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Operator
Good day and thank you for standing by. Welcome to the Brightview third quarter fiscal year 2021 results conference call. At this time, all participants are in 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. If you require any further assistance, please press star 0. I would now like to hand the conference over to your speaker today, Mr. John Sheave, Vice President of Investor Relations. Please go ahead.
John Sheave
Thank you, Rain, and good morning. Before we begin, I would 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 the company's SEC filings for more details 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 in non-GAAP financial measures apply both to today's prepared remarks as well as the Q&A. For context, Brightview is the leading and largest provider of commercial landscaping services in the United States, with projected annual revenues of approximately $2.5 billion and seven 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 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 for 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. I will now turn the call over to Brightview's CEO, Andrew Masterman. Thank you, John, and thanks to all of you for joining us this morning. I am pleased to report that our 11.7% maintenance organic growth, underpinned by our 7% organic contract growth, has returned us to 2019 revenue levels. Furthermore, this maintenance-driven growth has fueled our EBITDA improvement for the quarter. We continue to deliver earnings and acquisition growth, and overall, it was an excellent quarter, despite operating in an environment presented with a whole host of new experiences and challenges, such as labor headwinds and materials inflation. Our team of more than 20,000 employees has continued to go above and beyond. Their perseverance made it possible for us to deliver the strongest maintenance land organic revenue growth since our IPO, combined with continued robust free cash flow generation while maintaining our focus on health and safety. While we always have more work to do and more progress to make, and we know that COVID outbreaks are continuing to affect many facets of our economy, I am extremely proud of these results and the effort and tireless commitment of our team. We believe this is the underpinning of our guidance going forward. Starting on slide four, let me first provide an overview of our third quarter results. First, our third quarter was fueled by maintenance land organic revenue growth of 11.7%, which was the strongest since our 2018 IPO. This expansion was driven by continued growth in our contract business, as well as a rebound in ancillary services. Second, as a result of the strategic investments we have been making in our sales force, maintenance land organic growth trends improved for the fourth consecutive quarter. Our net new sales in fiscal Q3 were the highest Q3 ever for Brighton. We are confident in our ability to continue to drive positive net new business, resulting in sustainable organic growth. Third, free cash flow generation continues to be robust. During the third quarter, we generated $37.3 million of free cash flow. Sustainable, strong free cash flow will allow us to further execute upon our M&A strategy while simultaneously reducing our leverage ratio. Fourth, driven by maintenance land growth, total adjusted EBITDA of $93.6 million grew by 2.9%, and our adjusted EBITDA margin was 13.9%. Over the trailing 12 months, we have produced $303 million of total adjusted EBITDA. And finally, the results of our strong-on-strong acquisition strategy benefited our revenue by $33 million during the third quarter. As we've commented before, our acquisition pipeline is attractive, and we expect that M&A will continue to be a reliable and sustainable source of revenue growth. Before we turn to the details of our third quarter, let me provide you with our outlook for our fourth quarter and fiscal year 2021 on slide five. Our total revenue of $673.6 million exceeded the third quarter guidance provided on our last call and total adjusted EBITDA was in line with our projections. As expected, we continue to see COVID-19 business impacts, specifically labor availability, but we are optimistic about our ability to deliver fourth quarter and full year results. Our maintenance land contract-based business and demand for ancillary services is growing. Our primary end markets, homeowners associations, and commercial properties remain viable. Hospitality and retail verticals are returning to pre-COVID levels. We are encouraged by what we see happening in the market, and we believe this will result in another quarter of maintenance land organic growth of 5% or more. In our development segment, we experienced pandemic-related obstacles regarding job delays, cost pressures, and supply chain issues, all of which collectively put pressure on revenue and our margins. In development, one external tracker we monitor is the Architecture Billings Index. The ABI is an economic indicator for non-residential construction activity, with a lead time of approximately 9 to 12 months. In February, the index returned to an expansionary mode for the first time since the start of the pandemic. During the second quarter, the ABI continued to rebound and accelerate. And in June, the index was near its highest levels ever, and we are optimistic that modest organic growth trends should return towards the second half of fiscal 2022 and into fiscal 2023. As a result, For our fourth quarter, we anticipate total revenues between $640 and $660 million versus $608 million in the prior year, and adjusted EBITDA between $89 and $93 million versus $90 million in the prior year. And for our fiscal 2021, we anticipate total revenues between $2.52 and $2.54 billion versus $2.35 billion in the prior year, and adjusted EBITDA between $302 and $306 million versus $272 million in the prior year. We forecast the $170 to $190 million increase in revenue and $30 to $34 million increase in adjusted EBITDA will be driven by maintenance land organic growth, improved M&A execution, and higher levels of stubble. Moving now to slide six. Since the beginning of fiscal 2021, we've announced seven acquisitions that position us as market leaders in several key MSAs. We are pleased to welcome Baytree Landscape and West Bay Landscape to the Brightview family. These acquisitions complement our existing presence in these markets. Baytree Landscape is a full-service landscaping company founded in 2014 by industry veterans with over 80 years of combined experience in the green industry. With six primary locations and a skilled labor force of approximately 370 team members, Baytree is recognized as a leader in the Atlanta and Charleston, South Carolina markets. With an attractive mix of work and track record for growth and success, Baytree is listed as number 49 on the most current release of the lawn and landscape top 100 list. West Bay Landscape, a service leader in the desirable Southwest Florida market, is one of the region's premier landscape maintenance companies. The company, with 125 trained personnel, provides a mix of revenue with both maintenance and enhancement. This acquisition strengthens our presence in a desirable market. We expect these seven acquisitions to add approximately $150 million in incremental annualized revenue, offset by the disposal of our tree growing company last year. 2021 has been a record year for M&A, and we have achieved our fiscal 2021 M&A revenue targets. and still have attractive opportunities in our pipeline, which continues to develop. 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 the 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. Maintenance land organic growth of 11.7% during the third quarter of fiscal 2021 represented sequential organic improvement for the fourth consecutive quarter. Inclusive of acquisitions, maintenance land revenue was up 16% versus prior year. Additionally, we realized strong organic growth across all three of our maintenance divisions, Evergreen East, Evergreen West, and Seasonal, further proof that our strategy is working. Net new sales in fiscal Q3 was the highest Q3 ever for Brightview, and significantly ahead of 2020, a bullish indicator for 2022. This is a direct result of our expanded sales team, sales enablement technologies, continued focus on improving retention, and positive net new sales. We are confident in our ability to deliver at least 2% to 3% sustainable or annual organic growth going forward approximately twice the industry average. Turning to slide 8, we continue to be leaders in environmental, social, and corporate governance, or ESG. We truly embrace our ESG strategy, and it is embedded into our corporate foundation and culture. The key element of ESG is the assessment of how Brightview interacts with the environment and how we perform as a steward of the physical environment. The E takes into consideration our utilization of natural resources and the effect of our operations on the environment, both in direct operations and across our supply chains. Brightview is actively engaged in looking for ways to practically address environmental responsibility and achieve carbon neutrality. A few of these are highlighted on the slide. First, a cleaner fleet. Brightview is reducing emissions and is beginning to supplement our fleet with electric vehicles. To reduce our fuel and minimize our carbon impact, we have begun by deploying 100 electric vehicles over the next 12 months. Furthermore, we plan to convert 20% of our management vehicle fleet over the next 24 months. Second, in greener equipment, we are transforming mowers, two-cycle, and all other equipment to sustainable power while deploying electric utility vehicles. Third, efficient buildings. Rutgers strives to improve energy efficiency and convert to green energy. We will implement alternative and solar energy solutions and replace outdated energy equipment and appliances. Where possible, we will convert all electrical service to our buildings to sources of alternative energy. Fourth, sustainability. Brightview is committed to sustainability. We continue to proactively and purposefully plant trees, reduce pollution, and implement green energy as a way of reducing, sequestering, and minimizing our carbon footprint. Although capital investments will be required to build our electrical infrastructure, fuel and other savings will result in an attractive return on investment. We are in the early innings of our journey. During calendar 2022, we plan on issuing a formal sustainability report. This will allow Brightview to report on environmental and social performance, as well as having publicized ESG goals. Moving now to slide nine. Our scale drives technology advantages that automate and enable more efficient processes from a few perspectives. First, technology 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, support property enhancement, and increase ancillary penetration. Second, our technology solutions extend business and operational analytics for improved decision-making and process efficiencies. Unified dashboards and combining data from multiple sources allows field teams to efficiently support labor and material planning. And third, Technology allows us to improve crew and vehicle safety tools that optimize fleet utilization in cab cameras with artificial intelligence will help identify and correct potential safety issues. Telematics will provide safety and efficiency data to help improve fuel utilization, route efficiency, and safety. Furthermore, an updated fleet management system will help further enhance our equipment ordering, transfers, dispositions, and maintenance. Our investment in technology drives safety 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. 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 third quarter. The organic growth of our maintenance land business drove EBITDA improvement, strong free cash flow, and overall excellent results. Efficiencies gained from our investments in technology and our ongoing focus on productivity and cost management have been meaningful in driving improved performance and collectively underscores the strength of our business. Turning to slide 11, Third quarter revenue increased 10.8% versus the prior year to $673.6 million. Maintenance revenues increased 15% versus the prior year to $524.6 million. The results are a combination of solid growth in our contract business, as well as a rebound in our ancillary services, which led to 11.7% organic growth. Additionally, we realized $18 million of incremental revenue from acquired businesses. Investments in technology to support our sales and account manager teams are enhancing customer relationships and driving both organic growth and strong cash generation.
Andrew Masterman
For the three months ended June 30th, development revenues of $150.3 million declined 1.6%.
John Sheave
Excluding the impact of the Brightview Tree Company divestiture, development total revenue would have grown 2.2%. While we expected COVID-related softness to be more pronounced in the third quarter versus last year, we are also encouraged by increases in our development bidding pipeline, and we anticipate increased stability during fiscal 2022. Turning to slide 12, Total adjusted EBITDA for the quarter was $93.6 million, an increase of 2.9%, or $2.6 million increase versus the prior year. Higher labor driven by overtime, the Juneteenth holiday, and material costs resulted in a 110 basis point contraction and EBITDA margin to 13.9%. In maintenance, adjusted EBITDA of $90.6 million represented an increase of $7.3 million, or 8.8%, from $83.8 million in the prior year. The increase was driven principally by organic growth in our contract business, as well as a rebound in ancillary services. Adjusted EBITDA margin of 17.3% reflected a 100 basis point reduction from the prior year level. The decline was driven by higher labor, the impact of newly acquired businesses in the Juneteenth holiday. In development, adjusted EBITDA decreased $3.1 million to $18.7 million, compared to $21.8 million in fiscal Q3 of 2020. The decline was driven by lower revenue and higher material costs. Operationally, we continue to face pandemic-related obstacles, including cost creep, supply chain issues, and labor related issues affecting the trades in our production cycle. Development adjusted EBITDA margin of 12.4% reflected a 190 basis point decline driven by the aforementioned issues. Corporate expenses for the fiscal third quarter were $15.7 million representing 2.3% of revenue consistent with the same quarter last year. Now let me provide you with a snapshot of our revenue results for the nine months ended June 30th, beginning on slide 13. Total revenue for the company increased 8.2% to $1.88 billion. In maintenance for the nine months, revenues were $1.48 billion, a $189.7 million increase, or 14.7%, versus 2020. In development, revenues decreased 10.4% to $404.7 million. As we reported in May, COVID-related softness was more pronounced in Q2 versus last year. Relative to Q2, we have witnessed improving trends in Q3 and expect continued improvement in Q4. Turning now to slide 14, total adjusted EBITDA for the first nine months of the fiscal year increased 17.2% to $212.8 million, compared to $181.6 million in the prior year. Adjusted EBITDA for maintenance increased 23.8% to $212.5 million, compared to $171.7 million in the prior year. This $40.8 million improvement was driven by maintenance land organic growth acquisitions, and snow removal revenues driven by organic growth and increased snowfall. Adjusted EBITDA for development decreased $8.5 million. This year-to-date performance shortfall was impacted by lower revenues and higher material costs. Corporate expenses for the first nine months were 2.5% of revenue, a 10 basis point improvement compared to the prior year. In the fourth quarter of fiscal 2021, we expect modest expense headwinds as a result of reinitiating our 401 matching contribution and increased year-over-year incentive compensation driven by our improved results. As we discussed during our last call, the impact of these items will be approximately $4 to $6 million in Q4. We expect continued higher labor and material costs to impact margins in both segments but have implemented corrective actions to aggressively address these headwinds. Let's move now to our balance sheet and capital allocation on slide 15. Net capital expenditures totaled $37.2 million for the first nine months of fiscal 2021, down from $42.1 million in the first nine months of fiscal 2020. Expressed as a percentage of revenue, net capital expenditures were 2% of revenue in the first nine months, and we expect fiscal 2021 capital expenditures to be approximately 2.5% of revenue. As a result of supply chain constraints at our vehicle and equipment suppliers, advanced purchases initiated to support growth will result in increased levels of capital expenditures in 2022 to circa 3 to 3.5% of revenue. In the first nine months of fiscal 2021, we funded approximately $106.2 million of acquisitions versus $86.5 million in the first nine months of fiscal 2020. Our net debt decreased to $1.05 billion at the end of fiscal Q3 2021 versus $1.11 billion at the end of fiscal Q3 2020. Our leverage ratio was three and a half times at the end of the third fiscal quarter of fiscal 2021 versus 4.1 times in the prior year quarter. 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 Q3 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 strong networking capital performance. On a year-to-date basis, we have generated $96 million of free cash flow and expect another year of consistent and predictable cash flow. An update on liquidity is on slide 16. At the end of the third quarter of fiscal 21, we had approximately $207.7 million of availability under our revolver, approximately $70.5 million of availability under our receivables financing agreement, and $125 million of cash on hand. Total liquidity as of June 30th, 2021, was approximately $403.2 million. This compares to $301.5 million as of June 30th, 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. Our third fiscal quarter results were excellent. Operating and financial performance we delivered is sustainable, and we know we can deliver. And most exciting is that we see so much more opportunity and potential. In summary, here are the key takeaways on slide 18. First, the market. We are seeing signs in all maintenance verticals that the impact of the pandemic is subsiding and business is recovering. The fundamentals of our business and our industry remain strong, and we are optimistic about our ability to drive sustainable organic growth. Second growth. Our investment in our sales team is driving sustainable organic growth. Our maintenance land organic growth of 11.7% was the strongest since our 2018 IPO. Net new sales in fiscal Q3 was the highest Q3 ever for Brightfield. We will deliver 5% plus maintenance, land, organic growth in Q4. Third, technology. We continue to remain focused on deploying technology to enhance productivity, profitability, and client engagement. We are expanding adoption of HOA Connect, facilitating direct customer communication with our teams, our expanded usage The Salesforce Customer Relationship Management tool and quality site assessment software continues our focus on customer retention and supporting property enhancement. Fourth, 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 investment in field-based sales and operations leadership will drive stronger new sales and result in improved client retention while further streamlining our service deliveries. Fifth, M&A. 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 Q4 and beyond. And sixth, cash. At the end of the third fiscal quarter, our leverage ratio continues to be at a historic low for Brightview. We are on a trajectory to further improve this metric and expect to drive closer to a leverage ratio of three times. Most importantly, I would like to personally thank our dedicated employees, families, clients, and partners for their resiliency and commitment 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. In closing, please join us in a virtual format on September 21st for our Brightview Investor Day 2021. Presentations and question and answer sessions will be presented live from Brightview headquarters in Bluebell, Pennsylvania. I'm excited to showcase our high-quality operating officers and division heads, and we will also share Brightview's plans for growth, profitability, and long-term capital allocation. A formal advisory and Investor Day agenda will be released shortly. Thank you for your attention this morning. We will now open the call for your questions.
Operator
Thank you. As a reminder, to ask a question, please press star 1 on your telephone keypad. To withdraw your question, press the pound key. Please stand by while we compile the Q&A roster. Your first question comes from George Tong from Goldman Sachs. Your line is open.
John Sheave
Hi, thanks. Good morning. On slide seven, hi, you're forecasting for fiscal 4Q this year, a step back in organic and reported maintenance land revenue from fiscal 3Q levels. Just wanted to clarify whether that's seasonality or if there are other factors driving that performance. Yeah, the overall organic growth and growth we're seeing overall is really the result of the Salesforce investments made, George. The overall seasonality, you know, the fourth quarter continues to be a good green season for us. There's no question about that. And it is across the board, whether it's evergreen markets or seasonal markets. But the overall contract growth really is the result of, you know, increased sales levels coming through the company. And we believe this is going to be something that's growth not only on 2020, but also over 2019. Okay, got it. And then if we look at the margin side of things, you mentioned higher labor and material costs and the fact that you're taking corrective actions to address these higher input costs. Can you perhaps elaborate on that? What are some of the initiatives that you have to work through those higher costs and what are the implications for margin flow through? Yeah, first and foremost, we certainly have seen some of the inflationary pressures that we've seen throughout the country. Fortunately, something that has happened here in the fourth quarter, and it's just happening right now, is that we've been able to take some additional H-2B labor coming into the marketplace, which is allowing us to actually fill the slots that haven't been filled but we've had to cover with overtime. Those folks are arriving as we speak. They're a little later than we initially expected due to some of the government processes that we've had to go through to get them. But here in August, they're arriving, and we expect as we get towards the end of Q4 and into Q1, they should have a very strong impact for us. Very helpful. Thank you.
Operator
Your next question comes from Andy Whitman from Beard. Your line is open.
Andy Whitman
Yeah, great. Thanks for taking my questions here. Do you have a couple? I guess I'm just talking about labor, I guess, to start out with either one of you, I guess.
John Sheave
Could you talk about the mechanism for which labor is inflating? Is it because you're paying overtime because of lack of availability? Is it average rates? Just some detail about that. Is it inefficiency because there's new people? There's a lot of ways that it can hit you. And so I was just wondering what it is. And if you could quantify what the impact of labor was on your profit margins year over year, I think that would be helpful. In the last quarter, you guys said it was running a couple hundred basis points. higher inflation than normal levels. Is that still the rate, or is it more than that now, three months later? Just kind of curious.
Andrew Masterman
Yeah, Andy, good morning. This is John. A lot of questions in this. Let me go back and unlayer those and give you some color. Starting with you first, the labor is definitely more expensive. It's less efficient. It caused us to have more overtime. to the labor shortage. Historically, I think we've been very clear that we've seen inflation around 4% to 5%. We're seeing it closer to 5% this year. Historically, we've been able to offset that or mitigate that with price increases.
John Sheave
That's been more challenging through COVID. We definitely plan to reinitiate that towards the end of this year and into 2022. and we have been able to adjust some of that through scope. At the end of the day, we are taking several actions to be creative in attracting labor. Andrew mentioned one of them. We were lucky to get H-2B labor, but we did get it a little bit later than we expected. So that was a challenge, but we've also— done things to expand our hourly workforce recruiting pool around flexible work schedules, flexible start times, doing things on the weekend, things of that nature. So a lot of attention on labor, as you can imagine. Got it.
Andy Whitman
And then, I guess, just for a follow-up, it's always helpful for us to understand what your ongoing M&A program that you guys are so committed to
John Sheave
the delta every quarter. So I guess you said there's $150 million of annualized revenue that's been added this year. I was wondering how much of that 150 is going to hit this year, just so we can compare it versus how much was supposed to be added last quarter. So just basically trying to figure out the delta of revenue and guidance from incremental emanations last quarter. Yeah, Andy, we certainly have had a high level this year at $150 million. In addition, that has not all been in the maintenance area. We've had a split between development and maintenance, just as the nature of some of the deals that have come through. So, in addition, we've had a divestiture last year, which has impacted this complete year of our tree company. So you need to take down that $150 by somewhere, let's say at around $30 million due to the tree divestiture. So in that $120, and that all hit us here as far as the divestiture was completely reflected within fiscal 21. So if you look at the net of it all, you know, we're going to achieve all in somewhere between $80 to $90 million. Probably, you know, as we factor in some of the recent acquisitions, perhaps as high as $100 million in this fiscal year, we're wrapping about $30 million or the $20 to $30 million in the next year. So somewhere, let's call it $90 to $100 this year and $20 to $30 next year of what we've already done. Cool.
Andy Whitman
All right, I'll leave it there. Maybe follow up later if there's anything else. Thanks a lot, guys. Sure.
Operator
Your next question comes from Judith Sokol from J.P. Morgan. Your line is open.
John Sheave
Hi, good morning. Thanks for taking my question. The organic revenue growth was really encouraging in the third quarter. That's definitely an area that's been a focus by investors, and so it was great to see that pop, especially in landscaping maintenance. And it seems like the fourth quarter should persist, you know, in terms of that positive momentum against the tougher comp. I just wanted to therefore maybe focus a little bit on Evita, just trying to understand what's going on in the fourth quarter. The implied fourth quarter, Evita came in when you gave guidance of the third quarter versus the actual guidance that you're now giving. It just seems a little bit lower. So maybe you could just help us walk through what's going on on the profit side so we could better understand, you know, just the dynamics between that better organic than was expected versus what's happening on the EBITDA line. Thank you.
Andrew Masterman
Yeah. Judah, good morning. This is John. When you look at our guide for the fourth quarter, you know, previously we said 91 to 95, so around, call it 14.3%. Our guide now, 89 to 93, around 14%. So about a 30-bip headwind on the margin. Still feel good about the revenue. And, you know, there's really two things driving that. On the maintenance side, it's the labor pressures and the late arrival of the H-2Bs, but mainly the continued labor pressures and the challenge there. And then the biggest driver, without a doubt, is the development softness. We saw that in Q3. It was very clear in our financials. But without a doubt, the biggest challenge in that guide was the challenge we're seeing in the organic softness within the development.
John Sheave
That's the big drag. Okay. So then I guess maybe just as a follow-up, as we start to think about the next fiscal year, we're now in the fourth quarter, and I know you haven't given guidance yet, but maybe we could just tease out a little bit of a sneak peek. If the company can continue to maintain the positive momentum on the top line in terms of organic revenue growth, How should we start thinking about the EBITDA contribution given some labor headwinds, given the Salesforce investments, but at the same time some operating leverage from the top line? How do you think about just overall margin directionally for next year? Thank you. Yeah, Judah, we are optimistic given what we're seeing in the Salesforce investment, the returns on maintenance organic growth. Combining maintenance organic growth With M&A, we believe in the maintenance side of the business. We're going to have, you know, the strongest growth profile in 2022 than we've had since we've all fallen. So we're very optimistic about that. You know, certainly margin pressure is out there. We do, fortunately, you know, many of our contracts have annual or an ability to renew during seasons in our contract dates. So clearly any kind of labor headwinds that we see in the business, we're going to be able to address in that December through March period when we price for the 2022 season. Okay.
Operator
Thank you very much. Your next question comes from Tim Mulroney from William Lear. Your line is open.
John Sheave
Hey, guys. This is Sam on for Tim. Thanks for taking our questions here. Maybe we'll start with pricing. You know, despite holding off on the price increases last year, I know you guys typically get 1% to 2% in any given year here. But with continued inflationary pressures, I guess I'm curious if the 1% to 2% is really enough to offset what I assume is, you know, the higher laser energy and equipment costs. Maybe talk a little bit about each of your buckets and if you think the 1-2 pricing is enough to really offset this, if you need to raise prices further, or we should expect maybe a couple quarters of margin compression until pricing can kind of ramp back up here. Yes. I mean, the thing is, if you look at pricing right now, we will see continued softness. We will see continued softness in Q4 a bit because that contract is an annual contract many times. Unfortunately, ancillary, that's tighter correlated to current activity. So we fortunately see that positive correlation and being able to work with material on the maintenance side of the business. At the same time, on the development side of the business, typically in development, you see contracts, commitments that go out three months, four months when you commit. You lock in. So the development business that we have today, in our contract that we locked in back in January and February, which we anticipated some inflation, but not the degree we're experiencing. We adjusted our development approach now to allow us to reflect more current costing and shorter timeframes for being able to reflect on pricing. So as we look into Q1, And at the end of Q4, we're really optimistic about being able to match both development margins and labor margins, especially as we get to the new contract period. So perhaps we do feel some pressure. You see that in our guide in Q4, some pressure there. But as we get into Q1, Q2, Q3, we think that's going to be unwinding. And when I say unwinding, I mean getting into a more kind of regular pattern that we've seen in the past. Gotcha. That's a very helpful caller there. Pivoting maybe to the residential side, for the maintenance land business, if you break apart your exposure between residential and I guess everything else there, could you talk a little bit about how that residential component performed during the quarter? And I guess, you know, correct me if I'm wrong, but I think residential represents something like 35% of your land revenue just from your HOA exposure. Am I right about that? Well, when you say residential, you mean homeowners associations, right? I mean, we do not do residential business, to speak of, okay? We only deal with, you know, yes, there are homes in the homeowners associations, but we deal with the master associations. we don't go back into the individual residents. Correct, yes. I guess your HOA line exposure specifically, just how that's kind of quartering that. Yeah, HOA is staying positive. I mean, we're really optimistic. The thing is, we see little impact with the pandemic in the HOA, if any. In fact, I'd have to say we haven't seen really any impact in our HOA vertical, but perhaps, you know, As we go forward, you know, we see that as a stable part of the business that we perhaps believe there's actually more growth going to happen in HOA with the introduction of more stay-at-home, work-at-home type stuff. Great. So maybe we should expect that to, you know, just expand as per your sales going forward? Yeah. We believe that's exactly right. We believe HOA is a great part of the market to be in. We have a strong presence there. Our sales folks know how to work with the homeowners association boards, and our account managers are just best in class in being able to deal with homeowners boards, dealing with the great property managers out there, and really that's a place where we believe we excel. Great. Appreciate the call there, guys.
Operator
Your next question comes from Shlomo Rosenbaum from Stiefel. Your line is open.
John Sheave
Hi. Thank you very much for taking my questions. Andrew, maybe you could talk a little bit about the ancillary revenue performance, what you're seeing now versus what you were seeing before COVID-19. In other words, are you up to 90% of what you used to be? Just some way we can gauge it to see how much tailwind we have as things kind of fully open up, hopefully, notwithstanding the Delta variant. And then maybe you could also talk about specifically the hospitality and retail verticals. I know you said they're coming back. How far away are they from, you know, pre-COVID levels? Yeah. Let me kind of divide that question into both ancillary and contracts. I think I'm going to answer both of those as it relates to the overall mix. Contract levels are back at 19 already. So we believe growth in contract coming forward. We actually believe contract not only will show a positive growth off of 20, but actually a positive growth off of 19 in our contract base. Because we are, you know, in total, not all the way back to 19 with ancillary, we believe there's some continued tailwind as we get into 2022 with the return to normalized levels of ancillary. You know, if you look at 19, not 20, 20, we're 20% plus in ancillary up year over year compared to 2020. Compared to 19, you know, we're within 5%. It's really closing in quite tightly. So, you know, we believe that probably is going to be about the same level in Q4, but as we get into 2022, we expect there's, again, some additional tailwinds that we see coming down, especially as we get into the summer months next year.
Andy Whitman
And then hospitality and retail, what you're seeing over there?
John Sheave
But, yeah, bouncing back, and probably hospitality, you know, really strong. The hotel and travel industry is seeing increased rates. I think we all know that out there. And our customers are seeing that. So some of this ancillary, you know, improvements we're seeing right now are, frankly, exactly what we thought was going to be happening. Right? Hotels are coming back in. They're saying we need a little bit of extra effort to differentiate our property versus others. And so we're seeing not only current refreshing hotels back into how they used to be pre-pandemic, but frankly inquiring on future projects into 2022 about ways we can differentiate and expand and improve their properties. There are properties around the country, whether it's the Four Seasons Hotels, whether it's the Rick Carlton's, whether it's the Marriott's, I can go down the list. of properties that are going into service today that we have put increased, not only ancillary, but also large-scale development projects that are looking at really enhancing what those properties look like and thus can attract better customers.
Andy Whitman
Got it. And then...
John Sheave
And then maybe you could just focus back on kind of the, I hate to be a dead bush here, or a dead horse, but the labor inflation, I'm just trying to understand it in light of what the H-2B visas, I know they're starting later.
Andy Whitman
but it seems like you guys got a decent amount more than you were expecting.
John Sheave
Is it just so much more pronounced that it's harder to offset that, or is it really the margin for 4Q is really a matter of you guys bidding stuff a quarter or two ago on the development side and things have just run against you against the commitment that you have? You can just kind of unpack that for us a little bit. I just was expecting a little bit more benefit from the H-2B visas. The H-U-B folks, we had hoped they would be coming in June and July. They actually are only arriving now. You know, and that's things that we just, you know, we're given certain indications by the government authorities that process all the visas. And, frankly, there's a ton of people there to process the visas. And what we initially thought were coming got delayed. And that's just the reality of that program as those people come in. We're optimistic now they're here. They're here as we get into August, or I should say as we get into September, October, November, December. That should normalize. kind of our overall labor profile with those folks coming in that really filled the gap. What happened is that the labor availability was low, okay? Across the country, we had a tough time finding people. We applied for the H-2 visas, which is that's what the program is designed to do, to fill where labor availability is low. But at the same time, we had customers we had to service. So because of that low labor availability, the really talented landscapers, the dedicated folks we have went to work and worked a lot of overtime. And that overtime expense really came in, and it was about a 50-bip headwind in Q3, you know, when you look at kind of the maintenance side of the business. So that headwind really came and hit us. We believe there's going to be some of that hitting. I can't say exactly how much in Q4, but that is some of the margin, you know, issues we see in Q4. Not much. Some, again, we're talking 50 bips or so. And then we believe that's going to turn around back into more of a normalized pace as we get to Q1, Q2, Q3.
Andy Whitman
Got it. Great.
Operator
Again, to ask a question, please press star 1 on your telephone keypad. Your next question comes from Bob Levick from CJS Securities. Your line is open.
Andy Whitman
Good morning. Hi, Bob. Sounds great. The net new wins at an all-time high is obviously a terrific stat, and you've been building it. Can you talk a little bit about the primary reasons you're winning when you do win these new accounts? Is it price? Is it services? What are you doing to win and to drive net new wins to all-time highs?
John Sheave
Yeah. Number one, it's just been the pure investment, our sales force and the tools and the training that we have really done a solid investment over the last 18 months. Really, that has been a driving force behind what we've done. It's something we deliberately invested in. It started showing up, as we've talked about, in Q2 of 2020. We started the nascent beginnings of growth, but we deliberately cut to that strategy. And so it's the training we bring into the people. It's the expanded number of people who we've been able to build. frankly, over the last 18 months, and it's the dedicated sales guys and the account managers and branch managers who really are focused on how we can showcase the talents we do. We also have a really strong marketing backbone behind this. The opportunities we've developed, both for omnichannel marketing, really developing opportunities in a digital way, which allows us to then convert in a more efficient way in the field. And so that investment also is paying off and allowing us to grow net new. We're going to be at a net new position this year, frankly, which will absolutely underpin our Q2 and Q3 growth now, our Q4 growth coming forward, and it's going to continue to underpin that 2% to 3% organic growth. We're very positive about that, and that's why we're guiding it 5% plus. You know, it's twice the industry growth that we're seeing. And if you look at the growth we had, the latest IBS report for this year to be, you know, 1.5%, 1.6%, we just grew 11.7%. You know, I think we're going to be continuing in a very positive trajectory here. The investment tools are working. The expanded sales force are coming on board and are working, and it's resonating with customers.
Andy Whitman
Okay, super. Yeah, that wraps up my questions. You've obviously given us some great detail and talked a lot about the labor, so thank you for that as well. Thanks, Bob.
Operator
There's no further questions this time. I would now like to turn the call over back to Andrew Messerman for the closing remarks.
John Sheave
Thank you, Rainn. Once again, I would like to thank everyone for participating in the call today and for your interest in Brightview. We look forward to speaking with you at Brightview Investor Day 2021. Please be safe and be well.
Operator
This concludes today's conference call. Thank you all for joining. You may now disconnect.
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