BrightView Holdings, Inc. — FY2020 Form 10-K
Reporting period: Fiscal year ended September 30, 2020; filed November 18, 2020. Although the request references 2020 Q4, this is an annual filing. Fourth-quarter figures are noted separately below. BrightView provides commercial landscaping, maintenance, snow removal, and landscape development services across the United States.
Financial performance and liquidity
| Metric | FY2020 | FY2019 |
|---|---|---|
| Net service revenue | $2,346.0 million | $2,404.6 million |
| Gross profit / gross margin | $595.3 million / 25.4% | $638.2 million / 26.5% |
| Operating income | $12.1 million | $129.7 million |
| Net income (loss) / diluted EPS | $(41.6) million / $(0.40) | $44.4 million / $0.43 |
| Adjusted EBITDA / margin | $271.6 million / 11.6% | $305.1 million / 12.7% |
| Operating cash flow | $245.1 million | $169.7 million |
| Capital expenditures | $52.7 million | $89.9 million |
| Free cash flow | $197.2 million | $86.6 million |
| Cash and cash equivalents at year-end | $157.1 million | $39.1 million |
| Total debt at year-end | $1,139.8 million | $1,144.6 million |
| Net working capital | $183.0 million | $218.7 million |
FY2020 net loss margin was 1.8%. Free cash flow is a non-GAAP measure and does not include required debt service or all contractual commitments.
- Maintenance Services: Revenue of $1,739.1 million, down 4.1%; Segment Adjusted EBITDA of $250.1 million, down 11.3%, with margin down to 14.4% from 15.6%.
- Development Services: Revenue of $610.6 million, up 2.6%; Segment Adjusted EBITDA of $80.2 million, down 1.8%, with margin down to 13.1% from 13.7%.
- Fourth quarter: Revenue was $608.1 million versus $624.8 million in Q4 FY2019; net loss was $6.1 million versus net income of $25.1 million. Adjusted EBITDA was $90.0 million versus $91.9 million.
Material changes and unusual items
- Revenue declined 2.4% year over year. Maintenance revenue fell $74.3 million, chiefly because snow-removal revenue dropped $82.0 million amid less and less favorably distributed snowfall, and COVID-19 reduced demand for ancillary services. Development revenue increased $15.2 million.
- Gross margin fell 110 basis points. Selling, general and administrative expense rose 16.6% to $527.4 million, increasing from 18.8% to 22.5% of revenue.
- FY2020 included $24.1 million of expense from revised self-insurance estimates and actuarial assumptions, $13.8 million of COVID-19 response costs, and $22.2 million related to the BrightView Tree Company sale, including a $15.5 million goodwill impairment and $5.7 million sale loss. These items were excluded from Adjusted EBITDA under the company’s reconciliation.
- BrightView acquired six maintenance businesses for $90.3 million, net of cash, and completed the sale of two subsidiaries on September 30, 2020, receiving $29.3 million in cash and a $3.0 million promissory note.
- Operating cash flow increased by $75.4 million, primarily from working-capital improvements. Free cash flow also benefited from lower capital expenditures. Investing cash outflow was $108.8 million, including $90.3 million of acquisitions and $28.5 million of net divestiture proceeds.
Debt, outlook, and risks
- Year-end debt comprised $1,011.8 million of Series B term loans and $140.0 million under the receivables financing agreement, before related financing-cost adjustments. The term loan matures in 2025; the revolving facility matures in 2023. The company reported $182.0 million of revolver availability and $60.0 million of receivables-facility availability. It was in compliance with debt covenants at year-end.
- Management stated that cash, operating cash flow, and facility availability were expected to fund current obligations, working capital, debt service, and capital spending for the next 12 months. This assessment is subject to uncertainty, including the pandemic’s effects. The filing provides no numerical earnings or revenue guidance.
- COVID-19 caused operating restrictions in some locations, construction delays, reduced ancillary-service demand, and risks to labor, suppliers, collections, and liquidity. Management reported using cost controls and cash-preservation measures; it also drew and repaid $70 million on the revolver and $80 million under the receivables facility during the year.
- Other key risks include seasonal and weather-dependent demand, labor availability and reliance on H-2B seasonal workers, customer retention and cancellable maintenance contracts, fixed-price bid and cost-estimation risk, acquisition integration, self-insurance estimates, substantial variable-rate debt, and LIBOR transition risk. A 100-basis-point increase in interest rates was estimated to raise FY2020 interest expense by about $11.6 million.
- The company reported no planned cash dividends in the foreseeable future. A shareholder securities class action was settled, subject to final court approval as of the filing; the settlement was substantially covered by D&O insurance, subject to retentions. The company and individual defendants denied wrongdoing.
Important facts for investors to verify
- Whether maintenance and ancillary demand recovered after FY2020, and whether COVID-related constraints or customer behavior continued to affect revenue.
- Whether cash generation and working-capital improvements proved sustainable, particularly given seasonality, acquisition spending, and debt-service obligations.
- The quality and comparability of Adjusted EBITDA and free cash flow, including the size and recurrence of adjustments excluded from those non-GAAP measures.
- The final outcome and financial consequences of the Tree Company divestiture, acquisition integration, and the shareholder litigation settlement.
- Debt availability, covenant headroom, interest-rate exposure, and the effect of the transition from LIBOR on borrowing costs.