BrightView Holdings, Inc.

Good morning and welcome to today's Brightview Holdings Incorporated third quarter fiscal 2022 results call. My name is Bailey and I will be your moderator for today's call. All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end. If you would like to ask a question, please press star followed by one on your telephone keypad. I would now like to pass the conference over to our host, Faten Freeha, Vice President of Investor Relations. Please go ahead.

Thank you, Operator, and good morning, everyone. Thank you for joining Brightview's third quarter fiscal 2022 earnings conference call. Andrew Masterman, Chief Executive Officer, John Feenan, Chief Financial Officer, and Brett Urban, Incoming Chief Financial Officer, are on the call. Please remember 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 conditions. 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 remarks as well as the Q&A. I'll now turn the call over to Brightview CEO, Andrew Masterman.

Thank you, Vatan, and good morning, everyone. We are delighted to report on another strong quarter demonstrating momentum in our fundamental business drivers and the resiliency of our model. Before we start, let me take the opportunity to thank the Brightview team for their hard work and dedication in a rapidly changing and challenging environment. Their efforts help fuel our performance and enable us to remain poised for long-term success. On today's call, I will review the third quarter performance at a high level discuss execution against our key growth drivers, elaborate on external headwinds facing our durable business, and outline the confidence underpinning our optimistic long-term view. Let me start with Q3 performance. We delivered strong land organic growth for the fifth consecutive quarter, implemented our strategic pricing initiatives, and managed through multiple external headwinds with tenacity and focus on positioning Brightview for long-term success. We continued to execute on our successful strong-on-strong M&A strategy, made progress on ESG initiatives, and enhanced our value proposition to customers through technology investments, all while managing through rising fuel costs as well as continued inflation of material and labor expenses. Our focus on organic growth and profitability improvements will enable us to leverage our scale to further power our growth and deliver exceptional shareholder value. Let's review a few financial highlights for the quarter on slide four. Revenue grew by 11% for the quarter, reflecting strong total organic growth of 5.6% and continued benefits from M&A transactions. Strong net new growth, ancillary penetration, snow removal services, and pricing initiatives powered our total maintenance organic growth of 3.1% on top of a prior year organic growth rate of 11%. Due to a late spring and extended snow season, our maintenance business benefited from significant growth in snow removal services relative to the prior year. In addition, our land business delivered 2.3% organic growth, which resulted in total maintenance organic growth of 3.1%, in line with our expectations. This dynamic demonstrates the agility of our business and how our service mix, snow and land, allows us to manage through seasonality. A robust rebound in our backlog drove development organic growth of 14%, demonstrating a continuation of our strong performance. Development organic growth continues to exceed our expectations, and looking at the bidding pipeline, we remain optimistic about the momentum in the business. It is clear from our top line results that we transformed the business to focus on driving sustainable organic growth. Importantly, we anticipate this momentum to continue over the near and long term. As a result, We expect fourth quarter maintenance land organic growth to be approximately 3%, in line with long-term plans and development organic growth to be about 8%. Furthermore, we are confident that our robust sales engine will continue to drive solid organic growth in fiscal year 2023 and beyond. Adjusted EBITDA was $94 million in the quarter, up about 1% year-over-year. Our profitability was impacted by the unexpected level of increase in fuel costs. Fuel expense increased by about $10 million year over year. Roughly a million of that was driven by volume, and the remaining $9 million was price. We began implementing fuel surcharges in April, which enabled us to offset approximately $2 million of that rise in fuel costs. As a result, fuel costs had a net impact of approximately $7 million on adjusted EBITDA. Excluding this incremental fuel headwind, our adjusted EBITDA would have been $101 million, or up about 8% relative to prior year. above the high end of our guidance range. The strength of our performance demonstrates the outsized execution of our team across our 280 plus branches. Adjusted EPS came in at 43 cents per share for the quarter, reflecting the benefit of recent share repurchases, strong top line performance, and effective management of our direct costs, labor, and materials. Let's move to slide five to discuss our growth drivers. We are intently focused on executing on our strategy, which is validated by the momentum in our business, and centered around three main pillars. First, delivering robust organic growth through our dedicated locally driven sales force of 200 plus team members focused on customers and new opportunities. Second, investing in technology, digital services, and marketing to continue to drive a significantly differentiated customer value proposition and expand our market share. Third, executing on our strategic and accretive M&A transactions enabling efficient expansion in the high-growth markets. Let me dive into each pillar with some details. Starting on slide six, our strong organic growth performance over the last five quarters was powered by significant growth in net new sales as our sales force continued to attract new and larger customers. Over the last several years, we have increased average job size by more than 40% in the maintenance business as we attracted customers with larger demands and expanded share of wallets with existing customers. Our land maintenance business generated more than $150 million of organic revenue growth over the last five consecutive quarters. Importantly, our growth is ahead of the industry, which is projected to grow at 0.9% for 2022, according to IBIS reporting. This compares to our projected land organic growth of 4% to 5%, and our total projected growth of approximately 8% for fiscal 2022. Despite the headwinds we are facing, we are significantly outgrowing the industry. Furthermore, we have and continue to gain market share. Despite the scope reductions, we are seeing across the landscaping industry. These scope reductions are driven by two factors. First, there is natural descoping that occurs as plant life takes root in the soil, requiring less maintenance over time. Second, the current inflationary environment and some customers, we have led some customers to actively reduce scope. As a result, we are seeing modest growth in the market that is certainly below today's inflationary levels. However, landscape maintenance continues to be a sizable marketplace with massive opportunities, given our share of approximately 3%. Similar to maintenance, our development business is relationship-based with the majority of our customer relationships exceeding 10 years. Repeat customers make up more than 85% of our development business, and retaining these repeat marquee clients remains our goal through our intense customer focus. Our model is project-based, and we have learned over decades of experience that highly repeatable customers tend to be more profitable in nature. Our end markets are diverse with a balanced distribution of contract sizes and verticals, including commercial, hospitality, parks, and public facilities. Furthermore, we are increasing workload in the public sector, a market that will benefit from increased infrastructure spending. All of these efforts have helped power the recovery of our development business and the strength of its organic growth. Let's turn to technology on slide seven. Strategic investments in technology provide a differentiated customer value proposition across all verticals. Technology investments directly support our maintenance book with new and bigger accounts and enhanced retention. Technology also drives efficiency and engagement, including many of the tools we've discussed. Brightview or HOA Connect, quality site assessments, Salesforce CRM, and service confirmation. Each has been implemented as digital tools to engage customers while supporting property enhancement and increased ancillary penetration. By the end of this calendar year, we will be upgrading our customer portal and launching Brightview Connect 2.0. This enhanced portal will be available to all customers and will put the entire relationship online, similar to online banking. Once this portal is launched, our customers' quality site assessments, monthly reviews, enhancement proposals, contact points, and maintenance schedules will all be digitally available. Through this service, customers can engage with us in an efficient manner and we can readily address their needs. Importantly, we will be the only landscaping company that offers this customized service which is aligned with our customers' demands. All of these digital advancements have driven net new growth and is one of the reasons we continue to see it for the fifth consecutive quarter solid land organic growth, exceeding our industry. In addition, our integrated suite of applications enable efficiency, seamless acquisition, integration, and robust data analytics. And operational efficiencies deliver cost savings along with better service quality and safety. Let's turn now to our acquisitions and move to slide eight. We continue to execute on our strong-on-strong M&A strategy, a strategy we have developed, refined, and effectively deployed over the last five years. Our 30-plus acquisitions over that period position us as market leaders in key high-growth MSAs and enable us to further extend our reach and grow market share. Importantly, our pipeline remains robust with attractive valuations, more than 700 million dollars of opportunity recently we acquired sgs hawaii a premier commercial landscaping provider headquartered in wailuku hawaii with operations on maui the big island and kauai sgs focuses primarily on the hotel and resort sector with services ranging from grounds management and lawn maintenance to irrigation tree trimming harbor care soil testing and fertilization importantly sgs The sustainability characteristics align with our ESG priorities. SGS utilizes electric-powered equipment across all of its operations, and its business is entirely supported by a modern, specialized electric fleet. SGS's expertise in the hotel and resort industry strengthens our portfolio, while its commitment to reducing carbon emissions through the use of electric-powered equipment is the perfect complement to our environmental sustainability strategy. With SDS, we now have presence on all major islands in Hawaii, which solidifies our presence in this attractive market. Let's now move to slide nine. Our successful execution comes in a challenging and dynamic environment with sustained uncertainty associated with notably, most notably, with inflationary trends. Let me address three external factors that are influencing our business, material cost inflation, labor challenges, and rising fuel costs. and how our team is responding to position the company for long-term profitable growth. Let's start with material cost inflation, which has mainly impacted the profitability in our development business. Development has been impacted by material price increases that has put significant pressure on margins over the last five quarters. Historically, contracts had three to six months, and sometimes nine-month lead times. We have shifted now to allow 10 to 15 days of pricing commitments in our contracts, which shortens the timeline and mitigates the impact of rising material costs. By the end of this current fiscal year, the impact of the contracts with longer lead times and fixed pricing should be behind us. As a result, we expect our margins in the development business to improve over the coming quarters. Labor cost inflation continues to be a headwind, similar to many other companies. Historically, we have seen on average wages increase in the 4% to 5% range, and now we are seeing increases in the 6% to 7% range. Our pricing, volume, and operating efficiencies have helped to offset this wage pressure. The teams in the field have done an outstanding job of attracting labor to execute on our customers' demands used during this busy summer season. In addition, the influx of H-2B workers continues to support our labor needs. The combination of this influx and the ability of our teams to recruit and step up has put us in a great position to ensure that we can execute on our customers' demands this year. Lastly, rising fuel costs have significantly impacted our business this quarter. As I mentioned earlier, fuel costs had a net impact of approximately $7 million on our adjusted EBITDA. While we have been able to offset inflationary pressure on wages through pricing initiatives, fuel costs have presented more of a challenge given the rapid escalation in costs. Although we instituted food fuel surcharges they were based on lower gasoline prices back in fiscal Q2. Also keep in mind that these are customers we reached out to a few months back for significant price increases. It's important to note that the dialogue with customers has been constructive and the majority have accepted the fuel surcharges. We have elected to take a balanced approach, absorb some of the incremental fuel costs in the near term, and focus on strategic pricing initiatives, improving ancillary penetration, and attracting larger clients. Ultimately, we believe the impact of rising fuel costs is transitory. Either costs will normalize, or we will further adjust our pricing in the upcoming renewal season to reflect the continued rising costs. Let's turn to slide 10. Despite these external headwinds, business fundamentals remain strong and give us confidence that we continue to be poised for long-term profitable growth. First, commercial landscaping is a resilient business that has withstood various economic cycles and environments. We have over 80 years of experience in this business and have navigated countless cycles. Our team is prepared and focused on achieving our goals. Second, our customers span across a number of diverse verticals. We serve marquee customers across various end markets, including corporate and commercial properties, HOAs, public parks, hotels and resorts, hospitals and other healthcare facilities, educational institutions, restaurants and retail, and golf courses, among others. Our business and customer mix give us the agility to continue to thrive in a rapidly changing environment. Third, we have a differentiated customer value proposition powered by technology, a focus on sustainability, and an unparalleled network of expertise. Fourth, secular trends including moving towards greener equipment and irrigation maintenance are in our favor and position us very well competitively. We have invested heavily behind our environmental efforts and have made great progress in moving towards using greener handheld equipment as well as technology-powered water systems that reduce usage. Lastly, we have multiple opportunities, organic and M&A, that will power our growth and fuel long-term profitability. Our organic growth will be driven by technology enhancements as well as our powerful sales engine and expertise across various ancillary services. Our M&A pipeline remains robust, and we are well-positioned to attract M&A candidates. Before turning the call over to John, I'd like to speak to our environmental sustainability efforts on slide 11. As a company dedicated to designing, developing, and maintaining the best landscapes on Earth, we have continually focused on seeking and investing behind sustainable solutions that minimize our impact on the environment. Our customers have understood the value of sustainability for many years. In addition to reducing carbon emissions, water conservation remains at the forefront for many of our clients, particularly as we continue to face drought conditions across several regions in the United States. As the leader in irrigation services, we are thrilled to partner with customers to help them reduce water usage through smart irrigation technology and turf conversion into native landscapes, which are less water intensive. Let me illustrate with a couple of examples. A few years ago, we partnered with Oracle to maintain two of their California locations. We installed smart irrigation controllers and planted native plants to help reduce water consumption, enabling them to achieve savings of more than half a million dollars and 91 million gallons of water in one year. Both sites were recognized for efficient water use by the Silicon Valley Water Conservation Awards Coalition. We continue to work with Oracle, along with several other large companies across the country, with corporate campuses to maintain native landscapes, track and monitor water usage, and enhance irrigation, helping them save millions of gallons of water and significantly reduce facility costs. Importantly, we support customers across a diverse set of end markets, including golf course municipalities and HOA communities. For instance, earlier this year in Nevada, legislation was put into place that requires turf removal in cases where grass exists for purely aesthetic purposes. As a result, we are now working closely with a number of HOAs in Las Vegas to help them convert decorative or non-functional turf into less water-intensive native landscapes. Our expertise in water management enables us to drive water conservation efforts and allows us to expand our relationship with existing customers through additional ancillary irrigation services. We are privileged to work with a diverse mix of customers who continue to embrace environmentally conscious practices, particularly in the area of water conservation. To wrap up, we are pleased with our results and proud of our financial and strategic progress amid a challenging environment. We are executing on our key growth drivers, investing in our sales team and technology, which powered net new customers, and improved ancillary penetration, leading to solid organic growth. Our M&A strategy continues to be a reliable and sustainable source of growth. Our disciplined pricing efforts build on that growth and support our ability to offset cost headwinds. Importantly, we are dedicated to positioning the business to thrive in the face of external macro headwinds, changing secular trends and regulatory requirements. I'm confident that our efforts will continue to position us for long-term profitable growth. I'll now turn it over to John, who will discuss our financial performance in greater detail.