Brinks Co (BCO) 2022 Q4 法說會逐字稿

Welcome to the Brink's Company's Fourth Quarter and Full Year 2022 Earnings. Brink's issued a press release detailing its fourth quarter and full year 2022 results this morning. The company also filed an 8-K that includes the release and the slides that will be used in today's call. For those of you listening by phone, the release and slides are available in the Investor Relations section of the company's website at investors.brinks.com. [Operator Instructions] And as a reminder, this conference is being recorded and will be available for replay.

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 are available in the footnotes of today's press release and in the company's most recent SEC filings. Information presented and discussed on this call is representative 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.

I will now turn it over to your host, Jesse Jenkins, Vice President of Investor Relations. Mr. Jenkins, you may begin.

Thanks, and good morning. Joining me today are Brink's CEO, Mark Eubanks; and CFO, Kirk McMackin. This morning, we reported fourth quarter and full year 2022 results on both a GAAP and non-GAAP basis as well as 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, the majority of our comments today will focus primarily on non-GAAP results. Reconciliations of non-GAAP results to their most comparable GAAP results are provided in the press release, the appendix of this presentation and in this morning's 8-K filing, which can be found on our website.

I'll now turn the call over to Brink's CEO, Mark Eubanks.

Thanks, Jesse. Good morning, everyone, and thanks for joining us. This morning, we reported strong full year fourth quarter 2022 results, highlighted by the highest full year organic growth rates we've seen over a decade and operating margins at the highest level in recent years. We delivered our full year 2022 guidance for revenue, operating profit, EBITDA and EPS despite the impact of $252 million on revenue due to negative foreign exchange translation.

The 12% organic growth rate included double-digit growth in 3 of our 4 segments as well as in our Digital Retail Solutions, ATM Managed Services and in our Valuables Management business Brink's lobal service. All service lines benefited from strong pricing discipline in the current inflationary environment. Operating profit margins and EBITDA margins expanded by 90 and 110 basis points, respectively, a result of improved revenue mix from higher DRS and AMS revenue, continued cost productivity, primarily from labor management and disciplined pricing actions to offset inflation.

EPS for the year was $5.99 per share, a $1.24 per share increase over 2021. In the year, we generated $203 million of free cash flow and prioritized use of cash towards share repurchases and the October 3 acquisition of NoteMachine, which was immediately accretive in Q4. In total, we purchased about 950,000 shares at an average price of approximately $55 per share. Kurt will have more on free cash flow and capital allocation later in the call.

Demand remained strong in the fourth quarter, allowing us to post 12% organic revenue growth and 15.7% operating margins. North American operating profit margins were 15.1%, the highest in the history of the segment, and I'm encouraged by the progress our North American leadership team is making. Adjusted EBITDA margins in the fourth quarter were over 20% for the first time in our history as we saw the benefits from the growth of our high-margin businesses as well as the aggressive cost efficiency efforts in the quarter, which included early benefits from the restructuring efforts that we announced during our Q3 earnings.

Our 2023 guidance builds off a strong foundation developed in 2022. We are targeting organic growth between 7% and 11%, including continued strong growth in the DRS and AMS offerings. Operating profit is expected to improve by approximately 100 basis points through continued cost productivity and profitable growth in these higher-margin lines of business. EBITDA is expected to be between 855 and $905 million with EPS between $6.30 and $7 per share. As always, we remain keenly focused on generating free cash flow. We expect significant improvement in free cash flow generation year-on-year to around 40% conversion of adjusted EBITDA, primarily through profitable growth and working capital improvements.

Moving to Slide 4. Let's take a quick look at full year 2022 results. Starting on the left-hand side, reported revenue was up 8%, which included the previously mentioned foreign exchange currency translation impact throughout the year. On a constant currency basis, revenue was up 14%, 12% organically and 2% from acquisitions. Reported operating profit was up 17%, which included $45 million in negative foreign currency impact. The 26% constant currency growth included 23% organic growth. In total, revenue growth of $335 million and operating profit growth of $80 million delivered an incremental margin of 24%, increasing the all-in operating margin to 12.1%, a 90 basis point improvement over prior year. Adjusted EBITDA grew $106 million or 15% to $788 million with a margin of 17.4%. Incremental EBITDA margins were just over 30%. EPS of $5.99 per share improved by 26% on a reported basis. Excluding the prior year $0.24 gain on the sale of MGI, EPS would have grown 33%. As a reminder, the gain on MGI shares in the prior year is now fully behind us as we move into 2023.

Turning to Slide 5. You can see our strong 2022 performance and an early look at our outlook for 2023 compared to our recent history. I'd like to highlight a few key actions we undertook this year to deliver strong revenue and profit growth. First, we established defined processes and procedures to address inflationary pressures across many of our lines of business. I'm happy to report that we were able to effectively recover the cost inflation we experienced. The foundational capabilities we built during the COVID impacted inflationary years of 2021 and 2022, will allow us to take a much more disciplined approach as we look ahead. As we continue to drive value for our customers through improved service quality and customer-focused digital solutions, we believe there's an additional opportunity to drive profitability through strategic pricing in the coming years.

Secondly, we were able to accelerate growth in our tech-enabled service platforms, both Digital Retail Solutions or DRS, and ATM Managed Services or AMS. As I'll discuss on the next slide in more detail, our strategy on how best to capture more than our fair share of these growing markets continues to evolve. In DRS, we are encouraged by the success we've seen to date in all of our regional segments across both small and midsized businesses as well as the larger multisite enterprise customers. While we expect in North America and Europe to be the primary adopters of these solutions, we have been encouraged by the uptake in other geographies. Our products offer an end-to-end solution that provides fast access to working capital through bank-agnostic provisional credit that has resonated worldwide. The ability to tailor our solution to the size and budget of our customer has created exciting opportunities in underserved channels that have not previously considered Brink's traditional CIT offering.

In ATM Managed Services, we leveraged our internal talent from a 2021 acquisition of PAI and promoted David Dub to be our global leader of AMS. David and his team are working closely with the segment leaders to develop opportunities across all geographies to complement our strong existing AMS presence in both North America and Europe. The AMS strategy aligns well with the outsourcing trend we're seeing from financial institutions and retailers as they search for cost-effective solutions to outsource ATM management in order to focus on their own core services.

In addition to the outsized revenue growth we saw in the year, we were also able to post operating margins at the highest level in recent history. Growth in our higher-margin services like DRS and AMS as well as global services were contributors to the performance, and we also continue to drive operational efficiencies throughout the business. During 2022, we expanded the Brink's business system globally. Under the Brink's Business System, we develop and apply best practices and standard processes across the global business to achieve operational excellence. Using a lean continuous improvement framework, we closely examined and create efficiencies in many aspects of our operations. While the future applications of BBS [Phonetic] are wide ranging, areas where we saw early results in 2022 included standardized workflow, employee turnover and staffing and route optimization. These initiatives delivered fleet and labor efficiencies, allowing us to expand operating margins by 90 basis points in the full year.

Strong profit margins in Latin America over the last few years can be partially attributed to the early phases of lean and the Brink's business system. And over the course of 2022, we scaled the best practices we developed in the region to other parts of the world. The most tangible success story we delivered through BBS this year came in employee turnover in North America. Labor markets in the U.S. have been extremely tight over the last 18 to 24 months with unemployment rates recently posting 53-year lows. Despite the challenging labor market, we delivered a 22% year-over-year reduction in turnover in the fourth quarter. The turnover improvement led to a 97% staffing levels in the business as we exited the year and was a clear driver of revenue growth, margin improvement and improved service quality in the North American segment. While turnover remains higher than we would like, we are happy with our progress. We will continue to introduce standardized playbooks and KPIs in areas like capacity planning and fleet excellence that will drive our efficiency journey and allow us to meet our 100 basis point margin expansion goals for 2023. I look forward to sharing additional progress under the Brink's Business System as we move forward with this important initiative.

I'm also pleased with the progress we've made on restructuring that we announced last quarter. We now estimate the program to generate about $10 million more than our original estimates, bringing the expected savings to approximately $50 million of permanent cost structure improvements by the end of 2023. I'm excited about the improvements to the business we've made that have generated double-digit organic growth and strong margin improvements this year, but I'm even more excited about the benefits these enhancements will deliver in the future as they scale and optimize over time.

With this strong 2022 performance as our backdrop, let's turn to Slide 6 and discuss how we continue to improve our financial model in 2023. Here on Slide 6, we plan to focus our efforts this year on 3 primary lines of business, each with different growth expectations and financial benefits. The traditional cash logistics and valuable management portion of our business had a great 2022 with 9% organic growth. This line of business includes our cash and transit operations as well as our Brink's Global Services business. These services form the foundation of our 163-year-old company, and are an important part of our continued success. Our strategy in this area is to continue our operational excellence journey while developing deeper relationships with our customers. Deepening these customer relationships is moving us from simply being a vendor to a strategic partner, providing opportunities to innovate our offerings into better solutions for our customers and higher profit margins for Brink's and for our shareholders.

Digital Retail Solutions are a natural extension of our legacy business as we innovate with our customers to provide solutions that make cash acceptance as easy as debit and credit, often at more cost-effective price points than a traditional CIT service. We provide retailers with full visibility to their cash ecosystem and fast access to working capital. The digital visibility of cash volumes through these solutions also allows us to optimize our own resources, only scheduling stops when the need arises, producing fuel usage and carbon emissions and driving better margins while allowing for lower price points for our customers. DRS comes with longer-term recurring revenue contracts that create better inherent retention rates. We're seeing growing customer demand for these solutions across all of our reporting segments, and we continue to see an opportunity to expand our addressable market to customers that don't currently have access to a cash management solution. 2022 was another strong year for DRS, with organic revenue growth of 25%, and we see a robust pipeline of opportunities with both existing and new customers eager for these solutions.

Finally, ATM Managed Services or AMS is an additional innovation on top of our traditional ATM replenishment services. These offerings provide a flexible turnkey solution that enable financial institutions and retailers to move beyond just-in-time cash replenishment to a holistic outsourced model, which reduces cost and improved performance. Leveraging expertise and infrastructure from recent acquisitions, we are building out a global team focused both on financial institutions and retail customers in the AMS space. Our strong existing relationships and brand reputation in the markets around the world make us a logical choice for customers looking for an outsourced option. We have recognized a meaningful shift in the market from financial institutions towards reducing their branch footprint while maintaining connectivity to customers through ATMs. Our ATM Managed Services Solutions meet the needs of our banking customers as they pivot resources away from the storefronts and into the digital banking channels. With our size and geographic presence, we offer a range of solutions that differentiate us from other providers.

2022 organic growth in AMS was 50%, and we expect strong growth in this line of business in 2023, both organically and inorganically as we continue to integrate the October acquisition of NoteMachine. Our success in these areas, line of sight to future growth prospects and a favorable external market factors inform our outlook for 2023. We expect total organic revenue growth between 7% to 11%. DRS and AMS are expected to grow faster than our traditional cash logistics and valuables management business as we gradually shift our business mix from traditional services to higher-margin solutions. With the shift to higher margin revenue, continued efficiencies gained through lean initiatives as part of the Brink's business system and the additional benefits from our restructuring plans, we plan to expand our operating profit margins by approximately 100 basis points in 2023.

Above historical average growth and record operating margins for the business are expected to generate free cash flow of approximately 40% of our adjusted EBITDA in 2023. I'm confident in the strategic initiatives we have in place and the market opportunities we see in front of us that will allow us to deliver profitable growth in 2023 and for years to come.

I'll now hand it over to Kurt McMaken, our CFO, to walk through the finer points of the quarter, our capital allocation priorities and a more detailed review of the 2023 guidance. I will return with some closing comments. Kurt?

Thanks, Mark. Good morning, everyone. Slide 7 summarizes the strong revenue, profit, EBITDA and EPS growth that we achieved in the fourth quarter. Revenue versus the prior year was up 8% and up 16% in constant currency, with organic growth of 12% and acquisition growth of 4%, partially offset by 7% negative impact from FX. Operating profit was up 22% despite a difficult comparison to a strong quarter last year. Organic profit growth of 30% and acquisition-related growth of 4% were partially offset by negative FX of 12%. On a constant currency basis, operating profit grew 34%. Adjusted EBITDA was up 18% and up 28% in constant currency, with a margin of 20.8%, 170 basis points higher than last year and the first time in history our quarterly EBITDA margin has exceeded 20%. Fourth quarter EPS was up 25% over the year ago quarter and up 42% in constant currency.

Next, we'll move to Slide 8, which provides more details on Q4 revenue and operating profit versus the prior year. Revenue was up 16% on a constant currency basis, primarily from organic growth of 12%. All segments performed well with double-digit organic growth in North America, Latin America and our Rest of World segment, and 8% organic growth in Europe. Organic growth benefited from strong AMS and DRS growth, volume growth in Brink's Global Services and price increases across all service lines and segments. Our reported revenue was $1.2 billion, up $93 million or 8% versus the fourth quarter of last year.

Next, turning to operating profit, which in constant currency was up 34% versus last year, with organic growth of 30% and acquisitions adding another 4%. FX was a 12% headwind resulting in reported operating profit of $187 million, up 22% versus last year. The operating profit margin for the quarter was 15.7%, an improvement of 170 basis points over last year, driven by strong operating leverage, including pricing discipline and cost efficiencies.

Excluding a prior year onetime gain in Europe related to litigation in our Romanian business, we saw a year-over-year margin expansion in all 4 geographic segments. And as Mark mentioned earlier, our North American segment achieved record high profit margins this quarter, exceeding 15% for the first time in history. I'd also like to note that this is our fifth consecutive quarter of double-digit constant currency growth in revenue and profit and the third consecutive quarter of double-digit organic growth in revenue and profit.

Now let's turn to Slide 9. Starting with our operating profit and walking left to right, fourth quarter interest expense was $44 million, up $15 million versus the same period last year, primarily due to higher interest rates on our floating rate debt and to a lesser extent, higher levels of debt. Next, tax expense was $45 million, up $1 million versus last year as the impact of higher income was partially offset by a reduction in our effective income tax rate. The full year effective tax rate of 30.3% was 330 basis points lower than the 2021 rate. This was favorable to expectations in prior year due to the geographic mix of income and higher-than-anticipated deductions in certain foreign jurisdictions. And as we look to 2023, the tax rate is expected to remain somewhat consistent to our 2022 rate.

In total, $187 million of operating profit, less interest expense, taxes and noncontrolling interest and other generated $100 million of income from continuing operations, up $17 million over last year. Fourth quarter EBITDA of $247 million was up $38 million or 18% versus last year, primarily due to the flow-through of higher operating profit. And as I noted on a prior slide, EBITDA as a percent of revenue was 20.8%, up 170 basis points versus Q4 of last year.

Finally, a note on our shares and earnings per share. As noted earlier, we generated $2.10 of earnings per share, up 25% versus last year on a reported basis. Share repurchases reduced our weighted average diluted shares outstanding by about 1.6 million shares versus last year or about 3%, and accounted for about a $0.06 increase in EPS. Our lower effective tax rate provided about $0.09 versus last year. The remainder of the EPS increase was driven by higher profit and partially offset by higher interest expense.

Next, we'll turn to free cash flow on Slide 10. Starting on the left, adjusted EBITDA was $788 million, $106 million better than the prior year. Working capital cash usage of $164 million was above our expectation in the prior year. There were several items that led to increases, which we largely expect to normalize over 2023. First, as we have previously discussed, we saw an increase in accounts receivable balances and DSO mix, predominantly related to Mexico. We continue to make solid progress in Mexico after the regulatory change to invoicing requirements and drove meaningful improvements in DSO quarter-over-quarter, but we remain about $40 million above the prior year. We don't foresee material collection risk and expect to return to more normalized levels in early 2023.

Second, although we have yet to see major impacts from our supply chain, the difficulties that impacted our industry and many others during 2021 and early 2022 led us to make a strategic investment in tech-enabled devices. With the strong customer demand in DRS, we felt it was important to maintain adequate supplies of devices on hand to protect our revenue growth and profitability assumptions into 2023. Consistent with prior quarter discussions, we see this as a onetime increase in working capital and do not foresee additional increases in subsequent years.

And finally, in the normal course of business, we process change orders for our customers when filling cash deliveries that require us to advance our cash stock in order to expedite service. Electronic reimbursement of the advance can take a few days to return to our accounts. We saw several unusually large change orders on the last business day of 2022 to position cash for the weekend that settled in early January due to the year-end falling on a Saturday.

As you can see in the 2023 targets across the bottom of the page, we expect to use about $45 million of cash for working capital and restructuring, which includes some benefits from the recovery of these items. We also have working capital improvements from our mix shift to more DRS and AMS as they have more recurring and subscription payment models versus our traditional stock-based billing model. 2022 cash taxes of $128 million were in line with our expectations and up $44 million versus last year. We estimate 2023 cash taxes of approximately $130 million, roughly flat in dollars to the prior year, but an improvement from a tax rate perspective due to expected jurisdictional mix of payments and income.

Cash interest was $116 million, $10 million higher than last year, primarily due to higher variable interest rates on the 40% of our debt that is floating and higher debt levels. Flowing through the rate and debt increases to the full year of 2023 results in $175 million in cash interest, an increase of $59 million. Net cash CapEx was in line with expectations at $177 million and slightly below 4% of revenue. 2023 cash CapEx is expected to remain relatively flat at about $180 million despite volume growth. The rate decrease is a result of the shift in our business mix to more digital retail solutions, which require less CapEx and allows us to streamline our infrastructure by optimizing routes and rightsizing our logistics fleet. In total, 2022 free cash flow of $203 million with a conversion of 26% was negatively impacted by the short-term working capital items I just mentioned. We expect those to normalize over 2023, leading to between 325 and $375 million of free cash flow generation for a conversion of approximately 40%. Recognizing the importance of free cash flow and value creation, we're aligning the organization behind improved free cash flow generation by adding specific free cash flow targets to our 2023 annual bonus plan for our managers.

Next, turning to Slide 11. I'd like to spend a few minutes on our priorities for capital allocation. Our strategy begins with organic investments in our businesses that drive profitable growth and strong cash flow returns. Those investments largely come in the form of operating expenses that we've factored into our operating profit guidance for next year, like the build-out of our AMS and Brink's Business System teams that Mark mentioned earlier. And through efficiencies in the businesses that we have achieved as we shift to AMS and DRS revenue, we expect total CapEx cost to remain below 4% of revenue or approximately $180 million in 2023, as we discussed earlier.

Next, we're targeting a leverage ratio of between 2 and 3x adjusted EBITDA. Adding in the full year EBITDA from our NoteMachine acquisition in October, we are currently at 3.1x just over our target. If we assume the midpoint of our 2023 free cash flow and adjusted EBITDA and further assume all cash was utilized to reduce debt, leverage would be approximately 2.6x by the end of 2023. This capacity creates flexibility for shareholder returns while ensuring we land within our targeted range by year-end.

In capital returns, we have $198 million in remaining capacity on our existing share repurchase plan with debt levels reducing into our target range during 2020 -- '23, we have the flexibility to continue share repurchases on a more consistent basis when the market is attractive, while also providing for regular modest increases to our existing dividend.

And finally, on the M&A front, we continue to explore accretive deals that fit within our existing geographic or service offering base and are manageable within our free cash flow profile and leverage targets. Our capital allocation priorities are committed to driving long-term shareholder value by investing in growth initiatives, driving robust earnings, generating cash and returning excess cash to our shareholders.

Next to Slide 12. Slide 12 provides a summary of our 2023 guidance as well as a framework around our 2024 targets. Our strong performance in 2022 provides solid momentum in the next year. In 2023, we expect to achieve revenue growth of 6% to 9%, driven by organic growth of 7% to 11%, partially offset by an FX headwind of around 4% based on rates from year-end. Operating profit growth of 12% to 21%, reflecting strong operating leverage and a margin increase of approximately 100 basis points. And at the midpoint of our guidance, we also expect to deliver double-digit increases in EBITDA, free cash flow and earnings per share, with free cash flow conversion of approximately 40%. Our original 3-year financial framework of mid- to high single-digit organic revenue growth and 100 basis points of annual operating margin improvement over the 3-year period remains intact. We also expect EBITDA growth to generate a free cash flow conversion approaching 50%, factoring in FX, acquisitions and current interest rates on our debt. Given our strong performance in 2022, along with our continuous improvement framework through the Brink's business system and our growth strategy for the business, I'm confident that we'll deliver on these targets.

With that, I'll hand it back to Mark for a few closing remarks.

Thanks, Kurt. On Slide 13, you can see our core strategic objective and our foundational strategic pillars. Embedded within each pillar is our commitment to sustainability. Our investment in each of these pillars will drive revenue growth and margin improvement and physician brings as an innovative business partner and employer of choice for years to come.

Customer service has been a long-standing part of Brink's, and we're working hard to fully embrace a customer-centric mindset by considering our customers in every single decision we make and action we take to improve both growth and customer loyalty. We're working to create a consistent and exceptional experience across all service lines to become a trusted business partner with our customer. These deeper relationships with our customers allow us to partner in innovation. We continue to innovate with tech-enabled hardware and software solutions to create value and address our customers' biggest challenges, including our digital retail solutions and ATM managed services.

We must remain agile and capitalize on the emerging opportunities to drive new revenue streams in the evolving payments landscape. With a focus on operational excellence, we're advancing a continuous improvement culture focused on improving the customer experience and eliminating waste. Under the leadership of the Brink's business system team, we will share systems and best practices across our global operations that expand our operating margins and improve our service rates.

And finally, our business is only as strong as our people, establishing a workplace and an employer brand that attracts, develops and empowers diverse talent will ensure that we have the best people and perspectives to achieve our goals. I'm proud of the efforts of our team in delivering a strong 2022. In '23, we will grow Brink's by delivering a superior customer experience and driving continuous improvement throughout our operations. I'm excited about the opportunities we have in front of us and encouraged by the strong momentum we're carrying into the year. I'm confident in our ability to create long-term shareholder value as we execute on these strategic priorities.

I'll now turn it over to the operator to facilitate the Q&A answer session. Operator?

Ladies and gentlemen, at this time, we'll begin the question-and-answer session. [Operator Instructions] Our first question today comes from George Tong from Goldman Sachs. Please go ahead with your question.

Hi. Thanks, good morning.

Good morning, George.

Good morning, George.

Relatively healthy 12% organic revenue growth in 2022. Can you provide an update on what you're seeing with volume trends among retailers in the current macro environment that can support continued solid performance and organic revenue growth and how the average number of stops per retailer is changing, if at all?

Sure. George, I'll take that. This is Mark. Good morning. We really haven't seen any significant demand signals that would indicate that we're seeing softness in retail. In fact, I think the retail story is largely playing out with -- in sort of 2 different areas with the big retailers. And you've heard a couple here lately talking about the shift really from consumers purchasing goods to moving toward services. Obviously, services is an area for us that we like given that that's largely in person, which is where cash is a preferred payment method and whether that's hospitality or retail, QSR or just travel. And of course, you see some of those demand signals for the future with the airline businesses with Airbnb and some of the forecasts for summer travel. So those things give us some confidence going forward. But actually, we don't see any real data around that -- around demand destruction or retreat.

I think the other thing to remember on the stops and the average stops per customer, is that as we deploy more and more DRS as we optimize more and more of the full-line ATM managed services, we're able to optimize our routes and stops better, which, again, allows us not only to drive productivity on our -- and asset utilization across our footprint, but also allows us to provide a more seamless integration with our customers with a full stack solution.

Got it. That's helpful. And related to that last point, in your tech-enabled solutions portfolio you saw significant growth with Digital Retail Solutions up 25% and ATM Managed Services up 50% over the past year. Can you discuss your initiatives to further scale your tech-enabled solutions? Where are your priorities currently from a growth perspective?

Sure. We're focused in all areas, and I'd say it's broad-based. Specifically around DRS, we've got, of course, a big footprint there where in our traditional business in many markets around the world and almost on every continent. We're seeing opportunities not just in the conversion of our existing customers, which I think is encouraging. We talked about this at Investor Day in '21 about the un-vended and underserved space. We're seeing those opportunities globally. And in fact, today, we're seeing probably more opportunity in international markets than we probably expected early on, which is giving us a balanced view and a balanced outlook on DRS growth.

Relative to ATM Managed Services, that also is broad-based in activity. And of course, we've got a strong footprint with our traditional business in all of the markets. I think the opportunity we've seen most recently has been in North America with our PAI acquisition as well as in Europe with our NoteMachine acquisition. But those 2 acquisitions are really -- they're not the basis for which we're driving growth. They're the basis for how we're driving the development of capabilities and skill sets and infrastructure to allow us to drive organic growth. You can -- the numbers we're talking about are organic growth, and we've chronicled some of those wins in the past, whether that be with BPCE on outsourcing their network or in the Baltics or other areas, of course, in North America. But this is a good backdrop for us going forward. And our pipeline is healthy with more and more discussions not only with our current customers but as banks are evolving their footprint and their strategic outlook, both in Latin America as well as in Asia Pacific, we're seeing more of those organic opportunities unfolding. Our next question comes from Tobey Sommer from Truist Securities. Please go ahead with your question.

Thanks. I was hoping you could speak to free cash flow and the arc of that this year and out in the future and maybe just give us the contours of the things that are within your control because I know we don't get to choose rates, but sort of your CapEx trends, what the move to digital means in terms of optimization for that and any other things that are sort of within your control that would contribute to a higher free cash conversion? Thanks.

Yes. Hey Tobey, it's Curt. Let me take that and Mark can can add on. So I think when you look at our free cash flow, the biggest component, obviously, is our EBITDA and we feel very good about the trajectory of that. And as we look ahead, kind of what we're looking to deliver. And then when you go beyond that, you look at the other components, let me just pick up on CapEx next. We've basically said our CapEx is going to stay largely flat going forward. And the reason for that is because we really feel like our mix of business and changing our business model is allowing us the operational efficiencies to enable the fact that we don't need the same levels of CapEx as we did before when you look at it as a percentage of revenue. So that gives us leverage off of that. So that's well within our control.

If you look at the working capital components next, we talked about the fact that -- we had -- we consider kind of a temporary drag at the end of the year here that we see turning into '23 for a number of items. And all of those well within our control. As you know, as we go into the year, we tend to ramp on free cash flow. It's lower than the first half of the year and picks up in the second half of the year. And that's very normal for us, and we would see that continue.

The other components, I mean, interest and taxes from a cash basis, I mean, we're pretty -- I'd say, again, on interest well within our control because we're -- as we've said, we're going to target between 2 and 3x on our leverage. And so we'll keep that in check. And then on the taxes, working to make sure that our cash taxes remain consistent. We've guided pretty much flat with '22, and we think that's very achievable.

So maybe I'll just add a little bit to that, Tobey, just thinking -- you asked about the arc in '22 into '23 and beyond. First and foremost, I think the cash conversion percentage for 2022 is a bit misleading at 26%, given the fact that we had these onetime -- getting through these temporary working capital drags that kind of the nominal say 30% -- low 30%, 33%, 34% cash conversion on the '22 number, which makes the 40% conversion on '23, not so daunting. And by the way, that's consistent with our history previous to 2022, that sort of mid- low 30% conversion rates.

I think the other thing that we are confident about is a larger -- a large part of that working capital improvement for next year is built into some of those items Kurt mentioned, whether it's $40 million in AR recovery in Mexico that he mentioned or some of the things that have already resolved themselves here in January relative to the timing of year-end and change orders. So we feel good about that.

I think the other piece of the business as we go forward is around our DSO mix of businesses. And so as AMS and DRS continues to become a bigger -- penetrate our existing portfolio and become a bigger piece of our revenue, we've got better terms there based on subscription-based models versus the traditional stock model. And so that backdrop with some other improvements, and I think Kurt referenced the incentive plan change where we think that we can drive behavioral changes and, of course, management attention with specific cash flow conversion tied to their incentive plan. I think it sets the right change management perspective going forward.

That makes a lot of sense to me. And as a follow-up on that last point, do you expect a focus in incentive comp on free cash to be a feature of incentive comp beyond this year? Is it something that sort of philosophically and strategically you think is an appropriate tool to drive the improvements?

Yes. Absolutely, Tobey. We think this is going to be a permanent piece of our compensation. And rightfully so, I think during the pandemic the company was focused on preserving profitability and as well as maintaining a growth lean. This year, going forward, we think cash is a permanent piece of our go-forward, not only go-forward management incentive, but frankly it's a go-forward component as part of our value creation for shareholders.

Right. Could you give us some color on the drivers of growth and what's sort of strong and/or the weaker elements of rates Brink's Global Services? It's something we don't always talk a lot about on these call, but I'd love to get sort of an update on how you see that business evolving this year?

Sure. We continue to have a strong position, Tobey, in moving precious metals, bank notes due to our network and, frankly, global relationships in this industry. And so as we continue to see whether it's interest rate regimes move, disruption in whether it's wars, pandemics, we are part of that ecosystem that allows investors to move in and out of specific types of valuables. As we look at coming out of the pandemic, where commodity prices were -- specifically gold and silver were at high demand, we had a lot of that revenue, whether it was movement or storage or so forth around precious metals in the pandemic as -- but at the same time, we saw banknote repatriation and movements around the world contract.

What we're seeing that shift back now as we're seeing more people move around the globe, more cash moving around the world as well as interest rates moving that drives Central Bank and government -- or country-to-country currency flows. And so that, we've seen a significant uptick there in the banknote business this year.

And last question for me. Anything that you would highlight as the most likely areas of financial institution outsourcing this year and next, is there a focus area that you're hearing from customers is the biggest opportunity for the company?

Well, we certainly are in the ATM Managed Services is our -- is really the platform to receive that. And frankly, we've seen more, and you saw the growth -- the organic growth number that we had in '22. And we'd expect continued strong growth from our AMS business. And it's coming from bank financial institution outsourcing. And as I mentioned before, we've -- while we have big footprints in North America and Europe, we're seeing this activity widespread around the world where banks are entering into discussions, whether public request for proposal or whether it's private negotiations with us. And I'd say we're -- and others, by the way.

I'd say we're a logical partner for many of these customers, given the fact that we provide such a large amount of service in the value stream with their currently in-sourced ATM management. And so for us, we're a logical partner for that first discussion. And part of that for us is make sure we're ready for it, which is why we're building out what I mentioned was our global infrastructure. We appointed David Dove, who's our global ATM President and built out some infrastructure around that, both on the business development as well as technical capability to be able to have those discussions and purposely enter into good exploratory discussions with these customers to find the best solution. And by the way, that solution has a wide varying range of services. But in all of those cases, this is an accretive business to our base margins and continues to help us as we look forward drive our mix as part of our profit improvement in the 100 basis point framework year-on-year.

Thank you.

And ladies and gentlemen, with that, we're going to conclude today's question-and-answer session as well as today's conference call. We do thank you for joining today's presentation. You may now disconnect your lines.