The Brink's Company (BCO) Q3 2021 Earnings Call Transcript

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The Brink's Company (BCO 1.11%)
Q3 2021 Earnings Call
Oct 27, 2021, 8:30 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Welcome to The Brink's Company's Third Quarter 2021 Earnings Call. Brink's issued a press release on third quarter results this morning. The company also filed an 8-K that includes the release in 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 brinks.com. [Operator Instructions].

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.

Ed Cunningham -- Vice President of Investor Relations and Corporate Communications

Thanks, Jason. Good morning, everyone. Joining me today are CEO, Doug Pertz, CFO, Ron Domanico, and our recently appointed Chief Operating Officer, Mark Eubanks. This morning we reported quarter 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 an internal loss and certain accounting compliance matters. Also providing our results on a constant currency basis which eliminates changes in foreign currency rates in 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 non-GAAP results. Reconciliations are provided in the press release, the appendix to the slides we're using today, and in this morning's 8-K filing, all of which can be found on our website. I'll now turn the call over to Doug.

Douglas Pertz -- President and Chief Executive Officer

Thanks, Ed. Good morning everyone, and thanks for joining us. Today we reported third quarter results above the guidance we provided in September with double-digit increases in revenue, profits, and earnings per share. Importantly, despite slower-than-expected revenue recovery from the pandemic lows, third quarter revenue versus pre-COVID levels did grow sequentially over the second quarter. And despite other operational issues that impacted the quarter including labor shortages and wage inflation in the US that is not yet been offset by price increases that have been enacted, operating profit margin improved by 50 basis points to 10.8%. With continued revenue and margin improvement, this position is as well for 2022 and the future. We are affirming our four-year 2021 guidance, which includes revenue in the range between $4.1 billion and $4.2 billion, with a bias to the higher end of the range due to the strong third quarter results. Operating profit of approximately $465 million, which reflects a margin increase of close to 100 basis points versus prior year. And adjusted EBITDA of approximately $660 million reflecting an EBITDA margin of approximately 16%. We're also affirming our preliminary 2022 adjusted EBIT target range between $785 and $825 million.

After an expected margin improvement of approximately 100 basis points this year, we expect a similar operating profit margin increase next year with margins continuing to be driven by our Strategy 1.0 lean cost initiatives and further margin leverage driven by sustained fixed cost reductions and revenue growth. We expect continued revenue improvement in 2022, driven by continued revenue growth from the pandemic lows, organic revenue growth, partially driven by higher than normal price increases that will offset wage inflation and further revenue growth driven by initial contributions from our digital solutions that will take-- that will be stronger next year. Based on these revenue drivers and an expected higher 2021 year-end revenue run rate, we believe revenue in 2022 will exceed 100% of the adjusted pre-COVID revenue level of approximately $4.55 billion, which includes historical revenue acquired with G4S and PAI.

As a reference point, at 100% of the adjusted pre-COVID revenue level, we would expect 2022 adjusted EBITDA to be about $755 million. And we'd expect continued margin and growth and margin leverage as revenue grows above this pre-COVID levels, which would support our initial 2022 targets as we've provided. We're also pleased to announce today our plan to enter into a $150 million accelerated share repurchase agreement that would represent the repurchase of approximately 5% of the company's outstanding shares at the current share price. Based on our current share price and projected earnings for 2021 '22, we believe the best investment for our shareholders is to buy Brink's shares. We expect the $150 million ASR will be-- we are announcing today will be substantially completed by early November. Our board has approved another $250 million authorization to be used from time to time over the next 2 years. And finally, we're pleased to confirm that we'll host an Investor Day on December 15. It will be a hybrid event with a virtual presentation of our strategic plan and financial targets, followed by a live Q&A with our management team. We'll hope you'll attend.

Turning to the next slide. Our third quarter results came in, as I said, above September guidance with revenue, operating profit, and EBITDA, each exceeding our outlook and analyst consensus. On a reported basis, revenue was up 11% with organic growth of 6%. Well, not as strong as I said as originally expected, organic revenue grew sequentially from the second quarter and revenue as compared with the pre-COVID levels also improved. Operating profit grew 16%, reflecting a margin increase of 50 basis points to 10.8%, and is demonstrating earnings leverage with our revenue increase. Adjusted EBITDA was up 15% with a margin of 60 basis points to 15.8%, EPS grew 28% from $0.89 per share to $1.14. We achieved these results despite the ongoing impact of the global pandemic in several key markets and wage and labor issues in the US. As Mark will cover in a minute, we expect these conditions in the US to improve as we move into 2022.

On a global basis, we see encouraging trends indicating that revenue is recovering to pre-pandemic levels and above, as evidenced by the significant revenue recovery so far this year compared to pre-pandemic levels, though the rate of recovery may continue to be choppy and uneasy from country to country and region to region. On that note, I'm happy to turn it over to our new COO, Mark Eubanks, who will provide an overview of our segment reporting, results, and actions being taken in the US. Please join me in welcoming Mark to Brink's.

Mark Eubanks -- Executive Vice President and Chief Operating Officer

Great. Thanks, Doug, and hello everyone. I'm excited to join the Brinks leadership team and look forward to getting to know all of you over the next several months. I'll start by adding some high level comments to our third quarter results at the segment level. In North America, third quarter reported revenue grew 14%, while operating profit grew 4%, which includes the impact of the PAI acquisition we did last April. These results were less than our expectations as we enter Q3, primarily driven by labor shortages across the US market. The impact of this tight labor market reduced segment revenue by about 1% and reduced segment margins by approximately 300 basis points. This came in the form of both lost revenue and higher labor costs. In August, several of our branches didn't have enough drivers, and as many of you know, CIT revenue is largely based on a revenue per stop model. When we're short on drivers, we can't service all our routes, so missing stops means missing revenue. And then on the cost side, like many in the transportation and logistics industry, we've had to aggressively increase frontline hourly wages, not only to attract new associates, but also to reduce the attrition rates of the current Brink's workforce.

The good news is, we've recently seen improvements on both fronts, of both hiring and retention. The expiration of the federal unemployment benefits seems to be driving a meaningful increase in job applications. And while we're still slightly understaffed, but we are seeing sequential improvement week over week in the volume of new applications. In fact, our staffing level is currently the highest it's been in five months, and our US HR teams are working diligently to resolve the ongoing labor shortages. It's also important to note that rising fuel cost generally have not had a material impact on our profitability as most of our customer agreements have fuel surcharge clauses as a cost recovery mechanism. To offset our rising costs that we've seen here in the US, we've announced and implemented several price increases in our business in Q3 that are well above the historical annual averages. Additionally, we've announced this month that our upcoming 2022 annual general price increase will also be well above the historical average increases to account for the ongoing impact of the extraordinary 2021 wage inflation. We anticipate meaningful lift in this price increase that will take us back in balance, relative to our price versus cost inflation ratio as we start 2022 and into the first quarter.

I want to make the point that we are confident in our ability to pass on inflationary cost pressures to the marketplace in the form of these type of price adjustments. Now to Latin America, where revenue continued its double-digit growth trend with reported revenue up 13% and operating profit of 26%, reflecting a margin increase of 240 basis points to 22.3%. Our lean transformation in Latin America, particularly in Mexico, continues to produce good results in both organic growth and strong earnings leverage despite the lingering impact of COVID across the region in Q3. In Europe, while below our expectations, we saw modest organic revenue growth with strong profit growth. Operating profit improved more than 300 basis points to 11.8%, a result of strong cost management and the benefits of prior-year restructuring actions coming through for the rest of the world segment, revenue grew 8% on a reported basis, accounting for the contribution of the G4S acquisition.

On organic basis, revenue and profits declined, reflecting the impact of government mandated COVID restrictions across the region, and tough 2020 comps in our precious metal logistics business. Similar to Europe, we are beginning to see signs of improvement in September as economies begin to reopen. Now let's move to slide 6. Slide 6 presents the 2021 quarterly revenue by segment, showing the revenue recovery percentage versus pre-COVID levels We present comparisons, both on a US dollar and a local currency basis, both of which are important to us. The local currency recovery percentage is helpful in understanding the underlying resiliency of cash usage in each region, and the US dollar recovery percentage is factor in the impact of foreign currency translation, which of course is how we report our results.

Beginning on the left side, we'll start with North America. You can see modest sequential improvement from 93% to 97% from the first to second quarter. We then saw a slight dip down to 96% in the third quarter, and we expect the 4th quarter recovery to be north of 100%. Now moving to Latin America, you can see that on a local currency basis, recovery has been significantly stronger than North America with the third quarter at 108% of adjusted 2019 levels. A large part of this recovery is attributed to the inflationary environment in Argentina. But even excluding Argentina, local currency recovery was 19% in Q3 and is expected to be over 100% in Q4. As we move to Europe, notice to the US dollar reported recovery percentages are greater than the local currency percentages. As we've noted in previous disclosures, the impact of the Delta variant has had significant impact in this region, but forex has helped offset some of this impact. We expect the fourth quarter be about 94% recovered in local currency.

And for the rest of the world, we saw a similar dynamic. In local currency, we're seeing levels similar to North America in the mid 90% range. Forex translation has been helpful in the region as well and we expect our fourth quarter to come in around 96% on a US dollar basis. In total, we expect our consolidated results in the fourth quarter to be about 95% on a reported basis and around 100% on a local currency basis. This suggests our business is back to pre-COVID levels as we exit the year. This certainly supports the underlying resiliency of cash usage in the global economy and provides an ability for us to continue to grow in the future. With that, I'll turn the call over to Ron who will take you through the financial results for the quarter. Ron.

Ronald Domanico -- Executive Vice President and Chief Financial Officer

Thanks, Mark. You really hit the ground running and are a great addition to the team. Good day, everyone. On slide 7, please remember that we disclose acquisitions separately for the first 12 months of ownership. After 12 months, there are mostly integrated and then included in organic results. Included in acquisitions for this quarter are primarily PAI and about 20% of the former G4S businesses. 2021 third quarter revenue was up over 10% in constant currency, with 6% organic growth versus last year and 5% from acquisitions. Reported revenue was $1,076,000,000, up $105 million or 11% versus the third quarter last year. Third quarter reported operating profit was $116 million, up 16% versus last year. Organic growth was 2%, acquisitions added 7%, and forex another 7%. Our operating profit margin of 10.8% was up 50 bips versus 2020. This is evidence that our 2020 cost realignment initiatives are holding and that wider and deeper is gaining traction.

Now to Slide 8. Third quarter interest expense was $27 million, up $1 million versus the same period last year, as higher debt associated with completed acquisitions was partly offset by lower average interest rates. Tax expense in the quarter was $31 million, $8 million higher than last year, driven by higher income. Our full-year non-GAAP effective tax rate is estimated at 33% versus 32% last year. $116 million of third quarter 2021 operating profit less interest expense, taxes, and one million dollars in minority interest in other, generated $57 million of income from continuing operations. This is a 100%, $1.14 of earnings per share up $0.25 or 28% versus $0.89 in the third quarter last year. The gain on marketable securities positively impacted EPS by about $0.03 this quarter versus minus $0.02 in the quarter last year. Third quarter 2021 adjusted EBITDA which excludes $2 million in gains on marketable securities was $170 million, up $22 million or plus 15% versus prior year.

Turning to free cash flow on Slide 9. Our 2021 free cash flow target is $185 million, which reflects our adjusted EBITDA guidance of $660 million. We expect to use about $60 million of cash for working capital growth and restructuring, and another $35 million in 2020 deferred payroll and other taxes payable. Cash taxes should be approximately $95 million, up $18 million, versus last year, due primarily to the timing of refunds. Cash interest is expected to be about $105 million, an increase of $27 million due primarily to the incremental debt associated with the G4S and PAI acquisitions. Our net cash capex target is around $180 million, an increase of $67 million over last year driven by acquisitions and a return to more normalized investment. Our free cash flow target, excluding the payment of 2020 deferred taxes would be $220 million, generating an EBITDA to free cash flow conversion ratio of about 33%, up from the 28% achieved in the same basis last year. While not included in cash flow from operating activities, in July we opportunistically sold all of our shares and MoneyGram for $33 million. We purchased those shares in November 2019 for $9 million. Our preliminary 2022 target is to increase our free cash flow, 50 plus percent, to a range of $350 million to $400 million, which equates to $7 to $8 per share.

Advancing to Slide 10. This slide illustrates our actual net debt and financial leverage at year-end 2020 at September 30, 2021, our year-end 2021 estimate, and the 2022 year-end preliminary target. The current year-end estimates include a $213 million acquisition of PAI, our adjusted EBITDA guidance, and our free cash flow target. The shaded blue box on top of the 2021 year-end bar represents the impact of the planned $150 million accelerated share repurchase announced today. Net debt at the end of 2020 was $1.9 billion. That was up over $500 million versus year-end 2019 due primarily to the debt incurred to complete the G4S cash acquisition. On December 31, 2020, our total leverage ratio was 3.3 turns At the end of 2021, given our free cash flow guidance and the completion of the G4S and PAI acquisitions, we're estimating a net debt of $2.175 billion or $2.325 billion, including the planned ASR. This is expected to generate total leverage of 3.3 turns and 3.5 turns respectively. Our 2022 EBITDA target range of $785 million to $825 million, combined with the estimated year-end 2022 net debt of $2,035,000,000 to $2,095,000,000 would reduce the total leverage ratio to approximately 2.5 to 2.7 turns.

Moving to Slide 11. The last few quarters, I spoke to you about Brink's sustainability program. It's a comprehensive program under my leadership and directed by the Brinks Board. I discuss the significant progress we're making. We are a signatory to the United Nations Global Compact, we pledged to support CEO Action for Diversity and Inclusion, we've hired dedicated leaders for diversity, equity, inclusion, and supplier diversity. We've expanded the Brink's Women's Leadership Forum and created employee resource groups. We've been reducing our environmental impact by modernizing our fleet, taking thousands of diesel trucks off the road, implementing dual fuel and alternate fuel vehicles, and continually optimizing routes to minimize miles driven. Our Strategy 2.0 Solutions, which learn more about at our December 15 Investor Day, target not only increased customer service, but also a major reduction in weekly stops that could take many more trucks off the roads. And while we're very proud of our progress in these areas, what I want to focus on today is Brink's social impact. One of Brink's most compelling roles is that of facilitating economic inclusion.

In United States, 28% of in-person transactions are in cash, and approximately 18% of the population is unbanked or underbanked, doesn't have access to credit, and must rely on cash. We estimate similar demographics for other developed countries, but the reliance on cash is much higher in developing markets. Mexico, Brazil, and the Philippines are just three examples, where over half of the in-person transactions are in cash. Importantly, cash use is often highest among many underrepresented groups, people of color, the elderly, immigrants, veterans, and the poor. As the world's largest cash management company, Brink's has a critical role in facilitating the global cash ecosystem to serve everyone, but especially the most vulnerable. For this reason alone, I believe that BCO belongs in every impact investing portfolio. With that, I'll turn it back to Doug.

Douglas Pertz -- President and Chief Executive Officer

Thanks, Ron. Turning now to Page 12. As we reviewed during past earnings calls and plan to discuss in much more detail on the upcoming Investor Day, we have three layers that support our current multi-year strategy plan. The first two represent an extension of our proven first strategic plan. The bottom layer outlines our 1.0 strategic initiatives that drive core organic growth and cost reductions. Our target is to achieve annual mid single-digit organic revenue growth, and this has been proven during our first strategic plan period of time, and improve operating profit margins by approximately 200 basis points over the next two years, over the two-year period that is of 2021 and '22. We expect to drive cost reductions wider and deeper than we did over the last strategic plan, expanding into more countries, and expanding the number of lean initiatives. We also expect to leverage the significant fixed cost reductions we've made over the last year and a half into higher margins, maintaining fixed cost levels as revenue increases.

The middle layer, Strategy 1.5, represents our acquisition strategy. Including G4S and PAI which are acquisitions completed early in our current strategic plan, we've invested a total of $2.2 billion in over 17 acquisitions since 2017. Since we added acquisitions as a part of our overall strategy, we have proven that we can acquire and integrate such businesses with strong returns and strategic benefits. As demonstrated by our recent PAI acquisition, future acquisitions may focus more on supporting the Strategy 2.0 and our digital initiatives. We'll also be considering smaller tuck-in core acquisitions that offer going returns.

What's new in our current strategy strategic plan is the top layer of our strategy, which introduces digital cash management solutions. We've created an integral platform of services, technologies, and devices, leveraging our core CIT and money processing capabilities. These new digital cash management solutions will be as easy to use as debit and credit card payments. We believe our existing operations form a strong foundation that by themselves will drive mid-single digit revenue growth and double-digit profit growth well into the future. This strong base of growth is expected to be supplemented by additional revenue growth and margin improvement as our digital solutions gain traction beginning in 2022 and well into the future. As we said before, we'll provide more detail in Investor Day coming up.

The next slide. I'd like to close with a slide that summarizes our recent performance and our outlook going forward. For 2021, again, we're targeting revenue growth of 12%, operating profit growth of 22%, reflecting a margin increase of almost 100 basis points over last year. Adjusted EBITDA growth of 17%, reflecting an EBITDA margin of 16%, and EBIT-- EPS growth of 21%. We expect substantial improvement in 2022 and beyond as we've discussed with strong increases in revenue, operating profit margins, EBITDA, and EPS, as our existing operations continue to grow and we layer on our new strategies. The right hand side of this slide, Slide 13, provides additional perspective of our 2022 outlook.

Our 2021 revenue as compared to adjusted pre-COVID levels as Mark pointed out, has improved from 89% in the first quarter of this year to 93% in the third quarter that we just reported. This trend supports our expectation of continued revenue recovery and strong year-end-- and a strong year end jumping-off point, expected to be least 95% which is a great starting point for next year. So we need just an approximately additional 5% revenue recovery from the fourth quarter run rate throughout full year '22 to reach 100% of our pre-COVID revenue levels.

We expect our 2022 revenue recovery will also be supported by additional organic growth, including higher than normal price increases in the US that will offset wage inflation that we've seen this year. These higher than historical increases will also help improve our margins. And we expect further growth in 2022 will be driven by initial contributions by our digital solutions. All these indicators support our belief that 2022 revenue will exceed adjusted pre-COVID 2019 revenue at level of corresponding to our preliminary EBITDA range of $785 million to $825 million.

Brink's is a stronger company today than it's ever been, and is clearly stronger as we transition to the other side of the pandemic. We have substantial growth opportunities and are well positioned to capitalize on a large under-penetrated global cash payments market. We have a proven global management team, a strong balance sheet, ample liquidity, an expanded global footprint, and a realigned cost structure, and a compelling strategic plan to expand our presence in the cash ecosystem with digital solutions. I'd like to take this time to-- and this opportunity to again thank our over 70,000 strong global Brink's family for all of their hard work and dedication as together, we've been making it through the pandemic and are now close to seeing the other side of the pandemic in which together we will be stronger. We look forward to disclosing more information on our future strategy when we host our Investor Day, hopefully for all of you, on December 15. Jason, let's turn it back to you now for questions. Thank you.

Questions and Answers:

Operator

[Operator Instructions]. Our first question comes from Tobey Sommer from Truist Securities, please go ahead.

Tobey Sommer -- Truist Securities

Thank you. In the press release, you cite 2022 EBITDA target but also have a sentence that says something about what you would be at-- what kind of EBITDA you'd generate after at 100% of pre-COVID. Could you distinguish those for me and maybe put a finer point on which one is the target? Which one's just sort of a reference points to help us frame things?

Douglas Pertz -- President and Chief Executive Officer

Yeah, Tobey, I think that's a good question, and hopefully we tried to provide some additional understanding around at various revenue levels going into next year as to what the EBITDA and the margins would be associated with that. And again, we're providing you and we provided you at the end of the second quarter some very preliminary targets, not guidance but preliminary targets for 2022 for EBITDA. And I think the question is it, what are the specific revenue numbers that would suggest? So similar to what we did during I guess it was last year, we provided ranges of revenue that does suggested along with that, that we think they were the EBITDA and our generation of profit we're going on with. So that's what we attempted to try and do and to give you some reference point associated with that. I think the key pieces-- as you can see, we expect operating profit margins to increase about 100 basis points this year and we expect that to be what we will achieve next year as well. Those combined with the strong revenue growth that we anticipate for all the reasons that I laid out in the press release and in my words suggest that we think that revenue next year will be north of, will be more than pre-COVID levels, and at a margin that is not quite 100% increase, and at 100% of pre-COVID levels as we've laid out, gets you the $755.

We think that revenue will be stronger than that next year and that margins will increase, the 100 basis points similar to this year, which gets you to the range-- depending what that revenue is, gets you to the range that we previously disclosed as our initial targets and we still think will be our targets going forward. We'll certainly provide more information around that as we go into next year and we get closer to information if you will, about recoveries. The key piece as we laid out on the last slide, and that Mark talked a little bit about in some of the information is, we've seen strong steady progression in recoveries on a global basis from the lows of the pandemic and in comparison to an adjusted, adjusted being revenue levels that fully include on our acquisitions, and therefore they're fully loaded, if you will, that we've seen strong improvements associated with that would suggest a jumping-off point, that would suggest that revenue for 2022, in order to get to a 100% from the jumping-off point that we see in the fourth quarter, only needs to be an increase of about 5%. And for all the factors, and the reasons, and the drivers that we've laid out, we think we'll see that and hopefully more.

Tobey Sommer -- Truist Securities

Thank you. Can you give us a little more color on your visibility into price increases in the US offsetting labor pressures you head into next year? Because I think if memory serves me correctly, you traditionally increased prices on January 1 but sort of socialized those price increases with customers during the fourth quarter and a portion of them may accept a price increase earlier in order to get the advantage of a slightly lesser price increase. How is that progressing here in the fourth quarter?

Mark Eubanks -- Executive Vice President and Chief Operating Officer

Yes, sure, Tobey, this is Mark. I'll take that one. Price increases continue to be the theme here as we see the cost inflation wage inflation. And I think that was a little bit of our discussion on the quarter particularly in the US, as we saw this wage inflation in advance of the actual realization of price increases. That being said, we did announce a price increase. It started in Q3, realization for that continues to ramp. Additionally, we've just announced our annual price increase that starts in Q1. And as you mentioned, customers do have the opportunity to-- for a slight discount to pull that forward into Q4, but the message for us as we continue to think and believe that we'll be able to balance this cost versus price equation and expect to be in full balance as we enter Q1 going forward.

Tobey Sommer -- Truist Securities

Okay. Last question from me, and I'll get in the queue. How is your progress in terms of putting in the limited probably small size sales infrastructure that you might need for Strategy 2.0? I'm not trying to get real specific here, but just maybe a little preview of the December day.

Douglas Pertz -- President and Chief Executive Officer

I guess you said that well. It's December discussion that I think we'll provide a lot more detail around. What we suggested in the past, we are investing this year to the tune of something less than $20 million in expenses, which include sales, marketing product, product development, third-party development, et cetera. And that is the target that we are at for this year and it is an investment that our strategy and our plan is for next year and for sales and therefore margins related to 2.0 to more than offset that and put us on a positive trajectory of both revenue and margins going forward. So I hope that gives at least a little bit of background around that and we'll certainly provide more detail in December.

Tobey Sommer -- Truist Securities

Okay, thank you.

Operator

The next question comes from George Tong from Goldman Sachs. Please go ahead.

Douglas Pertz -- President and Chief Executive Officer

Morning, George.

George Tong -- Goldman Sachs

Hi, thanks, good morning. Morning. In September, you provided the business update with revenue guidance for 3Q and you came above the high end of the range for revenue. Which markets are performing above your initial expectations? And would you expect that positive momentum to continue?

Douglas Pertz -- President and Chief Executive Officer

Well, I think it varies so dramatically by country, and the way that each of the countries and the governments have implemented policies around that, and that obviously changes. It's changed several times in many countries throughout this year already. We tried to give some fairly reasonable color around that in Mark's presentation on Slide 6 that provided some ups and downs by region. And you can see where we anticipated, George, that as we went into the second quarter, we anticipated we see a greater improvement versus 2019 as a base a base year in the third quarter than we did. The good news, as I said, is we did see an improvement. It didn't fall back down, but that was an improvement there wasn't as much as we would have expected, and that was even in light of all the changes, and the lockdowns, and the COVID, the Delta variant exposures.

So I guess it's hard to give a good answer specifically to that, but we see continued improvement host across the board, but you can see that it varies quite a bit. The good news is when that 95 plus percent range we think coming out of this year. And I like to look at it from the standpoint that 95 coming out of this year is a more of an indicator of what the true revenue number implied would be for 2021 and our real jumping-off point in terms of what's needed to get to a 100% plus. And I think it's got a 100% plus more than in 2022 rather than what we started at the year, as you see in the first quarter is about 89%. So throughout the year, we've gone from 89 to 93 plus to we hope 95 and that will give us a good base. But it varies dramatically by country, by region and we do anticipate that we'll continue to see improvement almost across the board with-- well, anyway, I think you can jump, ask specifically if you have a specific question on the country or an area, we can help with that.

George Tong -- Goldman Sachs

All right. Maybe I'll ask the question in a different way. So if you look at North America, Latin America, Europe, and rest of world, how would you sort of see the numbers on Slide 6 which are helpful, but which I guess are you seeing the most positive momentum and the most upside potential to your initial expectations? Which of those four?

Mark Eubanks -- Executive Vice President and Chief Operating Officer

Yeah, I'm not sure that I could characterize any of these individually as being better than the others. I would just reiterate Doug's point in the areas and it's spotty by country where we saw Delta linger into Q3. That basically tamped down the expected growth that we had. Even though there might have been growth in an individual country, it was less than we expected. And it wasn't in one region only, in fact it was in all four regions across the globe.

George Tong -- Goldman Sachs

Got it. In the second question, you talked about wage inflation in pricing adjustments to adapt. You also talked about the fuel surcharges that help you pass along oil price increases. So are there any other input cost dynamics that could impact your margin performance over the next 12 to 18 months?

Mark Eubanks -- Executive Vice President and Chief Operating Officer

I wouldn't characterize any other big impacts. These are really the biggest two input costs, wages and fuel. Of course, uncertainty for us out in front would be our COVID and seen how we get through the winter months with that. But other than that, I wouldn't be able to to call out anything else. Doug, any?

Douglas Pertz -- President and Chief Executive Officer

No, I do think though that you need to look at the other side to it, George, and that is that we clearly saw the need to increase wages in the US, which we did starting in the latter part of the second quarter, well into the third quarter, and there were massive increases like we've never really experienced at least in our lifetimes. And we have high degree of confidence as Mark suggested that we'll catch up with those with the price increases. And I think what you're seeing, not only in our industry but across the board, that customers are-- the market is is accustomed to or is aware that these types of wage increases and these cost inputs are out there and therefore we'll see the cost be pass-through in wage increase, excuse me, in price increases. And we have a high degree of confidence based on what we see that we'll see that by as we go into next year.

Mark Eubanks -- Executive Vice President and Chief Operating Officer

I might add that unlike other companies, we're really not subjected to a lot of the supply chain constraints that you're seeing around the world and especially in the United States. That's a positive. And I'd also tell you that we got out ahead in purchasing both PPE and COVID tests to comply with whichever direction the state and federal governments go in that area. We're ready so that we wouldn't expect any disruption just based on those things.

Douglas Pertz -- President and Chief Executive Officer

I think--

George Tong -- Goldman Sachs

Thank you.

Douglas Pertz -- President and Chief Executive Officer

I think, George, Mark referenced some numbers in the US where our biggest impact of the wage increases that we saw the negative impact in the quarter that we didn't catch up yet and won't catch up probably until the end of the year. I think he laid out a number, it was about 3% of the segment on a operating profit margin basis impacted us in the quarter.

George Tong -- Goldman Sachs

Thank you.

Operator

[Operator Instructions]. Our next question comes from Sam England from Berenberg. Please go ahead.

Sam England -- Berenberg

Hi guys, thanks for taking the questions. And the first one I had. You're expecting quite a step-up in revenue recovery in Q4 in North America on that Slide 6, chart. I just wondered what gives you the confidence there? And how much of that step-up is just price, that is, volume. Okay, great.

Ronald Domanico -- Executive Vice President and Chief Financial Officer

Well, it also includes the labor recovery as Mark talked about. Our ability to hire and retain frontline workers has dramatically improved over the last couple of months and that'll aid what I would call the volume component in addition of the price component, and the two combined give us confidence, Sam.

Sam England -- Berenberg

Okay, great. And then the second one, I just wondered if you could talk a bit about how the acquired businesses in G4S is performing. So it's firstly on an organic, so a growth basis, and then secondly, are you identifying more cost opportunities within those acquired businesses? Now you've had been sort of the part of the business for a bit longer.

Douglas Pertz -- President and Chief Executive Officer

Yes, Sam, I guess, as we've said before and we said in our numbers, we are very pleased with the integration. There fully-I wouldn't say fully, but they're very much in line with the integration of these businesses and probably ahead of schedule. Our synergy targets, other than probably one or two countries like in Macau which were relatively small, are well on track, on an annualized basis to achieve those. And I think if you took a look at as an example of the results by segment, you can see the nice improvement in margins in Europe, as an example. What we've seen is despite some of the countries where COVID had an impact in the third quarter, countries closed or not opening as much as we thought they might, we saw margins come back very nicely. So we're pleased with the cost reductions that have been implemented. We're pleased with the management in those countries. The integration is going extremely well and we're very much we think ahead of schedule.

Sam England -- Berenberg

Okay, great, thanks. I'll leave it there.

Mark Eubanks -- Executive Vice President and Chief Operating Officer

What we'll see is there are certain countries in Europe in particular, but other areas as well like even some in Asia, where we haven't seen the full recovery. We think we'll be well positioned as we see that additional full recover, which is obviously what we call the margin leverage, the profit leverage, to see even numbers that are better than pre-COVID levels as we see that revenue recovery come back. That's what we're all positioning for.

Sam England -- Berenberg

Right. Thank you very much.

Operator

The next question comes from Wayne Archambo from Monarch Partners. Please go ahead.

Wayne Archambo -- Monarch Partners

Hi, good morning.

Douglas Pertz -- President and Chief Executive Officer

Morning, Wayne.

Wayne Archambo -- Monarch Partners

With the net debt-- good morning. With the net debt number coming down as much as it has, is that-- are you sort of reloading on the M&A side or are you folks pretty much done at this point on the M&A side? You've got enough to do. You've acquired a lot since you folks have joined Brink's but you've certainly got a lot more debt capacity than you had. What are your thoughts on that?

Douglas Pertz -- President and Chief Executive Officer

Well, I think there's a couple of things that we probably are signaling today as we have in the past. Number one, is we take a look at our allocation of our debt capacity, of what the returns are and balance that with the returns for the company and investors. And historically what we've generally said is generally, we can see the best returns for strong capex use because we know we can control and manage that as best we can and get returns on it. But we are managing that and we want to continue to manage that, as we have I think laid out. We expect capex to continue to reduce over a period of time as a percent of revenue as we rolled back for fewer use of trucks, better route optimization, et cetera. So that's the capex piece. And then the next piece is the, what's the best return, we think for investors, as compared to buying businesses M&A versus buying back shares? And what we clearly stated today, we think buying back shares probably based on we can see and where our share price is today is a better return for shareholders. We hope that doesn't continue to be honest, over the next period of time, but we-- it's not precluding us if you will, Wayne, from looking at acquisitions that both strategically and return shareholder return optimization makes sense. We'll continue to do that.

Wayne Archambo -- Monarch Partners

Does it become more difficult for you to do acquisitions that are going to move the dial? Because but the company is so much bigger now. I mean, if you were to move the dial on a deal, it's going to have to be pretty significant size wise. Right?

Douglas Pertz -- President and Chief Executive Officer

Well, I think it's a couple of points. What we did say both in the second quarter and this earnings call on this call, and we'll talk more in December, is we were moving more toward acquisitions of any consequence that will help us strategically, that we think will help us move the dial if you will, on a strategic basis to give us platforms like PAI did for our 2.0 strategies going forward. And so PAI we think was a great acquisition that provided the base along with our organic development of ATM outsourcing for banks, like we have in France. Those PAI combined with that gives us the position to be a very strong player for ATM outsourcing and ATM management on a global basis, which is an integral piece of our total cash ecosystem management. I mean, think about this. A year and a half ago, as a company, we didn't have anything in that space. What we'll be talking about, now I'm going to give you a preview, what we'll be talking about in December, this is going to be a quarter of a $1 billion business for us and more going forward that I think can be pretty exciting. So that's a strategic base that is important and part of our 2.0 strategy going forward.

Wayne Archambo -- Monarch Partners

Great, thanks guys. Thank you.

Douglas Pertz -- President and Chief Executive Officer

Thank you.

Mark Eubanks -- Executive Vice President and Chief Operating Officer

Thank you.

Operator

[Operator Closing Remarks]

Douglas Pertz -- President and Chief Executive Officer

Thank you.

Duration: 50 minutes

Call participants:

Ed Cunningham -- Vice President of Investor Relations and Corporate Communications

Douglas Pertz -- President and Chief Executive Officer

Mark Eubanks -- Executive Vice President and Chief Operating Officer

Ronald Domanico -- Executive Vice President and Chief Financial Officer

Tobey Sommer -- Truist Securities

George Tong -- Goldman Sachs

Sam England -- Berenberg

Wayne Archambo -- Monarch Partners

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