Welcome to The Brink's Company's second quarter 2022 earnings call.. The Brink's Company issued a press release on second quarter results this morning. The company also filed a Form 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 the slides are available in the investor relations section of the company's website, brinks.com. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. Now for the company's safe harbor statement. This call and the Q&A session will contain forward-looking statements. Actual results could differ materially from the 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. This call is copyrighted and may not be used without written permission from Brink's. It is now my pleasure to introduce your host, Ed Cunningham, Vice President of Investor Relations. Mr. Cunningham, you may begin.
Thanks, good morning, everyone. Joining me today are CEO, Mark Eubanks and CFO, Ron Domanico. This morning, we reported second quarter results on both a GAAP and non-GAAP basis. The non-GAAP results exclude a number of items, including the impact of Argentina's highly inflationary accounting, reorganization and restructuring costs, items related to acquisitions and dispositions, valuation allowance on tax credits, and changes in certain allowance estimates. We're also providing 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 will focus primarily on the non-GAAP results. Reconciliations are provided in the press release, in the appendix of the slides we're using today, and in this morning's Form 8-K filing, all of which can be found on our website.
I'll now turn the call over to Mark.
Thanks, Ed, and good morning, everyone, and thanks for joining us today. This morning, we reported record second-quarter results, including double-digit organic growth in revenue, operating profit, adjusted EBITDA, and earnings per share. We achieved these results in a macro environment that continues to be challenging, demonstrating the resiliency of our business. We also affirmed our full-year guidance, which includes revenue growth of 8%-11% and operating profit growth of 16%-23%, reflecting approximately 100 basis points of margin expansion driven by our lean cost initiatives and leverage from a lower fixed cost base. Our full-year guidance is supported by our year-to-date results, which are included in our appendix. Through the first half, we've achieved 9% revenue growth, 18% profit growth, a 16% increase in EBITDA, and earnings per share growth of 26%.
We delivered these results despite a slower-than-expected start to the year due to Omicron-related shutdowns in many of our markets. We expect this momentum to continue through the second half, which is historically much stronger than the first. Before moving on to the details behind our results, I wanna touch on our sustainability efforts. In July, we issued our first corporate sustainability report, which shared more about our priorities and the United Nations Sustainable Development Goals that align with our operations. We're in the early stages, but sustainability is an important focus for us, and we look forward to sharing more about our commitment, the targets we tend to achieve, and the progress in future quarters. Slide four summarizes the strong revenue and profit growth we achieved in the second quarter.
Revenue was up 8%, with organic growth of 13%, driven by double-digit organic growth in all four of our segments. Second quarter U.S. dollar revenue recovered to 99% of pro forma pre-pandemic levels, up from a 95% recovery we saw in the first quarter, reflecting steady sequential improvement from April to June. In fact, June revenue recovery reached 100%. On a local currency basis, excluding Argentina, revenue has now been at or above the pre-pandemic levels for two consecutive quarters. While our pro forma revenue has now fully recovered from the impact of COVID-19, many of our markets, particularly in Asia, are not back to pre-pandemic revenue levels, but we expect these markets to continue to recover.
Operating profit was up 12%, with organic profit growth of 17% and acquisition-related growth of 1%, partially offset by a 6% negative impact from FX. This profit growth was driven by strong year-over-year margin expansion in three of our four geographic segments. The exception was North America, where profits declined versus last year's very strong second quarter, which benefited from several one-time adjustments related to various insurance credits, bad debt reversals, and COVID-related government subsidies that, on a combined basis, more than offset the second quarter margin improvement this year. On a sequential basis in 2022, the North American margin rate increased by 190 basis points over the first quarter rate, and we expect further improvement in the second half. In North America, our price increases continue to outpace our labor and other cost increases, and labor availability continues to improve.
Adjusted EBITDA was up 13% company-wide and up 17% in constant currency, with a margin of 16.4%, up 60 basis points over prior year. I'll now turn the call over to Ron, who will cover these results in more detail. Ron?
Thanks, Mark, and good day everyone. Turning to Slide five. As Mark just mentioned, 2022 second quarter revenue versus prior year was up 13% in constant currency, almost entirely from organic growth. Foreign exchange had some significant swings throughout the quarter. While the euro devalued 12%, other currencies, such as the Mexican peso and Brazilian real, were not as negative. In aggregate, FX was a 5% headwind. Reported revenue was $1,134 million, up $85 million or 8% versus the second quarter last year. Second quarter operating profit in constant currency was up 18% versus last year. Organic growth was 17%, and acquisitions added another 1%. Negative FX was $6 million.
Reported operating profit was $124 million, and the operating profit margin of 10.9% was up 40 basis points versus the second quarter 2021. Moving to Slide 6. Second quarter interest expense was $32 million, up $4 million versus the same period last year due to higher debt associated with the $200 million in share repurchases completed in the last twelve months and higher variable interest rates. Tax expense in the quarter was $31 million, in line with last year, as higher income was mostly offset by a 110 basis points reduction in the effective tax rate. $124 million of second quarter 2022 operating profit, less interest expense, taxes, and $1 million in non-controlling interest in other, generated $62 million of income from continuing operations.
This equates to $1.29 of earnings per share, up 12% on a reported basis and up 30% excluding the mark-to-market gain on the MoneyGram shares we held last year. Share repurchases reduced our weighted average diluted shares outstanding by 2.9 million shares versus prior year, or about 6%, and accounted for about $0.06 increase in EPS. Second quarter 2022 adjusted EBITDA was $187 million, up $21 million or +13% versus a strong quarter last year. As Mark mentioned, EBITDA as a percent of revenue was 16.4%, up 60 basis points versus the second quarter 2021. Turning to free cash flow on Slide seven.
Our 2022 free cash flow range is unchanged from last quarter and is estimated between $280 million and $315 million. Projected free cash flow is $77 million higher when adjusted for $67 million in third quarter 2022 hedge monetization, which I'll discuss more in a moment, and $10 million in 2020 payroll taxes that were deferred due to the pandemic. Adjusted EBITDA is expected to range between $755 million and $790 million, and at the midpoint would be about $90 million more than last year. We expect to use about $70 million of cash for working capital restructuring and the $10 million in deferred tax payments.
Cash taxes are estimated to be $110 million, up $26 million versus last year, due mostly to higher income as well as the timing of payments and refunds. Cash interest is expected around $115 million, an increase of $9 million versus 2021 due to the incremental debt associated with the previously mentioned share repurchases, the PAI acquisition that closed on April 1 last year, and higher variable interest rates. Net cash CapEx is targeted at $180 million. 2022 free cash flow conversion ratio is targeted to be about 40% of Adjusted EBITDA and equates to approximately $6.15 per share. To Slide eight.
This slide illustrates our actual net debt and financial leverage at year-end 2021, at the end of the first half of 2022, and our estimate for year-end 2022. There was a $165 million increase in net debt from year-end 2021 to June 30, 2022. About half of that increase was due to a first-quarter change in Mexico invoicing regulations that has temporarily increased accounts receivable, and the balance was due to revenue growth and normal seasonality. We expect Mexico DSO to return to normal by year-end.
The approximate $180 million decrease in net debt from year-end 2021 to 2022 is expected to be driven by free cash flow and $67 million in third quarter 2022 hedge monetization, partly offset by dividends, financing leases, and other Strategy 2.0 device investments. While we have authorization for another $250 million in share repurchases, nothing has been built into this estimate. Dividing our estimated $2.1 billion 2022 year-end net debt by the midpoint of our expected EBITDA range should generate a net debt leverage ratio of 2.7 turns. Our credit facility has a covenant based on net secured leverage with a maximum ratio of 3.5 turns, with a half-turn increase if there's a material acquisition.
Our 2021 secured leverage ratio was 2.0 turns, and we expect that to decline to 1.5-1.6 turns by the end of 2022. The only other credit facility financial covenant is interest coverage, which must exceed three times. We have considerable room with both covenants, even in an economic downturn. Moving to our debt maturity profile on slide nine. In the second quarter 2022, we amended and extended our credit facility, where we retained a $1 billion revolving credit facility, and we expanded our term loan A by $200million -$of 1.4 billion. The amended facility reduced our used pricing grid by 25 bps and is expected to provide significant interest expense savings going forward.
Maturity was extended out five years and meaningfully expanded our capacity to make restricted payments, including share repurchases. On this slide, the light gray bars reflect our debt maturity before the amend and extend, and the dark blue bars afterward. Our 5.5% senior notes mature in July 2025, and otherwise we have no material debt retirement obligations until 2027. As I mentioned earlier, in July, we monetized a cross-currency interest rate swap on our $400 million 5.5% senior notes. We received $67 million in cash and entered into new swaps to hedge similar exposure going forward. The cash proceeds reduce our net debt and associated leverage and increase our capital allocation flexibility. With that, I'll hand it back to Mark.
Thanks, Ron. As I mentioned at the outset, our strong second quarter results were achieved in a challenging macroeconomic environment. Like most companies, Brink's is not immune to these challenges. However, we firmly believe that we are better positioned than most due to the fact that the services we provide are critical to our customers and remain essential throughout economic cycles. Our largest cost by far is labor, and we are continuing to offset rising wages with disciplined pricing actions. As previously discussed in prior quarters, we implemented several price increases in our U.S. business that went into effect in the latter part of 2021 and the first half of 2022, both of which were well above our historical averages. These pricing actions have positioned us to more than offset labor cost increases in the current quarter.
As we move through the year, we expect pricing actions to continue to offset inflationary pressures both here in the U.S. and around the world. As a service business with locally sourced people and assets, we are far less vulnerable to global supply chain disruptions than many other industrial service businesses. Where necessary, we've secured long-term partnerships with global suppliers and made early purchases to avoid any potential disruptions. Rising fuel costs have also historically not had a material impact on our profitability, as most of our customer agreements have fuel surcharge clauses. We have a track record of relative stability during recessions and other times of crisis due to an increase in cash usage and security concerns. This history, combined with proactive pricing actions and our operational excellence initiatives, gives us confidence that we will sustain our recent momentum and achieve our full year guidance.
Moving on to the next slide. We're off to a great start in 2022 and on track to achieve revenue growth of 8%-11%. Our full year guidance provided at the beginning of the year was based on FX rates at the end of last year. Since then, we've seen significant strengthening of the US dollar, especially against the euro. Based on current rates versus last year, we expect to see some continued FX headwinds in the second half. Despite these FX moves, which resulted in a 5% unfavorable impact in the quarter, we still delivered record results. We're also on track to achieve operating profit growth of 16%-23%, reflecting a margin increase of approximately 100 basis points versus last year. We also expect to deliver double-digit increases in EBITDA, free cash flow, and earnings per share.
It's important to note that while our revenue has now recovered to 100% of pro forma 2019 pre-pandemic levels, our full year 2022 revenue guidance exceeds our 2019 reported revenue by close to $1 billion, and our operating margin is expected to expand by 150 basis points over the same period. In other words, today's Brink's is far larger and far more profitable than it's ever been. We achieved this through disciplined execution of a balanced growth strategy focused on both organic improvement and accretive acquisitions. We plan to drive additional organic growth and margin expansion by continuing to build a strong culture of continuous improvement and customer focus by leveraging fixed cost reductions as volume grows, by aggressively managing our price-cost equation, and by further streamlining our operations.
On the M&A front, we've demonstrated our ability to buy good assets, integrate them effectively, and improve the business mix with access to new markets and service offerings. For additional perspective, it's also important to note that our three-year targets are driven primarily by growth and continued operational improvements in our core business, which accounts for approximately 90% of our 2024 revenue target and 85% of our operating profit target. Conversely, our new ATM Managed Services and Brink's Complete initiatives combine to account for about 10% of our 2024 revenue target and 15% of our operating profit targets. Given our strong start to the year, the resiliency of our business and challenging environments, the ongoing reopening of global economies, and with our growth and productivity initiatives, I'm confident that we'll deliver our financial targets. Now, let's open it up for questions.
We will now begin the question and answer session. To ask a question, you may press Star, then one on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press Star then two. At this time, we will pause momentarily to assemble our roster. The first question today comes from Tobey Sommer with Truist Securities. Please go ahead.
Hey, good morning. This is Jasper Bibb for Tobey. Thanks for taking our questions. I was just hoping you could update us on kinda the Brink's Complete deployments and how the sales activity is tracking there relative to your expectations.
Yeah, sure. Thanks, Jasper. Good morning. Yep. Continuing to progress as planned and, you know, still continuing to see more customer interest in, you know, a total solution versus, you know, traditional CIT services. You know, we talked about it last quarter, where globally, our tech-enabled solutions that includes our Brink's Complete offering, you know, grew by more than 20% over the prior year. In this quarter, we saw it grow over 28%. Continuing accelerating growth. In the U.S. alone, as we mentioned, that represented over 20% of our revenue in Q1. Now that's pushing up towards 26%. You know, really seeing the kind of penetration we would expect.
Of course, the economy is still in transition, certainly as the looming recessions. Retail, while continues to, you know, see some bumpy reports out there from some of the big retailers. You know, we are seeing in-person retail continuing to accelerate. You've seen the numbers, I'm sure many have, about the transition from online shopping back to, you know, in person, which of course favors cash usage, where we still represent almost a third of all the payments for in-person charges.
I think the other thing that's also changing in that environment is as people start to get squeezed and household incomes are being challenged with inflation, you're starting to see more people, more discount buyers, more discount retailers having success. Again, smaller transactions, smaller purchases, which again lend themselves towards, you know, more cash transactions. You know, that's supporting both the interest not only in our core business but in our, you know, more technology-enabled offerings with Brink's Complete.
Thanks. Just wanted to ask about the high value services business. You know, what's been the slope of recovery for your foreign exchange services, given what seems to be a relatively strong summer travel season so far?
Yeah, you know, Jasper, we certainly saw, you know, that business subside and in some cases, you know, retract significantly during the pandemic. As you can imagine, in that high value services area for us, in our global services business, we saw a shift toward more precious metals, you know, moving around the globe. You know, we're obviously a large player in that market. But as we've seen things shift back to travel, we have seen more banknote movements. Now, certainly, that is due to FX and due to travel, which, I think, you know, we've seen some of the Eurocontrol data that's out there, that tourism continues to recover or travelers continue to recover, particularly into Europe.
We're still seeing, you know, Southeast Asia still slow to recover, although our segment results, you know, continue to improve in that region. Still, there's still some recovery going on. I think the other thing of note is that the FX markets between central banks and governments obviously has been volatile, which also drives, you know, quite a bit of banknote transmission globally.
Got it. Then you mentioned the relative weakness in Asia Pac, but the rest of the world segment overall looks pretty strong here. What are some of the markets that might be lagging on a relative basis versus the overall segment?
Sure. Hong Kong and Macau, I think, you know, continue to have, you know, some pretty significant restrictions relative to travel in and out, which has obviously restricted not only tourism but business commerce. You know, the gaming industry is seeing quite a bit of, you know, fits and starts in Macau, certainly, which again is a big travel area in a market we serve. You know, the other big markets that we serve, Singapore, Malaysia, Philippines, continue, you know, to exit their, you know, their pandemic restrictions and, you know, are gaining momentum, you know, each month as we go through the summer season.
Last question for me. There's just been some media reports about a large, potential 3Q loss on a high-value shipment in California.
Yeah.
Can you just clarify how you're approaching that item in your guidance?
You know, just maybe just to clarify what happened and maybe a little bit of the media reports,, and let me set the record straight from our side here. You know, the robbery, you know, while it's still under investigation, you know, we're not gonna we can't really comment on the specifics of what happened or the details. What we can say is that the amount of the loss would be less than $10 million, you know, at the worst case. That's contrary to some fairly salacious media reports out there and, you know, $100- 150 million. I wanna make sure that that's clear. Our guidance, you know, on an ongoing basis routinely includes estimates for losses.
This is part of our business. We use historical data to do that. While this is quantified and was sort of in the media, the impact on this loss, you know, should not be material to our results.
Appreciate the color there. Thanks for taking the questions, guys.
Sure.
The next question comes from George Tong with Goldman Sachs. Please go ahead.
Hi. Thanks. Good morning. Could you talk a little bit about what macro assumptions you're including in guidance and how you're expecting the economy to impact performance in the second half of the year?
Yeah. George, I think we're not building in any significant contraction in our business. In fact, we're not seeing any slowing in the velocity of our business. You know, the results we have so far have been as we expected. As I mentioned in the prepared remarks, you know, historically, even with recessions, whether it's a technical recession or a mild recession or, you know, maybe something more protracted, you know, we tend to be really resilient. People tend to return to cash in many cases, and with more cash usage becomes, you know, for us more, you know, not only more volume, but more opportunity, you know, for attracting new customers.
I think that's sort of the macro view on the recession. We don't have any, you know, large step function changes built in. Of course, you know, we'll operate the business, you know, flexibly and make adjustments either way. You know, nothing big in front of us that we've seen or are hearing from our customers, in fact, whether it be retailers or our financial institution partners.
Got it. That's helpful. With respect to margins, could you discuss some of the latest initiatives you have that you're deploying to continue to close the gap in EBITDA margins relative to peers, and when you might expect that gap over the medium term to close?
Sure. You know, George, listen, we feel very good about, you know, where our guidance is right now. This, you know, the three-year targets we laid out at 100 basis points a year, we expect that to continue and have line of sight to that this year, as we've had, you know, built into our guidance in the first of the year, and don't see us coming off of that. You know, the only thing I would say is, you know, listen, we have a mix of businesses around the globe that have different margins. You know, our North American business, particularly, is one that we know is and recognizes has lagged some of our peers.
That's something that, you know, we're addressing directly and are already starting to see, you know, fruits of those improvement activities. We've also recently made and announced a leadership change there. Daniel Castillo leads our North American segment. You know, a seasoned executive that's really gonna be able to already identify some of the areas of improvement that maybe we recognize, but certainly now are taking action on. I think this is something we expect to drive continuous improvement quarter to quarter. We saw good improvement quarter one to quarter two already, about 28% sequential earnings leverage out of Q1 to start the year.
Expect, you know, if you look forward in our results from prior year, expect to continue to deliver, you know, good improvements quarter on quarter for the rest of the year. This is again an area that will obviously help not only as one of the largest segments, but will help us, you know, close the gap in a significant way, in a disproportionate way, not just in North America, but, you know, on the global portfolio. Again, as I think about peers, you know, I don't think just about peers, you know, in the logistics space. You know, we think about peers, you know, across all investment categories.
This is you know, we're all competing for investors against all peers, and we think that our growth rates, both in our EBITDA and free cash flow, you know, compare with any.
Got it. Very helpful. Thank you.
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