BrightView Holdings, Inc. — Form 10-Q Summary
Reporting period: Fiscal second quarter and six months ended March 31, 2023. Amounts are in millions except per-share data. BrightView provides commercial landscape maintenance, enhancements, development, and snow removal services through Maintenance Services and Development Services.
Financial performance
| Metric | Three months ended Mar. 31, 2023 | Prior-year quarter | Six months ended Mar. 31, 2023 | Prior-year six months |
|---|---|---|---|---|
| Revenue | $650.4 | $711.9 | $1,306.3 | $1,303.8 |
| Gross profit / margin | $147.1 / 22.6% | $157.1 / 22.1% | $294.7 / 22.6% | $297.0 / 22.8% |
| Operating income (loss) | $(2.6) | $11.7 | $(4.6) | $3.3 |
| Interest expense | $27.7 | $10.1 | $50.9 | $19.7 |
| Net income (loss) | $(22.0) | $0.7 | $(40.9) | $(12.1) |
| Adjusted EBITDA | $46.8 | $59.7 | $95.3 | $102.3 |
| Adjusted EBITDA margin | 7.2% | 8.4% | 7.3% | 7.8% |
| Basic and diluted EPS | $(0.23) | $0.01 | $(0.44) | $(0.12) |
Cash flow: The MD&A reports second-quarter operating cash flow of $84.6 million and free cash flow of $71.4 million, compared with $64.7 million and $30.5 million, respectively, in the prior-year quarter. For the six months, operating cash flow was $55.0 million versus $42.3 million, and free cash flow was $15.9 million versus negative $19.3 million. Six-month capital expenditures were $42.7 million, down from $64.2 million.
Liquidity and debt: At March 31, cash was $11.0 million, total current assets were $653.4 million, current liabilities were $502.2 million, and net working capital was $151.2 million, down from $188.7 million at September 30, 2022. Total debt was $1,356.9 million, up from $1,342.7 million. The company reported $1,344.9 million of long-term debt, net, and no revolver balance at quarter-end. It was in compliance with debt covenants and reported no default.
Changes and operating drivers
- Quarterly revenue declined 8.6%, mainly because lower snowfall reduced snow-removal revenue by $69.4 million, partly offset by acquired revenue and 1.6% underlying growth in commercial landscape services. Six-month revenue was nearly flat, up 0.2%.
- Maintenance Services quarterly revenue fell 10.0% and segment Adjusted EBITDA fell 17.8% to $51.7 million; its margin declined 100 basis points to 10.4%. For the six months, revenue fell 1.1% and segment EBITDA fell 5.5%.
- Development Services quarterly revenue declined 2.6%, while segment Adjusted EBITDA increased 2.3% to $13.1 million and margin improved to 8.4%. For the six months, revenue rose 4.9% and segment EBITDA rose 8.4%.
- Quarterly gross margin rose 50 basis points, principally reflecting lower subcontractor costs associated with reduced snowfall. Six-month gross margin declined 20 basis points amid higher labor, materials, and depreciation costs.
- Interest expense increased sharply, primarily from higher interest rates and borrowings under the Series B Term Loan, partly offset by interest-rate hedges.
Outlook, risks, and unusual items
- Management stated that cash from operations and borrowing availability are expected to cover current obligations, projected working capital, debt service, and capital spending for the next 12 months. No quantified earnings or revenue guidance is provided in the filing text.
- Rising labor, fuel, material, and other operating costs; employee recruitment and retention; weather and snowfall variability; seasonality; customer retention; and commercial construction conditions are identified as business risks.
- Rising interest rates and a decline in the stock price triggered an interim goodwill impairment test for the Maintenance reporting unit. Fair value exceeded carrying value by only 1.8%; management warned that unfavorable market conditions or forecasts could lead to a future impairment. The unit had $1,798.9 million of goodwill.
- The company acquired three businesses for approximately $13.8 million, net of cash acquired, during the six-month period. Purchase accounting remained preliminary. Acquisition-related integration costs and business transformation costs are included among adjustments to non-GAAP measures.
- Self-insurance reserves totaled $145.9 million. The company reported ordinary-course legal claims but was not aware of any matter expected to have a material effect on financial condition, results, or cash flows.
- Management reported effective disclosure controls as of March 31, 2023 and no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether lower snowfall and the resulting decline in Maintenance Services performance persist, and how underlying contract growth develops.
- Interest-rate exposure, hedge effectiveness, debt-service capacity, and available borrowing capacity under the revolving and receivables facilities.
- Whether the Maintenance reporting unit’s narrow 1.8% goodwill valuation cushion changes with market conditions or updated forecasts.
- Cash conversion and working-capital trends, including receivables, deferred revenue, and the difference between quarterly and six-month cash flow.
- Acquisition integration, final purchase accounting, and the extent to which non-GAAP adjustments represent recurring costs.