BrightView Holdings, Inc.

Good morning everyone and welcome to the Brightview holding second quarter 2024 earnings call. After today's presentation we will begin the Q&A session. To register a question please press start followed by one on your telephone keypad. To withdraw your question please press start followed by two. With that I'll turn the conference over to Chris Soxco please go ahead when you're ready.

Good morning and thank you for joining Brightview second quarter fiscal 2024 earnings call. Dale Asplund, Brightview's president and chief executive officer and Brett Urban, chief financial officer are on the call. I will now refer you to slide two of the presentation which can also be found on our investor relations website and contains our safe harbor disclaimer. Our presentation and today's call include forward looking statements subject to certain risks and uncertainties. In addition during the call we'll refer to certain non-GAAP financial measures. Please see our press release in 8K issued yesterday for reconciliation of these non-GAAP financial measures. I will now turn the call over to Dale.

Thank you Chris and good morning everyone. I'd like to begin by briefly reflecting on my first seven months as CEO. We have made incredible progress in such a short period of time and our organization's ability to absorb these changes has been exceptional. As I sit here today I am even more enthusiastic than I was on day one about the incredible opportunities ahead of us. I have the utmost confidence that all the changes we are making to transform this business are the right long-term decisions to operate as a unified one Brightview, drive profitable growth and create shareholder value. I will start today on slide four by emphasizing our achievements and ongoing progress along with strategic updates that will enhance our position to accomplish our objectives. Through the first half of the year our commitment to executing our strategic vision and focusing on profitable growth has proven successful. As a result we are reaffirming our full year of keeping a dumb midpoint in raising our margin in free cash flow guidance all while selling our franchise business, unwinding our non-core aggregator business and snowfall coming in at the low end of our original guidance range. We have seen meaningful growth in profitability and margin expansion and are gaining momentum in our business as we continue to implement our strategy of operating as one Brightview. As we move forward we are confident that the actions we are taking will improve our ability to deliver on our strategic initiative and enhance our position as the number one player in the commercial landscape industry. After a strong beginning in Q1 we continued our momentum in Q2 marked by margin improvement across all our operating segments. This reflects the early returns on our actions and investment in operating as one Brightview. Also contributing to our results in Outlook is our focus on the core businesses while de-emphasizing the non-core. On our Q1 call we discussed the infrastructure of our U.S. lawns business which we sold at a highly attractive low teens multiple. Additionally we have evaluated and are actively unwinding our non-core aggregator business known as BES. It's important to note this action will have no impact on our bottom line. Brett will discuss the full impact of this unwind during the financial segment of today's call. Ultimately this decision stems from our commitment to operate as a unified Brightview, maintain high quality brand reputation and focus on our self performing core businesses. During the quarter we introduced initial programs aimed at prioritizing the safety and well-being of our employees, notably our Boots program. Additionally we advanced the One Brightview culture by streamlining our operating structure to reinforce our revitalized go to market strategy under a less is more approach. These initiatives are designed to inspire our frontline employees, enhance our ability to service customers and underscore Brightview's dedication and progress towards operating as One Brightview. On slide five I'll showcase our Boots program in partnership with Red Wing Shoes to equip over 18,000 team members with high quality footwear. Further highlighting our investment in our team. Our dedication to providing team members with the best personal protective equipment is not only an investment in their safety and well-being but also inspires them to deliver exceptional service to our customers. As you can see from the picture on the right, employee reaction has been incredible. This picture reflects Carlos Ochoa from our Owners County California branch receiving his pair of boots and is one example of countless inspirational moments this initiative created where we truly focus on prioritizing our employees. Moving to slide six, let's discuss our streamlined operating structure. So far this year we implemented significant measures to enhance our go to market strategy as we operate as One Brightview. Central to these efforts was the realignment of our operating structure aimed at ensuring optimal market and customer coverage while maximizing efficiency and effectiveness. This structure allows for fewer layers and removes silos and puts us closer to our customers by eliminating inefficiencies and aligning under One Brightview. This improved structure enhances our capabilities with both new and existing customers. At the market level our maintenance and development segments are now aligned fostering meaningful growth opportunities. Our sales and operations are now integrated at the branch level reinforcing our focus on cross selling opportunities. Additionally, we also elevated one of our most seasoned leaders into our chief commercial officer overseeing all aspects of growth. Positioning ourselves for success is paramount and I am confident these actions will drive us forward and lead to enhanced service and profitable growth. Before turning the call over to Brett to discuss our financial results for the quarter, I want to summarize on slide seven how what we are doing today at One Brightview is positioning us for sustainable success over the long term. As the nation's largest provider in our industry, there is tremendous opportunity to leverage our size and scale to unlock growth in our business and gain market share. Our streamlined operations and go to market strategy as One Brightview will allow us to begin to convert more development services into reoccurring maintenance work. This is a simple example of a previously untapped opportunity. In order to maximize our potential and capitalize on our opportunities, we must be the best at what we do and provide best in class service to our customers. By simplifying our customer satisfaction survey and leveraging predictive AI technology, we have significantly improved our communication with customers and our ability to proactively service their needs. These efforts, combined with investments in our employees, are aimed at driving higher customer retention. We also have the opportunity to optimize our customer and market penetration as we enhance our footprint and strategic approach to winning large accounts and sales efforts. Clearly, we are excited about our business and the significant opportunities ahead. Our enthusiasm mirrors the meaningful growth and profitability we have achieved through Q2 and our progress towards becoming One Brightview. While there is more to do, I am proud of the team's effort and increasingly confident in our ability to deliver value to our shareholders. With that, I'll turn it over to Brett, who will discuss our financial performance and outlook.

Thank you, Dale, and good morning to everyone. I'll start on slide nine. I am pleased to report that we are continuing the momentum in our business and progressing with our strategy towards One Brightview, which yielded strong results in the Q2. We remain focused on the execution of our strategy and profitable growth in our core business, evidenced by the unwinding of the unprofitable non-core aggregator business and the sale of our franchise U.S. loans business. These actions led to quality revenue, EBITDA growth, and significant margin expansion across all segments of the business. Enhanced networking capital, coupled with the reduced interest expense, resulted in a meaningful increase of free cash flow compared to the first half of last year. This resulted in a net leverage ratio of 2.4 times, allowing for financial flexibility for ongoing execution and investment in the core business. Moving to slide 10, total revenue during the quarter increased .5% year over year to $673 million. Our non-core businesses, including BES and U.S. loans, and our focus on profitable growth within our core land business, both had a near-term impact on our land revenue. We remain, however, very encouraged by the underlying health of the market and recent trends within our business. Revenue growth during the quarter was driven by higher snowfall relative to the prior year. Important to note, snow revenue year to date is comparable to the prior year season and at the low end of our original guidance range. We continue to see solid demand in our development business, which regrew .7% compared to the prior year due to our ability to convert our robust backlog. Development performance in recent quarters reflects the appealing nature of the business model while also furthering the momentum for future growth as we capitalize on cross-selling into maintenance. Turning down the profitability and the details on slide 11, total adjusted EBITDA for the second quarter was $64.8 million, an increase of $18 million, or 39% versus the prior year, and significant margin expansion of 240 basis points reflecting continued benefits of our One Bright View initiatives and improved profitability in all segments of the business. In the maintenance segment, total adjusted EBITDA of $66.5 million was an increase of $15 million, or 29% compared to the prior year. This increase was driven by improved profitability in our core land maintenance business and increased snowfall compared to the prior year. The adjusted EBITDA margin expanded an impressive 260 basis points due to the revenue growth and a more streamlined operating structure. In the development segment, adjusted EBITDA for the second quarter was $14.4 million, an increase of 10% compared to the prior year, and adjusted EBITDA margins expanded 40 basis points. This is a result of the quality backlog conversion while simultaneously reducing our costs, ultimately resulting in a creative growth. And in our corporate segment, corporate expenses for the second quarter decreased year over year as we made further progress with our One Bright View strategy. We continue to evaluate opportunities for centralization, which we expect to lead to the next year. We discussed the unwinding of our aggregator business as we mentioned on our previous earnings call. Our aggregator business, also known as BES, is a non-core, unprofitable subcontractor business. This business was originally set up to outsource work to local providers in markets where Bright View was unable to provide direct service. However, our ability to control and maintain service levels was limited. As a result, and aligned with our goal of One Bright View, we are in the process of unwinding the majority of the contracts within this business. We will, however, retain a few select relationships of high-quality customers where we can self-perform the majority of the work directly from our branch network. While the unwinding of this business will have an impact on revenue, it's important to note this unwind will have no impact to our EBITDA. In fact, we anticipate an annualized EBITDA margin benefit of approximately 20 basis points from this strategic decision. This action reinforces our commitment to One Bright View, enhancing customer service, and improving our position as a service provider of choice. Let's now turn to Slide 13 to review our free cash flow, capital expenditures, and leverage. For the first half, we are extremely pleased with our free cash flow generation of $89 million compared to $16 million in the prior year. It's important to note we are committed to reinvesting in our fleet strategy, and our capital expense reduction is purely timing related. More to come on this on the next slide. Net leverage for the quarter came in at 2.4 times compared to 5.0 times in the prior year period. This lower leverage reflects the significant reduction in our debt, improved liquidity, and improved profitability in the business. Our leverage profile allows us for financial flexibility for ongoing execution of our profitable growth strategy and investment in the business. Moving to Slide 14, with our enhanced profitability and strengthened balance sheet, we have the financial flexibility to invest in the business and execute our growth strategy. One of our top priorities for reinvesting in the business is upgrading our fleet and equipment. To facilitate this change, we recently hired two central leaders to further unlock leveraging the scale of the organization. We aim to rejuvenate our fleet, optimize asset life cycles, enhance our overall brand, and continue to take better care of our employees. This capital deployment will directly benefit our employees and customers while also yielding financial advantages by reducing future maintenance and rental costs. It's important to note that we do not anticipate this changing our long-term net capex outlook of approximately .5% of revenue, as the higher residuals will offset the gross increase in investment. Now let's turn to Slide 15 to review our outlook for Fiscal 24. As Dale previously mentioned, we are reaffirming our fiscal year 24 EBITDA midpoint and raising our margin and free cash flow guidance. Now let's hit on some of the details. We are updating our revenue range to $2.74 to $2.8 billion to primarily reflect the BES unwind and snow coming in at the low end of our original guidance range. The updated revenue guidance assumes the following. The unwinding of BES and the previously announced sale of U.S. lawns is expected to have an approximately $70 million impact on revenue for the year. For snow, now that snow season is complete, we are incorporating revenue of $215 million, which is within but at the low end of our original guidance range. And for development, we are maintaining our assumption of 2% to 5% growth for the year as the conversion of our strong backlog of projects will continue to benefit revenue growth. For core land, we are refining this to the lower end of our original guidance range as we focus on profitable growth. And in regards to acquisitions, we are now assuming zero versus minimal in our previous guidance as we focus on streamlining our operating structure and ensuring stability for acquisitions in the future. Moving to adjusted EBITDA, One Bright View will be the key driver to growing profit and expanding margins. Despite adjusting our revenue guidance and despite snow revenue at the low end of our original range, we are maintaining the midpoint of our EBITDA guidance, which in turn translates to raising our margin expansion expectations. We expect these improvements to now generate total margin expansion of 90 to 130 basis points with adjusted EBITDA of $315 to $335 million. We expect a continuation of healthy cash flow generation driven by improved operating performance. Our outlook reflects our commitment to growth and investment in our core business. Contributions from reduced interest expense will be managed alongside the ongoing requirements to optimize the business. Altogether, we now expect to generate free cash flow of $55 to $75 million, which is an increase to the previously provided guidance range. Before I hand the call back over to Dale, I want to wrap up on slide 16. I want to reiterate my excitement around the investments we are making and the impact it has had on business and our culture. By taking better care of our employees, who in turn are taking better care of our customers, I feel more optimistic than ever regarding the future of our company. With that, let me now turn the call back to Dale to wrap up on slide 17. Thank you,

Brett. Before we open the call for questions, I'd like to provide a few final thoughts. We are making considerable progress on our goals, and we are seeing the returns on these efforts begin to materialize, and the results can gain traction across the company. I firmly believe that all the strategic changes we are making to transform this business position us accelerate profitable growth over the long term and create value for all of our stakeholders. With that said, operator, you can now open the call for questions.

Thank you. We will now begin today's Q&A session. If you would like to ask a question today, please press star followed by one on your telephone keypad. To withdraw your question, please press star followed by two. Our first question today comes from Bob Labic from CJS Your line is now open. Please go ahead.

Good morning. Congratulations on a nice quarter.

Thanks, Bob.

So I wanted to start off. Obviously, it makes sense to us the unwind of the BES business, but for those of us with a history of Brightview and maybe prior management, can you talk about how this is different than when prior management said they were walking away from unprofitable business, but we never saw any results in margin accretion or anything like that? How do you break this out? How is this different than the past?

Yeah, that's a great question, Bob. I'll start off and then I'll kick it over to Brett. So first, we're doing today's call from our branch in Elmhurst, Illinois, and there's no better way to start the day than to go out and spend time with our hourly employees to do stretch and flex as they go to leave our branch to service our customers. That's what's key in our business, is using our employees to service our customers. Unfortunately, what had happened with that aggregator business is we were using our brand, our reputation on quality of service, and actually not doing the work, letting different providers all over the country use our name to actually service the customer. And when they disappointed the customer, it turned out the customer with Brightview was the one underperforming the service. So what's different about what this aggregator business, the choice to de-emphasize, and the past, is this is just unique enough that we said, we don't want to be a provider of service where we can't control the end service to the customer. In the past, when the company made the decision that we wanted to walk away from unprofitable business, that's not our goal. Our goal here is to find a way to make any business we have profitable, work with our branches to drive profitability through the business. This aggregator business was completely different. It was not about us being able to do things better to service the customer. It was completely about us just trying to get a small margin of service somebody else was providing. And that would have been okay until our name, our reputation, was being damaged. But I hope that gives you a high level. I'll let Brett add in, he can probably give you some details on what we're talking about as far as the volume of the walk away that we're going to do in this business.

Yeah, Bob, I would just add to that, I think that said it well, I would just add to that the aggregator business different from the past, as you see, we're adjusting our revenue guidance with the majority really being the unwind of our aggregator business and snow at the low end of the range, really the two main pieces of the revenue guide change. But the big difference in the past, I think what you're seeing here is we're reaffirming our EBITDA guidance at 325 million at the midpoint, and we're raising margin expectations. I think, you know, when you go back and play old tapes from the past, there was strategies to maybe exit accounts that didn't come with profit accretion or margin accretion. I think that's really where you're seeing the big difference here in our in this strategy is that you're seeing the profit dollars and you're seeing the margin come along with that. So we're really excited about the future of the business, what our core self-performed network of branches is going to be able to produce, and unwinding this non core business, which, you know, how to impact on our brand reputation in the market, there's definitely the right move for the company. And important to note, really comes with very minimal to know EBITDA impact to the company. So we feel great about that decision. We're really through the unwind at this point, we're able to update guidance for the rest of this year, as you can see in our new guidance issued on page 15 of the earnings deck. And really the biggest piece of our revenue change and guidance is the unwind of this aggregator business, which, you know, called about 70 million dollars and couple that with the sale of the US lawns

is. Okay, great. That's a great explanation. Really appreciate that. And segues well into my next question, too. Obviously, you mentioned you reiterated the midpoint of EBITDA guidance. And, you know, frankly, you're the exciting beginning of a transformation here. If you hit 325 in EBITDA this year, five years at or below 300, I think it's a home run. And so maybe you can just kind of help us think through this and the coming years in terms of the key drivers for that, you know, finally getting to EBITDA growth. How much of it is, you know, cost cuts, you know, right sizing the organization? And is that sooner? And then how much you've talked about a lot of operational and cultural changes? When does that start driving the bottom line growth and margin accretion as well?

Yeah, great. Great question, Bob. I think we are so proud of what will be a breakthrough year for us on the EBITDA front. You're right. This business is hovered around the 300 million dollar level. And this year at the midpoint of 325, it'll definitely be a transformation. Now, short term, we're getting a lot of that benefit as we lean out the organization to remove layers so that our people can service our customers better. I think we all can understand that long term, our focus is going to be on growing this business. So we've seen some changes over the lap for six months that we are going to focus on continuing to invest in our sales force so we can actually get back on the growth engine because that is the way we will grow this business. We aggregate our model. But long term, we're going to grow the bottom line by growing the top line, but doing it profitably, not chasing revenue by having an organization structure where our branch managers can work with our sales organization to target which accounts make the most sense to build out route density for our team so that we can service our customers at a lower cost. So long term, it requires all of our team and our branches working together to make sure we drive profitable growth. So short term, yes, cost saves will drive a lot of the benefit. Long term, it's going to come from growing together as a company and growing with the right accounts profitably. Bob, you want anything? No, I would just say, you know,

Bob, we're really excited. We had a great second quarter results when it comes to EBITDA and EBITDA margin expansion. We're not guiding quarterly anymore, but for the first half of the year, we've had great results. We grew EBITDA, $16 million. We grew margins over 100 basis points. So we feel great for the first six months results of this year. We feel like the back half of the year is set up to have fiscal 24, a breakthrough year for Brightview. And then as Dale mentioned, we get through the first half of 25 as we step over the unwind of our BES aggregator business and we step over the sale of the US bonds business, we feel like we'll be off and running in the second half of next year through that profitable creative growth.

Okay, super. Appreciate that. I'll jump back in queue and let others ask questions. Thank you.

Our next question today comes from Kim Mulrooney from William Blair. Your line is now open. Please proceed.

Yeah, good morning. Thanks for taking my questions. So two quick ones. A lot of change going on, guys. So slide six to me was the most interesting slide of the deck and really highlighting the operational changes that you're making in the business. My question is on that top box, the four divisions and the legacy structure that you've eliminated, can you just dig into this a little bit more? What was it that you eliminated that you're doing differently now versus before that's really helping to add value to the business?

Yeah, Tim, great question. I think the way to look at it is traditionally the business was operated in four divisions. Those divisions, one was our development division that was solely focused on development and new work of landscape. The other three were, one was seasonal, which is the Northern climates. We had a market that was, or a division that was focused on evergreen west and evergreen east. So those were more in the non-snow climates. The challenge, Tim, was we were operating each one of those businesses independently. And a lot of the things that we should benefit as a company of our size and scale weren't happening based on having those four independent divisions. In fact, we weren't even leveraging the expertise we had in our development business to migrate that into new maintenance revenue. We've taken one of those resources. She's now our chief commercial officer. We've eliminated that layer and we're utilizing our regional people who now manage our branch managers from development and maintenance to work together across geographies in the country, which is creating a big improvement in our -to-market to service our customers. Traditionally, we had silos in this business where people were trying to manage for the best for their P&L, not focused on what's best for the overall company, and by doing that, putting the customer first. So removing that top layer really allows us to step back and say, we're going to run this as a $2.8 billion business, not as four independent businesses located across the country. And we're using that layer below it, our regional leaders that now manage both maintenance and development locations geographically as a way to get people to work better together. So eliminating that layer has been our first step to trying to get more people closer to the customer and trying to get more people working together as one Brightview. That's a great question.

It looks like some of the boxes below that as well, some of these changes that you're making are all kind of along that same kind of mindset, getting everyone to work together, whether it's sales and operations being integrated into the same branch or taking those siloed specialty businesses and integrating them into the branches. Is that the right way to think about it? A lot of these transformational organizational changes is just bringing everyone together under one roof, so it's less siloed and can focus on the customer.

Yeah, exactly, Tim. That is a great way to look at it. We have to take all the services we can provide as Brightview and allow us to provide services to our customers as a unified front to customer. The customer has to leverage everything we do. We're a top 50 construction company with our development group. We have a wonderful tree division. We have golf course specialties. We have a turf division. We have to make sure that all of our branches can leverage all of those resources to service our customers. Removing those silos where people are operating independently enables us to just go to market with the customer and motivate us to grow faster by giving the customer the ability to get all the services from us. So yeah, that's a great way to look at it. This is all about our ability for our customers to leverage everything we do better and be able to grow faster with us by working with Brightview and having one partner versus needing to rely on multiple

different companies.

Sounds like a lot of change but also sounds very exciting so it's a good luck with that and thank you for taking my questions.

Thanks Tim. Thanks Tim.

Our next question today comes from George Tong from Goldman Sachs. Your line is now open. Please go ahead.

Hi, thanks. Good morning. I wanted to drill in further into the core land revenue performance so excluding any impact from the aggregator business online in the U.S. lawn divestiture. The updated full year guide is for the core land business revenue to be down two to down one. Previously it was down two to up two. So can you just revisit what are the factors that led to the core business having a bit of a slower revenue performance for the full year and where you are in your process of right sizing your portfolio of contracts and making sure all the contracts in the core land maintenance business are economic and profitable. Yeah,

great. I'll start it off George and then I'll kick it over to Brett. So we obviously the biggest adjustment to our revenue that we put in our guidance was from the aggregator business and there is a slight adjustment that's coming from our core business. That comes from two factors. First is a adjustment in the ancillary revenue and some of that is from last year's hurricane benefit that we had for the first two quarters and the second is as we continue to work through our core customer base to make sure we're doing everything we can to provide levels of service that they're happy with. Unfortunately when you look at the business today our levels of retention are below where they were when the company went public. So our goal is to find a way to try to get that retention level back up to those levels. We are not trying to eliminate customers. That's not our goal. Our goal is to increase the service levels that we have for customers and find a way to service them better. We are not trying to walk away from business. We made a strategic decision on the aggregator business based on our brand and reputation but our goal is to find a way to service every customer we have today and find a way to get back to the business that we started growing back again in 2025. So we're working hard and we've got to get our teams focused on putting that customer first because that's our next step to making sure we can grow this business on both the top line and the bottom line as we go into 2025. Yeah George I would just add just for clarity and

the change in the guide you know at the midpoint of our previous guide which you know we really came out with at the end of Q4 and we discussed the unwinding potential of our aggregator business. Keep in mind we're in the middle of our snow season for the aggregator business so we didn't want to disrupt any current customers and we said we'd give an update on this call but if you think about the midpoint of our guide at 2.9 billion when we first came out this year to the adjusted midpoint now 2.770 billion it's about 130 million dollar adjustment. 70 million of that is that aggregator business US law and sale which is the biggest portion of the guide adjustment. 25 million of it is simply snow midpoint of 240 snow coming in at 215 that's another 25 million dollars and you know in the previous guy we had minimal M&A now we're saying for the rest of this year we'll have no M&A so call that another 10 to 15 million dollars so out of the 130 million dollar revenue adjustment at the midpoint 110 million dollars are those three factors which really leaves you with you know call it eight to 10 additional per quarter for that core land and I think Tim asked the question last from William Blair about the operating structure I think that correlates to where we are in our journey back to sustainable profitable growth. We said on previous calls that this organization on a quarterly basis was growing at the at the sake of really anything to grow and that's not the way we're this company moving forward. We've we've realigned our sales force into our branches, we've set up our operating structure now where our leaders in our geographical markets are both managing maintenance and development and you think about the long-term potential of those things that we've done I mean it's just so significant and we're in the early journey of this of this change right we just announced the operating structure which is about 90 days old right so that's going to take a little bit of time to gain traction so that's really the difference between the back half of the land core guide it's it's not that we see anything systemic in the business we actually see quite the opposite we see strong ancillary demand in the back half of this year we see big opportunities in our contract business we see even bigger opportunities George when it comes to cross-selling development into maintenance which is really an untapped potential today so if you think about the guide changes look the majority was not tied to this core land piece and as you think about the future of this company as we get through the first half of next year and step over some of this BES unwind and and US lawn sale you step over that and get to the second half of next year that's really when this operating structure will have a year under its belt and we expect big things from a land organic growth from that point forward.

Got it that's very helpful and then sticking with the core land business and as you look forward to next year in the second half of this year low single digit declines in the core side but next year presumably that swings to the growth can you talk about expectations of how that plays out from a cadence perspective next year and then perhaps structurally in in the marketplace how easy is it to grow possibly in order to how easy is it to compete on price or to to win contracts that have good economics in a relatively competitive environment. So let

me start at a high level George so we're not going to give guidance for next year we'll do that come the end of the year I think we'll get some headwinds the first and second quarter call it 10 million dollars from the BES business but here's what I can tell you we don't lose business because of price that's the most optimistic thing I can tell you unfortunately where we fall down and the customer decides to leave us it's usually because a lack of communication or quality of service those are two things I can make sure the team fixes and that's what I'm committed to and those eight geographic leaders are focused on we can control that better communication with our customers and making sure those people that leave the gates every morning are focused on servicing the customer that's the way we're going to return to growth we can't try to outrun customers that decide to leave us because we're not taking care of them our path to profitable growth starts with retaining more of our business and that's where we're going to focus now we've seen a minor improvement in that but nowhere near the levels that we need to be when I travel when I'm out in the branches and I'm at a branch that has 90 to 95 percent retention they are growing and they are growing profitably and when I go to a branch whose retention is far below that they are not growing they're struggling just to keep up with new accounts so it's a simple business when you think about take care of the customers you have and then find new customers that fill in the existing routes that you have that you can service and make it more profitable so this isn't something that we need to worry about we've got to get price benefit or we can't get price on this we've got to figure out a way to take care of our existing customers and communicate a lot better to them and listen when they have an issue so that's our future higher retention and continue to focus on new sales

very helpful thank you thanks

george today comes from greg palm from craig hall and capital group your line is now open please proceed

yeah more in thanks for taking the questions here appreciate all the info in the deck I wanted to also touch on one of the slides you know page 14 on this kind of capex plan so you know net capex over the coming years doesn't change a whole lot but you know you're reinvesting a lot of money into the fleet so you know I think you mentioned but presumably you're going to save a lot of money on you know maintenance rental costs seems like a no-brainer can you can you quantify it for us can you give us you know some color on what you hope to save in the in the coming years and you know I guess is there a sort of a timeline when things really start to ramp up

yeah great great question greg so first let me start with this morning I think the way brett finished off his section was very fitting boots new mowers new trucks happy employees happy employees happy customers this morning when I was at the gate watching the trucks roll out with the crews you could see the smile on the guy's faces when they had a new mower and new trucks so I think that is a byproduct and then there's the benefit of the cost savings that we're going to have to keep going as a byproduct you're right today we're spending far too much on maintenance for both our two cycle equipment our mowers and the trucks that we're servicing let alone we also have the image when we go out to a customer's site and we're going to have to we want people to work for brightview to see that as a privilege to work here not as just a job if you want to talk about qualitative we spent far too much on rental last year and by sharing our fleet across this company we think there's significant opportunity to improve that last year we spent around 15 million dollars on rental that we can get better at probably not eliminate all of it but we can get better last year we also spent a significant amount on maintenance which we'll always have to do preventive maintenance on fleet but it was a much bigger number than we should have because of the age of our fleet so last year I think we spent around 40 million dollars on maintenance so maybe we can get rid of half that over time it's not all going to come overnight we've got to take the fleet we have this far past its useful life and get it to much healthier age but I'll tell you the transformation I've seen with Brett and his team finding creative ways to transition from our old days of buying equipment and keeping it as long as humanly possible and then disposing of it of it for nothing to the strategy that Brett talked about has been remarkable and the two leaders we brought in to help us focus on procurement and fleet management are going to help us drive this strategy these benefits won't necessarily come in 2024 and 2025 but I can assure you if we execute this strategy over the next three to five years we will see benefit as we get three four five years out that will start ticking through the P&L on both the maintenance and on the lack of rental needs and on our employee satisfaction

Brett you want

to

add anything? No I would just add that you know given the financial flexibility we have on our balance sheet right now we're in such a good position to reinvest back into our employees and reinvest back into our our people which will in turn take care of our customers right I think I did wrap up with you know new boots new trucks new mowers and that's really you know you spend time at the branch like we are today you see folks drive out in a brand new truck with brand new mowers on the back with new safety shoes on I mean it's a culture change that is happening in the company it's hard to quantify but it will have a quantifiable impact on the P&L at some point in time and then where our balance sheet is and cash flow generation we're going to invest you know almost double the amount of capex we did last year and still generate 55 to 75 million dollars of free cash flow which is an increase to our previously provided range we feel great about our ability given our balance sheet to execute this strategy and they all said it won't all happen in fiscal 24 or fiscal 25 right now we're getting about eight to ten cents residual on equipment we sell that number should be far greater as we get into the future as the chart kind of illustrates on page 14

yeah that's a interesting color and makes a lot of sense uh I guess that kind of ties in with my my next question I mean so you're getting a nice margin boost you know called this year with the unwind of BES you'll have maybe a little bit of benefit next year but you know how do you think about continued you know outside margin improvements outside of that like what are the levers and maybe this you know saving on maintenance rental costs is probably part of it but what are the levers to you know increasing that margin whether it's basis points annually or something different but getting back to that close to 13 percent EBITDA margin at the the company achieved in prior years and you know hopefully eventually getting somewhere past that

yeah great so great one way to think about it is the BES unwind is going to have about a 20 basis points improvement on our margin so we are going to improve margins on our business this year by like you said roughly 100 basis points if you look at the midpoint of our guide right now it's at 11.7 percent EBITDA margin this year that's 110 basis point improvement we have still have significant opportunity to continue to centralize we're working on different functions that have to leverage the size and scale of our building of our business like procurement we have to find a way to leverage all the spend that we have to better buy it across the whole organization and when we when we answered Tim's question about the four unique divisions we had unfortunately you can guess they were all buying somewhat independently we weren't doing enough centrally we have so much opportunity to continue to centralize so we can leverage the size and the scale of the business I like what you're going with I like the 100 basis point thought I remind bread of that number every year that that should be our goal and I firmly believe there is no reason with our size that we should not run this business in a normal market with mid-teen EBITDA margins so yes last year's 10-6 was far below what it many reasons that got us there but you've seen the actions we've started taking today to lean out the organization and we're going to continue to find ways to reduce cost so we can drive for that annual margin improvement like you're thinking breath you want anything no I was just just

reiterate you know great first half of the year Greg as you can see from our margin improvement we're well over we're over 100 basis points in the first half we're going to basically similar number in the second half another 100 basis points in the second half between both quarters and you know look as that mentioned it as we've talked a few times we you know the change we've undergone over the last seven months there's more change to come more positive change to come and we're at the early innings of that change and the impact is going to have on the organization so you think about next year you think about the following year yeah there's definitely more margin I would say to be had as you think about getting back to that IPO levels which is called the 12 and a half percent range this year we're essentially halfway back we'd be at 11 you know 11 and a half to 11.9 at our guidance range and then as they all mentioned you know that kind of 100 basis points and your goal would get us back next year to that IPO level about 12 and a half 12.8 within that range so again we're not providing guidance for next year specifically for 25 but we feel really good about the margin expansion opportunities especially when we get that sustainable growth engine going in the back half of next year and we start this development conversion in the maintenance projects that's untapped opportunity we have today that will just drive a creative margins in business.

All right I will leave it there best of luck thanks.

As a reminder if you would like to ask a question on today's call please press start followed by 1 on your telephone keypad to withdraw your question please press star followed by 2. Our next question comes from Stephanie Moore from Jeffreys your line is now open please go ahead.

Hi this is Han Hoffman on for Stephanie Moore you know just wanted to touch a bit on sort of M&A obviously you know you guys removed it from the guy but you know just given you know net leverage is in a much healthier position today I'm just curious when you think that sort of comes back into the picture and you know as you sort of evaluate acquisition target I know like the strategy has changed a bit you know versus prior years so I'm just kind of curious you know what you guys looking for in acquisitions.

Yeah look it's a good question obviously we're in a much better financial position that if we wanted to deploy our precious capital that way we could but I think as you can see on slide six of the deck we've had significant operational changes in our organization I want to make sure we absorb all those changes and get our teams working together cohesively so that when we bring an acquisition in we can be a better owner of that acquisition I don't think that's long periods away but it's probably not going to occur over the next two quarters but I firmly believe a creed of M&A is a way for us to grow this business but we have to be a better owner we have to make sure when we bring an asset in we can help it grow faster and operate more efficiently than what it does today that capital that we choose to deploy through M&A is precious and we've talked about all the investments we're making with trucks with mowers with boots for our employees those are all things that are creating a cultural shift in company so if we're going to bring somebody in they've got to match our culture they've got to want to be here and we've got to be willing to invest in that business and then by leveraging all the services we've talked about turf irrigation tree hopefully when we bring their customers in we can be a better owner and help them grow faster so I will tell you we will be targeting M&A in 2025 just because we said we paused it for this year but we've gone through tremendous change I mentioned to somebody 70 percent of our employees have a new boss right now and that's a change and some of the people didn't know their new boss so let us absorb that let us get our feet under us and we'll do M&A I'm a firm believer in M&A when it's done right it can create great value when it's done wrong it's wasted capital so we're going to do it and we're going to focus M&A is I'm going to focus it on our core maintenance contract business the snow business as we've all seen it's very unpredictable I'm glad when we get snow I'm glad when our employees can service customers with snow but where I'm going to put our energy for future M&A is going to be focused on the maintenance contract business across North America and we have a lot of states today we're not into so if I can find M&A in new states that I can help our teams grow into and then accelerate growth that's a great opportunity for us so yeah probably not like we said zero M&A in the back half of the year but in 2025 when we give you guys guide we'll give you an update of what we're thinking about with a high level on M&A.

Got it that's helpful and then just kind of curious on the you know cross-sell of development into maintenance you know is there any particular reason you know that that opportunity wasn't pursued in you know prior years and then just sort of any thoughts around you know your initiatives to you know get retention back to where you were pre-IPA you could just sort of unpack that a bit more.

Yeah let's let's start with the development to maintenance look I think you know like anything when the compensation system motivates people to do what's right for themselves and converting development into maintenance there's always some warranty work that we have to do and you know it's easier not to worry about who's going to pay for the warranty if it's not going from left pocket right pocket so I think by putting it under one person that now owns it they will be able to negotiate that who's going to pay the warranty better than having two independent people that so this is all upside you heard me say it's untapped opportunity the developers are different than the people that are going to have the ongoing business but that doesn't mean we should be getting the level of conversion we have in the past we should be able to get 70 percent of the business that we create every year with our great development team in the new maintenance to be serviced by our so I think it's unfortunately it was the structure that we had that created that but that's that's work that we can do in the future and what was the second part of your question retention customer retention so yeah yeah so customer retention but it's near and dear to my heart it pains me when I hear people think that our focus is to not service our customers like we don't want to have the customers we have today there is no customer that costs less to acquire the one we already have today it is our job to find a way to service those customers and make sure they're getting the value for what they're paying for let us do that we can't just throw our challenges on our customers all the our retention today is below where it was five years ago I am going to improve that I am creating a culture where those people that leave our gates in the morning to go out and service the customers they're the ones that can make the change every positive letter I get from a customer they talk about the crew that's doing the work at their facility those crews are critical in customer retention and then communicate communicate communicate we can't let our customers ever be surprised you heard me mention we have an AI tool now where last year when we ran the AI tool over our customers that left us 87 percent of them were predicted that they were going to leave us if I can get that information into my branch manager's hands they can go out and sit down try to prevent those customers from leaving we have everything we need to solve our own problems on retention and it is a way that the more we retain the faster we can grow this business our customers are valuable they pay our bills they have to be the center of every single thing we do and that's our focus and that's what we're going to focus on this year in 25 and until I get every branch someday at that 95 that I go to my best branches and see I'll never be happy because when I see a fully engaged branch manager and he has that level of retention I know the power that this business can have but great question

got it thanks you bet

that concludes the q a portion of today's call I'll now hand back over to Aslan for closing remarks

thank you operator as you can tell we are extremely excited about the opportunities ahead and I'm thrilled to be leading this great company through this important period our objectives are clear we are committed to becoming one bright field growing profitably and creating meaningful shareholder value with that I thank everybody for joining our call today operator you may now end the call

thank you that concludes today's call you may now disconnect your line