BrightView Holdings, Inc. — Fiscal 2020 Second-Quarter 10-Q
Reporting period: Quarter ended March 31, 2020; comparisons are with the quarter and six months ended March 31, 2019. The company provides commercial landscape maintenance, snow removal, enhancement, and development services through Maintenance Services and Development Services. All dollar amounts are in millions unless noted.
Financial performance and liquidity
| Metric | Three months ended March 31 | Six months ended March 31 |
|---|---|---|
| Revenue | 2020: $559.1; 2019: $596.6 | 2020: $1,129.8; 2019: $1,122.7 |
| Gross profit / margin | $132.3 / 23.7%; prior $146.1 / 24.5% | $275.3 / 24.4%; prior $278.0 / 24.8% |
| Operating income (loss) | $(8.2); prior $12.8 | $(8.9); prior $19.5 |
| Net loss / diluted loss per share | $(20.5) / $(0.20); prior $(3.6) / $(0.04) | $(33.1) / $(0.32); prior $(12.4) / $(0.12) |
| Adjusted EBITDA | $38.9; prior $61.1 (7.0% vs. 10.2% of revenue) | $90.5; prior $111.2 (8.0% vs. 9.9% of revenue) |
- Cash flow, six months: Operating cash flow was $85.7, versus $64.7; capital expenditures were $35.1, versus $42.6; and reported Free Cash Flow was $53.3, versus $25.1. Net cash used in investing was $118.9, including $87.1 for acquisitions. Financing provided $82.1.
- Cash and working capital: Cash was $88.0 at March 31, up from $39.1 at September 30, 2019. Net working capital was $179.9, down from $218.7.
- Debt: Total debt, net, was $1,231.2, up from $1,144.6 at September 30, 2019; this included $1,016.7 of term loans, $60.0 drawn on the revolver, and $170.0 under the receivables financing agreement. The company reported compliance with debt covenants and no default.
- Liquidity: Management said cash, operating cash flow, and availability under credit facilities were expected to fund obligations and requirements for the next 12 months, while cautioning that COVID-19 could affect liquidity. The company drew $70.0 on its revolver during the six months, principally in response to the pandemic.
Material changes and operating drivers
- Quarterly revenue fell 6.3%, while six-month revenue edged up 0.6%. Maintenance Services revenue declined 12.1% in the quarter and 3.5% in the six-month period; Development Services revenue grew 15.8% and 14.7%, respectively.
- Weak snowfall drove the Maintenance Services decline: snowfall for the quarter was 43.3% of the historical 10-year average, compared with 86.2% a year earlier. Six-month snowfall was 57.9% of average, versus 85.6%.
- Quarterly Maintenance Services Adjusted EBITDA fell to $41.2 from $65.0, and its margin declined to 9.9% from 13.7%. Development Services Adjusted EBITDA rose to $13.7 from $11.0, with margin improving to 9.5% from 8.9%.
- SG&A rose 6.2% in the quarter and 12.0% over six months, reflecting acquired-business overhead and integration, transformation costs, and COVID-related supplies; lower annual incentive compensation partly offset the quarterly increase.
- The company acquired five Maintenance Services businesses for $87.1, net of cash, during the six months. Goodwill increased to $1,878.9 from $1,810.4, including $68.5 associated with acquisitions; purchase accounting remained preliminary.
Outlook, risks, and unusual items
- The filing provides no quantitative full-year revenue, earnings, or cash-flow guidance. Management said COVID-19’s effects were uncertain and evolving, and that the quarter’s late-period impact was not indicative of the remainder of fiscal 2020.
- Some jurisdictions had limited or halted company or contractor operations. Risks include further restrictions, customer cancellations or delayed projects and payments, labor shortages and H-2B visa processing delays, supplier disruption, and a prolonged economic downturn. Management reported actions to increase safety measures, preserve cash, and limit discretionary spending.
- Adjusted EBITDA and Free Cash Flow are non-GAAP measures. Adjusted EBITDA excludes, among other items, $17.3 of six-month business transformation and integration costs, $1.1 of COVID-related expenses, and $13.3 of equity-based compensation. Free Cash Flow excludes debt service and acquisition spending.
- Interest-rate swaps and fuel hedges had net deferred losses, after tax, of $12.9 and $3.8, respectively, expected to be recognized in the following 12 months in interest expense and cost of services.
- The company is defending consolidated stockholder class-action litigation relating to its IPO disclosures. It could not estimate any possible loss or range of loss. Management said other ordinary-course claims were not expected to have a material effect.
- The company adopted the lease accounting standard on October 1, 2019, recording operating lease assets of $70.6 and liabilities of $76.3 at adoption; it reported no material impact on results, liquidity, or covenant compliance.
Key facts for investors to verify
- Whether COVID-19 restrictions, demand changes, labor availability, and customer collections materially affected results after March 31, 2020.
- Whether Maintenance Services can recover margins after unusually low snowfall and whether Development Services growth can continue.
- Acquisition integration, preliminary purchase-price allocations, and the effect of added debt on leverage and debt-service capacity.
- Facility availability and covenant headroom, especially if operating cash flow weakens or further borrowing is needed.
- Any developments in the IPO-related class action and any change in the company’s ability to estimate potential exposure.