BrightView Holdings, Inc. — Form 10-Q Summary
Reporting period: Quarter and nine months ended June 30, 2021 (fiscal 2021 third quarter). The interim financial statements are unaudited. BrightView provides commercial landscape maintenance, enhancements, development and snow-removal services through Maintenance Services and Development Services.
Financial performance
| Metric | Three months ended June 30, 2021 | Three months ended June 30, 2020 | Nine months ended June 30, 2021 | Nine months ended June 30, 2020 |
|---|---|---|---|---|
| Revenue | $673.6 million | $608.1 million | $1,879.9 million | $1,737.9 million |
| Gross profit / margin | $179.0 million / 26.6% | $156.4 million / 25.7% | $470.7 million / 25.0% | $431.7 million / 24.8% |
| Operating income | $43.3 million | $11.0 million | $57.3 million | $2.1 million |
| Net income (loss) | $25.2 million | $(2.4) million | $19.5 million | $(35.5) million |
| Adjusted EBITDA (non-GAAP) | $93.6 million; 13.9% of revenue | $91.0 million; 15.0% of revenue | $212.8 million; 11.3% of revenue | $181.6 million; 10.4% of revenue |
| Operating cash flow | $50.0 million | $76.2 million | $133.4 million | $161.9 million |
| Free cash flow (non-GAAP) | $37.3 million | $66.5 million | $96.2 million | $119.8 million |
Margins and segments: Third-quarter Maintenance Services revenue rose 15.0% to $524.6 million, while segment Adjusted EBITDA increased 8.8% to $90.6 million; its margin fell 100 basis points to 17.3%, reflecting higher labor and material costs. Development Services revenue declined 1.6% to $150.3 million and segment Adjusted EBITDA fell 14.2% to $18.7 million; its margin decreased 190 basis points to 12.4%. For the nine months, Maintenance Services revenue increased 14.7% and segment EBITDA increased 23.8%; Development Services revenue fell 10.4% and segment EBITDA fell 15.4%.
Liquidity, debt and financial position
- At June 30, 2021, cash and cash equivalents were $125.0 million; net working capital was $142.5 million, down from $183.0 million at September 30, 2020.
- Total debt, net, was $1,132.2 million, compared with $1,139.8 million at September 30, 2020. The company reported no outstanding borrowings under its $260 million revolving credit facility and said it was in compliance with debt covenants.
- The receivables financing agreement had $139.9 million outstanding. Its borrowing capacity was increased to $235 million through September 20, 2021 and $250 million thereafter; the agreement was extended to February 2024.
- For the nine months, investing cash outflow was $143.0 million, including $106.2 million for acquisitions; financing cash outflow was $22.5 million. Cash declined $32.1 million from the fiscal year-end.
- Management stated that cash from operations and available borrowing capacity were expected to cover obligations, working capital, debt service and capital spending for the next 12 months. Scheduled debt maturities include $972.1 million in 2025 and thereafter.
Material changes and management commentary
- Third-quarter revenue increased 10.8% year over year, led by Maintenance Services. Nine-month revenue increased 8.2%; the increase in Maintenance Services more than offset weaker Development Services.
- Nine-month snow-removal revenue increased $122.1 million, primarily due to more frequent and higher snowfall than in the prior-year period. Development Services remained affected by pandemic-related reductions in backlog.
- BrightView acquired seven businesses during the nine months for approximately $106.2 million, net of cash acquired. Acquisition-related goodwill increased $84.0 million; purchase-price valuations remained preliminary.
- Prior-year comparisons include $24.1 million of self-insurance estimate charges in the third quarter of 2020, which affected cost of services and SG&A. The company also excludes various costs from its non-GAAP measures, including integration, COVID-19-related, equity-compensation and transformation expenses.
- Management provided no specific full-year financial guidance in the supplied filing text. It cautioned that pandemic effects remained uncertain, including possible restrictions, new variants, vaccination progress and reopening conditions.
Risks, contingencies and unusual items
- Risks highlighted include COVID-19, labor availability and costs, weather and seasonality, fuel and material prices, customer retention, contract profitability, acquisitions and integration, and substantial debt service needs. Variable-rate debt and the transition away from LIBOR could affect interest costs.
- Self-insurance reserves were $149.6 million at June 30, 2021. Management considered recorded reserves adequate, but ultimate claim costs depend on future developments. The filing reported no known legal matter expected to have a material effect.
- The company recorded goodwill of $1,943.3 million, a significant asset balance; it reported a $15.5 million goodwill impairment in fiscal 2020, not in the current nine-month period.
- Landscape maintenance is seasonal and weather-sensitive; interim results may not indicate full-year performance. The company said disclosure controls were effective and reported no material changes in internal control over financial reporting.
Investor verification priorities
- Confirm the drivers and sustainability of Maintenance Services growth, including acquisitions, snowfall and organic contract growth, and track labor and material costs and segment margins.
- Assess Development Services backlog and recovery from pandemic-related project delays, as well as the impact of the BrightView Tree Company sale.
- Reconcile GAAP earnings and cash flow with Adjusted EBITDA, Adjusted Net Income and free cash flow, including excluded costs and the prior-year self-insurance charges.
- Review working-capital movements, acquisition spending, receivables-facility usage, debt maturities and refinancing or interest-rate exposure.
- Monitor pandemic developments, insurance claims and reserve estimates, weather and seasonality, and completion of preliminary acquisition valuations.