BrightView Holdings, Inc.

Good day, and thank you for standing by. Welcome to the Brightview Fiscal Second Quarter Earnings Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star 0. I would now like to hand the conference over to your speaker today, John Shave, Vice President of Investor Relations. Thank you. Please go ahead, sir.

Thank you, Tabitha, and good morning. Before we begin, I'd like to remind listeners that some of the comments made today, including responses to questions and information reflected on the presentation slides, are forward-looking and actual results may differ materially from those projected. Please refer to our company's SEC findings for more detail on the risks and uncertainties that could impact the company's future operating results and financial condition. Comments made today will also include a discussion of certain non-GAAP financial measures. Reconciliations to comparable GAAP financial measures are provided in today's press release. Disclaimers on forward-looking statements and non-GAAP financial measures apply both to today's prepared marks as well as the Q&A. For context, Brightview is the leading and largest provider of commercial landscaping services in the United States, with annual revenues in excess of $2 billion, approximately 10 times our next largest competitor. Together with our legacy companies, Brightview has been in operation for more than 80 years, and our field leadership team has an average tenure of 14 years. We provide commercial landscaping services ranging from landscape maintenance and enhancements to tree care and landscape development. We operate through an integrated national service model, which delivers services at the local level by combining our network of more than 240 maintenance and development branches with a qualified service partner network. Our branch delivery model underpins our position as a single source end-to-end provider to a diverse customer base at the national, regional, and local levels, which we believe represents a significant competitive advantage. We also believe our customers understand the financial and reputational risk associated with inadequate landscape maintenance and consider our services to be essential and non-discretionary. Brightview creates the best landscapes on earth. I will now turn the call over to Brightview CEO, Andrew Masterman. Thank you, John. Good morning, everyone. Thank you for joining us today. Despite operating in an environment that few have ever experienced, it was an exceptional quarter for our company. we were able to deliver these results for several reasons. We are very clear about our purpose and vision. We have spent years building an experienced and talented management team. We developed a focused strategy from which we have not strayed. And we continue to make the right investment in our people, our core business, and in M&A. And finally, we have executed with discipline and with unwavering clarity about our goals and the results we know we are capable of delivering. The operating and financial performance we will discuss today is what we know we can deliver, and we will continue to perform well. We have all been affected by the crisis, and we continue to be impacted, but the Brightview team has persevered and delivered strong results. But we always have more work to do and more progress to make. I am extremely proud of these results and the effort and tireless commitment of the Brightview team executing against our strategy. We believe this is the underpinning of our guidance going forward. Starting on slide four, let me first provide an overview of our second quarter fiscal year 2021 results. First, our second quarter business performance was fueled by the more than 10% organic growth of our annual contract snowbook of business. This expansion was driven by new customer wins, improved retention, and price increases. all as a result of the strategic investment we have been making in our sales force. Second, NOAA snowfall totaled images specific to Brightview's geographic footprint was up 91% versus prior year. Brightview's snow removal services revenue was up 121%, or approximately $123 million. Contract growth in favorable weather versus prior year drove the strong performance. Third, Maintenance land organic growth trends improved for the third consecutive quarter. Our net new sales in fiscal Q2 were the highest ever for Brightview. We are confident this trend will continue, resulting in sustainable organic growth. Fourth, total adjusted EBITDA grew by 71.9% and our adjusted EBITDA margin of 10.2% was a 320 basis point expansion versus the prior year. we have produced over $300 million of total adjusted EBITDA over the trailing 12 months. Fifth, free cash flow generation continues to be exceptional. During the second quarter, we generated $63 million of free cash flow. Our leverage ratio of 3.5 times at the end of the second fiscal quarter was the lowest since going public in June of 2018. Strong free cash flow generation will allow us to continue our M&A strategies while simultaneously improving our leverage ratio. And finally, the results of our strong-on-strong acquisition strategy benefited our revenue growth by $26.9 million during the second quarter, and with an attractive pipeline, acquisitions will be a reliable and sustainable source of revenue growth. Before we turn to the details of our second quarter, let me provide you with our outlook for our third quarter in fiscal year 2021 on slide five. Our financial performance in the second quarter exceeded the quarterly guidance provided on our last call. As expected, we continue to see COVID-19 business impacts on ancillary demand, but we're optimistic about our green season and second half of the year. Our maintenance land contract-based business is essentially flat versus the prior year level when you include acquisitions. Homeowners associations and commercial properties remain resilient, and hospitality and retail verticals are showing initial signs of a bounce back. we are encouraged by what we see happening in the market. In our development segment, we expect the third quarter of 2021 to return to prior year levels, and we are optimistic that modest organic growth trends should return during the second half of the year. And we expect a favorable tailwind acquisitions completed during the year. As a result, for our third quarter fiscal 2021, we anticipate total revenues between $640 and $660 million and adjusted evens out between $91 and $95 million. For our fiscal year total 2021, we anticipate total revenues between $2.485 and $2.525 billion and adjusted evens out between $302 and $310 million. Moving now to slide six, since the beginning of fiscal 2021, We have previously announced four acquisitions that position us as market leaders in several key MSAs. We are pleased to announce today that we acquired St. Paul-based, Minnesota-based Birch Incorporated in April. Since 1978, Birch has been providing a full suite of winter services, landscape maintenance and enhancements, tree care, and irrigation services. We welcome more than 50 skilled team members to the Brightview family, and this transaction combined with Minnesota-based Cutting Edge, which we acquired in December of 2020, further solidifies us as the service leader in a desirable upper Midwest market. We expect these five acquisitions to add approximately $100 million in incremental annualized revenue. We have achieved our fiscal 2021 M&A revenue target and still have attractive opportunities in our pipeline, which continues to develop. We expect to close several additional acquisitions during the remainder of fiscal 2021. M&A is a critical aspect of our strategy and a proxy for organic growth. Although this may be repetitive for some, I want to provide you further insight into our playbook that we began implementing in 2017. Unique to our industry, we fund our strategy with internally generated cash and have a very disciplined and repeatable acquisition and integration framework which results in less risk and generates more predictable and accretive returns versus a greenfield new branch startup. Acquisitions provide us with an established client base, a company with a track record of operating results, a field leadership team, and an experienced workforce. In a typical acquisition, we start with a solid company generating approximately 10% EBITDA margins. Over the course of the next 18 to 24 months, we introduce our proprietary management model. The end result is in a relatively short timeframe is an improved portfolio of business generating mid-teen EBITDA margins and improved cash flow. As we progress, we will continue to update you on this core strategy. Turning to slide seven, we remain focused on driving maintenance land growth. Our maintenance land business represents a core component of maintenance, including mowing, edging, pruning, trimming, blowing, and other core landscaping services and in 2020 represented approximately two-thirds of our maintenance business. During the second quarter of fiscal 2021, our maintenance land business delivered sequential organic improvement for the third consecutive quarter and was at 100% versus prior year inclusive of acquisitions. Net new sales in fiscal Q2 was the highest ever for Brightview, and we are confident this trend will continue, resulting in sustainable organic growth. We believe our maintenance land business should show more than 4% organic growth over prior years beginning in our fiscal second half of 2021. This is a direct result of our expanded sales team, sales and ambulance technology, improving retention, and positive net new sales. Turning to slide 8, the largest variable to our second quarter financial performance is snow removal services. Our performance was fueled by the more than 10% organic growth in our annual contract snowbook of business over the prior year and higher snowfall specific to Brightview's geographic footprint. The snowbook of business growth was driven by new sales wins combined with improved retention and increases in scope and price. According to NELA, snowfall totals in inches specific to Brightview's geographic footprint were up 91% versus prior year. our snow removal services grossed $226 million, was up 121%, or $123 million. WeatherWorks, the industry standard for our customer contracts for billing and invoicing purposes, reported snowfall totals in inches matched to our specific branch footprint were up more than 150% versus the prior year. These totals were over 20% higher compared to historical average. We realized positive returns on the investments we made over the last couple of years to redesign and revitalize our sales team. With our snow season largely behind us, and as we enter the green period of our third and fourth fiscal quarters, we are optimistic our sales momentum and organic growth will continue. Turning to slide nine, we continue to be leaders in environmental, social, and corporate governance, or ESG. We truly embrace our ESG strategy and is embedded into our corporate foundation and culture. The social element of ESG addresses the relationship our company has and the reputation it fosters with our people and in the communities. Accordingly, Brightview's success comes from the efforts of every one of our 20,000-plus team members. Our goal is simple. Focus on creating engaged teams. When we take care of our people, they take pride in their work. and take care of our customers and communities where we do business, which allows us to achieve consistent growth. Moving to slide 10, our people strategy focuses on three phases in the employee life cycle. Attract and hire, engage and develop, and reward and retain. This will enable Brightview employees to develop skills that will allow them to grow their careers within Brightview while driving employee engagement and retention. the aligned employee lifecycle programs across the three dimensions is resulting in improved customer satisfaction, greater client retention, and growth. Our people strategy positions Brightview as the employer of choice and destination for new team members and enables a successful delivery of business outcomes by providing integrated solutions to drive employee engagement, development, and retention, investing in developing strong leaders and team members at every level of the organization, ensuring our team members have the necessary skills to drive sustainable growth, creating career paths and talent pipelines with succession plans, and enabling the building of a positive and productive culture of engagement. As part of our people strategy, we also continue to invest in and grow our sales organization. To drive the success of these expanded sales teams, we launched digital marketing initiatives in new markets and through new channels. Over the last two years, we have realized an increase in our marketing-driven qualified sales leads. These leads have led to an increase in closed deals, indicating a high quality of marketing-driven opportunities. We expect this trend to continue as we evolve our digital marketing into a more effective omni-channel approach. Moving down to slide 11, the underpinning of our people strategy is an investment in technology solutions that automate and enable processes. It allows us to further engage our team with a learning management system for virtual and remote training and development, and will allow on-demand training for all learners. The solutions also create a level of visibility and accountability and allow us to measure progress and celebrate successes. Technology also allows us to further engage our existing customers and prospective customers. Brightview has invested in industry-leading technology to support our customers while enabling our field-based account and branch management. HOA Connect, quality site assessments, and Salesforce CRM software have all been recently implemented as digital tools to improve retention and support property enhancement. Our investment in technology drives efficiencies, compliance, and greater effectiveness in all aspects of our business. We are excited about the progress we are making because we believe customer engagement and satisfaction ultimately drives financial performance. Turning to slide 12, as a result of our people initiatives, progress is being made. We have witnessed a meaningful decrease in 0-30 and 30-90 day terminations. and overall customer satisfaction has improved year-over-year since 2018. The percentage of customers who are satisfied, willing to recommend Brightview, and likely to renew have all improved across both segments. Furthermore, the ease of doing business with Brightview has also improved year-over-year since 2018. Our efforts related to engagement and satisfaction have also garnered strong third-party recognition. Recently, the National Business Research Institute welcome Brightview to its circle of excellence. To qualify for this honor, we must score at or above strength performance at the 75th benchmarking percentile when measured against our industry, or we must improve five or more benchmarking percentiles in total company score over the previous research study, a statistically significant amount. Overall, improvements in customer engagement and satisfaction has been a direct result of our long-term focus on deploying technology digital marketing initiatives, and our people strategy, including the investment in our sales organization. Our second fiscal quarter performance was extraordinary, and I am energized by several initiatives in place that are early days in the cycle. We continue to be confident we will emerge from this crisis a better and stronger company while remaining focused on building our long-term fundamental strengths and creating superior value for our stockholders. I'll now turn it over to John, who will give some further color on these initiatives and discuss our financial performance in greater detail. Thank you, Andrew, and good morning to everyone. I am very pleased with the results we delivered in our second quarter of fiscal 2021. The stability of our maintenance land contract business, coupled with a very solid snow quarter, drove excellent results. combined with efficiencies gained from our investments in technology and our ongoing focus on productivity and cost management have all been meaningful in driving improved margins and collectively underscore the strength of our business. Turning to slide 14, second fiscal quarter 2021 revenue for the company increased 16.6% versus the prior year to $651.9 million. Maintenance revenues for the three months ended March 31st increased 29.6% versus the prior year to $535.7 million. Despite continued ancillary demand headwinds, impressive snow contract growth combined with $16.6 million from acquired businesses resulted in an outstanding quarter. Investments in technology to support our sales and account manager teams are enhancing customer relationships and driving both organic growth and strong cash generation. For the three months ended March 31st, development revenues of $117.1 million declined 16.4%, excluding a $6.1 million revenue reduction from the Brightview Tree Company divestiture. while we expected COVID-related softness to be more pronounced in the second quarter versus last year. We are also encouraged by our development backlog, bidding pipeline, and bid calendar, and we anticipate increased stability during the second half of fiscal 2021. Turning to the details on slide 15, total adjusted EBITDA for the second quarter was $66.8 million, an increase of 71.7%. or a $27.9 million increase versus the prior year. Productivity initiatives and continued SG&A cost containment efforts resulted in a strong 320 basis point expansion and EBITDA margin to 10.2%. In maintenance, adjusted EBITDA of $72.3 million represented an increase of $31.6 million or 77.6% from $40.7 million in the prior year. In addition to higher snowfall, cost containment initiatives, solid labor management, and leveraging our technology initiatives led to strong margin expansion. The result was an impressive 370 basis point improvement in EBITDA margin to 13.5%. In development, adjusted EBITDA decreased $3.3 million to $10.9 million compared to $14.2 million in fiscal Q2 of 2020. The decline was driven by lower revenue, approximately 20% of which was attributable to the sale of the Brightview Tree Company. However, through strong cost containment efforts, the development business was able to mitigate against the revenue loss, which resulted in a modest 40 basis point decrease in EBITDA margin to 9.3% in fiscal Q2. Corporate expenses, for the fiscal second quarter were $16.4 million, representing 2.5% of revenue, a 40 basis point improvement compared to the same quarter last year. Now let me provide you with a snapshot of our first half results on slide 16. Total revenue for the company increased 6.8% to $1.21 billion. In maintenance, first half revenues were $953.8 million, a $121.4 million increase, or 14.6% versus 2020. In development, revenues decreased 15% to $254.4 million. As expected, COVID-related backlog softness was more pronounced in Q2 versus last year. Total adjusted EBITDA for the first half of the fiscal year increased 31.8% to $119.3 million, compared to $90.5 million in the prior year. Adjusted EBITDA for maintenance increased 37.9% to $121.9 million, compared to $88.4 million in the prior year. Our snow contract book of business growth, favorable weather, and continued cost containment initiatives grow the segment's EBITDA growth. adjusted EBITDA for development decreased $5.4 million. This expected performance shortfall in fiscal Q2 was offset by productivity initiatives that led to minimal margin compression. Corporate expenses for the six months were 2.5% of revenue, a 30 basis point improvement compared to the prior year. In the second half of fiscal 2021, we expect modest expense headwinds as a result of reinitiating our 401 matching contribution, increased year-over-year incentive compensation driven by our approved results, and the addition of Juneteenth holiday. Diversity, equity, and inclusion helps us build a welcoming, inclusive environment and an engaged workforce. As part of our initiatives, we added Juneteenth as a company holiday to celebrate the emancipation of those who had been enslaved in the United States. The second half impact of these items will be approximately $8 million over Q3 and Q4. Let's move now to our balance sheet and capital allocation on slide 17. Net capital expenditures total $24.5 million for the first half of fiscal 2021, down from $32.4 million in the first half of fiscal 2020. Expressed as a percentage of revenue, net capital and we expect fiscal 2021 capital expenditures to be approximately 3% of revenue in line with our long-term guidance. In the first half of fiscal 2021, we self-funded approximately $75.7 million on acquisitions versus $87.1 million in the first half of fiscal 2020. Our net debt decreased to $1.05 billion at the end of fiscal Q2 2021, versus $1.17 billion at the end of fiscal Q2 2020. Our leverage ratio was 3.5 times at the end of the second fiscal quarter of fiscal 2021 versus 4.1 times in the prior year quarter. This is a historical best for Brightview. Based on our full year fiscal 2021 midpoint of guidance and coupled with initiatives that we have ongoing, we are on a solid trajectory to further improve this key metric. Our free cash flow performance in Q2 continued to be solid, despite higher accounts receivable during our snow season. This was driven by our solid EBITDA results, timing of capital expenditures, lower interest expense, and decent networking capital performance. An update on liquidity is on slide 18. At the end of the second fiscal quarter of 2021, we had approximately $207.2 million of availability under our revolver, approximately $70.5 million of availability under our receivables financing agreement, and $123.8 million of cash on hand. Total liquidity as of March 31st, 2021 was approximately $401.5 million. This compares to $235.5 million as of March 31st, 2020. This gives us ample flexibility to further implement our strategy. Overall, we are pleased with our year-to-date performance. We are confident in our full-year guidance and the momentum we plan to carry into fiscal 2022. With that, let me turn the call back over to Andrew. Thank you, John. Turning now to slide 20, our second fiscal quarter results were exceptional. Operating and financial performance we deliver is what we know we can consistently deliver. And most exciting is that we see so much more opportunity and potential. In summary, here are the key takeaways. The market. We are seeing signs in all verticals that the impact of the pandemic is beginning to recover. The fundamentals of our business and our industry remain strong. Growth. Our investment in our sales team is driving sustainable organic growth. Our realized snow organic growth and net new sales in fiscal Q2 were the highest ever for Brightview. We are confident this trend will continue. Technology. We continue to remain focused on deploying technology to enhance productivity, profitability, and client engagement. We have fully implemented our AT&T labor management tool across both segments and are expanding adoption of HOA Connect, facilitating direct customer communication with our teams. Our expanded usage of the Salesforce Customer Relationship Management tool and quality site assessment software continues our focus on retention and supporting property enhancement. Sales and marketing. In addition to technological enhancements, we continue to grow and invest in our sales organization and expand the use and effectiveness of our sales tools. Digital marketing initiatives in new markets and verticals with a more effective omni-channel approach continues to support the success of these expanded sales teams. Our sales and marketing strategies and structure are a formula for long-term success, and our investments in field-based sales and operations leadership will drive stronger new sales and result in improved client attention, while further streamlining our service delivery. M&A. Additionally, the results of our acquisition strategy continue to benefit our revenue growth and with an attractive pipeline, acquisitions will continue to be a reliable and sustainable source of growth. Our business is cash-generative with low capital intensity, allowing us to consolidate the marketplace in an efficient and disciplined manner that we have shown to be repeatable. Combined with our horticultural knowledge and excellence and our ability to operate multiple service lines under one banner, we believe we are well-positioned to drive solid performance in the second half and beyond. Cash, at the end of the second fiscal quarter, our leverage ratio was a historic low for Brightview. We are on a trajectory to further improve this metric in fiscal 2021. In closing, and most importantly, I'd like to thank our dedicated employees, families, clients, and partners for their resiliency and dedication during a challenging time. A focus on taking care of each other and our customers and taking pride in how we engage with our clients and the beauty of their properties we design, develop, and maintain has sustained our organization. We will continue this focus on our people and our culture to deliver confidence in the future that lies ahead. Thank you for your attention this morning. We'll now open the call for your questions.

As a reminder, to ask a question, you will need to press star 1 on your telephone. To withdraw your question, press the pound key. Please stand by while we compile the Q&A roster. And your first question is from the line of George Tong with Goldman Sachs.