Brinks Co (BCO) 2017 Q3 法說會逐字稿

Welcome to The Brink's Company's Third Quarter 2017 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 on the phone, the release and the 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 on 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. This 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, Keith. Good morning, everyone. Joining me today are CEO, Doug Pertz; and CFO, Ron Domanico. This morning, we reported results on both the GAAP and non-GAAP basis. The non-GAAP results exclude certain retirement expenses, reorganization and restructuring costs, and certain items related to acquisitions, dispositions, tax-related adjustments and our recent debt refinancing. On September 29, we filed an 8-K, summarizing changes in non-GAAP reporting to exclude acquisition-related intangible amortization expense. Current and prior year results, as well as our guidance, have been adjusted accordingly. 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 in 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 non-GAAP results. Reconciliations of non-GAAP to GAAP results are in the press release, in the appendix to the slides we're using today, in this morning's 8-K filing and on our website. Page 2 of the press release provides a summary of our 2017 guidance. Once again, please note that current and prior year financials have been adjusted to more closely align with how we and many of our investors analyze performance and are consistent with the metrics used in our new debt agreements.

Today we updated our July 26 guidance to reflect the changes in our reporting. And to include higher interest expense in the fourth quarter related to recent borrowings. The result is slightly higher 2017 guidance that Doug will review in a few minutes.

Specifically, the following guidance related items have been updated: operating profit increased by $10 million to reflect the exclusion of acquisition-related intangible amortization expense, adjusted EBITDA also increased by $10 million to reflect the exclusion of share-based compensation expense and lower forecasted depreciation, and nonoperating expense increased by $5 million to reflect the additional interest expense on our recent borrowings. I'll now turn the call over to Doug.

Thanks, Ed, and good morning, everyone. This morning, we reported another strong quarter including revenue growth of 13% and a 21% increase in operating profit. These results were driven about equally by organic growth and acquisitions. On an organic basis, revenue was up 6%, in line with year-to-date organic growth and organic operating profit increased 11%. This organic growth was supplemented by the positive impact of the 5 acquisitions we've completed to date in 2017. The previously disclosed acquisition of Temis in France is scheduled to close on October 31.

Our operating margin for the quarter improved 60 basis points to 9.2% and adjusted EBITDA margin increased 80 basis points to 13.5%. Third quarter EPS was $0.83 per share, up 22% from last year's third quarter and year-to-date EPS stands at $2.06, up 47% versus last year. Ron will cover our year-to-date results in more detail, but I wanted to note that our operating margins through the 9 months year-to-date have improved to -- by 180 basis points to 8.2% and our adjusted EBITDA margin has improved by 190 basis points. This reflects an increase of approximately $65 million in EBITDA or up 28% to just under $300 million.

Looking to the next slide to our segment results. Profits in North America were up 90%, on revenue growth of 7%. The improvement was driven primarily by another very strong quarter in Mexico, where organic revenue growth continued to be double digits and operating margin more than doubled from 5% last year. With this year-to-date margin approaching 10% and with what is typically the strongest quarter yet to come, Mexico is well on its way to meeting our -- or exceeding, actually, our target of 10% margin for 2017 and we are still targeting at least 15% margin in our 2019 strat plan.

In the U.S., profits in the quarter came in ahead of a year-ago results, but were lower than we expected for a variety of reasons. Profits were negatively impacted by items including significant wage adjustments in key markets that have been experiencing very tight and highly competitive labor conditions. Higher-than-expected medical expenses, onetime legal expense settlement cost from prior-year claims and the effect of hurricanes that reduced revenue and increased cost in both Texas and Florida.

In the beginning of the fourth quarter, we implemented significant price increases in key markets to offset the third quarter wage increases. Plus we also implemented an across-the-board national annual price increase. Third quarter results were negatively impacted from the wage increases that did not have accompanying price increases. However, these price increases are expected to have a significant impact on the fourth quarter and into next year.

The U.S. breakthrough cost improvement initiatives outlined in our 3-year plan are progressing well and are on track to meet our 2019 profit targets. Reduced fleet repair maintenance cost and lower 1-person vehicle labor cost are on target for 2017. These are supported by our investments in new trucks and delivery of our newly designed trucks, which feature a separate body and chassis -- a separable body and chassis and support our 1-person vehicle technology started in July.

CompuSafe orders continue to ramp up in the quarter and we expect to meet or exceed our 2017 plan of 3,000 to 3,500 new orders. And we're confident that the stronger third and fourth quarter order levels will support an annualized rate well above 4,000 units per year. We'll provide an update on all 4 of our U.S. breakthrough initiatives when we report year-end earnings.

Year-to-date U.S. operating income is up more than $15 million compared to 2016, reflecting a margin slightly under 3%. And our full year U.S. margin rate is now expected to be 3% or better. Our fourth quarter results in the U.S. will add to this profit turnaround and we expect continued improvement in 2018 and '19 in line with our planned targets.

Last week we announced that Ray Shemanski joined Brink's as President of the U.S. reporting to me. This is part of a planned transition and I'm very pleased that Ray is onboard to provide me -- to provide the added leadership in the U.S., which also allows me to focus on my other roles. Ray joins us from Johnson Controls, where he successfully led several multibillion businesses over the last 20 years, including most recently, as General Manager of a $4.5 billion power systems or battery business. Over the last year, our U.S. team has made great progress in developing strategies, strengthening operations and implementing breakthrough initiatives to accelerate profitable growth. Ray's strong experience in operations, logistics and P&L improvement will help drive the U.S. into its 2019 targets and beyond.

One final note on our North American segment. We've reached agreement with our unions in Canada to employ 2-person crews in Ontario, our largest market in that country and the last market to convert to the smaller crews. This was an important breakthrough for us as our competitor has been using 2-person crews for many years. We've also made similar progress in Mexico, where we're converting from 4-person crews to 3-person crews to match competitive practices. As evidenced by the results in Mexico and our agreements with our Mexican unions, we're also driving reduced overtime, route optimization and improve branches' efficiencies.

South American segment profits were up 36% on revenue growth of 33% due primarily to continued strong organic growth in Argentina, and supported by improved performance in Brazil and Colombia. South America organic revenue growth continues to be driven by the expanding focus on retail vertical and on higher cash and circulation. Organic performance was also supplemented by the acquisition of Maco in Argentina.

In our rest of the world segment, revenue and profits were relatively flat, negatively impacted by the expected lower revenue and profits in France. Excluding France, the rest of the world revenue growth was in the high single digits and operating profit growth was in the teens. Since the middle of the year, France has gained several new key customers and results are expected to improve markedly by the end of this year and into 2018. The continued implementation of the France strategic plan, combined with the close of the Temis acquisition scheduled for October 31, should result in France exceeding its 2019 margin target of 12%. And finally, on a year-to-date basis, revenue was up 9%, operating profit is up 40% and EPS is up 47%.

Now let's move to our near-term outlook on Slide 6. We continue to expect 2017 revenue of about $3.2 billion, reflecting 6% organic growth from announced -- and growth from announced acquisitions and favorable impact on currency to date. Our guidance has been adjusted as previously disclosed, with full year operating profit expected to be in a range of between $280 million to $290 million. Earnings are expected to be between $3 to $3.10 per share, reflecting the disposed reporting changes as well as additional interest expense related to our borrowings in the fourth quarter. Adjusted EBITDA in 2017 is expected to be between $425 million and $435 million. And our preliminary 2018 adjusted EBITDA target is in the range of between $500 million and $525 million.

It's important to point out that our EBITDA target for 2018 does not include any contribution from future acquisitions, with the exception of Temis in France, which is expected, again, to close this next week. Given our preliminary 2018 adjusted EBITDA estimate of $500 million to $525 million and our plan to invest $400 million in accretive acquisitions per year in both '18 and '19, we're confident that our 2019 target of $560 million in adjusted EBITDA will be revised upward. This 2019 EBITDA target was increased after the second quarter earnings call and included only the 5 acquisitions completed before Temis. We'll provide detailed guidance for 2018 and update our 2019 targets when we report our fourth quarter results.

We're now 3 quarters into our 12-quarter strategic plan and we're continuing to make progress in our efforts to drive operational excellence and provide high quality service to our financial institutions and our retail customers, which in turn will drive organic profit growth over the planned period. Our investments in fleet and reduced crew vehicles are already having an impact on repair and maintenance and labor cost as well in the U.S., Mexico and in Canada. We've installed high-speed money processing equipment in several of our U.S. branches, with additional installations planned for this year and next year. I mentioned earlier that we expect CompuSafe sales to ramp up to annual rates of at least 3,500 units per year by the end of this year and we're expanding CompuSafe sales in other countries as well. We successfully addressed critical structural competitive labor issues in Mexico and Canada, paving the way for cost and service improvements.

In summary, I'm confident we're on track to exceed our revised 2019 organic growth targets that we laid out in our 3-year strategic plan. With our organic initiatives gaining traction, we're just beginning to layer in growth through acquisitions in our core lines of business. Our inorganic strategy, dubbed 1.5, focus on acquisitions in our core businesses and in our core geographies or what we call core-on-core as well as on adjacent geographies or core-on-adjacent. We have a strong pipeline of core acquisition targets that offer new opportunities to increase route density and new customers and capture cost synergies with strong returns. This year, we've already paid or committed $375 million on 6 acquisitions. Excluding Temis, our 5 completed acquisitions to date added $40 million of revenue, $7 million of operating profit and $0.07 per share in the third quarter. And we expect a greater contribution in the fourth quarter when we'll also see the full quarter impact from Maco in Argentina.

With our recent capital raise in new credit facility, which gives us $2.1 billion in total debt capacity and it gives us increased flexibility, we're well-positioned to make additional core accretive acquisitions. And as I mentioned earlier, we plan to complete additional acquisitions at a rate of above $400 million in enterprise value per year over the planned period. Valuations will vary based on geography and growth potential, but we'll remain disciplined in our goal to achieve post synergy multiples below 7x EBITDA. Our new debt structure and capacity will also offer flexibility should larger core acquisitions become available that would add significant strategic value through synergy capture and/or enabling us to enter into higher growth markets.

Our preliminary 2018 EBITDA target range -- for a range of between $500 million and $525 million, includes the projected impact of Temis and reflects the $370 million spend in acquisitions in 2017. However, again, it does not include the added EBITDA from acquisitions expected to be completed in 2018.

As I close, with a reminder that early next week -- excuse me, that earlier this week we announced changes in our Board of Directors. Dan Henry was appointed as an Independent Director effective October 21, and Peter Feld informed the board of his intention to resign as a director effective November 11. Dan is the former CEO of Netspend Corporation, and is also a co-founder of Euronet, a global leader in ATM ownership and operations and a processing secure -- and in processing secure electronic financial transactions, where he served as President and Chief Operating Officer. Dan brings value experience and insight to our board and we look forward to working with him. We also want to thank Peter for his many contributions since joining the board in 2016 when Starboard Value was our largest shareholder. Starboard was clearly -- Starboard has clearly been an important catalyst for positive changes at Brink's, both at the senior management and operational levels as well as helping us install a renewed focus on operating performance, efficiency and profitable growth. Peter informed us of his desire to resign as Starboard has significantly reduced its ownership position in light of the dramatic appreciation in Brink's stock since they became a shareholder. I'd like to personally thank Peter for all his support during my tenure and his tenure at the company. I'll now turn it over to Ron for his financial review.

Thanks, Doug. Good day, everybody. During the third quarter, we continued to pursue the Brink's value-creation strategy that consists of 4 building blocks: Enhancing credibility, accelerating profitable growth, margin expansion and increasing returns. We are making progress in each area and see plenty of opportunity for continued improvement. The entire Brink's team has rallied to deliver organic results ahead our strategic plan, and the completed core acquisitions are already accretive with more in the pipeline. We just completed a comprehensive debt refinancing with attractive rates, extended maturities and investment-grade covenants. But more importantly, it expands our capacity to execute our strategic plan through additional disciplined and accretive acquisitions and further investments in organic breakthrough initiatives.

Doug provided you with a preliminary view of 2018 EBITDA that shows we are clearly on track to exceed the 2019 targets we shared with you during the second quarter earnings call. We have a lot of momentum. Now let's take a deeper look at our 2017 performance. Please direct your attention to Slide 11. Revenue forex in the third quarter was $12 million favorable versus the same period last year. The euro, Mexican peso and Brazilian real were stronger versus the U.S. dollar, while the Argentine peso was weaker. Adjusting for forex, revenue in the third quarter increased $82 million from $747 million in 2016 to $829 million in 2017. Organic revenue growth was 6% and the net impact of the businesses we exited in 2016 and the acquisitions we completed in 2017 increased revenue 5%. South America delivered 15% organic growth driven by price increases in Argentina and price increases and BGS volume growth in Brazil. North America revenue grew organically 4%, with Mexico up 16% on growth from new retail customers and price increases. The U.S. was flat, as the third quarter 2016 included higher revenue sales for on-site cash recycling to a national retailer, which did not recur in 2017. The rest of the world grew organically by 2% as a 3% reduction in France due to tenders lost to pricing was more than offset by growth in other European businesses and a 4% increase in Asia-Pacific.

Our completed 2017 acquisitions, net of prior year dispositions, added $37 million with most of that coming from Maco in Argentina. Turning to Slide 12. In the third quarter 2017, we faced several one-time unusual challenges to operating profit. Legacy claims in several countries for prior year's payroll taxes, legal fees and settlements cost approximately $5 million. Historically, third quarter retroactive price increases in South America were postponed to the fourth quarter. And we impacted -- we were impacted by natural disasters in the U.S., the Caribbean and Mexico. In addition, the improved business performance resulted in increased incentive-based compensation expense of over $5 million. Nevertheless, third quarter 2017 operating profit was strong and we are affirming full year 2017 guidance as adjusted for the amortization change.

Third quarter 2016 adjusted non-GAAP operating profit was $63 million. 2017 third quarter operating profit grew 21% to $76 million, with $7 million of the growth being organic and $7 million from acquisitions. South America operating profit grew organically 25% or $9 million driven by margin expansion in Argentina. In Brazil, results in 2016 included a favorable social tax credit and in 2017, there was a negative impact from a 1994 tax withholding case. North America operating profit was up 76% or $7 million organically primarily from productivity improvements in Mexico related to labor costs. As Doug described, the U.S. improved slightly despite some unexpected costs related to legacy claims, hurricane impacts and the timing of salary increases related to the tight labor market. The $1 million organic decrease in rest of world was due to lower results in France from lost tenders, slightly offset by improvements in Asia-Pacific. In total, the segments had operating profit growth of 27% that was partly offset by $8 million in higher corporate expenses due to the incentive-based compensation accruals and legacy claims mentioned previously.

Cost reductions taken during 2016 had a $1 million positive impact on corporate costs this year. Operating profit as a percent of revenue increased 60 bps from 8.6% in the third quarter of 2016 to 9.2% in the third quarter of 2017. The improvement was driven primarily by performance in Argentina and lower labor and vehicle costs associated with the breakthrough initiatives, partly offset by higher corporate expenses.

Moving to Slide 13. This slide bridges operating profit, income from continuing operations and adjusted EBITDA. The variance from prior year for each part of the bridge is included at the bottom of the slide. Third quarter 2017 non-GAAP operating profit of $76 million was reduced by $8 million of net interest and nonoperating expense and $2 million of minority interest. We continue to expect our 2017 non-GAAP income tax rate to be around 35%, down from 37% in 2016. The decrease is due primarily to the rise of the BCO stock price and the associated deductibility of stock-based compensation. The lower tax rate was more than offset by higher earnings and third quarter 2017 taxes were $24 million, up $3 million from last year. The net was $43 million of income from continuing operations. This equates to $0.83 per share in the third quarter of 2017, which was up $0.15 per share or 22% higher than third quarter 2016. Third quarter depreciation and amortization of fixed assets was $34 million, up $3 million from last year. Adding back the $31 million of combined interest and taxes and $4 million of noncash stock-based compensation resulted in adjusted EBITDA of $112 million for the third quarter 2017. This was up $19 million or plus-20% versus the same quarter last year.

On to Slide 14. Through 9 months of 2017, we generated organic revenue growth of 6%, organic operating profit growth of 37% to $191 million, with margin expansion 180 bps to 8.2%. Adjusted EBITDA was $295 million, up 28% and the EBITDA margin was 12.7%, up 190 bps. Earnings per share of $2.06 was up 47% versus $1.40 per share in the first 9 months of last year.

Turning to capital expenditures on Slide 15. Excluding CompuSafe and including our completed acquisitions, we are projecting to invest approximately $180 million of CapEx in 2017. Capital expenditures facilitate our breakthrough initiatives and include new generation armored vehicles, high-speed money processing automation equipment, IT productivity improvement and other investments to drive operating profit growth. Capital expenditures and capital lease additions in the first 9 months of 2017 excluding CompuSafe were $120 million. In addition, there was $28 million invested in CompuSafe.

Slide 16 illustrates Brink's debt and leverage position. The bars on the left side of the slide represent our debt at the end of 2015 and 2016 and at September 30, 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 September 30, 2017, our net debt was $570 million, up $323 million from year-end 2016 and up $301 million from year-end 2015. The majority of this increase is due to our 2017 acquisitions. Normal seasonality and increased capital expenditures also contributed to the increase. On the right side of the slide, the bars illustrate our trailing 12 month or TTM adjusted EBITDA at the end of 2015, 2016 and at September 30, 2017. As a final reminder, adjusted EBITDA no longer includes stock-based compensation and all prior periods have been similarly adjusted. Above the EBITDA bars is the financial leverage ratio of net debt divided by TTM adjusted EBITDA. Our financial leverage at September 30, 2017 was 1.4x, increasing from 0.9x at June 30, 2017. Including a full year of pro forma trailing 12-month EBITDA of $40 million from our completed acquisitions, our financial leverage ratio on a pro forma basis would be 1.3x.

Moving to Slide 17. To facilitate the execution of our strategy, we needed additional debt capacity. Last week, we closed new bank credit facilities and notes offering for a total of $2.1 billion. On October 17, we entered into a 5-year $1.5 billion credit facility that includes a $1 billion revolver and a $500 million term loan A. The current interest rate is approximately 3%. The interest rate is based on LIBOR plus a margin that fluctuates based on our financial leverage. The facility matures in October of 2022 and the $500 million term loan A amortizes 5% per year through maturity. On October 20, 2017, we issued $600 million of 10-year unsecured notes that bear interest at 4.625% and mature in October 2027. Proceeds from the term loan A and the notes were used to repay most existing indebtedness and costs related to closing the transactions. Proceeds in excess of those amounts are currently held in cash and liquid investments, and are expected to be used during the remainder of 2017 and 2018 to fund acquisitions for capital expenditures and working capital needs. The billion-dollar revolver is undrawn.

Turning to Slide 18. This slide illustrates Brink's debt capital structure. The height of each bar represents debt capacity, the top part of each bar represents availability and the bottom represents debt outstanding. The 2 bars on the left represent our actual debt situation at December 31, 2016 and September 30, 2017. The last bar on the right is a pro forma representation of debt at September 30, 2017, assuming the new credit facility in notes. With the financing and subject to the terms of the credit facility, we have increased our total availability to approximately $1.5 billion. As you can see on the top right side of the slide, our credit rating remains strong. The credit facility gives us the flexibility to borrow in several currencies to reduce foreign transaction rate exposure. And based on today's rates, we expect that our weighted average cost of debt pretax will increase by 40 bps to around 4.7% in 2018. This cost includes the amortization fees associated with the refinancing.

Onto Slide 19. This slide illustrates our net leverage history and outlook at the end of each calendar year. Prior to the implementation of our acquisition strategy this year, net leverage was less than 1x. Our new debt facilities give us credit for the pro forma TTM impact of our completed acquisitions, including synergy. And as I mentioned on Slide 16, applying that methodology would generate net leverage of approximately 1.3x at year-end 2017. If we complete additional acquisitions approximating $400 million in enterprise value each year in 2018 and 2019, and we maintain CapEx spending around $180 million per year, we expect that net leverage will remain in the range of 1.3 to 1.4x. This implies that adjusted EBITDA is growing at about the same rate as net debt.

2017 year-to-date net cash provided from operating activities was $116 million, more than double last year. And now Slide 20. 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 September 30, 2017 was $407 million. This was up 29% versus 2016 and was driven by the organic growth in operating profit. Adjusted EBITDA as a percent of revenue increased [110] bps to 13.1%. Applying the new credit facility methodology for completed acquisitions to our reported results would add approximately $40 million of EBITDA and $180 million of revenue. Our adjusted EBITDA margin as a percent of revenue would have increased by another 50 bps to 13.6%. As Doug mentioned, our preliminary target for 2018 EBITDA is around $500 million to $525 million. At the bottom of this slide, you can see that the BCO stock price has increased more than 125% in 12 months and has doubled this year. The entire Brink's team has embraced the strategy, their execution has exceeded our expectations in both performance and speed. There's a sense of urgency, teamwork and excitement driving organic growth and the acquisitions are significant and accretive. With that, I'll turn it back to Doug.

Thanks, Ron. I hope it's clear that we're continuing to make great progress on our plans to deliver on our commitment to our customers and to our investors. We still have a long way to go, but the good news is that our opportunities for additional growth and improvement are substantial. With 1 quarter to go, we expect 2017 full year organic revenue growth to be about 6%, with an additional 3% growth from completed acquisitions for a total of 9% revenue growth in 2017. Full year operating profit is expected to grow by about 32% over the last year to a range of between $280 million and $290 million and our expected operating margin is in -- expected to be in the range between 8.8% and 9.1% versus last year's margin of 7.4%, or an improvement of 150 basis points year-over-year. We expect and estimate 2017 adjusted EBITDA to be in the range of $425 million to $435 million, which is up about $88 million or 26% over last year. Our full year 2017 EPS is expected to be between $3 and $3.10 per share with about 16% expected from completed acquisition. This represents a 34% increase over 2016 in EPS. And our preliminary 2018 adjusted EBITDA target range is $500 million to $525 million in EBITDA. And we're forecasting to deliver based on this between $75 million and $100 million in additional growth in EBITDA next year. And this does not include the contribution from future acquisitions, which we do plan to make. We'll provide more specifics, as we said before, on our 2018 guidance and we'll revise our 2019 target probably upward when we release our fourth quarter earnings.

In summary, we started to demonstrate significant operational improvements in the U.S., Mexico and other businesses throughout the company. I'm pleased with the performance that our team has made year-to-date. And I know that they are excited and up to the task of continuing our drive to achieve our strategies, our targets and what comes ahead. With our acquisition strategy just getting underway, we believe we are just beginning to deliver sustainable growth in revenue, earnings and cash flow to our investors. With that, Keith, let's open it up for questions.

(Operator Instructions) And the first question comes from Jamie Clement with Macquarie.

Doug, if I could just start with you, if that's okay. I think you've all been very clear in terms of the financial parameters that you're looking to work in with respect to acquisitions. But strategically and operationally, as you evaluate a core acquisition like an Argentina, like a France, in addition to just pure route density, which is just obvious to me, what are the other strategic and operational things that you look at to say, okay, we're going to do this or we're not going to do this?

Yes, I think -- Jamie, that's a good question. And I think we have to start with the -- first of all the ability of our team to execute, both in terms of the process related to the acquisition, but more importantly execute and be committed to the integration of the businesses, and the improvement of the businesses going forward. In other words, commit to the synergies, their numbers, and to be able to implement those synergies. Frankly, if the team is not ready and excited and buying into the acquisitions in that country, then it's not the appropriate place and time to move forward with that. But clearly, we think that's the case in Argentina, in France and other locations to do that based on the acquisitions we've done to date. So that's a very important piece on it. In terms of the strategy, we clearly look to see, does this help support both our strategy in terms of customer, customer base, and improvement in that geographic footprint and overlap, is another thing to look at. And then obviously, how does it drive the business in terms of cost synergies. Route density is obviously an obviously -- it is an obvious one around that. But that density is not just route density, it's branch density, it's customer overlap, it's a lot of things that then move on back to the rest of the costs associated with operations of our businesses, are very capital -- labor-intensive and the rest of the indirect cost offers significant synergies as well. So I hope that gives a little bit of background. But I think what's important is that we are disciplined in the way that we look at this. We are working clearly very closely with the local management and it's their acquisition, it's their deal that then drives to where we're going. Just as an aside to that, not to extend this one, but just an aside to that, I was very pleased to sit down with our French team, Ron and I were there 1.5 week ago, and we were reviewing obviously what was going on this year with the improvements in some of the recent tenders and business that we won. Obviously, with disappointment in the first half of this year because of the flat sales and reduced profitability. But looking forward to the latter part of this year and into next year of the current near-term business, how it's improving very nicely and we have greater confidence in that, as I said in my remarks. But also in the relook at our strategic plan that was laid out for France, that was driving costs down as well as growing the business. And now layering on top of that, the Temis acquisition, which we'll be closing next week there, will give us the opportunities for all of the things that we just went through of cost synergies but also market and customer synergy improvements as well that will give us the opportunity to markedly improve our target margins in our strat plan period that we talked about before. And that's a really nice magnifying impact.

Yes, I appreciate that. And I appreciate all the color. If I could just -- just 1 more question, and I'll get back in the queue. With respect to the U.S., obviously in the quarter, you had some bad guys that kind of went against you a little bit. And obviously, I think most companies are dealing with a tight labor market. But one of the things you didn't address on the call, and I was just curious is, how are service levels looking? What are conversations with customers sounding like these days? I mean, I know you and your team have really only been there for a year, but -- and maybe that's too early to start seeing real improvements there. But can you give us a little color on that subject?

Yes, I think, Jamie, in general, we've continued to improve our service levels to customers over the last -- well, I'd say throughout this year. They do go up and down by region and by where we have the tighter labor markets and so forth. And that's one of the reasons why we took the actions that we did, we took them before, getting the price. But we thought they were important to manage our service levels and make sure we continue the improvement in our processes and our service to our customers. But that being said, we still have a long way to go. We still have a lot to do to not only change our culture and continue to improve our culture where we need to go, but to operationally continue to improve our service levels with our customers as well as assure that we come out with new products and new services that address our customer needs and also work as part of our strategy to provide customer-facing technology, which will be part of our push for next year as well. So I think the answer is yes, we're improving, but we still have a ways to go, and I think we have a team that's very much focused on that. I think that bringing Ray on will also help accelerate the pace of both the cultural change as well as probably operational improvements.

And the next question comes from Tobey Sommer with SunTrust Robinson Humphrey.

Hi, this is Kwan Kim on for Tobey. First off, could you give us an update on expanding your business amongst small to mid-tier banks both in CIT and CompuSafe businesses? Has Brink's been gaining traction at a pace you would like it to be and in which geographic areas are you having the most success?

Well, Kim, the question I think there is derived from part of our focus that we started in the beginning of this year that was heavily focused on, like you said, CompuSafe's and also reaching below our Tier 1 FI's with our additional sales team, what we call hunters in that sales team. So yes, we are gaining traction. Is it to the level that I'd like it to be? It never is. I'll never be happy with that. But we are gaining traction and as I said in my comments, we've seen material improvements in the ramp up in sales from our hunters as well as the rest of our sales organization. We've materially increased our CompuSafe sales and our ramp up acceleration of our order rate for that, that I'm very pleased with. And what we will be able to show I think by the end of this year that we'll have achieved our sales rate for CompuSafe, which is heavily also and focused on the smaller FI's as well as mid-tier customers and will be at a sales rate for those that will put us above the ramp up rate that we're hoping to get to. Now that doesn't mean there's going to be sales in this year, but it means that we will go into '18 with a sales level, an order level that will give us the ability to install those and sustain that type of level and more, which is in our plan.

That's helpful. And with the appointment of a U.S. President, could you talk about the other roles you would be focusing on that you've mentioned early in the call?

You kind of take me back there. I am CEO of the overall business. So we have 40-plus other countries and a lot of other business that we'll be focusing on. So I will primarily be focusing on my CEO role.

And the next question comes from Jeff Kessler with Imperial Capital.

Could you talk a little bit about the various -- you have various -- obviously portions of your business in that you've taught -- that you've mentioned in passing. But could you kind of drill down a little bit more and talk about, by like geographies, which businesses specifically are looking -- have been looking stronger than you expected, which businesses are you fighting a little bit more in? Obviously, cash in transit that the margins go up when you pull out -- when you are finally able to pull out a person. But you've been talking a lot about CompuSafe as well this morning, particularly as a product in the mid-markets. But you haven't talked -- you haven't broken it out to give us a sense of which areas of your product and service business are really -- have really picked up, which areas are you still trying to -- are you still trying to develop? It sounds like you're still investing heavily in stuff like cash recycling and new stuff, which may not be to the point at which you want yet?

Well, that's a (inaudible)...

Multifaceted.

Yes, it's a multifaceted question. I think we tried to give you some background and some detail in the comments on a geographic basis. And you see the overall numbers and so forth on a segment basis, I'll be glad to talk a little bit more specifically on that but not provide tremendous detail by country. South America, as a segment, continues to be very strong and good strong growth driven heavily by the vertical of retail in key markets there. Obviously supported by continued strong cash in circulation, as I mentioned. And our vertical of retail, we through most of our businesses has probably the greatest opportunity of the different verticals that we participate in. And CompuSafe is a key solution for retailers from that standpoint. And as I said before, CompuSafe or retail solutions, which includes the more sophisticated recyclers that you mentioned, are really highly [unvended] in many markets. In other words, the market as an example in the U.S., for those type of solutions that offer customers great returns on their investment and the ability to effectively outsource most of their cash requirements with a good return, the market is highly untapped and is not currently supported by vendors such as us. And so that presents a great opportunity. And that's why we talk about CompuSafe, that's why our competition talks about CompuSafe, and the size of the market and the ability to penetrate that. And we've put plans in place, as we've spoken about in our strategic plan, to go after that market and to continue to expand and grow our sales and our efforts in those areas and we're continuing to do that. And so our 4 key breakthrough initiatives in the U.S., 3 of those were heavily focused on cost. Fleet were 2 of those, our branch operations and our efficiency and productivity on the money processing side is the third. Those are cost focused improvement efficiency, customer service objectives. And then our fourth one is in the area of improving our penetration, our support and our sales, heavily focused in the retail side. Although, we want to do more with outsourcing on FI's as well. I hope that gives...

That was well done and exactly what I was looking for. Thank you. Also, in terms of making the entire organization more efficient, have you -- when looking at procurement, realizing that in some cases you can have worldwide procurement, in some cases the procurement goes country by country and maybe region by region. What areas, in terms of creating a greater level of efficiency from procurement to essentially physically geo-locating your trucks. What areas still remain to have a lot of leeway in them for you to move those numbers up?

Hey, Jeff. This is Ron. We don't call it procurement anymore, it's strategic sourcing. That means the same thing but it sounds better. That being said, we have looked at many things. For example, at Brink's, when we joined throughout the company and all of our businesses, there were 175 varieties of security bags that were used by our messengers to transport cash between the armored truck and the customer. That number has been reduced now to 20. And we've got global sourcing on those varieties. That's just one example. The design of the armored trucks -- we can't use a lot of the exact same truck country by country because they have different specifications for armoring, et cetera. But that -- the information sharing, there's a series of things that our procurement team is working on. Right now, I would say the biggest impact they're having is in fleet and in the maintenance of that fleet as they optimize the fleet management systems and the role of actually purchasing the vehicles and then servicing them.

Can you give any type of indication about how much this has saved you in terms of bps? Or is that too interwoven with the other parts of your cost saving program?

Just like most areas of the company, if you added up all the savings, they would outperform the entire business. That being said, we haven't disclosed the impact. They are incorporated in the business and it's intertwined and it's hard to determine specifically where the savings are coming from. Is it sourcing, is it efficiency from the operations, et cetera? So instead of trying to nail that down, we do actually review sourcing profitability each year and it's a significant number on paper. But again, if I added up the savings from every project we did, it would exceed the profitability of the company. I'm sure you've never seen that before. So it's material, but instead of trying to isolate that, we let each of the country managers own the improvement efficiency metrics that they're driving for in each quarter.

(Operator Instructions) And our next question comes from Ashish Sinha with Gabelli.

I had a couple. I just wanted to expand on Jamie's question earlier about the labor situation in the U.S. And what I wanted to understand was, is there any changes in your staff attrition ratio in the U.S? That's the first part of it. The second part of it is, how much mix you're using of temporary workers in the U.S. versus permanent? And what I'm trying to get at is if there is a change in temporary workers and you have to onboard a lot of new temporary workers, is there a risk that you need to up the training cost to maintain your service levels? That's my first question. The second question is essentially on LatAm volumes. Could you talk about, within the organic growth, the breakup between volumes and pricing and could you also talk about your market share in LatAm? What that's doing?

So Ashish, let me take your first one in terms of the attrition rates and so forth. So what we saw, which is very consistent in a lot of these key markets, very consistent with what many other countries -- companies have seen, and I think you've heard on the news and you've probably heard from a number of your other companies that you cover, is significantly tightening markets, especially in our type of business and our type of employees that we employ in the U.S. Obviously, unemployment rates that are getting to full employment type of levels. And specifically, when you're competing against Amazons and others in the area how the markets were improving -- were tightening. So therefore, we saw that in the second quarter and we took action in the third quarter. Again, as I said, prior to taking any price action, we increased wages, particularly in significant number of markets that helped us get in front of some of these issues or at least respond to it so we didn't have service issues to any great degree. Now what that has done actually is it has reduced the turnover of the front-line employees. So these are the employees that are messengers and are drivers. It has actually worked to reduce that which would then reduce our training and other costs associated with that. So that's actually positive. We'll start seeing that benefit as I said in the fourth quarter and beyond. Probably more as we bring on the employees in the third quarter and then see the benefits going forward. The temporary employees are more in areas such as money processing and so forth that help us support the spikes or the business shifts of volumes and more in the money processing, not as much at all on the outside. So we don't use temps for drivers and messengers. That has not changed, in fact it's probably gone the other way. We're trying to reduce the number of temps. So we don't see that as an issue and that shift has not changed so there's not an additional cost associated with that. I think that was your specific question. I think the key thing here is, is we've responded here, it is a problem, others are seeing the same problem. And I think our competition is probably seeing the similar sort of issues that we have. And hence the response with the first of the fourth quarter price increase that will start covering this as well as give us going forward. LatAm, I think -- we don't break down volume and price as Ron suggested, that pricing generally is, in many of the countries, is done on a basis of reviewing where inflation is or has been over a prior period. And as the unions and as an industry then price increases are negotiated in line with that and follow a general pattern. And generally, that happens in the third quarter. In several of the countries in South America, those were delayed this year. Therefore, we didn't see the impact in the third quarter, we'll see more of it in the fourth quarter. And we continue to see volume increases in cash transport which does have an impact on improving our volumes. So it's a combination of both volume as well as price. Although the price isn't as much as we would've liked and anticipated going forward as a result of that. In terms of market share...

Maybe I can jump in there. On our investor presentation on our website from our August 7 deck, Slide 9, we give as much detail as we are able and willing to give on market share. That does show the impact of the latest acquisitions in Argentina and France. And it's a representation that is pretty accurate. But we have not disclosed and will not disclose what we believe the exact numbers are for ourselves and for our competitors. But that Slide 9 in the August 8 -- sorry, the August 7 investor presentation is a pretty accurate representation.

I think to that, the combination of us and one other major competitor in South America, especially in the key markets that we participate in now, are the key competitors.

And the next question comes from Joan Tong with Sidoti & Company.

I have 2 questions. First off, I wanted to ask you about the operating environment in U.S., specifically related to the financial industry. There is some noise, obviously this quarter, actually in the past couple of quarters, people get excited about the budgetary improvements that we anticipated after like the election. And obviously, that excitement has sort of died down a little bit. And then we have seen some other vendors, not specifically in your space, but also like in the ATMs and the cash space that they're not doing exactly well. So just want to get an idea, like how you guys are seeing operating environment in the U.S. for financial services. We are talking about like in a flat revenue growth for this particular quarter in the U.S. for you guys, so...

Yes, there's 2 parts to your question, Joan. I think the first one is the volume of business, and we've been seeing an increase. As you would expect, every financial institution has services by an armored truck, so that market is full and stable. The growth is coming primarily on the retail side, as Doug explained, from the smaller CompuSafe to the larger recyclers. And we see that, that vended market is about 20% and the unvended part is about 80%. So we have the volume opportunity specifically on the retail side. On the pricing side, as Doug mentioned in his prepared comments, the environment is as good as it's been in recent years. In addition to the annual price increases, because of the tight labor market which you referenced, we've been able to get -- we've had to increase pricing in wages for our colleagues and we've been able to announce a supplemental increase to pass a portion of that on to the customers. So the market, as you're describing, is positive both on a volume side and a pricing side in the United States. Globally, I would say it's different by country. And as Doug mentioned, a lot of it's driven by inflation in countries that have higher than average rates. But I would say, generally, around the world, we see volume increasing and we see pricing going up.

Let me add to that just briefly, Joan, that I think most of the FI's know and understand what's going on in the labor markets and they recognize it in their own businesses and they recognize that these are important issues that need to be addressed and are supportive of that. So that's not saying something necessarily specific, but I think what it is suggesting, there is a general understanding that the pricing needs to go up in line with this, and I think the industry is knowledgeable of that as well. That's one thing. And the second thing, that banks know that cash is very important to their business and to their customers. They also know that that's not necessarily where they longer-term want to focus. And therefore, our ability to provide them not only the best services but the ability to provide additional services that provide them the opportunity to outsource more of all of the issues and services around cash that they do today. It's not only what they outsource today, not only what they have others do like us today, but beyond that what they do in-house will be where the future goes with FIs and I think that's a good opportunity on top of where we are today for our industry.

Okay. Okay, that's fair. And then my next question is related to recycler. You guys had a pretty sizable contract last year. And I just want to get an idea in terms of the pipelines -- sales pipeline and then the sales cycle. I assume that it's pretty long and do you expect like any larger contract in the near to medium term?

Well, Joan, I think you're right on a couple of points there. We're very pleased with the whole contract, it was a pretty good size, its produced. And they will even say as a customer they purchased those units. And these 6-year plus recurrent revenue streams have services because it provided them a very good return and cost savings. And that is something that is a great (inaudible) for other companies in the grocery business as well as other large retailers like that. That pattern should repeat itself because it is a good return and because it makes a lot of sense. And we think that, that will be the case and therefore, we have a number of things in the pipeline, but it is a long period for the sales process. And while we have sold some smaller one-offs and done some prototypes so far this year, obviously we don't have anything yet to announce of the size like the Ahold.

Okay. But definitely good job in ramping up the CompuSafe order rate and so we will wait to see like what's going to happen next year.

And the next question is a follow-up from Jeff Kessler with Imperial Capital.

I wanted to -- I just wanted to piggyback on a couple of things that were -- I asked before. One was, if you take a look at Mexico and you take a look at Latin America, it's been primarily and historically a CIT market. What are the types of extra services that you think you can introduce successfully into those markets over the course of the next -- let's call it the medium-term, the next 2 to 3 -- next 2 to 4 years that would get not just incremental revenue but incremental margin, then leverage the cost savings that you've taken out already?

Good question. And I think a similar pattern to what we're seeing in countries like the U.S. and France will be a pattern, although it's very embryonic and in the early stages, of retail solutions that they could be similar to and were already starting to sell, and we have significant ramp up plans for South America, including Brazil and Mexico in particular, particularly in the retail space in CompuSafe and CompuSafe-like products. So, again, highly unvended, more so than other places. Highly cash-related societies. Therefore, there is a great need for this. Greater risk, which makes a lot of sense as well. And good solutions that we can provide, but they may be a little bit differently tailored then what we have in the U.S. or in France that are a bit more -- I'm sure sophisticated is the right word, but tailored a little bit differently. So I think that's where a great opportunity is from that standpoint that we are focusing on and we will continue to see greater opportunities there as well as outsourcing on the FI side that I think needs to change as it is in other markets -- more developed markets as well. You want to talk about payments?

Yes. Jeff, in addition, as you're aware, in South America and Central America, it's a much more cash-based economy and we have initiatives underway to expand our payments business down there including an extensive network of correspondent banks in Brazil, the PagBrasil acquisition was a great addition there. The improvement in revenue and profitability is significant on a small basis, but you're talking about the future, and as Doug said, this is embryonic. But we are in Panama testing 4 different models on how we best serve the unbanked in a way that brings them into a modern economy, enables them to actually make electronic transactions by passing cash to us and we are doing that through different models including kiosks, self-service electronic units, having employees at grocery stores actually handing our -- handling our transactions. And again, that's all at the early stages, but we're excited about the potential of serving such a large market in an effort to bring them into a more modern economy and we see a lot of potential there.

Okay. I just want to quickly say that I've been talking nonstop CompuSafe with this company for over 10 years. This is the first quarter that I'm really getting -- that I'm really getting optimistic about it. This is -- congratulations, guys, because this has been on the come for so long and it seems like you're finally making a success of it.

Well, hopefully we'll support that next quarter even more.

This does conclude the Brink's third quarter results conference call. Thank you for your participation today. You may now disconnect your lines.