BrightView Holdings, Inc. — FY2019 Form 10-K
Reporting period: Fiscal year ended September 30, 2019. The filing also reports the quarter ended September 30, 2019; this is an annual report, not a standalone quarterly filing. Amounts are in U.S. dollars unless noted.
Business context
BrightView is a U.S. commercial landscaping 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 reported approximately 21,500 employees and serves customers across the United States and Puerto Rico. Its top ten customers represented about 7% of FY2019 revenue, with no single customer above 2%.
Key financial results
| Metric | FY2019 | FY2018 | Change |
|---|---|---|---|
| Net service revenue | $2,404.6 million | $2,353.6 million | +2.2% |
| Gross profit / margin | $638.2 million / 26.5% | $626.1 million / 26.6% | Margin down 10 bps |
| Operating income | $129.7 million | $40.0 million | Up $89.7 million |
| Net income (loss) | $44.4 million | $(15.1) million | Improved $59.5 million |
| Adjusted EBITDA | $305.1 million / 12.7% margin | $300.1 million / 12.8% margin | +1.7%; margin down 10 bps |
| Operating cash flow | $169.7 million | $180.4 million | Down $10.7 million |
| Free cash flow | $86.6 million | $105.9 million | Down $19.3 million |
FY2019 basic and diluted EPS were $0.43, versus a loss of $0.18 per share in FY2018. Adjusted net income was $118.0 million, compared with $90.0 million. Adjusted EBITDA, adjusted net income, and free cash flow are non-GAAP measures; the company cautions that these measures have limitations and are not substitutes for GAAP results.
Segments and fourth-quarter results
- Maintenance Services: FY2019 revenue was $1,813.4 million, including $1,568.3 million of landscape maintenance and $245.1 million of snow removal. Segment Adjusted EBITDA was $282.0 million, with a 15.6% margin, down from $289.8 million and 16.3% in FY2018.
- Development Services: FY2019 revenue was $595.4 million; Segment Adjusted EBITDA was $81.7 million, with a 13.7% margin. Both revenue and EBITDA increased year over year.
- Quarter ended September 30, 2019: Revenue was $624.8 million and GAAP net income was $25.1 million. Adjusted EBITDA was $91.9 million and operating cash flow was $60.5 million. The filing presents quarterly results but does not provide a separate management discussion of year-over-year Q4 changes.
Liquidity, debt, and capital
- At September 30, 2019, cash was $39.1 million, current assets were $551.4 million, current liabilities were $332.7 million, and net working capital was $218.7 million.
- Total debt was $1,144.6 million, compared with $1,154.3 million a year earlier. Debt comprised a Series B term loan and receivables financing; the term loan matures in 2025 and bears interest at LIBOR plus 2.5%. Debt is primarily variable-rate.
- The company reported $165.9 million available under its revolving facility and $60.0 million under its receivables financing agreement. The $260 million revolving facility had no outstanding balance at year-end; $94.1 million of letters of credit were outstanding. The receivables facility has a $200 million capacity and is secured by substantially all accounts receivable and unbilled revenue.
- Capital expenditures were $89.9 million. Investing cash outflow was $145.5 million, including $64.0 million paid for acquisitions. Financing cash outflow was $20.3 million, including $143.0 million of debt repayments, partly offset by financing-facility proceeds.
- Management said operating cash flow and available borrowing capacity were expected to cover current obligations, projected working capital, debt service, and capital spending for the next 12 months. Debt covenants were reported in compliance at year-end.
Material changes, outlook, and risks
- Revenue increased by $51.0 million, including $89.8 million of acquired-business revenue in Maintenance. This was partly offset by a $35.2 million reduction from exiting underperforming contracts and the absence of $17.5 million of prior-year hurricane cleanup revenue. Snow revenue fell $7.2 million amid fewer and lower-volume snowfall events.
- Maintenance EBITDA and margin declined, reflecting the prior-year hurricane cleanup comparison and unfavorable weather effects on ancillary and snow services. More profitable maintenance contracts, exits from lower-margin accounts, and lower SG&A as a percentage of revenue provided offsets. Development results benefited from new project starts and a more profitable project mix.
- SG&A fell 6.0%, primarily because FY2018 included IPO-related costs and fleet rebranding expenses. Amortization fell 46.3%, largely because amortization of acquisition-related trademarks was substantially completed. Interest expense declined 25.9%, mainly following FY2018 debt repayments.
- FY2018 GAAP results included a $43.4 million tax benefit from the reduction in the U.S. corporate tax rate. FY2019 included $17.5 million of business transformation and integration costs and $15.7 million of equity-based compensation, among other Adjusted EBITDA exclusions.
- Since October 1, 2018, BrightView acquired six businesses with approximately $83.1 million of aggregate annualized revenue for $64.0 million. It expected $5.1 million of related integration costs, of which $2.5 million had been incurred by year-end; the remainder was expected in FY2020. No specific revenue, earnings, or margin guidance is provided.
- Key risks include seasonality and weather variability, labor availability and dependence on the H-2B visa program, wage and input-cost inflation, customer contract cancellations, fixed-price project estimation, acquisition integration, and substantial variable-rate debt. A 100-basis-point increase in rates was estimated to increase FY2019 interest expense by about $11.7 million. A securities class action alleges IPO disclosures omitted information about underperforming contracts and labor shortages; the company is defending the matter and could not estimate a possible loss or range of loss.
- The company expected adoption of lease accounting in FY2020 to add approximately $70 million of right-of-use assets and $80 million of lease liabilities, without a material expected impact on earnings, liquidity, or covenant compliance. No goodwill impairment was indicated by the July 2019 assessment, though goodwill and other intangible assets represented about 70% of total assets.
Important facts for investors to verify
- Whether underlying organic growth and maintenance margins improve after the managed exit of underperforming contracts and the FY2019 weather and snowfall effects.
- Actual acquisition integration costs, acquired-business performance, and the contribution of acquisitions to reported growth.
- Cash conversion and free cash flow, including working-capital movements, capital spending, and acquisition funding needs.
- Debt repayment capacity, variable-rate exposure, swap effectiveness, covenant headroom, and the transition from LIBOR to a successor benchmark.
- Developments in the IPO-related securities litigation, for which the possible financial exposure was not estimable in the filing.
- Labor availability, H-2B visa access, wage pressures, and the financial impact of lease-accounting adoption.