Brinks Co (BCO) 2018 Q4 法說會逐字稿

Welcome to The Brink's Company's Fourth Quarter and Full Year 2018 Earnings Call. Brink's issued a press release on fourth quarter and full year 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.

Thanks, Drew. Good morning, everyone. Joining me today are CEO, Doug Pertz; and CFO, Ron Domanico.

This morning, we reported fourth quarter and full year results on both the GAAP and non-GAAP basis. The non-GAAP results exclude a number of items, including our Venezuela operations, the impact of Argentina's highly inflationary accounting, reorganization and restructuring costs, items related to acquisitions and dispositions and costs related to certain accounting compliance matters.

We also provided an analysis of our results on a constant currency basis, which eliminates changes in foreign currency exchange rates from the prior year. We believe the non-GAAP results make it easier for investors to assess operating performance between periods. Accordingly, our comments today, including those referring to our guidance, will focus primarily on non-GAAP results. Reconciliations of non-GAAP to GAAP results are provided in the press release in the appendix of the slides we're using today and in this morning's 8-K filing, all of which can be found on our website.

Finally, Page 3 of the press release provides some details behind our 2019 guidance, including revenue, operating profit, noncontrolling interest, income taxes and adjusted EBITDA.

I'll now turn the call over to Doug.

Thanks, Ed, and good morning, everyone. Today, we reported strong fourth quarter and full year results, including our 11 consecutive quarter of earnings growth, reflecting a 27% compound annual growth rate in operating profits since 2016. These strong reported results included significant unfavorable FX headwinds for the full year that hit us hardest in the fourth quarter. Strong profit growth in Mexico and our U.S.-based business was supplemented by $28 million of operating profit from acquisitions, helping us to boost our full year margin rate by 130 basis points to 10.1%.

Over the first 2 years of our strategic plan, we have increased our margin by 270 basis points and the U.S. business margin by over 5.5 margin points. Also during the 2018 year, we increased our non-GAAP free cash flow by over $100 million.

I'm going to cover our fourth quarter and full year results in more detail. I'll also cover our 2019 guidance and briefly discuss the next phase of our strategy and its expected impact on results of 2019. Then Ron will provide a more detailed financial review and update our planned amendment to our bank credit agreement and our share repurchases.

Turning to Slide 4. We reported fourth quarter revenue growth of 5%. In constant currency, revenue growth increased by 16%, including organic growth of 7% and 9% growth from acquisitions. The unfavorable FX impact in the fourth quarter was greater than the other 3 quarters in 2018, negatively impacting reported revenue and profit further, while the Argentinian peso exchange rate versus the U.S. dollar during the fourth quarter was favorable versus the updated 2018 guidance that we provided during our third quarter earnings call, this favorability was offset by weakness in our other currencies.

Reported operating profit was up 15%, reflecting a margin rate increase improvement of 90 basis points to 11.4%. In constant currency, profits rose 44%, including 37% of organic improvement from our Strategy 1.0 breakthrough initiatives and another 7% of inorganic growth from our Strategy 1.5 acquisitions, including the first quarter that was a full quarter of contribution from our recently acquired Dunbar operations.

Reported EBITDA increased 13% and 35% in constant currency. Reported earnings per share increased 11% and 46% on a constant currency basis.

As I stated earlier, the impact of currency translation hit hardest in the fourth quarter, reducing reported revenue by $96 million and operating profit by $27 million. In fact, this $96 million revenue decline in the fourth quarter alone represented 50% of the full year revenue impact from negative FX, with most of the decline attributed to the Argentinian peso.

As a global company with operations in 41 countries, it's important to highlight constant currency results because we believe that more -- they more accurately reflect the operational performances of our businesses. Our international operations transact business almost entirely in local currency with revenue and almost all expenses in that local currency. Our financial reporting -- for financial reporting purposes, our local currency reflects -- results are translated into U.S. dollars. Therefore, most all of our FX exposure is translational.

Turning to Slide 5 and our full year results. Reported revenue increased by 8%, including organic revenue growth of 5 -- including organic revenue growth of 7%, with acquisitions adding another 7% of growth, offset by $192 million or 6% of unfavorable FX impact. Reported OpEx increased by 23%, with a margin rate of 10.1%, up 130 basis points over our strong 2017 full year results.

Op income grew by 48% on a constant currency basis, offset by 25% of unfavorable FX impact, which reduced operating earnings by $70 million. Adjusted EBITDA grew 20% to $512 million and reported earnings with 14% to $3.46 per share. Earnings, which were up of 44% in constant currencies, reflect an effective tax rate of 34.2%.

As we disclosed last May when we announced the Dunbar acquisition, we expect further cash reductions -- tax rate reductions going forward. Ron will cover the additional detail of our tax rate outlook in a few minutes.

Turning to Slide 6. Let's review our results by segment. In North America, we reported fourth quarter revenue growth of 36% and operating profit growth of 64%, including a margin rate increase of 200 basis points to 11.3%. This strong performance was driven by profit growth of 123% in the United States, which now includes the Dunbar business, and 37% organic growth in Mexico. The full year revenue increase of 17% includes 5% organic growth and another 12% or $153 million of revenue growth, primarily from the Dunbar acquisition.

Full year reported profits in North America increased 75% on revenue growth of '17, reflecting a margin rate increase of 300 basis points to 8.9%.

I'll cover the U.S. results in more detail in the next slide. But first, I wanted to call your attention to the continued outstanding performance of our Mexico operations. The Mexico team exceeded their aggressive 2019 margin rate goal of 15% a year ahead of schedule, with a 2018 full year margin rate of 16%, up almost 500 basis points over their 2017 rate. We're confident that Mexico will continue to deliver double-digit revenue and profit growth with increasing sales through retail customers as it continues to improve productivity and reduce labor cost.

As we begin 2019, our North America segment is positioned for another strong year based on continued improvement in both the U.S. and Mexico operations that should be further enhanced by profit growth in Canada as it ramps up services to the cannabis industry.

In the fourth quarter, we announced an exclusive agreement with Canopy Growth Company (sic) [Canopy Growth Corporation], Canada's largest cannabis producer, to transport both product and cash from growers to formulators to retail outlets. Revenue in 2019 from this agreement is expected to be approximately $15 million.

Slide 7 provides a closer look at our U.S. operations, which continue to be the single-largest opportunity for profit growth and value creation. And with the addition of Dunbar, this opportunity is even more attractive in the future. The fourth quarter -- in the fourth quarter, Dunbar -- the fourth quarter was Dunbar's first full quarter as part of Brink's, which is the primary reason why revenue increased by 54%. Operating profit for the quarter more than doubled, from $13 million to $30 million, with a margin rate increase of over 300 basis points to 9.7%. But excluding the positive impact from the Dunbar business, which had a margin rate on its own of 9.4% including synergies, profits in our U.S.-based business were outstanding, up 53% with an even higher margin rate of 9.8%, an increase of 310 basis points over the pre-Dunbar fourth quarter of 2017.

Full year revenue in the U.S. increased 22% to about $950 million, again, heavily due to the addition of Dunbar, which added about $150 million in revenue. Operating profit more than doubled from $29 million in 2017 to $64 million in 2018, reflecting a margin rate increase of 310 basis points to 6.8%. Excluding Dunbar, 2018 margins increased 270 basis points to 6.4%, well ahead of our initial target exit rate of 6% for 2018.

Our 3-year strategic plan for the U.S. disclosed in 2017 was to exit 2019 with a margin rate of about 10%. We're on track to achieve this goal and much more. In 2021, when we achieve full synergies from the Dunbar acquisition, we expect to achieve a margin rate approaching 13%.

The accelerating profit growth in our base U.S. business is primarily the result of the traction we're gaining as we execute on what we call our breakthrough initiatives. This improvement will be further enhanced as we continue to combine Brink's and the Dunbar businesses.

Here's an update on Slide 8 on our breakthrough initiatives we began implementing in 2017 in the U.S. The execution of our plan to purchase and deploy 1,200 One-Person Vehicles by 2018 is well underway. Once completed, the average age of our U.S. fleet will decrease from about 12-plus years to about 7 years. During 2017, we added 440 new trucks, bringing us to a combined deployment of 700 trucks at the end of that year, with another 325 trucks added in 2018. All of these trucks are capable of accommodating One-Person crews and the more recent additions feature our new design that allows replacement of only the chassis, not the more expensive armor body. As we replace chassis and reuse truck's bodies in the future, we'll maintain lower fleet maintenance and repair costs and also reduce future CapEx cost.

The replacement of older trucks has resulted in more than $11 million in fleet cost savings to date. We've achieved another $17 million in labor cost savings over the last 2 years from our transition to One-Person crews. On top of that, these more reliable trucks have improved our service quality level to our customers and have been widely accepted by our employees.

We initially said the ramp-up of our CompuSafe sales growth in 2017 was slower than expected. However, I'm pleased to report that we received orders of over 5,300 CompuSafe in 2018, obviously easily exceeding our target of 3,500 orders and clearly demonstrating a strong ramp-up in orders over the last several years from the 1,400 units in 2016. Of the 5,300 orders in 2018, 1,300 where from a single customer, supporting our deeper penetration of large multi-location users.

Our CompuSafe service is also well established in gaining traction in many global markets, including France, Mexico, Brazil, Israel and other global countries. Our global installed base is approaching 36,000 units, with roughly 1/3 of those outside the U.S.

On last quarter's call, we said that the U.S. business had reached an inflection point in terms of its upward profit trajectory. The U.S. business was less than breakeven during the first half of 2016 with limited belief by investors that it could ever be a high-performing business. Our fourth quarter and full year results clearly enforce our conviction that this business has turned the corner. We believe more strongly than ever that the Brink's and Dunbar together will prove to be a powerful combination that will continue to deliver substantial profitable growth and close the margin gap by 2021.

Turning to Slide 9, South America. Our operations in South America performed well in the fourth quarter and throughout 2018. Though our reported results do continue to be significantly affected by negative currency translation, primarily from the Argentinian peso and to a lesser degree the Brazilian real, the impact of FX translation in the fourth quarter was greater than the prior quarters as we said earlier, contributing heavily to the revenue and operating profit declines on a reported basis. However, on a constant currency basis, fourth quarter revenue was up 13% and profits up 29%. And most importantly, our margin for the quarter increased 70 basis points to 22.7%.

Our full year revenue was flat on a reported basis and operating profit increased 9% with a margin rate increase of 160 basis points to 21.4% for the full year. In constant currency, our full year revenue in South America was up 23% on organic growth of 16% and 8% growth from acquisitions. Constant currency operating profit increased 46%, with organic growth of 37% and 9% from acquisitions. Our margin increases in both the fourth quarter and full year boosted our already high margin rates from a year ago, offering further proof that our in-country operations continue to perform in high levels and that we continue to achieve operational leverage with our strategic initiative implementation.

On the acquisition front, we finally closed the Rodoban acquisition in Brazil on January 4, almost a year after original -- we originally announced it. Rodoban generated approximately $76 million in revenue last year, and we expect the acquisition to be accretive to net income in 2019, with a target full synergy purchase multiple of between 6x and 6.5x of EBITDA.

We recently signed agreements to acquire 3 more core businesses in South America, one in Colombia and 2 smaller asset purchases in Brazil that combine for a total revenue of approximately $30 million. All 3 are expected to close in 2019 and are and not included in our 2019 guidance. This brings total closed and announced acquisitions since 2017 to 13, all core businesses and in core geographies.

Slide 10, the Rest-of-the-World segment. Fourth quarter reported revenue declined 10% and while reported operating profit was up 2%. However, excluding dispositions and FX, reported revenue was actually up 2% and profit was up 4%. The primary disposition was the adjustment for our guarding business in France. In France, fourth quarter revenue increased by 1%, excluding the sale of the guarding business and FX, and operating profit was slightly -- was up slightly versus last year. The Yellow Jacket -- or the Yellow Vest protest in the quarter had some impact on the results. However, indications are that this impact is declined in the new year. The combination of more favorable market conditions already implemented cost reductions, acceleration of Temis synergies, and increased sales of higher margin solutions have positioned France well for an improved 2019. Outside of France, our businesses in Europe and Asia continued to perform well.

Turning to Slide 11. We're now 2 years into our 3-year strategic plan. Our Strategy 1.0, which focused on driving organic growth and margin expansion, is on track to deliver operating profit of $310 million and EBITDA of $480 million, representing a compound annual growth rate of around 12% without the additional negative impact -- without the additional impact of acquisitions.

On top of Strategy 1.0, our Strategy 1.5 is layering in additional profit growth of $105 million and EBITDA growth of $120 million from accretive acquisitions in our core business. On a combined basis, the overall results from these strategies in 2019 is expected to be $600 million of EBITDA, representing an annual growth rate of about 21% over the 3-year period. This dramatically exceeds the original plan target we provided in 2017 of $475 million in EBITDA, and this is net of a significant net negative impact of FX that we've had to overcome over these 3 years.

Here's an updated summary of our acquisitions to date, which build on our 1.5 strategy. It was only 6 quarters ago in mid-2017 that we announced our first major acquisition. By the end of that year, we completed 6 core acquisitions for a total of $360 million. In 2018, we added Dunbar and 2 small deals in Colombia and Cambodia. And on January 4 of this year, we completed the Rodoban acquisition in Brazil for a total of 10 completed deals so far. To repeat, our investment to date of approximately $1.1 billion with a 10 completed or closed acquisitions is expected to add $120 million of EBITDA in 2019 after partial synergies are gained from [raw] density, infrastructure overlap and efficiency improvement. Fully synergized, we expect to add about $180 million of EBITDA from these 10 completed acquisitions.

We're confident the combined impact of our 1.0 and 1.5 strategies will meet or exceed our targets and that these strategies and initiatives will continue to drive revenue profit growth for our next -- and into our next strategic plan career.

We've already begun working on the next layer of our plan. It's probably no surprise that we'll call it Strategy 2.0. Our new strategies are focused on: One, increasing our share within our existing customer base by offering a broader array of high-margin, high-value services that address the total cash ecosystem, including tech-enabled solutions and increased outsourcing; and two, expanding our reach to new unvended and underserved customers in the cash ecosystem with similar tech-enabled solutions that offer complete cash management services competitive with credit card offerings.

To accelerate the introduction of our Strategy 2.0 services, we plan to make 2019 investments of about $20 million in operating expenses to fund a variety of product, IT, sales and marketing initiatives. This includes OpEx expenditures and headcount to support our customer-facing app, portal development and other tech-enabled services. This will also include OpEx spending to develop and test new products and to strengthen our global sales and marketing organizations. Beginning in 2020, we expect a payback on these investments in the form of higher organic revenue growth and at higher margins.

It's important to note that our primary investment in Strategy 1.0 initiatives was higher CapEx to purchase long-live assets, such as new trucks and high-speed money processing equipment. These CapEx investments, depreciated over time, have yielded significant returns and have resulted in cost reductions and higher ongoing margins. As we stated, after the onetime Dunbar capital expenditures and as we entered the new strategic plan period, we expect our annual CapEx to return to the 4% to 4.5% of revenue range. Our Strategy 2.0 investments will be materially less than our 1.0 investments but will be mostly in the form of upfront OpEx investments.

Let's turn to guidance. In prior years, we've updated our guidance to include FX rates as of year-end for all countries except Argentina, where we have maintained our assumption that the average exchange rate for the Argentinian peso versus the U.S. dollar will be 45 to 1. The change in FX rates since we provided our preliminary 2019 guidance negatively impacted the 2019 revenue projection by approximately $50 million and 2019 operating profit projection by approximately $7 million. Based on these rates, we are estimating a negative currency impact on 2019 revenue and operating profit versus 2018 of $190 million and $60 million, respectively.

It's important to point out that while inflationary price increases in Argentina are on schedule, we do not expect a full recovery of a devaluation in our U.S. dollar reported results in 2019. Our Argentina business continues to perform well on a local currency basis. However, on a reported basis, our 2019 guidance includes a profit decline in Argentina as reported in U.S. dollars, followed by a recovery to growth in U.S. dollars in mid-2020. In the meantime, the global nature of our business gives us the resiliency to overcome this FX volatility and still deliver year-over-year profit growth of 20% or more.

As presented in the last slide on Strategy 2.0, we expect to invest around $20 million in higher OpEx cost this year to support our Strategy 2.0 initial initiatives. We also expect to spend another $10 million on IT and related items to implement new internal operating systems to better support and increase productivity as well as the interface with new customer-facing technologies. These costs include implementation of Oracle, Salesforce, Workday and other systems as well as enhanced cybersecurity. The total impact of these 2019 OpEx investments we anticipate will be approximately $20 million to $30 million.

In summary, despite the substantial negative FX impact of 2019 versus '18 national rates and additional operating expense investments that we just spoke to, our guidance for 2019 includes revenue growth of 9% and operating profit growth of 20% to a midpoint of $415 million. We expect a year-over-year margin rate increase that -- to be close to 100 basis points to 11%. Our adjusted EBITDA is expected to grow by 17% to about $600 million, and earnings are expected to increase 21% to about $4.20 per share.

Turning to Slide 15. This slide shows the dramatic op income profit increase and margin improvement over the 3-year strategic plan period, including 2019 guidance. Even after the significant negative impact of FX translation in '17, '18 and projected in '19, which is above what we have forecasted obviously in our strategic plan, we project that our profit will approximately double over the 3-year plan period from $216 million to about $415 million at the midpoint of our 2019 guidance. This growth represents an approximate 25% compound to annual growth rate and income improvement of approximately 360 basis points.

Key drivers, as shown on the chart, are the turnaround of the U.S. business with dramatic margin improvements in organic growth in Mexico, strong organic growth and margin improvements in South America, all these are part of our 1.0 strategy and initiatives.

Acquisitions, 10 completed to date and 3 more an announced, all part of our 1.5 strategy that will have continued synergies after the first 3-year strategic plan ending in 2019. And note that 25% earnings compounded growth rate is being achieved even with the significant negative impact of FX and the increased noncash cost of higher equity compensation that is the reward for strong performance to our management.

I'll now turn it over to Ron for his financial review, including more of the drivers of our full year results and assumptions behind our 2019 guidance and our strong cash flow outlook as well as the look at our planned debt structure and borrowing capacity.

Thanks, Doug and good day, everyone. I'm going to provide some additional detail on our full year 2018 results and our guidance for 2019, including free cash flow, net debt and leverage.

Looking at our 2018 results. Reported full year 2018 revenue was $3.4 billion versus 2017 organic revenue growth of 7% or $223 million. South America grew 16%, North America grew 5% and the Rest-of-the-World grew 1%. Acquisitions, net of dispositions, drove an additional $213 million of growth with approximately $151 million from Dunbar, $61 million from Maco and the $42 million from Temis, partly offset by negative $50 million from the disposition of our French aviation guarding business.

Translation ForEx impacted revenue negatively by $192 million due primarily to the strengthening of the U.S. dollar versus the Argentine peso and the Brazilian real, partly offset by a stronger Euro.

On the right side of this chart, you can see that full year 2018 non-GAAP operating profit was $347 million. Excluding the impact of ForEx, constant currency operating profit was up 48% or $135 million versus prior year. The increase was driven by $107 million of organic growth and $28 million from acquisitions net of dispositions, primarily from Maco, Dunbar and Temis. Currency translation for the year was $70 million unfavorable due mostly to the devaluation of the Argentine peso with some additional negative impact from the Brazilian real and Mexican peso. Versus our 2018 guidance on October 24, the Argentine peso was slightly stronger and the Brazilian real and the Mexican peso were slightly weaker, resulting in negligible ForEx impact.

Even with the significant unfavorable ForEx versus 2017, reported full year 2018 non-GAAP operating profit was up 23%. In the United States, operating profit, excluding Dunbar, grew 78% and combined with continued revenue and margin expansion in Mexico drove the 65% organic growth in North America. South America grew organically by 37%, led by Argentina, Brazil and Chile. The Rest-of-the-World was down 4% organically with lower results in France, offsetting improvements in Asia Pacific and the rest of EMEA.

Corporate expenses increased $5 million versus 2017, primarily due to $11 million in higher noncash stock-based compensation expense. In 2019, we expect a similar increase in stock-based compensation as we accrued the final year of the rolling 3-year long-term incentive program initiated in 2017. We also continue to invest more on IT to improve security and introduce differentiated services. These increases were partly offset by lower bad debt and the new royalty income from our home security brand license agreement with Monitronics.

Moving to Slide 18. This slide bridges operating profit, to income from continuing operation and then to adjusted EBITDA. The variance from prior year is shown at the bottom of the slide. Full year operating profit of $347 million was reduced by $64 million of net interest expense, $97 million in taxes and $7 million in noncontrolling interest to generate $179 million in income from continuing operations. Net interest was $31 million higher than last year, reflecting the higher net debt used to finance the Dunbar, Temis and Maco acquisitions, combined with higher variable interest rates.

Taxes were up $12 million versus 2017 due to higher income. Our 2018 non-GAAP effective tax rate was 34.2%, down almost 300 bps from the 37% we were forecasting. The improvement was driven largely by proactive changes in our capital allocation structure, which enables reductions in upholding taxes on cross-boarder payments and increased statutory earnings in the United States, which benefited from the 21% U.S. federal tax rate.

In 2019, with increasing profitability in the U.S. driven by continued organic improvement, the addition of Dunbar and the realization of integration synergies, we're forecasting our 2019 ETR at 33%. We expect our effective tax rate to reduce further as Dunbar is fully integrated.

Noncontrolling interest reduced profits by $7 million. We expect noncontrolling interest to be marginally lower in 2019 due to the buyout of our minority partner in Colombia, which was completed during the fourth quarter. As I mentioned, full year 2018 income from continuing operations was $179 million, which was $3.46 per share, up 14% from $3.03 per share in 2017.

Depreciation and amortization of $142 million was up around 5% versus last year and 2018 adjusted EBITDA increased $87 million or 20% to $512 million.

Turning now to our 2019 guidance. On this slide, operating profit is represented by the blue bars, depreciation and amortization and other is represented by the gray bars and adjusted EBITDA as the sum of the two. In 2018, we generated $347 million of operating profit and $512 million of adjusted EBITDA. At the midpoint of our 2019 guidance, organic operating profit would grow approximately $95 million or 27%, with strong growth in the U.S., Argentina, Brazil, Mexico and France. As Doug mentioned, this growth is net of the $20 million to $30 million of OpEx we plan to invest to drive the next phase of our strategy.

Acquisitions net of divestitures would add another $33 million, reflecting the impact of the trailing 12 months results for both Dunbar and Rodoban. Combined, constant currency operating profit is expected to grow 37%. Our 2019 currency assumptions are based on 2018 year-end actual exchange rates plus additional devaluation in Argentina, which will result in a 2019 average of ARS 45 to the dollar. This could generate $60 million in unfavorable translation ForEx versus 2018. Our 2019 guidance for operating profit is a range of $405 million to $425 million, and our 2019 guidance for adjusted EBITDA is $590 million to $610 million.

Higher operating profit is expected to be reduced by higher interest expense in taxes and result in 2019 EPS guidance of $4.10 per share to $4.30 per share. At the end of 2017, there were ARS 18.5 to the dollar. At the end of 2018, the rate was ARS 37.5. In 1 year, the peso devalued over 50% and our 2018 U.S. dollar results from Argentina were reduced drastically. As Doug mentioned, our 2019 guidance assumes further devaluation of the peso to an average exchange rate of ARS 45 for the year. Nevertheless, inflation-driven price increases are on track to restore U.S. dollar profitability to new highs in 4 to 6 quarters.

Let's move to Slide 19 in free cash flow. In 2018, we generated $166 million of non-GAAP free cash flow, almost triple the 2017 amount. The 2018 free cash flow was about 10% below target with working capital and the timing of tax refunds, partly offset by lower CapEx from delivery delays. Working capital improvement, specifically collection of receivables measured in days sales outstanding, continues to be a focus, and we will continue to work diligently to overcome the commercial challenges we face from customers looking to extend payment terms, especially in RFPs and tenders.

Our 2019 free cash flow target is $220 million, up $54 million or 33% from prior year. The expected increase reflects higher EBITDA and the timing of tax refunds, partly offset by acquisition integration cost, higher interest expense and increased capital expenditures related to the Dunbar and Rodoban acquisitions. The Dunbar acquisition is not expected to materially contribute to free cash flow until mid-2020.

We expect capital expenditures, excluding capital leases but including incremental CapEx related to Dunbar and Rodoban, to be around $190 million in 2019, up from approximately $155 million in 2018. There's additional detail in the appendix.

Moving to Slide 21. To facilitate the continued execution of our strategy, we've received lender commitments to amend and extend our credit agreement to increase capacity and reduce interest expense. The amended agreement will expand our term loan A from $467 million currently to $800 million, reduce the rates in the pricing grid and extend the maturity to 5 years from the date of closing. Our secured revolving credit facility will remain at $1 billion. The term loan A will amortize 5% per year and the interest rate will be based on LIBOR plus the margin that fluctuate based on our financial leverage. The terms of the new agreement will include a margin rate that is a minimum of 25 bps lower than previous financing. We expect the opening interest rate to be approximately 4.25%, and we've executed a floating to fixed interest rate swap for $400 million, half of the new term loan A. The amended extended agreement should close sometime in the coming weeks.

Turning to Slide 22. This slide illustrates our net debt and leverage position, both historically and assuming synergies, through 2020 from closed acquisitions. As of December 31, 2018, our net debt was $1.2 billion, up about $600 million from year-end 2017 due to acquisitions and $94 million of share repurchases, offset by the free cash flow discussed previously. To date, we have repurchased around 1,345,000 shares at an average price of around $69 per share. There is now $106 million remaining for share repurchases under our $200 million authorization that expires December 31, 2019. If we achieve our 2019 cash flow targets and complete another $245 million of acquisitions in 2019, our net debt would be approximately $1.3 billion at the end of 2019. The acquisition adjusted EBITDA that includes trailing 12 months fully synergized EBITDA through 2020 will be around 2.2 turns at the end of 2019.

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

Thanks, Ron. In closing, I want to reiterate that despite currency headwinds in 2018, we delivered 23% operating profit growth on a reported basis and 48% growth on a constant currency basis with a margin improvement of 130 basis points. In 2019, with the additional operating expense investment of $20 million to $30 million that I covered earlier and another $7 million hit from the negative currency versus the plenary 2019 guidance we provided in the third quarter, we expect to deliver another year of 20-plus percent operating profit growth with a margin improvement of another 100 basis points to around 11% margin.

We're confident that the growing margin improvement and profit momentum in the U.S. and Mexico will continue, demonstrating our resilience inherent in our global business. Mexico has more than doubled profit in the last 2 years. And let's not forget that about 3 years ago, our U.S. business was not making money. In 2018, just this last year, we made $64 million in the U.S., and we're on track to make that $100-plus million in 2019.

In 2019 and beyond, we'll remain focused on executing our 1.0 and 1.5 strategies to drive additional revenue and margin growth, and we look forward to sharing more about our 2.0 strategies later this year to continue to layer on more growth into the future.

Thanks. And now let's open it up for questions.

(Operator Instructions) Our first question comes from Jamie Clement of Buckingham.

Doug, with -- when you mentioned under Strategy 2.0 new unvended and underserved customers, are you talking about in your traditional customer base of financial institutions in retail? Or are you talking about moving into new areas? Can you expand on that a little bit more?

Yes, we specifically talked about it in the 2 different areas. One of those areas is to expand the services into our existing customer base, if you will, to penetrate, if you will, those customers more, but also to expand the offerings and the value that we create with these offerings to offer a broader array of services to really service their complete -- what we call, their complete cash ecosystem of needs. So that's a combination with retail customers expanding what we offer to them as well as to FI customers with additional outsourcing and to work with them and say, "We are your best source to provide services at the best value for anything related to the cash business." The second piece in that is to -- and expand into what we call the unvended portion of the business as well as the underserved portion of the business to customers that we don't serve today, and frankly, that most of our industry does not serve today, that's unvended, and do that again through higher value services, unique tech-enabled services and with better value. And I think you probably heard me say a little bit in there, to really focus on the credit card business and industry and the services they provide. They've outperformed us in those services, and us being our industry as well as us, and that's our focus. If we can provide services that are hassle free, equivalent or better than at better value, I think we'll gain significant new customers and new business throughout the cash industry.

And then, Doug, when you're talking -- on the last part of your comments as it relates to the credit card industry, is your go-to-market focus as the underlying idea here sort of that you want to make cash cheaper to deal with, cheaper to consume, or transactive for your customers than the credit card companies are charging? Or is there a lot more to this than that?

Well, there's more to it than that. It's not just about pure cost. I frankly think that, generally, depending on the size of the customer, that the cost of the services we provide today probably is less than what the cost is or what credit card companies provide. But I think that we need to, as an industry and as a company, make sure that we provide similar hassle-free services, which mean we need to provide a broader array of services to cover the whole cash ecosystem for those customers. So if a customer looks at how they get the services, what they pay for and how easy it is, so to speak, with credit card, we need to make sure as an industry that we do the same. And we do that at competitive rates in a easy way to do business fashion.

Great. And then one follow-up, then I'll get back in queue. All right. Guys, typically, when companies have plenty of borrowing capacity and then upsize their borrowing capacity, there's often an acquisition or several in mind. What are the odds that we may see a similar kind of total investment spend on acquisitions in 2019 than we saw in 2018?

Well, I think we clearly have...

Which would be a big year, which would be a big year.

Yes. So I think we clearly have in mind several acquisitions that we want to do. We don't know what they will specifically be at this point in time. But we clearly are continuing to make sure that we have the capacity to do additional acquisitions that we've done in the past, whether they're going to be the same size and to the same level that we did in '18, we don't know that yet. We don't -- we're not ready to announce something or suggest that there is, but we certainly are preparing to continue to do what we've done in the past and meet or exceed the investment and acquisitions that we've laid out.

Okay. And then Ron, quick, sort of pro forma for the upsizing and the interest rate swap. What's going to be your rough percentage mix between fixed and floating once all this is done?

Well, right now, it would be 70% based on the ability to generate additional cash flow, as we've laid out in the guidance. That will work down, and we'll be right there. But we feel that the current rates at 4.25% locked in for 5 years was prudent regardless of what the Fed decides to do.

The next question comes from Tobey Sommer of SunTrust.

Could you comment on -- elaborate on your kind of pricing in your major market? You already I think kind of touched on Argentina pretty well, but just curious how you're doing in your other major markets.

Sure. Thanks, Tobey. We don't necessarily disclose specifics on each of the markets, but we've seen price increases as we've talked about in the fourth quarter -- excuse me, in the third quarter, really this -- that in the U.S. market, we've had price increases generally implemented in the early fourth quarter of the year that were similar to the prior year and are in line with, if not better, than most of our cost increases. Similar sort of implementation of pricing in Mexico, which help support our strong volume gains there as well of -- and then it varies beyond that. Generally, Brazil is similar to that, too.

Okay. When you look at acquisitions, how would you characterize the mix of acquisition opportunities between route-based that we're most familiar with versus the core of what you do in nonroute-based assets?

I guess, we don't really look at them in terms of route-based versus nonroute-based. We look at whether they're in our core businesses, cash management, which obviously everyone we've done so far does have some aspect of route-based in them, except for the cash piece that are in our Brazilian acquisition. But the core businesses really are cash management, global services or high-value transportation and then payments related to our cash business. So those are our 3 core businesses, and all of our acquisitions have been in those to date and all have been really in core geographies today as well. So that's really the way that we look at them rather than route-based versus nonroute-based. We look at our business, particularly in the cash side as moving to high margin, more higher margin than we've had in the past and more recurring revenue sticky businesses. So we think our strategies that we've laid out, including CompuSafe, obviously, but our strategies, we're talking about and laying out, and we'll talk more about later this year, will be very much focused on improving margins and stickier long-term contracts with our customers, higher recurring revenue streams. But all that is because we will provide higher value and better services to our customers.

Great. You mentioned CompuSafe during your prepared remarks that you'd kind of -- I thought of asking a question on that. Does your prior articulation of the total addressable market in the U.S. still hold, because that was a big step function up in orders in '18? So do you think that's market share-driven? Or are you seeing effectively kind of bigger opportunities?

Well, I think that's why I did point out that we did receive a sale in the fourth quarter and order in the fourth quarter of 1,300 units. So out of our 5,300 that we've obtained in the year, was a single year multiple, obviously, multiple branches and outlets, but that's indicative, I think, of what we're seeing. Those take longer to gestate, but I also think that the -- we'll see more of those going forward. And the value that can be created for customers will certainly be something that we see tremendous opportunity going forward. So I think that the opportunity and the penetration is very similar to what we said before, probably around 20% penetration in the marketplace in the U.S., less than that on a global basis, but the value creation I think for customers is probably more understood now. And certainly, as we, in particular, pursue that along with the Loomis and others in the business in the U.S., it will get -- it will gain actually -- this solution will gain greater visibility in the marketplace, and I think will drive more sales as this is -- for this as a solution.

If I could just ask one follow-up on pricing, then I'll go back in the queue. How would you characterize and assess the risk of kind of bad actors triggering episodes of pricing pressure versus when you took the helm at the company? And specifically have kind of the what the market and industry endured in France in the last 1.5, 2 years in mind?

Yes. I think in general it's improved over the last 2 years or so, that the risk associated with that, and you can go by country or region anyway, and I think it's improved. I think our acquisitions -- some of our competitive acquisitions in the marketplace have improved that positioning. But there's always the situation like we ended up in France that would not necessarily be expected. But I think, in general, overall, it's improved.

Do you expect margins to start rebounding in France here this year?

I think we clearly said that. Yes, we expect margins to improve, we expect our profitability to improve. And key drivers of that, as I laid out there, is not just about pricing. It's a mix of our business, our solutions that we sell. It's a mix of our synergies that we'll be gaining on the cost side from both the Temis acquisition as well as the strategic plan cost reductions that have already been laid out that are now being implemented this year. So pricing is one piece of those. But the real pieces, it's a combination of things that we think will improve our margins going forward this year.

The next question comes from Jeffrey Kessler of Imperial Capital.

Okay. If I may, I'll go to the next question. The next question comes from Ashish Sinha of Gabelli & Company.

I have a few. So I wanted to stick to North America starting with growth. So could you maybe talk about the breakdown of volume and price within that growth? And then since you talked about that large order for CompuSafe in the fourth quarter, could you split growth by CompuSafe, CIT and CMS? I mean, the background for us -- my question is your peer who reported growth in the U.S., they said they are winning share. So I just wanted to understand, is that -- is there a quarter nuance related to a quarter? Am I looking at a slightly shorter time frame? Or is there something more behind it, i.e. any revenue leakage from Dunbar? Yes, that's my first question.

Well, that's a lot, Ashish. But I think let's take CompuSafe as a first piece. I think it's not a question of share, I think it's a question of market growth and penetration of that market. It's a huge opportunity of a market, as we talked about earlier. I think the fact that we had new orders of 5,300, substantially greater than what we had in the past, I think it's very consistent with what you probably heard from our competitor that you're talking about out there, but it's also consistent in the way that we pursue -- we effectively are pursuing the industry. So we don't see that as an issue of taking share versus one versus the other, and we certainly don't feel that they've taken share from us in the CompuSafe side. We'll win some business. We lose some business there, specifically in there, and that's the way it goes. But certainly, we're not going to apologize for 5,300 unit orders and for a large unit order for 50 -- for 1,300. And we think there's great opportunity there. We don't really report on the CMS. In fact, I'm kind of hurt because that's not how we report. That's our competitive's method of reporting. But I think what you generally find is our percent of our business versus the U.S. competitor that you mentioned in our business in the U.S. is very similar to what theirs is in terms of that type of a split. In other words, percent of business is -- CompuSafe related, et cetera, is very, very similar. So if we're growing in a similar fashion, I think part of the difference is we're going to see an acceleration of that for us going forward in this year in '19 because we have a stronger backlog from these orders that will be put into place in CompuSafe. Overall, in terms of pricing, we talked about that a little bit earlier. So in the U.S., there's a good mix of price and volume, which I think, combined, will give us organic growth in the 5-plus percent range. Obviously, CompuSafe will be stronger than that in '19 and going forward. I hope that answers your question.

Yes, yes, yes. My second question is on U.S. margins where you talk about exiting 2019 at a 10% rate. You're basically exiting 2018 at 9.7%. So probably there's a bit of Dunbar in there. But then in 2021...

No, actually, just for clarity on that, I don't mean to cut you off, but just for clarity, one of the things we said -- and I don't have a precise numbers off the top of my head, but we're in the 9-plus percent range in the fourth quarter. But the U.S. operations without Dunbar or without synergies, we're actually equal to or above the Dunbar numbers, and the Dunbar numbers on margin included synergies that were gained by it. So if you recall, our trailing LTM Dunbar numbers on op income were in the 6.5% to 7% range. And this is over a full year, not without seasonality. So with synergies, they were at about the same level as our U.S. operations were in the fourth quarter. I think that's a very good sign that, in fact, without the impact of Dunbar or without the impact of synergies, our U.S. operations were performing very well and the growth was very nice in margin improvement throughout the year. Now turning back to your other point, of course, I'll now let you answer -- ask the rest of the question. The exit rate in the year has to be a little bit tempered by seasonality. So 9.8% that we have going out of this year in the fourth quarter is not necessarily what we're going to go into next year, and that won't be indicative of what our margin rate should be increasing from. So we go out, and I think we said in the past, next year for a full year margin, that's up a couple hundred basis points from what we were this year for the full year, then I think that will give us the basis for the exiting at the type of level we're talking about for a 10% overall in 2020, if that makes sense.

Yes. 2019, I thought 10%.

No, no. So in other words, if we exit next year at a couple hundred basis points higher than we exited this year, which will be north of 10%. It will be more than 10% we're exiting next year, but the seasonality will suggest that throughout the full year next year, we're at least a couple hundred basis points over a full year this year, and we'll be achieving our target.

Yes, understood. So if you are at 2021, you're doing 13%, that's your target, on a business of $1.2 billion. And within that, you've guided to synergies of $40 million, $45 million from Dunbar. So I just wanted to understand the differential piece. So most of the heavy lifting and efficiency has been done or do you think there is a lot more you could do at the -- within the enlarged business?

Well, they get the 13%. There's a lot of heavy lifting, both in terms of the synergies with Dunbar as well as the continuation of the improvements in our breakthrough and other initiatives in our core business. And so this suggests that we're right on track, if not a little bit ahead, in the core business. We just started this energy ramp-up. We anticipate that based on everything we see, we'll achieved those $45 million in synergies and more, which then if you combine those initiatives, which we're very highly confident that we'll be able to achieve, that we will achieve the 13% margins in 2021. And that will not be on $1.2 billion to $1.25 billion in revenue. It will be on a number that has some growth on top of that, which should be closer to $1.3 billion to $1.35-plus billion.

Yes. That's why I'm eagerly awaiting your Strategy 2.0 because that's like nearly doubling margins again -- I mean, nearly doubling or significantly increase.

Well, I don't think we're going to hit 26% margins with 2.0, but...

No, no, no.

No, I'm kidding you, Ashish. Yes, that's why we're eagerly excited about rolling it out as well because the objective of 2.0 simply, as we've laid out, is to provide tech-enabled higher-value services, broad array of services that should help continue to drive our organic growth to higher levels than we've had so far, and then on top of that, to increase our margins overall to higher margin business and more recurring revenue streams. So if you put all that together, our op income margins should be improved and our growth of organic should be increased over, what, 6% or so that we've kind of talked about, 5% to 6% as what we've projected, and our actual results have been closer to 7%.

(Operator Instructions) The next question comes from Sam England of Berenberg.

Just a couple from me. The first one on the Dunbar integration. You mentioned in the release that it's ahead of schedule. And I just wonder as you work through the integration whether you're seeing opportunities for increased synergies and whether we could see total increased synergy target on that deal looking ahead.

Yes. I guess, the best answer is yes. We do see those opportunities. We're not prepared at this stage to change our guidance and numbers that are out there. But clearly, we view that the opportunities are there to exceed the $45 million that we've laid out as synergies over the next several years. And the 13% that we talked about is based on approximately that number.

Okay. Has there many sort of surprises as you've gone through the integration price? I suppose I was trying to get an idea of it, why -- is it ahead of sort of the previous schedule? And where are, I suppose, the positive that happened during the integration process?

Yes. Look, there are always positives and negatives, and there are always a few surprises. But I think the best way to look at this is we see the combination of their 70-plus branches in our 110-plus branches to provide us an opportunity to go to what we would consider the optimal network into the future. We think that other than the normal type of synergies that you would expect in this type of combination, we will be able to achieve additional synergies above and beyond that because of potential optimization of a network that really is driven by more of a hub and spoke type of network going forward. So we think there'll be more synergies that can be driven in the future related to that.

Okay. Great. And then...

And in terms of being on track, we're on track. We did close a little bit earlier than we would've anticipated. That gave us the ability to start the planning and processing. Obviously in anything like this what's key is integration of systems to support the 2 businesses, then that allows us to combine the businesses sooner if you have the right systems to support. And therefore, that's why we think we're on track or a little bit ahead of schedule based on that.

Okay. Great. And then the second one was on the acquisition in Colombia, I think you've talked about in the past that there's some additional opportunities for consolidation in that market. So should we read into that acquisition that it could be the first of sort of a number in that market? Or is it just sort of an opportunistic deal that happened to come up?

Well, so last year, we did an acquisition, really, the buyout of our minority partner. That gave us the base to be able to move forward with this acquisition that we have now signed, and it does provide the opportunity. This is to help consolidate the industry within -- with this player who is a competitor in the marketplace. And you can see that's happening with some of our other competitors as well in the marketplace, which we think will help the overall market goes in Colombia.

Okay. Great. And then so just looking at the sort of underlying markets in South America, stripping away the sort of FX noise, which I suppose seems to be what everyone sort of focuses on. How is the different markets performing from sort of a price and volume perspective across South America if we sort of ignores what's going on with FX?

Yes. Pretty darn well, as we said, and as you take a look at our constant currency numbers, if you take a look at what our organic growth is, and as we said with Argentina, Argentina on a constant currency basis -- or on a local currency basis is really the best way to look at it. On a local currency basis, it's doing well in terms of growth, profit margins, improvements in their operations, et cetera. Colombia is doing well as well. Chile has improved, and the integration of the acquisition we had from 1.5 years ago there is doing well. So in general, all those markets on a local basis, local currency basis, are performing to our expectations or ahead of those. And that's shown through the improvements in our operating margins, which improved and the leverage that we've achieved from both our revenue gains down to our operating margins.

We have a follow-up from Jamie Clement of Buckingham.

Maybe I'm getting too much into the weeds here, but I -- with respect to revenue guidance, organic revenue guidance, coming off the fourth quarter 7%, I think full year 18%, organically 7%. Your guidance is 6%. I would have to assume, I mean, if you could be getting even some of the Argentine devalue back -- devaluation back, I mean could 6% prove conservative?

Obviously, you could prove conservative based on what we've achieved over the last 2 years.

Yes. What I mean is...

Okay. But in terms of Argentina, what we try to basically say in Argentina is that we're right on schedule, we think, based on the local inflationary price increases in Argentina to see the recovery that we've anticipated. This is a recovery of the significant devaluation versus the U.S. dollar over the course of the 6 to 8 quarters, right on track with that and maybe even a little bit ahead, all right. So what that means for the 2019 year is that the translation of the improved business, even though it's improving in local currency, will not provide any growth to our op income on a reported U.S. dollar basis in 2019. In fact, it may slightly negatively impact it. That's what we've said. And it doesn't mean -- that doesn't mean that in the second of the year, we won't start seeing that turn around and that the local currency growth in Argentinian pesos will start translating into U.S. dollar growth going forward in 2020. That's what we suggested, 2020 mid-year, we should see the balance go back to that growth coming through in U.S. -- reported U.S. dollars.

Okay. But if...

I think the important message here, and let me just reiterate this is I think many investors thought that a lot of what was driving our operating profit growth in the past was the Argentinian business, and that's growing -- that was driving our growth. What we're seeing this year, we're going to achieve 20-plus percent operating income growth, and in fact, it's not going to come from Argentina. Argentina going to actually pull us down some this year. It's not negative, it's not saying it's a bad business there, it's not saying it's not growing on a local currency basis. It is. And we're very pleased with that margins are very good, and they're improving. But what it's saying is that for '19, it won't be part of what helps drive us, but what that's saying is the rest of our business is going to grow 20-plus percent, which I think is a great fact.

Absolutely. And let me tell you something, I think we all appreciate the additional disclosure around that because over many, many years prior to you all joining, it was very, very, very hard to figure out what was going on down there, so we appreciate it.

Thank you. Anything else around that?

Nope, nope, nope. All good.

And due to time constraints, the last question will be a follow-up from Ashish Sinha of Gabelli & Company.

The follow-ups, they're going to be pretty quick. So firstly on the new acquisitions, you made $30 million of revenue. How much did you pay, did you disclose? And what is the associated EBITDA from those acquisitions? That's my first. And then secondly, you talked about the $20 million to $30 million investments. So I just wanted to get a sense of how much of that is intangible CapEx. And you also mentioned you'll be adding people, so how much is the recurring part of that $20 million to $30 million? And then lastly, in terms of buybacks, what's -- you mentioned you've got $106 million left. And there any criteria or any triggers you look at before deciding to do more? That's all.

You want to answer the acquisitions?

Yes. So the 3 acquisitions were obviously small. Situations like that, you could take maybe a multiple of revenue, plus or minus. But in all cases, we're looking at a post-synergized EBITDA multiple of sub-6 for deals that size. So in this situation, it's that same model, and we pretty much have the ongoing discipline to do our M&A in that direction.

But it's relatively immaterial, and we don't think they're going -- we don't know when they're going to close because they're subject to antitrust approval in those countries.

And we already have experience in both Brazil and Colombia about how long that takes.

So in terms of the additional investments that we're making and clearly what I was trying to lay out here in terms of the investments in the 2.0, those will be increases in both -- in OpEx, and it will be supporting some headcount and other initiatives that will specifically support our 2020 returns in the 2.0 business. And therefore, much of that will be ongoing expenses going forward. But we're not continuing to have those -- that headcount, the additional headcount or the expenses if we don't get strong returns on. And so it's investment now to get those returns going forward. And as I said before, it's in place of, if you will, or -- and instead of having CapEx expenditures, this is viewed -- should be viewed as a relatively minimal investment based on the returns that we anticipate that we'll get. The other IT portion that is supporting operational systems, upgrades, improvements and new additions, much of that is more of a onetime expense in order to implement and roll those out, and that will then be coming back down and not be necessarily ongoing. All right?

Okay. And on the buybacks?

Yes, we do not have any explicit triggers that we communicate externally. We have agreements with our board on what those triggers might be, but we are not going to disclose them.

Ladies and gentlemen, that concludes our call for today. Thank you for attending the Brink's fourth quarter earnings call. You may now disconnect.