BrightView Holdings, Inc. (NYSE:BV) Q1 2024 Earnings Call Transcript

BrightView Holdings, Inc. (NYSE:BV) Q1 2024 Earnings Call Transcript February 1, 2024

BrightView Holdings, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Hello, and welcome to the BrightView Holdings’ Q1 2024 Earnings Call. My name is Elliot. I’ll be coordinating your call today. [Operator Instructions]. I now like to hand over to Chris Stoczko, Vice President of Finance. The floor is yours. Please, go ahead.

Chris Stoczko : Good morning and thank you for joining BrightView’s First 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 2 of the presentation, which can also be found on our Investor Relation website and which contains our safe harbor disclaimer. This call may include forward-looking statements subject to certain risks and uncertainties. In addition, during this call we will refer to certain non-GAAP financial measures. Please see our 8-K issued yesterday for the reconciliation of these non-GAAP financial measures. I will now turn the call over to Dale.

Dale Asplund : Thank you, Chris, and good morning, everyone. I will start today’s call on Slide 4 with some highlights for the first quarter and then provide an update on our strategic initiatives. I’m pleased to report that we are off to a solid start in fiscal 2024 as we achieved meaningful progress on our objectives outlined under One BrightView. On our last earnings call, we set a clear and refreshed strategy, prioritize our employees, align our core businesses while ensuring our customers come first, focus on profitable growth and unify the company under One BrightView. During the quarter, we began to successfully execute on this strategy by aligning our sales force to our local operating branches, reintegrating core self-perform businesses back into our branches, deemphasizing non-core portions of our business and continuing to focus on pursuing higher quality, profitable business.

While these actions led to a modest impact on our land maintenance revenue for the quarter, I am confident we are taking the necessary steps to ensure growth in the medium and long term. I’m also pleased to report that for the 6th quarter in a row, our development business once again showed significant growth and margin expansion. Additionally, we are proving our commitment to becoming more efficient and removing cost with improvement in our corporate segment. I’m encouraged by the underlying momentum in our business as we execute our renewed strategy. And as a result, we are reiterating our financial guidance for the full year. Additional evidence of our strategy in action was the sale of our U.S. Lawns franchise business in January for roughly $52 million.

This was a non-core business that did not align with our strategy around self-performance and capital allocation. This move underscores our focus on the core business, but also highlights the value of achieving profitable and reoccurring growth. We have attained a substantial valuation in the private markets, well above our current trading multiple, providing proceeds that we intend to reinvest in our core business. The enhancements we have made in our business align with our overarching initiatives to operate as a unified BrightView. Throughout the quarter, we made progress implementing our strategy across the entire organization. We believe successful execution of our One BrightView strategy will unlock significant long-term shareholder value.

This starts by focus on becoming the employer of choice, and we are doing this by reinvesting in our core businesses and our employees. We are making investments in our fleet and investing in the health, safety, and development of our team. We are also streamlining and optimizing organizational structures at the branch level, resulting in a revitalized go-to-market strategy. And we renewed our focus on improving how we service our customers with the goal of increasing retention and growing profitably. Alongside these efforts, we took measures to better align our capital allocation priorities with our branch-level needs and our broader initiatives throughout the organization. On Slide 5, we show One BrightView in action and provide a few specific examples of the improvements we have made in the early stages of this value creation journey.

Under this, we realigned our sales efforts and implemented an incentive plan to ensure the entire organization, from the branch to our corporate office, is focused on driving profitable growth. Furthering the collaboration throughout the organization, we put in place a cohesive customer first go-to-market strategy. We also enhanced our customer survey, which resulted in improved response rate and is helping us to gain an even deeper understanding of our customers and their needs. We are leveraging these findings to further refine and strengthen our go-to-market approach. An example of this go-to-market strategy was the reintegration of our tree and golf services into our core maintenance branches. This streamlines operations internally, but also helps us deliver more efficient, collaborative, and unified services for the customer.

We are focused on becoming the partner of choice and taking actions to enhance our positioning, which will allow for opportunities to grow our business with existing customers and win new customers. As the nation’s largest provider in our industry, there is tremendous opportunity to leverage our size and scale to drive efficiencies across the business. While improving essential functions such as safety, training, and the centralization of operations to better align and support our core business. Moving to Slide 6. And before turning the call over to Brett to discuss our financial results for the quarter, I want to remind everyone that the focus of One BrightView begins with becoming the employer of choice. We do that by putting our employees first and by developing a culture where people seek to achieve individual and group success.

We prioritize our employees, so they have the capabilities, training, and equipment required to do their jobs at a high level. Doing this materially impacts the level of service provided to customers and leads to an exceptional customer experience. By making these investments in our employees, and in turn employees taking care of our customers, we will become the partner of choice in our industry. We are focused on improving customer retention and accelerating profitable growth by bringing on new customers and expanding relationships with existing customers. Once we have established a strong foundation for profitable growth in a unified BrightView, we will be in a position to expand strategically. M&A can be a powerful lever for growth and generate meaningful returns on capital, but only when it fits strategically, culturally, and financially.

As One BrightView, we have the best at what we do, and I’m confident that we can continue to deliver on these goals. With that, I’ll turn it over to Brett, who will discuss our financial performance and outlook in more detail. Brett?

Brett Urban : Thank you, Dale, and good morning, everyone. I’ll start on Slide 8. I’m pleased to report that fiscal ’24 is off to a good start with our strategy towards One BrightView showing positive signs in the first quarter. A continued focus on profitable growth and land maintenance, another quarter of strong performance and development and execution of our cost efficiency plan led to quality revenue and EBITDA margin expansion for the business. Important to note, during the quarter, our performance was impacted by the year-over-year decline in snowfall. When normalizing for snowfall consistent with the prior year, our overall profitability and margins would have shown significant improvement. More to come on that later in the presentation.

Our enhanced net working capital, coupled with the timing of capital intensity and reduced interest expense resulted in a meaningful increase of free cash flow compared to the prior year. This resulted in a net leverage ratio of 2.9x, allowing for financial flexibility for ongoing execution of our profitable growth strategy and investments in the business. Moving to Slide 9. Total revenue during the quarter decreased 4.5% year-over-year to $627 million. Maintenance was impacted by snow that decreased $22 million due to lower snowfall, a decline in ancillary services and the continued focus on core self-perform business. Partially offsetting these headwinds was the solid demand in our development business, which grew by an impressive 6.3% compared to the prior year due to our ability to convert our strong backlog into higher project volume.

Development’s performance in recent quarters reflects the appealing nature of the business model, while also creating momentum and opportunities for future growth. Turning now to profitability and the details on Slide 10. Total adjusted EBITDA for the first quarter was $46.7 million, a decrease of roughly $2 million, reflecting early benefits from our One BrightView initiatives and improved profitability, offset by the impact of lower snowfall. As I mentioned before, on a similar snowfall to prior year, Q1 EBITDA would have exceeded the prior year results. In the maintenance segment, total adjusted EBITDA of $42 million was down $8 million compared to the prior year, driven by the previously mentioned revenue shortfalls, which were primarily related to snow.

In the development segment, adjusted EBITDA for the first quarter was $19.6 million, an increase of approximately 19% compared to the prior year. Adjusted EBITDA margin expanded 110 basis points, which marks our 6th consecutive quarter of development margin expansion. This is a result of the quality backlog conversion while simultaneously reducing our costs, ultimately resulting in accretive growth. In our corporate segment, expenses for the first quarter decreased year-over-year as we made significant progress with our One BrightView strategy to increase efficiencies across our core functions and reduce overhead. Turning now to Slide 11 to discuss the timing impact of snow. As I alluded to earlier, and in an effort to enhance transparency in evaluating our quarter’s performance, we have normalized Q1 results for snowfall, assuming comparable levels with the previous year.

The comparison highlights the increase in EBITDA and additional margin expansion, underscoring the effectiveness of our initiatives and commitment to achieving more profitable growth. Also, this emphasizes the importance of evaluating our business on a full year basis as the timing and magnitude of snowfall changes year-to-year. For example, this year we didn’t see snowfall in late December, but we did see meaningful snowfall in January. Let’s now turn to Slide 12 to review our free cash flow, capital expenditures, and debt. For the quarter, we are extremely pleased with our free cash flow generation of $17 million compared to a usage of $55 million in the prior year period. As we communicated on our prior call, we are committed to reinvesting back into the core business and executing our renewed capital allocation strategy.

With this said, we are maintaining our cash flow and CapEx guidance for the full year. Net leverage for the quarter came in at 2.9x compared to 4.9x in the prior year period. The lower leverage reflects a significant reduction in our debt as a result of One Rock’s investment, improved liquidity, and profitability growth in the business. Our leverage profile allows for financial flexibility for ongoing execution of our profitable growth strategy and investment in the business. Moving to Slide 13. And as Dale mentioned earlier in the call, we are executing on our strategy by focusing on our core business. A positive example of this action is the divestiture of our non-core U.S. Lawns franchise business. We sold this business for roughly $52 million in proceeds, reflecting a double-digit EBITDA multiple.

This opportunistic transaction generated meaningful returns and allows us to better focus on our core business and reinvest proceeds into driving further efficiencies and profitable growth. We plan to use these cash proceeds to accelerate the execution of our capital investment plan by replacing aging fleet, buying new lawn mowers, and continuing to make significant investments in the health and safety of our employees. Let’s now turn to Slide 14 to review our outlook for fiscal ’24. Profitable growth will continue to be our guiding factor and key focus. I am pleased to reiterate that we are reaffirming our full year revenue, EBITDA, and free cash flow guidance. We expect total revenue of $2.825 billion to $2.975 billion, reflecting a range of flat to 5% revenue growth.

We continue to assume the following underlying assumptions. In maintenance, we expect our focus on profitable growth to continue to have a near-term impact to remain encouraged by the underlying health of the market and recent trends within our business. For snow, our fiscal ’24 guidance range assumes flat at the low end and a 5-year historical average at the high end. While Q1 started slow, we saw a meaningful pickup in snowfall events in January as we moved into the second quarter. And for development, the growth and conversion of our strong backlog of projects will continue to benefit revenue. Moving to adjusted EBITDA. One BrightView will be the key driver of the growing profit and expanding margins. In fiscal ’24, we continue to expect margin expansion in both maintenance and development segments benefiting from key initiatives and disciplined management of the business.

We expect these improvements to generate total margin expansion of 40 to 80 basis points and adjusted EBITDA of $310 million to $340 million. In fiscal ’24, we expect a continuation of healthy cash flow generation driven by profitable growth and 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 continue to expect to generate free cash flow of $45 million to $75 million, supporting the financial flexibility we maintain today, while enhancing our ability to generate future profitable growth. With that, let me turn the call back to Dale to wrap up on Slide 15.

Dale Asplund : Thank you, Brett. Before opening the call for questions, I would like to provide a few final thoughts. We are making significant progress on our goals, and we are seeing the returns on these efforts begin to materialize in our results and gaining traction across the company. As we transform this business, I continue to believe there are tremendous opportunities ahead of us. We are moving this business forward, and we are strategically positioned to accelerate profitable growth and to create meaningful value for our shareholders. We will now open the call for questions.

Operator: [Operator Instructions] Our first question comes from Bob Labick with CJS Securities.

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Q&A Session

Bob Labick: We’re very excited for the transformation you’re driving at BrightView.

Dale Asplund : Thanks, Bob.

Bob Labick: I wanted to start, you gave us some great details in the introduction for sure. Maybe you could start with some of the key metrics, key operating metrics, you’re focused on improving this year, fiscal ’24, and how you’ll share that progress with investors throughout the year?

Dale Asplund : Yes. That’s great. I would just say it’s the number one message that we’re monitoring is profitable growth. I think that’s the reoccurring theme that we keep talking about. But we want to make sure, as we grow this business, we’ll grow in the bottom line. So expanding margins, making sure we see growth in our EBITDA is critical in our path forward. We have a lot of internal metrics, Bob, that we’re monitoring. And some of the work that we did over the summer, during the transition, as Jim stepped in to help the business and we transformed the Project Liberty, really got us going on a lot of internal work, such as customer retention and conversion rates. We’re monitoring that on a daily basis, but we won’t be sharing that externally. I think from the external view, profitable growth should be that north star that you guys stay on top of. But, Brett, do you want to add anything?

Brett Urban : Yes, Bob, I would just say absolutely profitable growth, moving towards One BrightView as you see in the strip, aligning the business, aligning our sales force, aligning incentive plans and making sure everyone is marching towards the same profile growth goal. Absolutely part of our drive. I’d say the other thing is core business focus. And a huge highlight in the quarter or a subsequent event to the quarter was us divesting our non-core U.S. Lawns franchise business. And as we move forward, I think if we were to share any more data or information publicly, it’d probably be on our non-core businesses and some of the impact they have on the total. But really, really excited as you think about the quarter, and you think about that subsequent event for U.S. Lawns. I think if we’re going to share more, it’s going to be more things like U.S. Lawns type non-core businesses that we’re focused on evaluating and figuring out they fit long-term in the portfolio.

Bob Labick: And then you touched on this in one of your bullets as well, but maybe expand a little on, how do you get the benefit of scale as the largest operator in the U.S., but it’s a decentralized business? So it’s kind of like opposite ends there. So how can you improve operations and get the benefit of your scale based on where you stand today?

Brett Urban : Yes. So I think obviously, leveraging our size and scale and the more we can look to centralize, the more we can leverage and create consistency across our business and allow all of our frontline operators to really focus on the customer. So we have so many things that today we might still have out in the field with our branches focused on that we’ve got to rethink and centralize and leverage the size and scale. So we not only do them more consistently, we can do them more efficiently. So I think a good one that we’re working on right now, Bob, as an example, we just started the process of taking our field finance partners and centralizing them to drive that efficient and more consistent support of our field operators.

You can see this and even the way we’re doing it, Bob, if you look at our numbers that we just reported, our corporate cost structure came down by $3.5 million year-over-year in Q1. So there’s a huge opportunity to centralize and do it more efficiently. So it’s a double benefit when we do it right. So I hope that gives you a little more detail.

Bob Labick: And last one for me, I promise. I think I know the answer, but I just want to kind of hear you guys say it again. In terms of — if you look out 3 to 5 years and the growth or the profitable growth of BrightView, will it be more account growth and retention? Or will it be more higher margins per account as the key drivers? Where is the focus on pricing and margin per account? Or is it more accounts, better retention, et cetera? How would you distinguish between those 2 things driving your growth?

Dale Asplund : Yes. I think it’s all of the above, we can start with. I think the first and foremost focus we have and our partners have One Rock are helping us as we try to set focus on this. And we actually saw a modest little improvement in Q4 year-over-year is the retention of existing customers. And we have to make sure that the customers that are our customers today, see the value we provide and continue to be our customers long-term. And if perhaps the service they’re getting doesn’t match the level of price they’re paying, we’ve got to work with them and figure out how we can provide the service that matches the price or figure out a way to make sure that the price gets adjusted to the right level. But obviously, keeping our existing customer base is key to driving growth in this business.

But it’s also making sure, Bob, we’re going after the target customer segment we have. The franchise business we sold was more focused on a little bit of the residential business, which is not our focused end market. We want to go after the commercial business that’s our target customer that the size and scale of BrightView, we can add value across the nation. So it’s going to be both. Make sure we retain every account we can, make sure our customers see the value we provide and then grow as many new accounts that fit our target audience at the right price that we can. And when we do that, you’ll see that organic growth start coming back into the business.

Operator: We now turn to Andy Wittmann with Baird.