investments to drive operating profit growth. Capital expenditures in the first quarter of 2017 including CompuSafe were $42 million, $27 million was cash and $15 million was capital leases. The 2017 CapEx outlook anticipates a rate of investment throughout the rest of the year that is higher than the first quarter.

As mentioned previously, we expect increased investment in our CompuSafe offering to support revenue growth, not only in United States but internationally as well. We do not consider CompuSafe to be a part of traditional capital expenditures due to the nature of the service contract associated with each CompuSafe unit.

Moving to Slide 15. This slide illustrates Brink's debt and leverage position. The bars on the left of the slide represent our debt at the end of 2015, 2016 and at March 31, 2017. The height of each bar represents gross debt, the top part of each bar represents our cash position and the bottom part of each bar represents the net debt position. As of March 31, 2017, our net debt was $301 million, down $26 million from a year ago but up $54 million from year-end 2016. This increase is due to normal seasonality, the armored tractor-trailer company acquisition and increased capital expenditures. On the right side of the slide, the bars illustrate our trailing 12 months or TTM adjusted EBITDA at the end of 2015, 2016 and at March 31, 2017. Above these bars is the financial leverage ratio of net debt divided by TTM adjusted EBITDA. Our financial leverage is less than 1 and represents the strongest balance sheet among our peers. Our strong balance sheet allows us to make disciplined investments in capital expenditures and accretive acquisitions to close the GAAP and accelerate shareholder returns.

Turning to Slide 16. We believe that adjusted EBITDA is the most meaningful non-GAAP metric for stakeholders to assess cash flow. We calculate adjusted EBITDA on a trailing 12-month basis. TTM adjusted EBITDA at March 31, 2017 was $354 million. This 27% increase versus 2016 was due to the organic growth in operating profit with a slight offset due to ForEx impact on operating profit and depreciation, amortization and other. The adjusted EBITDA margin as a percent of revenue increased 240 bps to 12.0%, and the Brink's enterprise value divided by adjusted EBITDA resulted in a 1.4 turn expansion in the multiple from 7.1x to 8.5x. Perhaps the greatest relevance in the past year, the BCO stock price has risen about $24 per share, up approximately 70%. Looking at the right side of the chart, on the top you can see how the Brink's multiple has increased over the last 5 quarters. Below that, you can see that we have closed the valuation GAAP with some of our peers but we have ways to go to match our most successful peer. We believe this GAAP will continue to close as we further implement our strategy and consistently achieve projections.

With that, I'll turn it back to Doug.

Thanks, Ron. Please turn to Slide 18. As a still relatively new management team, one of our goals is to build confidence among investors and that means meeting or exceeding expectation on a consistent basis. As we demonstrate progress towards achieving our financial goals, our credibility with the investors should increase and so should our trading multiple and overall valuation. We're off to a good start this year and expect another year of solid profit growth. We've increased our full year earnings guidance and our strategic plan is beginning to produce results that we believe will lead to accelerated revenue growth and earnings leverage. Internally, we have broad-based buy-ins among our operating leaders whose interests are more aligned, more than ever, with shareholders. And in the first quarter, our results demonstrated broad-based gains. I can assure you that more than ever, I'm excited about the future of Brink's.

Brink's is the global market leader in our industry, we're the premier brand. We have strong incentivized management and leadership and that management is already in the execution mode. Several of our strategic initiatives are starting to produce results with many other initiatives just starting implementation and we have now added to our base strategy with acquisitions. We're early in our execution and we've got a lot of work to do but I see no reason why we can't meet and eventually surpass industry margins and growth rates. It's all about leadership, culture, strategy and execution. I firmly believe that we have the right leadership, the right strategy and a financial flexibility to drive superior shareholder returns over the next 3 years. Denise, let's open it now for questions. Thank you very much.

(Operator Instructions) The first question will come from Jamie Clement of Macquarie. We'll move on to the next question from Ashish Sinha of Gabelli.

I had a couple. So firstly, I wanted to talk about some of the trends you have seen in the region, specifically North America and LatAm. So starting with North America, if I kind of x out the large recycler business you'd won, could you talk about maybe some of the organic growth you are seeing in other parts of the business? What's actually driving that? And secondly, on LatAm, the 17% organic growth, how much was it came from pricing, which I believe, you passed out -- past pricing through in the second half of last year? Could you also talk a little bit about volumes there? Then secondly, on margins. I wanted to talk about the sharp pickup you've seen in rest of the world which is a cluster of countries and I believe France is the largest. So you did talk about some operating profit growth in France. But could you call out maybe anything else which is driving such a sharp increase in margins for that region?

That's a lot of questions. In the first quarter, our organic growth in the U.S. was heavily driven by the recycler sales as well as the recurring revenue streams associated with that. As I said in the comments, that our recycling recurring revenue streams helped improve margins by over $2 million in the U.S. We're starting to see some also improvements in place but that's not the driving factor in the U.S. but we're seeing positive price movements in the U.S, which I think is a good sign. And that supported, from our standpoint, in particular, by our improved service levels that I think is beginning to be noticed by our key customers, especially our large financial institutions. We think that will include -- that, that will help to drive some pricing and help our competitive positioning that we'll see over the balance of this year improvements in some of our account share and then with the additional sales people, that we put in place both for the FI and the retail will see an improvement in our organic that goes beyond what we've seen in the first quarter, primarily focused on recyclers. And in LatAm, we saw a combination of price. And as I tried to provide some and I think Ron did as well, some examples around that particularly in Colombia and Argentina where we saw -- what I like to think is good strong leverage. So what we saw revenue improvement in both of those cases as well as other countries as I mentioned before. And in every segment, we not only saw revenue improvements and growth but also strong leverage that growth in our operating income and therefore, our operating margins was stronger than our revenue growth and that's what we're looking for across the board as part of our (inaudible) plans. Leverage is very important as we do that -- as we grow. Examples, you know as I said before, Hong Kong was a great example of that. India was another example. France, the revenue growth was not where we obviously wanted to be but we still improved operating profit there. And I think that's what Ron alluded to as well. I think that covers most of the questions, Ashish.

Yes, but if you could talk about LatAm, how much was pricing out of the 17%?

It's kind of hard to say. There is a wide range of inflation in the region with Argentina having the highest amount. That being said, the devaluation of the Argentine peso has moderated significantly. So that our price increases are real impacts to the increase of Brink's revenue. More importantly, Ashish, that our cost increases, especially in Argentina, were at a much lower rate than our price increases so we had margin expansion. I will tell you that there was real volume growth throughout South America, especially in Brazil, especially in Colombia, but we saw it broadly across the region. So without having a more specific answer, it quite frankly is difficult for us to tell how much is pure pricing, and how much is volume, especially in Argentina. I would say that we had a very good lift from price increases. It could be as much as little bit more than half, maybe up to 2/3 of the increase was due to pricing but the rest was real organic growth.

And independent by country as well.

The next question will be from Jamie Clement of Macquarie.

So Ron, let me just ask a quick follow-up there about the volume increases in South America. You see -- I mean, is this in your opinion, market share gains or is the macro backdrop, and I'm particularly asking about Brazil here. Is that kind of continuing to improve off the below bottom?

So, Jamie, as you know the Brazilian macro environment is improving significantly, especially over the last couple of years but in the last year as well. So the overall market is growing and that is rising all boats including ours. At the same time, we have been making improvements in our CompuSafe sales in Brazil and so it's a combination of both market and share. But overall, we're very encouraged with the progress there, both for the overall general economic environment but also about our ability to grow a business organically.

Okay. And Doug, if I could ask you about the U.S. Your Investor Day, it seems like with respect to organic revenue growth, you all stressed retailers and CompuSafe and some of the smaller financial institutions. As your service levels improve, however, at what point in time does perhaps the strategy also involve more of a recapture of some market share losses that you probably have lost over the last say 10 to 15 years?

Well, I think that's a great question and frankly a good lead in. And one of the things we have, unfortunately, over the last several years is loss in what I call market share or account share with respect to our larger financial institutions. And one of the things that I think Ron and I described when we joined the business was that push back, if you will, from customers related to that. And we've seen a much more open friendly desire and response from our large financial institutions in particular as a result of the improved service levels and the -- I think, improved relationship not only in the service levels but on working with our customers to find additional creative new solutions for their businesses as well. So I think, as I said in my statements, and we said before, that will help us gain back some of that account share, that market share, but then strengthen that further with the investment that we've made. And these 18 new sales people, these hunters, are just coming on in the first quarter. They were just brought on at the end of last year, and they're specifically focused on the lower tier financial institutions as well as CompuSafe and recyclers. So we should start seeing the ramp up of not only the benefits associated with the financial institution account shares as a result of the better services and the focus on customers but also as a result of these specific investments that we saw some of the cost associated with that in the quarter. But we should see the benefits as we go throughout the rest of this year. I hope that (inaudible) .

Yes, that's terrific color. And if I could ask just one more follow-up. The process of getting your labor cost down in Mexico. Where do you feel you're already in that process, let's say in a, from a 9-inning baseball game perspective?

Yes. We're in the very, very early stages of that. I don't know what innings in baseball but...

I think first second.

First second innings, if you will on that, and what we've done is as a result of the, if you will, agreements and mutual understanding is, I think, a good way to put it with labor in Mexico. We've actually starting to accelerate the process from we thought it might have initially been, which was more end-of-the-year focus. So we'll start seeing the improvements. So we're in the very early stages, that's why we only saw a small piece of that starting or seeing results if you will in the first quarter.

And the next question will be from Saliq Khan of Imperial Capital.

Yes. Just 2 quick questions on our end. First one is, you previously talked about the 3% reduction in France, you noted that, that was related to the exit of the guarding contracts. But if I take a look at the business over the last several quarters, France certainly has been a challenging region for you guys to be able to tackle. So how do you go ahead and overcome some of these challenges and what is your outlook for the business over the near to midterm?

Well I think the best way to relate that is to go back to our Investor Day. We specifically -- out of a fairly significant strategic plan, review an implementation that we're just starting to implement in France and we're very pleased with the French team's -- operating team's response to things like a change in the guarding volumes but improvements and we're starting to even see that this quarter. There's going to be ups and downs, particularly in a more mature market on the revenue side with -- such as France. But we've laid out in this 3-year strategic plan a clear path to get this margins that double-digit margins and I think we specifically said 12%?

Yes.

I want to be cautious. Like, we don't give you our internal target versus what we've laid out. And the team is very focused on that over this period of time. So while we may have seen the impact in the first quarter of some of the guarding revenue, we actually did see an improvement in operating margin dollars in the 4% as well in the quarter.

Have you gotten any feedback already? I realized that this only been a short amount of time. Have you received any feedback that gives you more confidence or tells you that there might be things that you need to tweak within France to get the top growth that you're looking for? Or the fact that the type of growth that you have internally targeted previously maybe a bit conservative relative to what it is that you're seeing in the marketplace now?

Well you're particularly focusing on France. Look, we're always tweaking the plan and I'll come back to that in just a moment. But we're always tweaking plans. France is always just like all the other markets, they laid out the strategic plan that was presented in the Investor Day. We still have the target out there of 12%. We're not ready to modify or change that at this point, especially on an external basis, but we're always tweaking and looking for ways we can do that and always responding to the marketplace. So no, I have a strong degree of confidence both in France and other places. But let me give you another example of that. We mentioned the global meeting we had with our top leadership about 6 weeks ago now, I don't know, something like that, it all goes together. But targets were set by every one of our leaders, each of our country management at that point in time that tie together and support our strategic plan. New initiatives are being added as we share those and we review those. Ron and I visited South America a couple weeks ago after the meetings. And each of the management teams that we've visited, were very pleased -- we were very pleased to see them come back with new and additional initiatives on top of what they already put in their plans that help support and adjust to the market conditions but help support those types -- achieving those types of targets that were laid out and even more. So that's the type of attitude, that's the type of direction, that's the type of support that will allow us on a global basis to get and hopefully exceed our plans and support the strategic numbers that we've laid out to you.

Great. Just one question guys, which is, you mentioned the 2 recent acquisition. Could you go through the revenue potential and the margin profile of those relative to the ROI in Brink's business?

To put in perspective, at Investor Day, we said we had more than 20 potential deals in the pipeline. Most of those are small -- these are also small. So the potential we see is more on the execution of a pipeline of a lot of these. And the more important thing for your information Saliq, is that the return we're getting on these investments. So as we mentioned, our incremental cost of financing is 2.7% after-tax and the returns on these deals are, by definition, north of our 15% IRR hurdle and some of them well above that. So these deals fall in that category. We don't want to go into a lot of detail. Some of it is because of the limitations on what we can say based on the...

It's competitive.

Yes, and competitive. But the reality is that you'll be able to see the purchase price and our cash flow statements in the queue over time. Hopefully, we'll be able to do a couple of quarters so you can't identify specifically for each one. That being said, they do meet and exceed our return objectives and we will continue to pursue the rest of that pipeline.

Yes, let me just add to that. We certainly don't want to provide information that will negatively impact our competitive position, so that's pretty important. But as you can see, both of these are right in the core of what we said our strategy was on acquisitions. They're in our core businesses. They're nicely accretive, they're going to improve our existing businesses as well as add to both revenue and volumes on it. And I think as Ron in his comments talked about some of the expected returns on it, and hopefully, you should be pleased with those expected returns that we're looking at. And so that's consistent with, obviously, what we've accomplished as well is what we're looking for in the rest of the pipeline going forward.

The next question will come from Tobey Sommer of SunTrust Robinson Humphrey.

I had a question for you on the various kind of sales and marketing initiatives that you have. Do you have those teams fully in place now or is this still an effort in process?

Tobey, we're primarily speaking about the U.S. as -- using that an example. And so, they're mostly in place in the U.S. And, again, versus last year, versus December, they weren't. So these are just -- just put in place during the first quarter and it includes, if I'm correct, 11 hunters, that specifically focus on the CompuSafe recycler portion of our businesses in the U.S, which we didn't have in early December, and 6 or 7 hunters of focused on the smaller, what we call the Tier 2, Tier 3 and below financial institutions to help drive that business, which we clearly did not have the type of coverage and account share or market share, I should say, in that portion of the business. So those are teams that are just starting to ramp up and have just been put on in the first quarter. I think your question is a good one. It's costing us, obviously, the investment of the OpEx as we put them in place. We need to obviously -- they need to get trained and ramp up as any sales organization would. Is it our final investment? If the response and the results are good, I think we'll continue to invest. So I'm not sure how -- but yes, those are now in place and we anticipate as we go throughout this year, we'll see improvements in both of those areas and hopefully that will help drive, as we said before, more of our organic growth particularly in the U.S.

Thank you. As a follow-up on the recycler sale that you have given us some color on. What is the sale cycle like for that? And what's the kind of a reasonable amount of time for us to look for other similar sizable sales of recyclers?

Yes, that's a hard one to really answer. Certainly, recyclers generally take longer than CompuSafe. And the size of the recyclers sale or the size of the CompuSafe sale takes longer as well. If there's a customer that's already in the marketplace for CompuSafe and is going out to bid or working with multiple, then chances are that the timeframe to accomplish that is going to be shorter. Generally, with the recyclers, just as it was with the sale that we made last year to the large grocery store chain is based on how we can work with that customer, with what we call a discovery team to help define and show the return on their investment from anywhere from the reduced cash in their system to the elimination of cost in their operations to the daily credit to the reduction in losses, all of those things come together. So it's a matter of being able to work with the management to show the returns and make that happen in a way that they're prepared to move forward with the investment. And generally that's a longer time in the 6-plus month period of time at least on recyclers than it is on CompuSafe.

Thank you. Just 2 last questions for me. One, is the profile of the sales people that you're hiring both for CompuSafe and for kind of mid-and lower tier financial services institutions. Are they seasoned or are you hiring people laterally from other industries with analogous sales experience? And then the last question is on acquisitions. Should we expect a similar cadence in size to the ones that you executed in the quarter as we go forward?

So on the first question. It's a combination of seasoned as well as lateral. Seasoned and that they've had experience in our industry as well as in the financial services industry. And so probably more than half I would consider seasoned executives sales people and that's part of what we're saying. Some will ramp up in what we anticipate their productions should be faster than others and others are going to take longer to see that ramp up. And so the ramp up -- where to be productive for us and the 6-month period for those that are highly seasoned to 18 months if you will on the appropriate ramp up for those that are not as seasoned. But it's a good combination and I think we're very pleased with the group that we have that I would consider and the majority are highly seasoned, so that's good. The second question is yes. I think you should anticipate acquisitions that will be in a hopefully of similar cadence to this. But can we say there's going to be 2 a quarter or 2 every 4 months. We really can't say that now, it all depends on what we're able to do. But we have a pipeline that's consistent with the strategy that has been executed and consistent with the expectations of accomplishments or closing as we started so far.

And Tobey, just on the value part of that question. I would say the first deal we did would be on the lower side. Second deal's probably in the middle and we could go higher. But I would say the vast majority of that pipeline are deals in the $50 million plus or minus $30 million range. But every deal's different and opportunities come and go based on the current situation.

But I think we've provided with these, at least an indication of how it fits in with our core strategy, the synergies associated with it and our expectations for returns.

You did.

The next question will come from Wayne Archambo of Monarch Partners.

Just on the single-man truck transition. How is that going? Are you in the early stages of that? How is that being received? And clearly, there's costs to be saved there but -- and I think, at Investor Day, you had mentioned on that issue that there's only certain markets you can do that in, going back to the baseball terms again. You're in the early stages of that first or second inning of that transition or where are you in that process?

Yes, I think your question's a good one, Wayne. The one person vehicle phase in the ramp up in the U.S. really depends on the availability and the launch into our system of the one person capable vehicles as well as then the routes that we can then put those on and the percent utilization, if you will, around that. And we have -- as I said, in my comments, we are above or ahead, if you will, of our targets if you prorate the amount of -- the number of trucks that we are bringing into our system based on what we provided as guidance of the 1,000 trucks over the 3-year period of time. So we'll continue to bring new trucks on probably more in the second half of this year on top of what we already have put in place. But as we bring those trucks on, they'll be one person vehicle capable and then it's the how many routes can we put them in place. We did some of that last year as you remember, which gave us a starting point for this year. So maybe that's first or second inning, if you will, from that standpoint. We're probably now in the third inning. I don't -- I never thought it necessarily directly linked to that. But clearly this year, you all can see the continued ramp up of that along with as we introduce the new trucks. These new trucks will have lower R&M and other operational cost than the trucks that we'll be taking out. So it's a combination of the reduced R&M and overall costs. Increases and depreciation cost for the trucks but lower operating and other -- and repair and maintenance cost and the ramp up, especially, in the earlier innings, if you want to use that analogy again, because we'll be able to make sure that the utilization levels will be in that 2/3-plus percent of the routes that we can put them into place.

And are your competitors going with a single person on the trucks or is this unique to yourself? and...

Loomis already has one person vehicle trucks in the U.S. and they're probably -- well I really don't know. I don't know what their implementation percentage is. But they already have those, they're already accepted in the industry. We wanted to make sure we had the right technology and support and security around it. And hence, our new vehicles have the capacity and the capabilities to do that. But if you recall, our new vehicles' initial costs are substantially less than the vehicles that we're replacing. They have longer extended warranties, so their repair and maintenance costs are lower. And the way that we're approaching it is with separable chassis from the body so it gives us the capability of at least 2/3 of our cost which is the body to have a much longer life. And then we match them, the chassis replacement to the number of miles and the use that we get on those and we still get some residual value on those chassis as well.

And lastly. And the 1,000 trucks over 3 years, is that going to be distributed equally over the next 3 years or is it front-end loaded? How will that be transitioned?

Yes. So we're going to see more this year than in subsequent years. And that's why we said we've already started the year beating the equal ramp up to that.

And the next question will come from Jeff Kessler of Imperial Capital.

This is the way we tag team you here. I will have a follow-up on the question from Jamie with regards to trying to the regain market share. When this industry began to start talking about things like bank transformation, it became clear that CIT was not the only means of -- inside the business. And clearly within the last 3 years, there are multiple ways, and because -- I just go to the -- talk about the cash recycling today. There are multiple ways that you can go and get share in this business. So the question is when you are going back to clients realizing you're probably trying to get CIT out of them to begin with. What are the areas that you're finding the most successful and being able to penetrate them with your new talk, your new references, your new value proposition? What areas that you gain the revenue with them that are easier for you to gain back than you are with other areas?

Jeff, I'm not going to answer that directly because I think it's all the areas. In other words, we need to be as a company viewed as equal to or better in our core business of logistics, of CIT, of money processing, et cetera. That means we need to have the service levels in our core CIT business that are equal to or better than competition. We need to have a customer service focus and responsiveness in that business that's equal to or better. We're getting better at that, we're getting close to that but we're not there yet. In money processing, we need to have equal or better than competition, more efficient, more effective, and error rates where they should be and better than competition. So my -- that's the operational excellence, that's what we're improving on fairly dramatically and getting to the point where we need to be. I'm not suggesting we're there yet. In fact, because I believe in continuous improvement, we'll never be there. But the point is we need to have that in place first, which will help us improve our margins as important, on market share with our customers and our existing customers and gain us new accounts in that area at higher margins because we'll do it more efficiently and more effectively. And therefore, service our customers better at the same time we get better margins. So I'm trying to -- I know maybe -- I sound like I'm sidestepping but that's core and that's critical and that's one key that we're working on now. But the answer, overall to your question is we need to be able to provide and we are providing higher-value packaged solutions to our customers that reduce their cost, take away their headaches, if you will, of cash management and improving that for them. And that's really the retail solutions that we're looking at that we're offering combining and packaging together the CIT logistics, which is the core business plus money processing that we have a great position is and with all the rest of the package services and then working on a strategic basis with our customers to add value added service beyond that. Hence, our third objective also taking a look at cash forecasting that manage and support our customers needs and desires along with that as well. Those are the things that we're going to be working for in the future, that will get our customers to say "You take our money processing, you outsource that, you also outsource the vaults," and we have a partnership going forward with that. That's what our focus is and clearly that's what we're starting to see, that's the new sales organization focus on in terms of selling and that's where we think we'll not only get market share gains but also higher margins.

Okay, fine. One quick follow-up to that and that is by you saying you want to do all of these things and because it is part of this whole area. Are you able to change the level of a conversation that you're having with your clients? In other words, the person at the other end of that sales, are you doing multiple people at different levels? or is there -- are you getting in at the treasury level? Are you basically still dealing with the cash logistics people down there? Or are you dealing with all of them?

Yes, no it's a very, very good question and it depends on the account. In order to sell recyclers, you need to get in at higher levels, than just saying, pick up my cash. At financial institutions, it needs to be more of a partnership that says we're going to work together to figure out what you really need in your total system. And in order to outsource vaults and money processing, it needs to be at -- like you say, at more higher level would be Treasury or other areas. My point though is on top of that is the ticket to entry on this is to assure that we have the highest level of customer service, the highest level of service levels on the core businesses before and as a part of what our overall offer is -- offering is on the other value services.

And ladies and gentlemen, we have time for one last question from Drew McNulty of M&T Bank.

I've got 4 quick questions for you. Just a follow-up and then close the loop on a lot of these issues. Can you first of all -- Could I ask you to elaborate a little bit on the return on your CapEx both on the vehicles and the CompuSafe in terms of what is it you're looking in terms of generating a return on those?

Drew, I mean, basically, we won't approve any project unless it has a 15% IRR and many of our projects go way--well above that. So that's the minimum but we are seeing some projects at significantly higher returns.

And Andrew, I might suggest you take a look at our investor package, where we did specifically I think, break out our investments in our trucks and the returns that we expect on those. And I think you'll see that it's in excess of 20-plus percent, which is consistent with what Ron's suggesting. And we have then enumerated the specific savings for the fleet, which is an excess of $20 million per year in our strategic plan period in one-person vehicle trucks and that 18-plus in the range, which then adds up to our returns on the overall investment.

Okay, great. Thank you, I will. Secondly, labor cost impact. So your improving service typically comes in at a higher cost. Can you talk a little bit about labor cost impacts from improved -- from improved service in the U.S. market?

Well actually Drew, we think differently on that. We think that if we operate correctly, the balance with achieving operational excellence or on our road to improving operational excellence, we're more efficient, more productive, but we're also more customer focused and if we do it right, which we think we're starting to, we end up with actually improving our labor cost or labor efficiency, if you will, at the same time that we improve our service levels. And so far, that's what you've seen and it's been 2 quarters, if you will, maybe 3, if you want to look at it like that, and therefore, you've seen improvements in our service levels as well as improvements in our labor cost. So I don't have...

Yes. I certainly have. I've looked at it over the last 6 quarters really. I mean you guys are -- and certainly in the last 3 or 4 since you got there in Q2 last year have improved dramatically. So I just, I was just curious if you were looking specifically at that aspect and obviously you are.

Well Drew, the concept is not to, if you will, put more money into place and more headcounts. It's to do it in the right way, the more efficient, customer focused, better productivity that adds to where we want to go on productivity but also improves our service levels and the right way to do that is to be able to accomplish both of those.

Okay. Next question will be on near-peer competitors and just your -- even the multiple. Congratulations on a phenomenal improvement since December '15. And when I look at the chart on Slide 16, you're obviously on par with Peer A, you've surpassed Peer C. Do you think that your strategy between here and 2019 is going to get you close to close to Peer B or on par with them? Obviously, the goal would be to exceed that from a multiple perspective but what are your thoughts in terms of going forward?

That's up to you. The multiple is just a result of the investment community's confidence that we have a valid strategy and that we're executing against it consistently. And so I learned long ago that the market is the market and there are things we can control and we have head down focused on those exclusively. And we will let the market judge us as they will on whether we deserve the highest multiple or near the highest multiple and we'll just continue executing.

And as I said in my comments as well, it's up to us, as a management team, as a company, to gain your credit -- our credibility with you, and to continue to drive that. I think that our Page 16 multiple is based on trailing. One of the things that I might suggest is we look at forward multiples and we're looking at what we've laid out of the 20-plus percent compound annual growth rate that hopefully we're going to be showing you as investors that we're going to be hitting and beating that. And therefore, you'll start seeing that as the forward multiples will be improved and versus competition, you'll give us some credit as the marketplace at least puts us with the highest of our peers going forward. We'll see.

Okay, great. And the last question I have is regarding your treatment and strategy of the Venezuelan segment as you go forward. Taking a look at your 2016 10-K, obviously, you've got improvements in terms of revenue but also the -- just with the political climate being what it is and the currency issues. What are your thoughts in terms of how to approach Venezuelan operations as you head into the next couple of years?

Well as everyone saw last week, Venezuela nationalized the General Motors business in that country and it's a risky environment, it's a dynamic environment and we have no justification to consolidate that business from an accounting standpoint. That been said, we have an amazing management team down there that is doing everything they can to protect their employees and the business. And we support them in almost every way possible with the exception of infusing U.S. dollars back into the country.

Yes.

So that being said, there's a minimal amount we'll put in, maybe $1 million or so a year. But they are doing a great job running that business in an extremely difficult environment. And so right now, we support them in almost every way we can and wish them the best but there's no justification to consolidate it or sell it or anything else at this time. So it's wait and see with Venezuela.

I want to reiterate that. We've got a great management team down there and we really feel for them , if you will, as we do with everybody in the country in a very tough, tough situation. And we want to be as supportive as we can. We're not doing something that doesn't make good business sense because we do think it's a great business, we have a strong market position down there. The team is only getting probably stronger under the circumstances and we want to make sure we can have something for the future both for us but for them as well. Thank you, everybody else. Now back to you, Denise.

Thank you. This concludes the question-and-answer session and also concludes our conference call for today. Thank you for attending today's presentation. You may now disconnect your lines.