BrightView Holdings, Inc. — FY2018 Form 10-K
Reporting period: Fiscal year ended September 30, 2018. This is an annual filing, not a standalone fourth-quarter report. The company changed its fiscal year-end in 2017; the filed FY2017 period covers only nine months. Where management provides year-over-year annual comparisons, it compares FY2018 with an unaudited trailing 12 months ended September 30, 2017.
Business context
BrightView is a U.S. commercial landscaping services provider operating through Maintenance Services and Development Services. Maintenance includes recurring landscape care, enhancements and snow removal; Development provides landscape design and installation. The company completed its IPO in July 2018. KKR and MSD Partners retained majority voting control after the offering.
Financial highlights
| Metric | FY2018 | Comparison / context |
|---|---|---|
| Net service revenue | $2,353.6 million | Up 5.7% versus management’s unaudited prior 12-month period |
| Gross profit / margin | $626.1 million / 26.6% | Margin down 0.2 percentage points from 26.8% |
| Operating income | $40.0 million | Versus $34.9 million in the prior 12-month comparison |
| Net loss | $15.1 million; loss per share $0.18 | Compared with a $37.4 million net loss in the prior 12-month comparison |
| Adjusted EBITDA | $300.1 million; 12.8% margin | Up from $266.6 million and 12.0%; non-GAAP measure |
| Cash from operations | $180.4 million | Versus $124.2 million in the prior 12-month comparison |
| Capital expenditures | $86.4 million | Free cash flow was $105.9 million; adjusted free cash flow was $127.6 million, including a $21.6 million adjustment for acquired legacy properties |
| Cash and debt at year-end | Cash $35.2 million; total debt $1,154.2 million | Debt decreased from $1,589.5 million at September 30, 2017 |
| Liquidity and working capital | Net working capital $199.7 million | Revolver availability $188.2 million and receivables-facility availability $35.0 million |
Fourth-quarter and segment performance
- For the quarter ended September 30, 2018, revenue was $581.8 million, versus $567.0 million in the year-earlier quarter. Gross profit was $165.7 million, operating income $26.0 million and net loss $10.9 million; the year-earlier quarter reported net income of $0.4 million.
- Fourth-quarter Adjusted EBITDA was $84.2 million versus $79.7 million; quarterly free cash flow was $50.1 million versus $47.1 million. These are non-GAAP measures.
- Maintenance Services generated $1,774.8 million revenue and $289.8 million Segment Adjusted EBITDA, with a 16.3% margin. Revenue rose 7.4%; higher snowfall and acquired businesses contributed, while managed exits of underperforming contracts reduced revenue.
- Development Services generated $583.3 million revenue and $78.7 million Segment Adjusted EBITDA, with a 13.5% margin. Revenue rose 1.1%; completed large projects partly offset acquisition-related contributions.
Changes, unusual items and outlook
- FY2018 revenue growth reflected $103.4 million of acquired-business revenue and $59.5 million of higher snow-removal revenue, partly offset by a $32.6 million decline in landscape services, including $23.1 million from managed contract exits. Snowfall at company locations was 88% of the historical 10-year average, versus 64% in the comparison period.
- FY2018 included $25.1 million of debt-extinguishment expense, mainly accelerated write-off of financing costs and original issue discount associated with debt repayments. IPO-related costs and compensation also increased expenses; Adjusted EBITDA excludes specified items, including debt-extinguishment and equity-based compensation.
- The $66.2 million income tax benefit included a $43.4 million benefit from revaluing deferred taxes after the U.S. corporate tax-rate reduction. This materially affected reported net loss.
- The IPO generated approximately $501.2 million in net proceeds. The company used proceeds to repay second-lien debt, revolving borrowings and approximately $336.1 million of first-lien debt. In August 2018, it refinanced into a $1.037 billion Series B term loan due 2025 and a $260 million revolver due 2023; the term loan bears interest at LIBOR plus 2.5%. Management reported compliance with debt covenants and stated existing cash, operating cash flow and available facilities should fund obligations and planned spending for the next 12 months.
- BrightView acquired five businesses during the year for approximately $104.4 million net of cash, with about $117.6 million in aggregate annualized revenue. Management expects remaining integration costs of approximately $2.2 million by the third quarter of FY2019. The filing gives no quantified earnings or revenue guidance.
- Key risks include substantial variable-rate debt and related interest expense, customer contracts generally terminable on 30 days’ notice, seasonal and weather-sensitive demand, labor availability and H-2B visa access, fuel and wage inflation, fixed-price project cost overruns, acquisition integration, and regulatory, safety, environmental and cyber risks. A 100-basis-point rate increase was estimated to raise annual interest expense by about $14 million; a 10% fuel-price change would affect annual fuel costs by about $3.5 million.
Investor verification points
- Confirm comparisons use the correct periods: FY2017 was a nine-month transition year, while the annual growth comparison uses an unaudited 12-month prior-period measure.
- Review the reconciliation and recurring nature of Adjusted EBITDA, Adjusted Net Income and adjusted free cash flow; these non-GAAP measures exclude items and do not represent cash available after debt service.
- Assess debt repayment and refinancing effects, variable-rate exposure, swap coverage, facility availability, and whether cash generation supports the company’s liquidity expectations.
- Separate recurring operating performance from the tax-rate revaluation benefit, debt-extinguishment charge, IPO costs, sponsor termination fees and equity-based compensation.
- Monitor acquisition integration, contract exits and renewals, snowfall and weather conditions, labor supply, and the effect of fuel and wage costs on margins.