BrightView Holdings, Inc. — Q2 FY2021 Form 10-Q
Reporting period: Three and six months ended March 31, 2021; fiscal year ends September 30. Amounts are in millions, except per-share data. The company provides commercial landscape maintenance, snow removal, enhancements, and development services.
Financial performance
| Metric | Q2 FY2021 | Q2 FY2020 | Six months FY2021 | Six months FY2020 |
|---|---|---|---|---|
| Net service revenue | $651.9 | $559.1 | $1,206.3 | $1,129.8 |
| Gross profit | $158.1 | $132.3 | $291.7 | $275.3 |
| Gross margin | 24.3% | 23.7% | 24.2% | 24.4% |
| Operating income (loss) | $17.7 | $(8.2) | $14.0 | $(8.9) |
| Net income (loss) | $6.3 | $(20.5) | $(5.7) | $(33.1) |
| Diluted EPS | $0.06 | $(0.20) | $(0.05) | $(0.32) |
| Adjusted EBITDA (non-GAAP) | $66.8 | $38.9 | $119.3 | $90.5 |
- Q2 revenue increased 16.6%; six-month revenue increased 6.8%. Q2 Adjusted EBITDA margin was 10.2%, versus 7.0%; six-month margin was 9.9%, versus 8.0%.
- Q2 Maintenance Services revenue rose 29.6% to $535.7, largely reflecting higher snow-removal activity. Development Services revenue fell 20.0% to $117.1. For the six months, Maintenance revenue rose 14.6% to $953.8 while Development revenue declined 14.9% to $254.4.
- For the six months, operating cash flow was $83.4, versus $85.7; capital expenditures were $27.9, versus $35.1; and free cash flow (non-GAAP) was $58.9, versus $53.3. Investing cash outflow was $100.0, including $75.7 for acquisitions. Financing cash outflow was $16.7. Cash declined to $123.8 from $157.1 at September 30, 2020.
Debt and liquidity
- Total debt, net, was $1,133.8 at March 31, 2021, compared with $1,139.8 at September 30, 2020. The balance included a $1,006.7 Series B term loan and $139.9 under the receivables financing agreement.
- No borrowings were outstanding under the $260.0 revolving credit facility. The receivables financing facility was extended to February 2024, with stated capacity of $235.0 through September 20, 2021 and $250.0 thereafter.
- Net working capital was $126.8, down from $183.0 at September 30, 2020. Management said cash from operations and available borrowing capacity should fund obligations, working capital, debt service, and capital spending for the next 12 months. The company reported compliance with debt covenants and no default.
Material changes, outlook, and risks
- Higher snowfall drove much of the quarter’s revenue and profit improvement: snowfall in the quarter was 97.8% of the historical 10-year average, compared with 49.6% a year earlier. Landscape maintenance revenue was slightly lower year over year.
- Management attributed Development Services weakness to reduced project backlog following COVID-19, partly offset by acquisitions. The company cautioned that the pandemic’s duration, restrictions, and economic effects remain uncertain. No specific earnings or revenue guidance was provided.
- The company acquired four businesses during the six months for approximately $75.7 net of cash acquired. Purchase-price allocations remained preliminary. Goodwill was $1,919.6 at March 31, 2021; the filing also reports a $15.5 goodwill impairment in FY2020 related to the sale of BrightView Tree Company.
- Interest expense fell to $9.6 in Q2 from $17.1, primarily with lower average term-loan rates and the effect of swaps. Variable-rate debt, potential LIBOR transition costs, and significant debt service remain risks. Interest-rate swaps had a $500.0 notional amount at quarter-end, down from $980.0 at September 30, 2020.
- Other key risks include seasonality and weather, customer retention and contract profitability, labor availability and costs, fuel and materials prices, acquisitions and integration, and litigation or self-insurance claims. The company reported $150.7 of self-insurance reserves and stated that it was not aware of legal matters expected to have a material effect.
- Adjusted EBITDA, Adjusted Net Income, Adjusted EPS, and free cash flow are non-GAAP measures; the company provides reconciliations and notes their limitations. Q2 Adjusted EBITDA included $3.9 of COVID-related costs and $6.2 of business transformation and integration costs.
Important facts for investors to verify
- Whether Maintenance Services growth and margins can persist without unusually favorable snow-removal comparisons.
- Whether Development Services backlog and revenue recover from pandemic-related weakness.
- Acquisition performance, final purchase-price allocations, and the returns on the $75.7 invested during the period.
- Cash conversion and working-capital trends, including the rise in accounts receivable and decline in cash.
- Debt-service capacity, facility availability, covenant headroom, and exposure to variable interest rates and benchmark-rate transition.
- The sustainability and comparability of non-GAAP results given the adjustments for integration, COVID-19, and other costs.