BrightView Holdings, Inc. — Form 10-Q Summary
Reporting period: The quarter ended December 31, 2019, BrightView’s first quarter of fiscal 2020. Amounts are in millions unless stated otherwise. The filing’s interim results are unaudited.
Business context
BrightView provides commercial landscape maintenance, snow removal, enhancements and landscape development services across the United States. It reports Maintenance Services and Development Services segments. Management describes many maintenance services as essential and non-discretionary, but results remain seasonal and weather-sensitive.
Financial performance
| Metric | Q1 FY2020 | Q1 FY2019 | Change / context |
|---|---|---|---|
| Net service revenue | $570.7 | $526.0 | Up 8.5% |
| Gross profit / margin | $143.0 / 25.1% | $131.9 / 25.1% | Gross profit up 8.4%; margin flat |
| SG&A | $130.3 | $110.2 | Up 18.2%; 22.8% of revenue versus 21.0% |
| Operating income (loss) | $(0.8) | $6.6 | Moved to an operating loss |
| Net loss / diluted loss per share | $(12.6) / $(0.12) | $(8.8) / $(0.09) | Loss widened |
| Adjusted EBITDA | $51.7 | $50.1 | Up 3.2%; margin 9.1% versus 9.5% |
| Adjusted net income | $10.6 | $10.4 | Up $0.2 |
Maintenance Services revenue rose 6.7% to $418.9, while segment Adjusted EBITDA fell 2.1% to $47.7 and margin declined to 11.4% from 12.4%. Development Services revenue rose 13.7% to $152.8; segment Adjusted EBITDA increased 12.4% to $19.1, with margin of 12.5% versus 12.6%.
Cash flow, debt and liquidity
- Operating cash flow was $7.3, compared with $6.4. Capital expenditures were $14.5, and reported free cash flow was negative $6.2, improving from negative $9.1.
- Investing cash outflow was $31.9, including $18.4 for acquisitions. Financing cash outflow was $4.2. Cash fell $28.8 during the quarter to $10.3.
- Reported total debt, net of financing costs, was $1,142.9 at December 31, 2019, versus $1,144.6 at September 30, 2019. The $260 revolving credit facility had no balance outstanding. The receivables financing agreement had $140.0 outstanding against $200.0 of stated capacity.
- Net working capital was $179.9, down from $218.7 at September 30, 2019. Management said cash, operating cash flow and available borrowing capacity should fund obligations, working capital, debt service and capital spending for the next 12 months. The company reported compliance with debt covenants and no default.
Material changes, outlook and risks
- Revenue growth reflected acquisitions, higher Development Services project volume, and increased snow revenue. Snowfall was 106.1% of the historical 10-year average for the quarter, compared with 83.4% in the prior-year quarter.
- Management attributed higher SG&A partly to acquired-business overhead, integration costs, incentive compensation, equity compensation and employee costs. Business transformation and integration costs were $8.3, versus $4.3; Adjusted EBITDA also excludes other items, including equity-based compensation.
- Management provided no specific earnings or revenue guidance in the supplied filing text. It noted that revenue and earnings are typically higher in fiscal third and fourth quarters, and that weather and seasonal patterns can materially affect quarterly results.
- The company adopted the new lease standard on October 1, 2019, recording an operating lease right-of-use asset of $70.6 and lease liability of $76.3 at adoption. It said the change had no material impact on results, liquidity or covenant compliance.
- A securities class action relating to the 2018 IPO was ongoing, with discovery underway. The company said it could not determine a possible loss or range of loss and intended to defend itself. It reported no other known legal matter expected to have a material effect.
- Key disclosed risks include customer retention and contract profitability, labor availability, acquisitions and integration, weather and seasonality, fuel and material costs, debt service and variable interest rates, and the ability to generate cash or access financing. Management identified no material change to previously reported risk factors.
Important facts for investors to verify
- Whether organic growth and contract retention can sustain revenue growth as acquisition contributions and managed exits affect the business.
- Whether Maintenance Services margins recover and whether higher SG&A and integration costs moderate.
- Cash conversion, working-capital movements, acquisition spending and the trend in available cash and borrowing capacity.
- Debt terms, interest-rate exposure and refinancing needs, including the effect of any replacement for LIBOR.
- Developments in the IPO-related securities litigation and any change in the company’s ability to estimate potential exposure.