Prompt:
Human: Joining me on the call today are Corie Barry, our CEO; and Matt Bilunas, our CFO.
During the call today, we will be discussing both GAAP and non-GAAP financial measures.
Today, we are reporting record Q3 financial results of $11.9 billion in sales and non-GAAP diluted earnings per share of $2.08, which is up 1% over last year and up 84% compared to two years ago.
Against a still evolving backdrop, our leaders continue to drive new ways of operating, and our employees continue to do amazing things to support our customer's technology needs in knowledgeable, fast, and convenient ways.
Our omnichannel capabilities and our ability to inspire and support across all of technology in a way no one else can means we are uniquely positioned to seize the opportunity in this environment and in the future.
We continue to capitalize on strong customer demand as more people sustainably work, entertain, cook, and connect at home.
And Domestic comparable sales growth was up 2% on top of 23% last year.
From a merchandising perspective, the biggest contributors to our comparable sales growth in the quarter were appliances, home theater, and mobile phones.
Product availability continued to improve throughout quarter.
We have pockets of constraints in areas like appliances, gaming, and mobile phones.
Similar to last quarter, however, we do not believe this materially limited our overall sales growth.
While we have faced and continue to face supply chain challenges, including delays and higher costs, we are proactively navigating a situation that we have been dealing with for several quarters, as our industry has been facing disruptions and supply constraints since early in the pandemic.
Our merchant demand planning and supply chain teams made strategic sourcing and inventory decisions early in the year to set us up well heading into holiday.
And we are resourcefully adapting to the constantly evolving environment with actions like pulling up product flow, adjusting store assortment based on availability, and acquiring additional alternative transportation.
We have deep, long-standing relationships with our transportation and logistics vendors, and they have been incredibly supportive as we navigate.
In addition, through our close partnerships with our product vendors, we have a great deal of visibility into and can influence the status of product in the supply chain process.
We have varying degrees of inventory and supply chain challenges every holiday season, and this year will be no different.
But we entered Q4 with 15% more inventory year over year and feel confident in our ability to serve our customers throughout the holiday.
As expected, we did experience a more promotional environment for many of our products when compared to last year.
When compared to two years ago, we still saw a less promotional environment during Q3.
From a sales channel perspective, results were similar to last quarter.
Customers are returning to stores, and they are also choosing to interact with us digitally and via phone and chat at much higher rates than pre-pandemic.
Online sales were 31% of domestic revenue compared to 16% in Q3 of fiscal '20, growing by more than $2 billion during that time.
Our app saw a 19% increase in unique visitors versus last year, and phone and chat sales continued to climb versus last year and two years ago.
We continue to be an industry leader in fast and convenient product fulfillment for our customers.
During the third quarter, we reached our fastest small product delivery times ever.
Compared to last year, same-day delivery was up 400%, and we nearly doubled the percent of products delivered within one day.
Based on a third-party analysis of competitor websites, we are the leader in one-day-or-less published shipping time across a sample of higher-volume ZIP codes and higher-demand items.
In addition to partnering with a diversified set of delivery partners, we also thoughtfully used our employee delivery capability, as we now have more than 400 stores doing employee deliveries, with almost 60% of our customers living within 10 miles of an employee delivery location.
We also have an industry-leading in-store pickup experience.
We have, by far, the broadest assortment of CE products available for pickup, and the process is incredibly fast.
In Q3, more than 90% of online orders that were available for product pickup were ready in less than 30 minutes of the order being placed.
Customers clearly find value in coming to our stores to pick up their products as the percent of online sales picked up at our stores remained high at 42%, even with our fast home delivery options, with one-third of our store-pickup customers choosing our convenient curbside option.
And our customer NPS for order pickup in Q3 was up versus last year and two years ago.
In fact, in the last year, 31% of all our purchasing customers bought online and picked up in store at least once.
These strong Q3 results and our market-leading omnichannel capabilities are due to our amazing associates across the company and the investment decisions we have made in the last several years in supply chain, store operations, our people, and technology.
Clearly, our business has changed dramatically in the last two years, with digital sales more than double pre-pandemic levels and phone, chat, and in-home sales growing.
Customers are starting their research and shopping online and then branching out from there to all forms of digital and physical shopping depending on their specific needs.
Stores are crucial to our customer experience, and they need to be even more efficient and must keep pace with greater customer expectations.
For example, we know customers sometimes seek out in-person help to answer questions.
And other times, they would rather use digital tools to learn about products or pick up their orders in our stores.
We have made the right investment decisions to position us as a leader in omnichannel retailing.
While we are proud of our progress, there are even more opportunities ahead of us.
And it is more important than ever to build on our position of strength and truly become a customer-obsessed company.
This means we put the customer at the heart of all we do by anticipating their needs, listening, learning, and applying those insights to create long-term relationships and seamless experiences.
That led us to launch Best Buy Totaltech last month.
Totaltech is a bold new membership program, leveraging our strengths across merchandising, fulfillment, installation, tech support, and product repair, unique capabilities that customer's value and no one else can match.
Our membership program offers product discounts and periodic access to hard-to-get inventory, free delivery and installation, free technical support, free product protection, and many other benefits.
Let me provide a tangible example of how the offer can come to life.
A Totaltech member purchases a 65-inch TV and gets a $150 member discount.
She gets the TV delivered and mounted on the wall in her living room.
The next month, she buys a new iPhone for her daughter.
As long as she keeps up her membership, she gets two years of product protection on the TV she bought and two years of AppleCare+ protection for the phone.
A few weeks later, she can't get her laptop to connect to her printer, so she hops on a dedicated chat line with Geek Squad who fixes the problem by remoting into her computer so she can get on with a productive day of working from home.
As a member, she received all those benefits for $199 per year.
As you can see, not only do members receive significant savings, they can also be confident that whatever their technology needs are, we will be there to help.
The goal is to create an experience that makes it inconceivable for members to purchase their tech from anyone else, driving a larger share of consumer electronic spend to Best Buy.
We successfully rolled out the program nationally and online and converted more than 3 million former tech support members.
It is very early as we just launched last month.
But so far, we continue to see behaviors that we intend to drive and that we saw in the pilot, including more frequent interaction and higher incremental spend than non-members.
Given the breadth of the offer, it is resonating well across all customer demographics, and our new members are skewing younger than our former Total Tech Support membership program.
NPS numbers across all channels are higher than for non-members as well.
And importantly, our employees believe in and love articulating the value of membership to our customers.
As we've discussed in previous calls, we are in the midst of multiple store pilots and tests.
Of course, we are always piloting concepts.
But right now, we are very focused on piloting and testing to build a framework that will move us from a retailer that's focused foremost on its stores to a true omnichannel one that provides equal focus on all the ways customers shop with us.
I will provide a few updates on our progress.
We launched phase 1 of our virtual store pilot last month.
For this, we built out a physical store in one of our distribution centers with merchandising and products that is staffed with dedicated associates, including vendor-provided expert labor.
It has no physical customers.
Instead, customers interact with our experts via chat, audio, video, and screen sharing depending on their preference and are able to see live demos, displays, and physical products.
It is early, and we have not rolled out all the product categories yet.
But initial results are showing much higher conversion rates, as well as higher average order value than we see with historical chat interactions.
In Charlotte, we have made significant progress rolling out the market pilot designed to leverage all our assets in a portfolio strategy across stores, fulfillment, services, in outlet, lockers, our digital app, and both in-store and in-home consultation labor.
We launched our new outlet featuring all product categories in addition to a new services hub model and remodeled eight stores.
And in Houston, we are continuing to see strong results from our experiential store pilot and plan to roll out aspects of this more broadly in stores across the country as we enter next year.
These are not the only pilots happening, and thus, they aren't the only pilots that will influence where we go as a company.
From Northern California to Houston to The Bronx, we are assessing new formats and learning our way to the right physical model.
At the same time, we are piloting and evolving our labor models in other markets to meet our customer's changing shopping behaviors.
That means leveraging technology in stores that don't have as much labor and developing a much more flexible workforce.
This is a workforce that can not only provide expert help across product categories, both in-store and virtually, but also flex into other activities like curbside fulfillment, and it empowers employees to flexibly pick up shifts at other stores or at our distribution centers.
I also want to highlight our unique ability to both inspire and support our customers through our consultation and our Geek Squad services.
We have almost 3,000 consultants and designers to provide free consultations across customers' homes, in-stores, and virtually.
These consultations represent one of our highest NPS experiences, consistently over 80.
Importantly, they also lead to longer-term and stickier customer relationships as more than 85% of customers who use the program stated they intend to continue shopping with their consultants.
Turning to the product support we provide, as many of you likely know, when something goes wrong with your products or delivery or installation, it is a highly unplanned and often emotional event.
Not surprisingly, our customer research tells us that customers value quick response times and demand transparency, fast repair times, and quality repairs from a trusted provider.
Our Geek Squad has an industry-leading set of capabilities that garner market-leading NPS and also drive additional revenue for Best Buy in the moment and over time.
Around 20% of our phone and computer repair customers purchase additional products the day they receive the repair.
Additionally, our data shows that customers who have phone or computer repairs are far more likely to make a purchase in the following 12 months.
Over time, we have also been evolving our partnerships with our vendors in response to changing customer shopping behavior.
Our in-store vendor experiences are crucial to our customer experience and remain a significant source of competitive advantage.
We have extended many of these in-store experiences to digital experiences.
Our vendors partner with us to provide expert training and tools for our consultants and designers.
And importantly, our vendors are increasingly sending sales leads from their own websites to our consultants and designers.
We are also leveraging our unique Geek Squad capabilities to strengthen and expand our partnerships with our vendors.
We are already the nation's largest physical destination for Apple-authorized repair services, including same-day iPhone repairs, attracting new customers as one-third of these Apple repair customers are new or reengaged customers for Best Buy.
In October, we launched Samsung-authorized phone repair service nationally.
Roughly 30% of our stores will offer same-day, in-store repairs completed by Samsung-certified Geek Squad agents using Samsung parts, diagnostics, and tools.
Phone repair is a universal need for customers, and this expansion gives Best Buy the capability to repair the overwhelming majority of phones in the marketplace.
In addition, we are also starting to leverage our industry-leading and convenient buy-online-pick-up-in-store experience in partnerships with our vendors.
Customers purchasing select items on samsung.com now have the option to pick up their products at their local Best Buy store.
And shoppers purchasing Insignia, Toshiba, and Pioneer Fire TVs on amazon.com can pick up their TVs at their local Best Buy stores.
For many of our vendors, we use our considerable supply chain expertise to transport their product often from the country of origin to our distribution centers.
In addition to helping our vendors, it allows us to increase our level of visibility into incoming inventory and to garner greater scale.
And finally, we have been investing in our long-standing advertising business, building new capabilities to help vendors effectively reach our customers.
Best Buy's relevance, customer relationship, and first-party data have grown along with customer's technology needs and our ability to meet those needs.
These are all great examples of value we can provide to our vendor partners that many other retailers cannot.
In addition to focusing our performance on our core CE and appliance categories, we are continuing to expand our assortment in newer categories where we can leverage our ability to commercialize new technology.
For example, we created a robust online experience and assortment for electric transportation.
And during Q3, our sales in the category more than doubled.
As a result, we are expanding our online assortment of electric bikes by four times and also plan to assort them in physical stores early next year.
And because customers are looking to us to complete their solutions, we have been expanding our assortment in categories, like outdoor living, as more and more consumers look to make over or upgrade their outdoor living spaces.
This includes products like patio furniture, grills, fire pits, and electric mowers, just to name a few.
In fact, earlier this month, we acquired Yardbird, a leading direct-to-consumer company that specializes in premium sustainable outdoor furniture, including dining sets, lounge seating, fire tables, and accessories.
We are excited about the opportunity to use our expertise in merchandising and supply chain to scale this business, both online and in physical locations across the nation.
We also made an exciting acquisition recently in the health space.
Let me take a second to reiterate our overall health strategy and how the acquisition fits.
Our Best Buy Health strategy focuses on three areas that start with our strength in retail and build to connecting patients to physicians.
The first focus area is the consumer health category for customers who want to be healthier, sleep better, or need to monitor a chronic condition, like diabetes or heart disease, for example.
You can see this built out in a robust way on our website.
The second area is active aging, which includes device-based emergency response and other services for Generation A, who wish to live independently in their homes.
This opportunity shows up prominently in our physical stores.
The third focus area is virtual care.
Best Buy's role in virtual care is to enable people in their homes to connect seamlessly with their healthcare providers.
The trend to this type of care is increasing, accelerated in large measure by the pandemic.
To more fully meet that growing customer demand and accelerate our work with new and innovative services, we acquired a company called Current Health.
Current Health developed a market-leading remote patient monitoring platform that allows physicians to monitor and connect with patients in their home.
Their platform includes an FDA-cleared wearable medical device that monitors vital signs, a home hub which integrates to hundreds of other monitoring devices, and integration to the patient's electronic health record.
With their remote monitoring platform, combined with the scale, expertise, and connection to the home that Best Buy has, we will be able to create a holistic care ecosystem that shows up for customers across all their healthcare needs.
To be clear, even though the healthcare industry is evolving quickly, in many ways as a result of the pandemic impacts, it adopts new ways of doing things at a much slower pace than other industries like retail.
Virtual care is a truly nascent space with significant opportunity, but it will take time and investment to develop our offerings and scale.
As you can see, technology developments are driving our initiatives across the company.
We need technology tools and capabilities to help us as we transform and evolve the way we operate and serve our customers.
That is why we continue to devote significant resources to technology investments.
For example, we are leveraging our investments in electronic sign labels to very nimbly highlight Best Buy Totaltech member pricing for customers shopping in our stores.
We also just launched the ability for our electronic sign labels to provide important messaging regarding product availability, so that customers will easily be able to see if the product is in stock in that store or at another store nearby, or when it could be delivered and installed.
Technology was instrumental in recently launching the first of many new communication enhancements to improve our award-winning appliance customer experience.
Metro delivery customers that utilize the appointment tracker page on the day of their delivery can now see how many stops away their driver is at any given time.
It may seem like a small enhancement but already we can see significant customer engagement with the page, another step toward our goal to make customers feel confident and in control throughout the research, purchase, fulfillment, and use of their large product.
Technology was also crucial in our recent launching of next-day delivery of appliances and large TVs, which we are piloting first for in-store and online customers in our Minneapolis and Baltimore markets.
Next month, we are launching a new capability, leveraging QR codes for high-velocity products that are locked up, particularly in areas of high shrink.
Instead of waiting for an associate to unlock the product, the customer can scan the QR code and then proceed to check out to pay and pick up the product.
And we recently implemented enhancements to our digital platform, improving flexibility across our workforce by seamlessly giving employees the ability to pick up open shifts at nearby locations in addition to their home location.
These examples are a small token of the work our digital and technology teams are doing to improve the customer and employee experience.
And of course, we are also continuing to make significant investments in fundamental technology capabilities, like data and analytics, and broader cloud migration in order to drive scale, efficiency, and effectiveness.
I would like to take a moment to extend my gratitude to our people.
Over the past 21 months, they have flexibly dealt with rapidly changing store operations as we responded to impacts of the pandemic.
They created safe environments for customers and worked tirelessly to provide excellent service, even in situations where customers resisted following safety guidelines and in some cases were disrespectful.
In addition, we have increased the level of pilots and tests in the field as we evolve our operating model.
This has introduced a great deal of change.
I am truly grateful for and impressed by our associates' dedication, resourcefulness, and flat-out determination.
And I'm thrilled to say that our in-store NPS in Q3 increased versus last year and versus two years ago before the pandemic despite all of these disruptions.
Now, I would like to briefly touch on our ESG efforts and how we are working across the company to have a positive impact on our planet.
Earlier this month, we announced that we are a founding member of the Race to Zero initiative that aims to accelerate climate action within the retail industry.
Best Buy's participation builds on our existing efforts to reduce our carbon footprint.
We are proud of our progress in reducing emissions 61% since 2009, and we have pledged to be carbon neutral by 2040.
We have also taken on a more specific focus on the circular economy within our operations and with our customers.
In Q3, we collected and responsibly recycled more than 48 million pounds of consumer electronics, keeping products and commodities out of landfills.
To help our customers live more sustainably, last quarter, we sold more than 5 million ENERGY STAR-certified products, helping our customers reduce their carbon footprint and save on utility bills.
We also kept more than 600,000 devices in use longer and out of landfills by leveraging our customer trade-in program, Geek Squad repair services, and Best Buy outlets.
These are initiatives our customers and vendors value and capabilities no one else has at our scale and breadth.
In summary, we have delivered remarkable year-to-date results, and I am so proud of the execution of all our teams.
We are looking forward to a strong holiday season and believe we are extremely well-positioned with both the tech customer's wants and fast and convenient ways to get it.
We launched some of our Black Friday deals in mid-October that included a price guarantee for all customers, and this past Friday started Black Friday early by making almost all of our Black Friday deals available.
Throughout the holiday season, we are promising free next-day delivery on thousands of items.
And of course, store pickup, whether in-store or curbside, will be a great and convenient option for our customers to get their products.
Building on that, as we think about next year and beyond, we are mindful of just how much the consumer has changed and how enduring that change will be.
Terms like home nesting and virtual care have been invented to describe what all of us know so well, that where we work, entertain, receive healthcare, and connect has changed, and our homes are now central to our lives more than ever before.
The penetration of technology associated with this way of living has been and continues to be sizable.
And we are already seeing shorter upgrade cycles as technology evolves, and we constantly optimize our homes.
The demand for convenience and experience on the customers' terms has exponentially driven change.
Our hypothesis has consistently been that true omnichannel retailing would create differentiated experiences that allow us to seamlessly and conveniently engage and retain customers.
As such, we have continuously invested in these experiences and notably, we never defined omnichannel as being stores and online.
Instead, we included our unique and powerful service, virtual, and in-home capabilities.
We are certain that technology will continue to play a more dominant role in consumers' lives.
Given our omnichannel capabilities, the ones we have today and the ones we are building for the future, we are fully confident that we will capitalize on a much larger, more broadly defined consumer electronics category, and be able to better serve a customer who will be using and upgrading much of that CE more frequently.
We plan to hold an investor event next March to share more detail on our initiatives, provide our thoughts on our financial model going forward, and introduce longer-term financial targets.
We are once again reporting strong financial results that continue to support our belief that technology plays an even more important role in everyone's lives, and we are uniquely positioned to serve them.
Despite lapping the extraordinary 23% comparable sales growth from last year, we were once again able to generate positive comparable sales growth in each fiscal month of the third quarter.
Compared to our guidance, enterprise revenue of $11.9 billion exceeded the high end of our revenue outlook of $11.6 billion, driven by the better-than-expected comparable sales growth of 1.6%.
Our non-GAAP gross profit rate and SG&A expense were essentially in line with our expectations.
Compared to last year, enterprise revenue grew $57 million, and our non-GAAP diluted earnings per share of $2.08 increased $0.02, a lower share count resulted in a $0.12 per share benefit on a year-over-year basis.
Our non-GAAP operating income rate of 5.8% decreased 30 basis points as we invested in the launch of our new Totaltech membership.
When comparing our results against two years ago for the third quarter of our fiscal '20, total revenue grew more than 20%.
Additionally, our domestic store channel revenue was approximately flat versus two years ago, while online revenue grew almost 150% in that time frame.
As a result of the higher revenue and our ability to adjust to a new customer shopping behavior, our enterprise non-GAAP operating income rate was 160 basis points higher this quarter than the comparable quarter from two years ago.
Let me now share more details specific to our third quarter.
In our domestic segment, revenue increased 1.2% to almost $11 billion.
This increase was driven by a comparable sales increase of 2%, which was partially offset by the loss of revenue from store closures in the past year.
As Corie shared, the biggest contributors to the comp sales growth in the quarter were appliances, home theater, and mobile phones.
After delivering significant growth for the past several quarters and lapping a 46% comp in the third quarter of last year, computing comparable sales were down slightly on a year-over-year basis but still up nearly $1 billion from two years ago.
In addition, our services comparable sales declined 5.6% this quarter.
This was primarily the result of our new Totaltech membership, which includes benefits that were previously stand-alone revenue generating services, such as warranty and installation.
In our International segment, revenue decreased 7.8% to $925 million.
This decrease was driven by the loss of approximately $90 million in revenue from exiting Mexico and a comparable sales decline of 3% in Canada.
Partially offsetting these items was the benefit of approximately 450 basis points from foreign currency.
Turning now to gross profit.
The domestic gross profit rate decreased 60 basis points to 23.4%.
As expected, the decrease was due to, one, lower profit margin rates, which were primarily driven by lapping lower levels of promotions, product damages, and returns compared to last year as well as higher inventory shrink; and two, lower services margin rates, which included rate pressure from Totaltech.
The previous items were partially offset by higher profit sharing revenue from the company's private label and co-branded credit card arrangement.
The gross profit rate pressure from our new membership offering primarily relates to the incremental customer benefits and associated costs compared to our previous Total Tech Support offer.
As Corie mentioned, like many others, we saw increased transportation costs within our supply chain.
However, this pressure was offset by reduced parcel expense since our mix of online sales was lower than last year.
The international non-GAAP gross profit rate increased 240 basis points to 25%.
The higher gross profit rate was driven by improved product margin rates in Canada and a loss of lower margin sales from the Mexico exit.
Moving next to SG&A.
Domestic non-GAAP SG&A increased $9 million and improved 20 basis points versus last year as a percentage of revenue.
As expected, higher advertising expense and increased technology investments were partially offset by last year's $40 million donation to the Best Buy Foundation and lower incentive compensation.
When comparing to two years ago, domestic non-GAAP SG&A increased $155 million and decreased 230 basis points as a percentage of revenue.
The largest drivers of the increase versus fiscal '20 were higher incentive compensation, increased technology and advertising investments, and additional variable costs due to the higher sales volume.
Partially offsetting these items was lower store payroll expense.
Moving to the balance sheet.
We ended the quarter with $3.5 billion in cash.
At the end of Q3, our inventory balance was 15% higher than last year's comparable period and was 13% higher than our Q3 ending inventory balance from two years ago.
The increased inventory represents our plans to support the current demand for technology, as well as last year's unusually low inventory balance.
Earlier this month, we completed our acquisitions of Current Health and Yardbird, which will be reflected on our cash flow statement in Q4.
The combined purchase price of the two transactions was approximately $485 million, and they were funded with cash.
The Current Health acquisition was a larger cash outlay at approximately $400 million and is expected to have a slightly negative impact on our Q4 non-GAAP operating income.
We are not expecting either acquisition to have a material impact on our revenue performance this year.
During the quarter, we returned a total of $577 million to shareholders through share repurchases of $405 million and dividends of $172 million.
With a year-to-date share buyback spend of $1.7 billion, we still expect to spend more than $2.5 billion in share repurchases this year.
Let me next share more color on our guidance for the fourth quarter, which remains very similar to the implied guidance we provided last quarter.
We expect comparable sales growth to be in the range of down 2% to up 1% to last year, which is on top of our 12.6% comparable sales growth in the fourth quarter of last year.
Like other companies, we continue to monitor the evolving impacts of the pandemic and supply chain pressures driven by global demand.
We are confident in our ability to navigate the ever-changing environment.
From a profit rate perspective, we are planning for a non-GAAP rate that is approximately 30 basis points below last year's rate due to the estimated impact of our new Totaltech offer, which we expect to be partially offset by a more favorable product mix.
From a non-GAAP SG&A standpoint, we are planning dollars to increase approximately 8% compared to last year.
The largest drivers of SG&A increase are expected to be technology investments, increased advertising, health investments, and higher compensation, in addition, incentive compensation.
In addition, we are planning on increased spend compared to our previous outlook for store labor and call center support this holiday season to better support the customer experience.
Turning to our full year outlook.
We expect the following: enterprise revenue in the range of $51.8 billion to $52.3 billion compared to our previous guide of $51 billion to $52 billion, comparable sales growth of 10.5% to 11.5% compared to our previous guide of 9% to 11%, and a non-GAAP gross profit rate slightly higher than last year.
For SG&A, we expect growth of approximately 9.5%, which compares to our prior outlook of 9%.
We expect our non-GAAP effective tax rate to be approximately 20%, and we expect capital expenditures to be in the range of $800 million to $850 million.
 Assistant:

Chosen response:
compname reports q3 profit of $2 per share.
q3 non-gaap earnings per share $2.08.


Prompt:
Human: 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, costs related to an internal loss, and costs related to certain accounting compliance matters.
We're also providing our results on a constant currency basis, which eliminates changes in 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 focus primarily on the non-GAAP results.
Our strong first quarter results were driven by the ongoing successful integration of G4S acquisitions and our fixed cost reductions, which more than offset the impact of extended pandemic shutdowns, mostly in Europe.
On a reported basis, revenue was up 12%, operating profit grew 43%, reflecting a margin increase of 200 basis points to 99.2%.
Adjusted EBITDA was up 32%, with margin improvement of 210 basis points to 14%, and earnings per share grew 64% to $0.82 per share.
It's important to remember that we're comparing to a year ago quarter that was not materially affected by COVID-19.
In fact, until the last week or so of March we start seeing those impacts.
So we're quite encouraged by the fact that on an organic basis, this year's first quarter revenue was down only 6%, while operating profit increased 30%, reflecting an operating margin improvement, as we said earlier of 200 basis points and we expect this leverage and margin expansion to continue as revenues recover.
We forecast organic revenue and profit growth to accelerate as we move through this year 2021, especially in the second-half, supported by continued recovery from the pandemic.
During the quarter, we completed the final phase of the G4S acquisition these businesses which stand 17 countries have been largely integrated well ahead of schedule and we're on track to exceed our original synergy targets of $20-plus million.
On April 1st, we completed our purchase of PAI for $213 million, reflecting a pre-synergy purchase multiple of about 7 times EBITDA.
PAI provides managed services for approximately 100,000 ATMs and brings its strong management highly scalable business model and cross-selling opportunities to Brink's.
PAI is a great platform on which we can accelerate our 2.3 strategy in North America.
I'll cover PAI in more detail in a few minutes.
Together G4S and PAI are expected to add approximately $130 million in adjusted EBITDA this year and more next year as revenue growth returns and full run rate synergies are full -- are realized.
We are increasing our 2021 guidance at mid-point to over $700 million of EBITDA and earnings per share of approximately $5 per share, which includes the positive impact of the PAI acquisition as well as a cross-currency swap.
I'll review guidance more on the next slide.
Finally, I'm happy to report that we plan to host an Investor Day in October when we will provide the details behind our three-year strategic plan and prevent -- and present financial targets.
Our current strategic plan, which we call SP2 has three-years -- has three layers, excuse me, two of which expand on the first three-year plan.
We're continuing to drive organic growth by taking our Strategy 1.0 initiatives wider and deeper across our global footprint, boosted by the operating leverage initiatives that are already driving margin growth.
WD and lean initiatives are now part of our core Brink's business system and are becoming embedded in our culture.
G4S and PAI acquisitions provide a strong start to our second strat plan and with $1.4 billion of liquidity, we are assessing additional acquisition opportunities to support our core business and our 2.0 digital cash initiatives, which are aimed at driving subscription based recurring revenue streams, beginning next year.
Our Investor Day event may also include an update on the potential growth opportunity related to cannabis pending the outcome of recent legislation efforts at the federal level.
Turning to the next page, Slide 5 summarizes our updated and increased guidance for 2021.
We're targeting revenue growth of 21% at midpoint to $4.45 billion, driven primarily by inorganic growth from acquisitions and continued organic revenue growth recovery.
Operating profit growth of 34% at midpoint to $511 million, reflecting a margin of 11.5%.
Again, an increase of 120 basis points over last year.
Note is at the high end of our revenue range, which is equivalent to about 2019 pro forma revenue, the margin increases 170 basis points.
Our garden -- guidance target as for adjusted EBITDA growth of 25% to $705 million at midpoint and earnings per share growth of 32% at midpoint of just under $5 per share.
It's also important to note the top of our revenue guidance range, which only gets us back to around 100% of pro forma 2019 revenue, our EBITDA guidance is approximately $750 million at 16% margin.
Once again, we're expecting revenue and profit growth to accelerate in the second-half of the year.
Our confidence is based on continued economic recovery from the pandemic lows and realization of full-year benefits from the G4S acquisitions, the sustain -- the sustainability of operating leverage, driven by our cost reductions and normal seasonality.
Consistent with prior quarters during the pandemic first quarter internal U.S. and external cash levels remain elevated versus prior years, contrary, actually to what many might have expected during the pandemic.
Based on Federal Reserve published data cash in circulation in the U.S. in the first quarter is up 17% versus prior year, a material increase over the 30-year historical 6 plus percent compound annual growth rate.
Similarly, euro currency in circulation is also up over 12% in the first quarter, which is higher than its historical annual -- compound annual growth rates of about 9%.
History has also shown that during periods of recession and economic stimulus, the use of cash increases as a percent of payments suggesting that we are in and will continue to be in a period of increased cash usage.
Our internal metrics also support this data as the value of notes flowing through our U.S. operations increased 4% over last year's first quarter when the pandemic was not much of a factor.
And our acquisition of PAI also provides what we feel is a leading indicator on cash usage.
The number of cash withdrawal transactions at PAI's ATMs that were open a year ago is up more than 18% over the quarter -- the same first quarter of last year, and the value of these transactions is up even more.
These internal and external data points demonstrate the resiliency and persistence of cash usage, even during the pandemic, and they support the fact that cash usage is not going away, and in fact getting stronger.
Slide 6 presents data from reputable independent sources also demonstrating the cash usage is strong and growing.
The combination of a long-term forecast for strong in-person retail sales and the continued use of cash as one of the most popular forms of payment supports the case that cash management is a great growth opportunity for Brink's.
The graph on the left hand side of this slide is compelling.
In 2020 according to the U.S. Census Bureau, 86% of retail spending was done in-person even during a pandemic, and experts predict that by 2025 in-person retail spending will still account for over three quarters of total retail sales.
And importantly, when it comes to in-person transactions, the most used form payment still is cash at about 35%, ahead of both debit and credit.
It's also important to remember that retail sales are expected to reach over $6 trillion in 2025.
So the size of in-person retail sales at over $5 trillion will be larger five years from now than it was pre-pandemic even with the projected continued acceleration in e-commerce sales growth.
Again based on this data Brink's is very much in a growth business.
Given our strategic focus on increasing organic revenue, growth through acquisitions and our development of digital cash solutions for a very large market of un-vented retailers we're highly confident that we'll continue to deliver strong organic revenue growth that will create value for our shareholders.
Please visit our website to see this data and more on cash and retail sales.
Slide 7 is a format that we include each quarter that covers the four key metrics of revenue, operating profit, adjusted EBITDA and EPS.
For the current quarter, the current quarter in constant currency and the reported results for the same quarter in prior years.
I'll go into detail on each of these metrics on the next two slides.
Turning to Slide 8.
Please remember that we disclosed acquisitions separately for the first 12 months of ownership at which time they are mostly integrated and then they're included in organic results.
Our results for this quarter include the February 2021 acquisitions of the G4S cash businesses in Macau, Kuwait and Luxembourg, which completed the G4S acquisitions announced last year.
Starting in the second quarter of 2021, our results will also include the recent PAI acquisition.
2021 first quarter revenue was up 13% in constant currency, as the pandemic related organic decline of 6% was more than offset by a 20% contribution from acquisitions.
Negative forex reduced revenue by $9 million or 1% as strength in the euro was more than offset by weakness in Latin American currencies.
Reported revenue was $978 million, up $105 million or 12% versus the first quarter last year.
In general, revenue recovery was consistent with the fourth quarter 2020 except for Europe where lockdowns were reimposed by governments in response to a post new year's wave of the pandemic.
First quarter operating profit was up about 50% in constant currency, with organic growth contributing 30% and acquisitions added 20%.
As I noted last quarter, we believe that the fact we achieved organic operating growth despite an organic revenue decline is a testament to our proactive cost realignment.
Forex reduced operating profit by $5 million or minus 8%.
Reported operating profit for the quarter was $90 million and the operating margin was 9.2%, up 200 bps from the first quarter 2020 and just 20 bps below our 2019 first quarter pre-pandemic operating profit margin of 9.4%.
Corporate expense in the first quarter was up $15 million due primarily to a change in the methodology for allocating allowance for doubtful accounts with our updated reporting segments.
Under the previous methodology conditions mostly associated with the pandemic overstated the country accrual by $12.3 million.
The new methodology consistent with U.S. GAAP reversed the country accrual overstatement resulting in an increase in segment operating profit and a corresponding $12.3 million charge in corporate.
There was no impact to the consolidated operating profit for the quarter.
More information on the methodology change is included in our 10-Q filing.
Moving to Slide 9.
First quarter, interest expense was $27 million, up $8 million versus the same period last year due primarily to higher debt associated with the G4S acquisitions.
Tax expense in the quarter was $20 million, $8 million higher than last year, driven by higher income.
Our full-year non-GAAP effective tax rate is estimated at 32%, in line with last year.
$90 million of first quarter 2021 operating profit was reduced by $27 million of interest expense, $20 million of taxes and by $2 million in minority interest and other to generate $41 million of income from continuing operations.
Dividing this by $50.5 million weighted average diluted shares outstanding generated $0.82 of earnings per share, up $0.32 or 64% versus $0.50 in the first quarter last year.
Our earnings per share comparison was positively impacted versus 2020 by about $0.09 from a gain on marketable securities versus a loss last year and by $0.02 from the $1.1 million share repurchase in the third quarter 2020, which reduced our outstanding shares by about 2%.
To calculate first quarter 2021 adjusted EBITDA, we started with $41 million of income from continuing operations and added $44 million of depreciation and amortization, which was up $7 million due primarily to the G4S cash acquisitions.
Interest expense and taxes, as just discussed, were $47 million and non-cash share-based compensation was $8 million.
Backing out $3 million in gains on marketable securities resulted in $137 million of adjusted EBITDA, up $33 million or plus 32% versus prior year.
Now onto capex on Slide 10.
Total cash capex for 2020 was $119 million, which included $101 million for operating capex and $18 million to purchase cash devices.
We acquired another $31 million of assets under financing leases.
This year, we expect cash capex of about $180 million or approximately 4% of revenue, which includes approximately $125 million for legacy Brink's businesses, $25 million for the acquired G4S cash businesses and $30 million for cash devices.
This includes $10 million cash devices for PAI.
We expect to acquire about $35 million of operating assets under financing leases.
It's important to note that many of our Strategy 2.0 initiatives utilize cash devices.
The cost of these cash devices whether purchased or leased will be included as a component of the subscription agreement as a cost of services sold.
It's our intent to source the majority of these devices under operating lease arrangements.
If we're unable to secure operating leases in certain countries, our cash and/or finance lease capex could increase.
Capex could also increase if we identify additional opportunities to deploy capital with returns above our minimum targets.
Turning to 2021 free cash flow on Slide 11.
Our 2021 free cash flow target range is $185 million to $275 million, which reflects our adjusted EBITDA guidance range of $660 million to $750 million.
We expect to use about $95 million of cash for working capital growth and restructuring, this includes about $35 million in 2020 deferred payroll and other taxes payable.
Cash taxes should be approximately $95 million and cash interest about $105 million, an increase of around $27 million, due primarily to a full year of debt related to the G4S acquisition and additional debt related to the PAI acquisition.
As I just discussed, our net cash capex target is around $180 million, an increase of $67 million versus last year.
Our free cash flow target, excluding the payment of taxes deferred from 2020 would be 2020 -- would be $220 million to $310 million generating an EBITDA to free cash flow conversion ratio of about 33% to 41%, up from the 28% achieved last year on the same basis.
Advancing to Slide 12, the bars on this chart represent the source of our liquidity.
The cash available in our business and capacity in our revolving credit facility.
At the top of each bar, you can see our cash, below the cash is our credit facility both available and drawn, and below that our debt and financial leases.
The bars each represent a point in time at year-end 2020, quarter end March 31, 2021, and pro forma year-end 2021, considering our 2021 free cash flow target and the impact of the PAI acquisition.
At the end of last year, we had approximately $1.6 billion in liquidity.
In the first quarter of this year, we used approximately $108 million in cash to complete the G4S cash acquisitions in Kuwait, Macau and Luxembourg.
At the end of 2021, we're expecting to have liquidity of about $1.4 billion, which includes the impact of our completed $213 million acquisition of PAI in the midpoint of our 2021 free cash flow target of between $185 million and $275 million.
Other than the 5% annual amortization of our Term Loan A, we have no significant debt maturities before 2024.
Our variable interest rate, including the expanded Term Loan A is L plus 200.
On April 26, 2021, we entered into a 10-year U.S. dollar-euro cross-currency interest rate swap on $400 million notes issued last June.
We locked in a 151 bp reduction in rate that should reduce 2021 interest expense by about $4 million and increase 2021 earnings per share by around $0.06.
Last year, we amended our bank agreement through February 2024 to replace the total debt leverage covenant with the secured debt leverage covenant.
The 2021 cap on the new covenant is 4.25 times and our March 31, 2021, pro forma secured leverage ratio was 1.8 times.
We don't anticipate approaching our covenant limits at any time in the foreseeable future.
Our legacy liabilities, including the U.S. frozen pension plan and the Voluntary Employees Beneficiary Association or VEBA plan benefited from rising discount rates in the American Recovery Relief Act of 2021.
As a result and based on current assumptions, we expect to make no cash contributions to these plans until 2029.
Our quarterly dividend is currently $0.15 per share and our credit rating remain strong.
Let's look at our net debt and leverage on Slide 13.
This slide illustrates our actual net debt and financial leverage at year-end 2020, March 31, 2021, and our estimated for the year-end 2021.
Current year-end estimates include the $213 million acquisition of PAI, the $705 million midpoint of our adjusted EBITDA range and our free cash flow target range between $185 million and $275 million.
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.
At December 31, 2020, our total leverage ratio was 3.3 times.
And as I just mentioned, our fully synergized secured leverage ratio at March 31, 2021, was approximately 1.8 times.
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 range of $2.06 billion to $2.15 billion, which combined with our EBITDA guidance of $660 million to $750 million is expected to reduce leverage by up to a half a turn to a midpoint total leverage ratio of about 3.0 turns.
With that, I'll hand it back over to Doug for a strategic update.
Let's talk a little bit now of strategy.
Slide 15 summarizes our current strategic plan, SP2 which builds on the proven initiatives executed in our first strategic plan that covered the three years through 2019 and resulted in 8% annual revenue growth on a compound annual basis during this period of time and compound annual growth rate for operating income of over 20% per year.
The bottom layer outlines our 1.0 initiatives supporting core organic growth and cost reductions.
Our SP2 target is to achieve over $70 million of cost reductions and productivity improvements by 2022, driven by our lean initiatives and core Brink's continuous improvement culture.
We're driving our cost reductions wider and deeper by expanding cost initiatives into more countries and implementing over 18 different proven operational initiatives including fleet savings, route optimization, money processing standardization, and more.
These initiatives are supported by dedicated lean experts in each country as part of a newly introduced Brink's business system.
Sustained cost reductions of SG&A and other fixed expenses have been realized through our recent restructurings and last year's priority three targeted cost takeout.
These cost reductions and structural changes are driving operating leverage as demonstrated this quarter in the higher OP margins versus last year and 2019 even with lower revenue levels.
The benefit of operating leverage will continue to be material as organic revenue recovers from the pandemic yielding higher margins going forward.
This leverage is evident in our 2021 earnings guidance, which shows a margin improvement of 100 basis points from the low end of the guidance with margins of 11% to the high end of the guidance at 12%.
As organic revenue continues to recover, operating leverage is expect to add over 150 basis points to our profit margin by 2022 and WD initiatives will drive additional growth as well as we spoke about earlier.
The middle layer of our strategy represents our 1.5 acquisition strategy, including G4S and PAI which are the first acquisitions in SP2, where we have invested approximately $2.2 billion in 15 acquisitions since 2017.
Each of these acquisitions support our overall growth strategy and will collectively yield close to 6 times EBITDA on a post synergy basis.
With the G4S acquisitions largely integrated and run rate synergies recognized, we're continuing to identify and evaluate additional acquisition opportunities to support our core businesses and our new 2.0 strategy.
What's new in the two -- SP2 strategy is the top layer, which includes the introduction and development of digital cash solutions through integrated platform of services, technology and devices, leveraging our core CIT and money processing capabilities and assets.
We call 2.0 Brink's Complete as it offers complete digital-focused solutions for the broader cash ecosystem.
We believe our 1.0 and 1.5 strategies form a very strong foundation that by themselves will drive double-digit earnings growth well into the future.
We expect that the strong base of growth will be supplemented starting latter part or late this year by this new strategic layer, which is designed to drive increased organic revenue growth and higher margins by offering digital cash management and payment solutions.
Turning to Slide 16.
With 2.0, we're taking our tech enabled strengths, including mobile apps, systemwide track and trace, customer portals and low cost devices and combining them with our core capabilities in cash logistics and money processing.
This enables us to deliver complete digital cash management solutions that provide faster access to working capital for retailers and are easy to use -- as easy to use as other digital payment options.
By integrating these new services with our core cash operations, we're creating a platform of truly differentiated digital cash management solutions that we include as four distinct strategic pillars.
On the left hand side, 2.1 is a digital cash solution offering a complete hassle free tech enabled cash settlement for retailers that is just as timely and is easy to use and in most cases, at least as cost effective as processing credit and debit card purchases.
In addition to optimizing working capital, our 2.1 solutions reduced labor cost and theft-related losses.
The box on the upper right hand corner of Page 16 illustrates how the 2.1 digital cash solution combines an app and Brink's device similar to a credit card and a reader to provide credit for cash deposited into the device, delivering an experience similar to processing cash payments.
Our 2.2 solution extends cash process automation and settlement to large big box and enterprise retailers, enabling them to automate and optimize their high volumes of cash from the register to the back office to their banks using Brink's as a single service provider.
Given our acquisition of, PAI, I'll cover 2.3 ATM solutions separately in just a moment.
On the right hand side our 2.4 digital payment solution integrates our 2.1 digital cash management solutions with other payment methods to provide a unified solution for small and medium-sized businesses.
Most all digital payment processes are solely focused -- most all digital payment processors are solely focused on processing non-cash payments, with no solution offered to retailers for handling cash.
For example Square has stated that cash represents about 30% of their retailers in-store payments yet they and most all payment processors do not offer any solution for managing cash payments.
Our 2.4 solution is designed to do just that and fill that void.
With the recent PAI acquisition, I wanted to summarize our 2.3 strategy in a bit more detail over the next several pages just as a preamble to our Investor Day.
With 2.3, we provide a full range of ATM services, an important part of the cash ecosystem that also converts digital to cash through the use of cards and other devices.
ATMs are critical consumer touch point that are also expensive for retailers and financial institutions to operate and are not core frankly to their businesses.
By outsourcing these devices to Brink's retailers and financial institutions can reduce cost and more importantly focus on the needs of their customers and their business.
Our BPCE relationship in France is a great example of a fully outsourced FI managed service for a complete ATM state of more than 11,000 ATMs, which will be coming on in the second half of this year.
PAI enables us to offer a similar full range of ATM managed services in North America.
We believe the market for ATM managed services will be a steady source of growth for Brink's, as it has been for PAI and we offer both ATM only services as well as an expanded complete cash services offering.
Retailers need ATM partners like PAI that offer an array of leading technology solutions that are tailored to their needs and desires up to and including a complete managed service as illustrated in the right-hand portion of this slide.
And as financial institutions rationalize their branch networks, they are increasingly relying on ATMs as a main source of customer interaction and moving to outsourced ATM services.
Before PAI and BPCE, Brink's ATM services for the most part were comprised primarily of cash fulfillment and some first line and second line maintenance services as shown in the lower section of the blue services illustration on this page.
Brink's now provides a full end-to-end range of higher value, higher margin services.
The goal is to develop multiple recurring revenue streams with long-term subscription-based contracts.
The benefits for customers include single source access to a full range of proprietary ATM technology and operating and management systems.
By operating ATM -- by outsourcing ATM operations and even ownership our customers can free up resources and capital and focus again on their business.
We believe some of our financial institutions, especially regional and community banks and credit unions will increasingly look to outsource these functions and longer term the outsourcing of ATMs by larger banks in the U.S. Tier 1 and Tier 2 financial institutions should be another growth opportunity just as it is starting to be for us in Europe.
PAI is the largest private held provider of ATM services in the U.S. with a platform of more than 100,000 active ATM service locations.
On a full-year 2021 basis PAI is projected to generate gross revenue approximately $320 million and adjusted EBITDA of approximately $30 million.
In summary the addition of PAI for us accelerate our execution of strategy 2.3 with a strong U.S. platform and brings a highly scalable asset light business model offering SaaS technology to both retailers and FIs.
PAI also offer significant cross-selling opportunities to market our Brink's 2.0 services to its current customers starting with PAI's 70,000 plus merchant partners and to market ATM services to banks and FIs as well as other retail customers.
These services include obviously our 2.0 cash management and ATM solutions for retailers all from one source.
And again as we said, PAI also expands the potential for five value outsourced ATM networks for FIs both in the U.S. and on a global basis.
Under the leadership of CEO, David Dove, PAI has an exceptional management team with deep industry experience and offer significant potential for cost and revenue synergies.
In other words, PAI is ready to go and is expected to be accretive to our earnings this year.
I'll close with a slide that summarizes our recent performance, our increased guidance and our next three year strategic plan.
We expect substantial improvement in 2021 and beyond with midpoint 2021 guidance of revenue up 21%, EBITDA up 25% to $700 million plus and earnings per share up over 30%.
As a reminder, our 2021 guidance does not include any material contribution from our Strategy 2.0.
As we -- and as we enter what we believe will be a robust post-pandemic economic recovery, Brink's is emerging stronger than ever with substantial growth opportunities underpinned by operating leverage that will increase with our recovery.
We have a proven global management, proven results, a strong balance sheet, ample liquidity and and expanded global footprint, a realigned cost strategy -- structure and a compelling strategic plan to expand our presence in the cash ecosystem with new digital solutions.
We recognize that the last year under the global pandemic has been tough for all of our team members and their families.
We look forward to disclosing more information on these strategies, when we host an Investor Day.
 Assistant:

Chosen response: qtrly non-gaap earnings per share $0.82.


Prompt:
Human: 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.
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 non-GAAP results.
Today we reported strong second quarter results that clearly demonstrate the resiliency of our business and the continued strength of cash usage around the world.
Reported revenue was up 27%, including organic growth of 15% on a comparable basis in local currency revenue as recovered to 97% of 2019 pre-COVID levels, supporting a strong recovery from the pandemic lows, even with the unanticipated continued shutdown of many economies, especially in Europe, Latin America and parts of Asia during the first half of this year.
Operating profit grew 51% with a margin rate increase of 160 basis points to 10.5%, which is 80 basis points above the pre-pandemic second quarter 2019 rate of 9.7%.
This suggests that our focus on sustainable cost reductions is having the desired impact on increased margins even with the revenues not yet back to pre-pandemic levels.
Adjusted EBITDA was up 39% with a margin rate increase of 130 basis points to 15.8% which is a 120 basis points above the pre-pandemic second quarter 2019 EBITDA rate.
And earnings came in at $1.18 per share, up 62% over 2020 and up 40% over the second quarter of 2019.
We achieved these results despite extended shutdowns that affected the second quarter results.
Given the year-to-date impact of the pandemic and the uncertainty regarding the future impact we now expect full year 2021 percent revenue growth in the mid to high teens, and we continue to expect earnings to be around the midpoint of the range, reflecting higher margins.
We expect continued gradual revenue recovery in the second half of this year to provide a strong jumping-off point for 2022 when full year revenue is expected to exceed pre-COVID levels.
Our preliminary targets for 2022 continue to include strong growth in revenue, adjusted EBITDA and cash flow.
In summary, we believe the continued strong and steady improvement in our results despite the extended pandemic headwinds is very encouraging as we look ahead to 2022 when we expected also layer on contributions from our digital growth strategies.
We're looking forward to Investor Day in early December when we will provide detailed review of our core and digital growth strategies as well as financial projections for 2022.
We're trying to finalize the appropriate format of virtual meeting, a live event in New York or hybrid of such and we'll let you know as soon as we make that decision.
Turning now to slide four, which summarizes our guidance and our preliminary target for 2022.
With half of 2021 behind us, we now expect full year 2021 revenue to be at the lower end of the range, but we still expect to achieve year-over-year percentage increases, as I said before, in the mid to upper teens for revenue.
Our revenue expectations were adjusted for two reasons, the first is the unexpected persistence of the pandemic-related shutdowns, which again negatively impacted our first and second quarters' revenues.
The second factor is related to a change in how we recognize revenue for our recent acquisition of PAI.
This technical change to net revenue recognition reduced our forecast PAI revenue by $50 million or so of this year, but has no impact on profit, and in fact, actually increases our margin rate.
While the ultimate duration and impact of the pandemic remains difficult to predict we do expect to return to a more normalized economic conditions as we move through the remainder of this year and more importantly as we go into 2022.
Full-year 2021 operating profit is expected to be approximately at the midpoint of our guidance reflecting year-over-year margin rate increases of at least 150 basis points, as we drive adjusted EBITDA growth up 25% versus prior year to approximately $700 million and earnings per share growth of 32% to about approximately $5 per share.
This slide also shows our preliminary 2022 EBITDA target of approximately $800 million reflecting growth in the mid-teens.
As Ron will show you we are also targeting 2022 free cash flow growth of about 50% on or more of EBITDA.
It's important to note that our outlook for both 2021 and 2022 was driven primarily by growth in our core operations and does not include any material contribution from our Strategy 2.1 digital solutions, more on our core and digital strategies as well as on our 2023 financial targets at our Investor Day event in December.
slide five is a format that we include each quarter that covers four key metrics, revenue, operating profit, adjusted EBITDA and EPS.
For the current quarter, the current quarter In constant currency and the reported results for the same quarter in prior years.
I'll go into detail on each of these metrics in the next two slides.
On slide six, please remember that we disclosed acquisitions separately for the first 12 months of ownership.
After 12 months they are mostly integrated and then included inorganic results.
Included in acquisitions for this quarter are PAI and most of the former G4S businesses.
2021 second quarter revenue was up 22% in constant currency, with 15% organic growth versus last year and 7% from acquisitions.
While the pandemic continues to impact many countries today, the second quarter of 2020 was globally, the most impacted.
North America, Latin America and Europe, all grew organically while the rest of the world was relatively flat.
Positive ForEx increased revenue by $39 million or 5% as currencies in most of our markets have improved versus last year's pandemic-driven devaluation.
Reported revenue was $1.49 billion, up $223 million or 27% versus the second quarter last year.
In general, revenue recovery was consistent with the first quarter 2021 despite the impact of lower than expected economic activity caused by new lockdowns imposed by governments in response to COVID variance and increased cases.
Second quarter reported operating profit was $111 million, up over 50% versus last year.
Organic growth was 42%, acquisitions added 5% and ForEx another 4%.
Our operating profit margin of 10.5% was up 160 bps versus 2020 and up 80 bps versus pre-pandemic 2019.
This is evidence that our 2020 cost realignment initiatives are holding and that wider and deeper is gaining traction.
Recall that in the first quarter the corporate allocation methodology was changed to more accurately reflect segment performance, but distorts the year-to-year comparisons of corporate expenses.
Now to slide seven, second quarter interest expense was $28 million, up $5 million versus the same period last year, primarily due to the higher debt associated with the completed acquisitions.
Tax expense in the quarter was $30 million, $12 million higher than last year, driven by higher income.
Our full-year non-GAAP effective tax rate is estimated at 32% in line with last year.
$111 million of second quarter 2021 operating profit plus interest expense and taxes, plus $6 million in minority interest and other generated $60 million of income from continuing operations.
This is a $1.18 of earnings per share up $0.45 or 62% versus $0.73 in the second quarter last year.
The gain on marketable securities positively impacted earnings per share by about $0.16 versus $0.09 last year.
Second quarter 2021 Adjusted EBITDA, which excludes $11 million and gains on marketable securities, was $166 million, up $46 million or plus 39% versus prior year.
Turning to free cash flow on slide eight.
Our 2021 free cash flow target range is $185 million to $275 million, which reflects our adjusted EBITDA guidance range of $660 million to $750 million.
We expect to use that $95 million of cash for working capital growth and restructuring.
This includes around $35 million in 2020 deferred payroll and other taxes payable.
Cash taxes should be approximately $95 million.
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 to $310 million generating an EBITDA to free cash flow conversion ratio of about 33% to 41%, up from the 28% achieved on the same basis last year.
Advancing to slide nine.
This slide illustrates our actual net debt and financial leverage at year-end 2020 at June 30, 2021, our year-end 2021 estimate, and the 2022 year end preliminary target.
The current year end estimates include the $213 million acquisition of PAI, our adjusted EBITDA range and our free cash flow target range.
Net debt at the end of 2020 was $1.9 billion, that was up over $0.5 billion 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 times.
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 range of $2.055 billion to $2.145 billion, which combined with our EBITDA guidance is expected to reduce leverage by up to half a turn to the midpoint total leverage ratio of about 3 turns.
Our preliminary target for year-end 2022 would reduce the leverage ratio approximately another half turn.
Moving to slide 10, look we spent the last few minutes talking about what we've done and what we're going to do.
I want to wrap up my remarks with some comments about how we do it.
For 162 years and today in 53 countries we have practiced continuous improvement in corporate citizenship.
That work has been formalized into the Brink's Sustainability Program it's a comprehensive program under my leadership and directed by the Brink's Board and I'm very pleased with the progress we're making.
We are a signatory to the United Nations Global Compact on human rights.
We pledged to support CEO action for diversity and inclusion.
We've hired dedicated leaders for diversity, equity and inclusion and supplier diversity.
We've expanded the Brink's Women's Leadership Forum and created employee resource groups.
We've significantly increased our disclosure, and recently completed a materiality assessment that will help guide additional sustainability progress for the next 18 to 24 months.
We've been reducing our environmental impact by modernizing our fleet, taking thousands of diesel trucks off the road, implementing dual fuel and alternative fuel vehicles and continually optimizing routes to minimize miles driven.
Our Strategy 2.0 solutions target not only increased customer service, but also a major reduction in weekly stops that could take many more trucks off the roads.
We have made improvements to our already robust governance and risk management and I direct you to our website to learn more about Brink's sustainability program.
But perhaps the most compelling role Brink's has is economic inclusion.
Approximately 20% of the US population is unbanked or underbanked and doesn't have access to credit.
The numbers globally are much higher.
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 portfolio that is concerned about sustainability and ESG.
With that, I'll hand it back to Doug.
Moving to slide 11.
It summarizes our current strategic plan, SP2 which builds on the proven initiatives executed in our first strategic plan built over the three-year period through 2019 resulted in compound annual growth rate of 8% for revenue and for more than 20% for operating income.
The bottom layer outlines our 1.0 initiatives supporting core organic growth and cost reductions.
Our SP2 target is to achieve annual organic revenue growth of at least 5%, and we've laid out more than $70 million of cost reductions and productivity improvements by 2022.
We're driving our cost reductions wider and deeper by expanding cost initiatives into more countries and implementing over 18 different proven operational initiatives including things such as fleet savings, route optimization, money processing center standardization and much more.
These initiatives are supported by dedicated lean experts in every country, and by our overall continuous underlying continuous improvement culture.
Sustained SG&A cost reductions and other fixed cost expenses reductions have been realized through our recent restructurings and last year's targeted cost takeouts.
These cost reductions and structural changes are driving operating leverage as demonstrated this quarter by higher OP margins versus last year and versus 2019.
The benefits of operating margins are expected to continue to yield higher margins as revenue recovers from the pandemic lows.
The middle layer represents our 1.5 Acquisition Strategy including G4S and PAI which are the first acquisitions in SP2 we've invested approximately $2.2 billion in 15 acquisitions since 2017.
Each of these acquisitions, support our overall growth strategy and we expect them to collectively represent a post synergy, post multiple of less than 6 times EBITDA.
With the G4S acquisition largely integrated and run rate synergies largely recognized, we're well positioned in 2022 to drive revenue and margin rates above pre-pandemic levels in the 17 markets included in that acquisition.
As demonstrated by our recent PAI acquisition, our future acquisition focus is primarily on supporting 2.0 growth initiatives pivoting away from larger core 1.0 acquisitions.
However, we'll continue to consider smaller tuck-in core acquisitions that offer compelling returns.
As Ron mentioned, our key focus is on increasing free cash flow and capital allocation that maximizes total shareholder return.
We expect our capex spend as a percent of revenue to continue to decrease while supporting increased revenue growth in our core and 2.0 strategies at above historical levels.
What's new in SP2 is a top layer of our strategy, which includes the development and introduction of digital cash management solutions through an integrated platform of services, technology and devices, leveraging our core CIT and money processing capabilities and significant assets.
We call Strategy 2.0 Brink's Complete as it offers as it offers complete digitally focused solutions for a broader cash management ecosystem from one provider Brink's.
We believe our 1.0 and 1.5 strategies form a very strong foundation that might themselves will drive double-digit earnings growth well into the future.
This strong base of growth will be supplemented by a new strategic layer, which is designed to drive increased organic revenue growth and higher margins by offering digital cash management and payment solutions.
We plan to provide much more detail about the digital solutions at our Investor Day event, including specific financial targets and an update on some initial customer wins, but today I want to simply remind investors in general terms about the potential impact this opportunity could have on our company and frankly on our industry.
We believe that managing cash for retailers and other merchants is a significant growth opportunity for Brink's, especially when you consider that about 85% of retail and merchant locations in the US do not currently use any of our services or the services offered by our competitors.
This means that literally millions of potential customer at payment locations are completely unvended.
Why is this the case?
Well, given the sheer size of the unvended market it's hard to pinpoint all the reasons.
Some unvended retailers are simply too small and a cost effective and simply enough management solution for cash has not historically been available, but many larger unvended or under vended retailers that are nationally known and have thousand locations are also unvended.
To be blunt, in some cases, some of them probably perceive our industries traditional solutions and services to simply be do costly or to be frankly too much of a hassle.
This is potentially a transformational opportunity and our strategy is targeted directly at this opportunity.
We believe that Brink's complete digital solutions operate, easy-to-use, attractively priced, subscription-based solution for cash management services offering a compelling benefit for both vended and unvended retailers.
The benefits listed on this slide on the right hand side add up to what we consider a step change in value making cash management easier, much safer and far more efficient than anything else offered by our industry.
Simply, our goal is to offer digital cash management solutions that are easy to use and are as cost effective as other debit and credit payment solutions.
As with the development and introduction of many new products or services we've had our share of growing pains on this along the way including, frankly the global pandemic, but we are now expanding our rollout in the US and in several other global countries with a primary focus on unvended and underserved national retailers with multiple locations, and with several recent wins, we're feeling confident that the value of our solutions is beginning to be recognized by customers that historically have used limited or no cash management solution.
The chart on the left side of slide 12 illustrates the total number of retail and commercial locations in the US, estimated to be in the $3 million plus range.
The portion in brown shows that only about 15% of these locations are currently served by Brink's or any of our competitors, while almost all of them are vended by debit-credit payment processors.
This suggests that with the right cash management solution and value proposition, the opportunity or what we call for cash whitespace shown on the chart, is tremendous.
To put this opportunity in perspective, we believe that we can capture a significant portion of the potentially unvended market, the light blue, and even if we capture only a small portion of the rest of the white space unvended market the results could increase our retail sales by more than 50% plus over the next several years in the US alone.
We have a way to go in reaching such a lofty milestone, but we expect to begin showing some meaningful progress as we exit 2021, and remember our 2022 financial targets, do not include a material impact of our Strategy 2.1 Brinks Complete Initiatives.
Again, more to come on this Investor Day.
Even with the unanticipated impact of continued shutdowns during the second quarter, we've reported revenue growth of 27% and operating profit growth of 50%.
That's good leverage, and it supports and is supported by strong margin improvement.
We anticipate that revenue will continue to gradually recover over the second half of this year providing a strong jumping-off point for achieving revenue in 2022 that will exceed pre-pandemic levels and will include the benefits of the two acquisitions completed since 2019, G4S and PAI.
While we feel confident as we move into the second quarter of this year we believe that setting the stage for 2022 and beyond is even more important.
I can assure you that we are sharply focused on achieving our 2022 targeted EBITDA of $800 million, which is supported by continued revenue growth and strong margin improvement and includes only, again a limited contribution of 2.1 initiatives.
Cash usage continues to grow and cash continues to be a key method of payment in the US and globally underpinning our future growth and recovery from the pandemic,.
We have a proven global management team, a strong balance sheet, ample liquidity and expanded global footprint from our acquisitions, a realigned cost structure coming out of the pandemic and a compelling strategic plan to expand our presence in the cash ecosystem with new digital solutions.
We look forward to disclosing more information on these strategies and our 2023 financials when we host Investor Day in December.
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compname posts quarterly non-gaap earnings per share $1.18.
qtrly gaap earnings per share $0.47; qtrly non-gaap earnings per share $1.18.