BrightView Holdings, Inc.

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.

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.

For the three months ended June 30th, development revenues of $150.3 million declined 1.6%.