BrightView Holdings, Inc. — Form 10-Q Summary
Reporting period: Fiscal third quarter and nine months ended June 30, 2023; comparisons are to the same periods in 2022. Amounts are in millions of dollars, except per-share data. The company provides commercial landscape maintenance, snow removal, enhancement and development services through its Maintenance Services and Development Services segments.
Financial performance
| Metric | Three months ended June 30, 2023 | Three months ended June 30, 2022 | Nine months ended June 30, 2023 | Nine months ended June 30, 2022 |
|---|---|---|---|---|
| Revenue | $766.0 | $747.4 | $2,072.3 | $2,051.2 |
| Gross profit / margin | $198.6 / 25.9% | $189.2 / 25.3% | $493.3 / 23.8% | $486.2 / 23.7% |
| Income from operations | $51.2 | $44.7 | $46.6 | $48.0 |
| Interest expense | $27.4 | $14.8 | $78.3 | $34.5 |
| Net income (loss) | $16.8 | $10.8 | $(24.1) | $(1.3) |
| Basic and diluted EPS | $0.18 | $0.12 | $(0.26) | $(0.01) |
| Adjusted EBITDA (non-GAAP) | $101.8 | $94.3 | $197.1 | $196.6 |
| Operating cash flow | $34.3 | $23.4 | $89.3 | $65.7 |
| Free cash flow (non-GAAP) | $22.3 | $2.3 | $38.2 | $(17.0) |
Material changes and operating trends
- Quarterly revenue rose 2.5%; year-to-date revenue rose 1.0%. Quarterly growth included a $17.0 increase in Development Services and a $2.8 increase in Maintenance Services.
- For the nine-month period, Development Services revenue increased $32.5, while Maintenance Services revenue declined $7.7. Lower snowfall reduced snow-removal revenue by $47.2; growth in landscape services, including acquisitions and underlying contract growth, partly offset the decline.
- Quarterly gross margin improved 60 basis points, supported by segment growth and lower fuel costs, partly offset by higher labor costs. Year-to-date gross margin improved 10 basis points; higher labor, materials and depreciation costs partly offset lower subcontractor costs and Development Services growth.
- Adjusted EBITDA increased 8.0% for the quarter, to $101.8, but was nearly flat year to date at $197.1. The filing reports year-to-date Adjusted EBITDA margin of 9.5%, versus 9.6%.
- Year-to-date net loss widened to $24.1, primarily amid sharply higher interest expense. The company attributed the increase in interest expense to higher rates and increased borrowings associated with its 2022 credit agreement refinancing, partly offset by interest-rate derivatives.
Cash, debt and liquidity
- At June 30, 2023, cash and equivalents were $9.6, down from $20.1 at September 30, 2022. Total debt was $1,348.2, compared with $1,342.7; this included $1,177.6 under the Series B term loan and $180.0 under the receivables financing agreement. No revolving credit facility balance was outstanding at period end.
- Current assets were $686.7 and current liabilities were $516.4, yielding reported net working capital of $170.3, down from $188.7 at September 30, 2022. Accounts receivable was $445.7 and unbilled revenue was $138.2.
- Nine-month operating cash flow was $89.3. Investing activities used $63.0, including $57.9 of capital expenditures and $13.8 for acquisitions, net of cash acquired. Financing activities used $36.8, including $18.5 of contingent acquisition payments.
- Management stated that cash from operations and available borrowing capacity are expected to fund current obligations, working capital, debt service and capital spending for the next 12 months. The company reported compliance with debt covenants and no default as of June 30, 2023.
- The Series B term loan matures in 2029 and bears variable-rate interest subject to stated floors and leverage-based margins. Interest-rate swaps and a collar had a combined notional amount of $1,000.0 at period end; management expected a $9.5 net deferred gain to be reclassified into interest expense over the next 12 months.
Outlook, risks and unusual items
- The filing provides no numerical revenue, earnings or cash-flow guidance. Management highlighted the recurring, largely non-discretionary nature of maintenance services, while noting that seasonality, weather and snowfall can cause substantial period-to-period variation.
- Key risks include inflation and labor costs, employee recruitment and retention, customer retention and contract profitability, supply-chain constraints, weather and climate impacts, construction-market conditions, variable interest rates, substantial debt service, and the ability to generate cash or refinance debt.
- During the second quarter, higher interest rates and a decline in the share price triggered an interim goodwill impairment test for the Maintenance reporting unit. Its estimated fair value exceeded carrying value by only 1.8%; the company warned that continued adverse market conditions or forecast shortfalls could create future impairment risk. The reporting unit had $1,797.7 of goodwill at June 30.
- The company acquired three businesses during the nine months for approximately $13.8, net of cash acquired; purchase accounting remained preliminary. It also recorded $17.5 of business transformation and integration costs year to date, which are excluded from Adjusted EBITDA.
- Management reported no known legal matter expected to have a material effect on the company. Disclosure controls were deemed effective, and no material change in internal control over financial reporting was reported.
Important facts for investors to verify
- Whether Maintenance Services revenue and margins stabilize, particularly given lower snowfall and the year-to-date decline in that segment.
- How higher variable-rate borrowing costs affect interest expense, cash generation and debt-service capacity; confirm debt balances, available facility capacity and covenant headroom.
- Whether the Maintenance reporting unit’s narrow 1.8% goodwill valuation cushion changes in future periods.
- Whether receivables, unbilled revenue and deferred revenue convert to cash as expected, given low period-end cash and elevated receivables.
- How much reported performance depends on non-GAAP adjustments; compare Adjusted EBITDA and free cash flow with GAAP results and the company’s stated definitions.
- Whether acquisition integration, labor and materials costs, and project execution affect future segment profitability; the filing provides no numerical forward guidance.