BrightView Holdings, Inc. — Form 10-Q Summary
Reporting period: Fiscal second quarter and six months ended March 31, 2019; year-over-year comparisons are to the corresponding 2018 periods. Financial statements are unaudited. Amounts below are in millions unless otherwise stated.
Business context
BrightView provides commercial landscaping maintenance and enhancements, snow removal, and landscape development services across the United States. Its reportable segments are Maintenance Services and Development Services. Operations are seasonal and weather-sensitive.
Key financial results
| Metric | Three months 2019 | Three months 2018 | Six months 2019 | Six months 2018 |
|---|---|---|---|---|
| Revenue | $596.6 | $590.4 | $1,122.7 | $1,141.5 |
| Gross profit / margin | $146.1 / 24.5% | $142.2 / 24.1% | $278.0 / 24.8% | $284.8 / 24.9% |
| Operating income (loss) | $12.8 | ($4.9) | $19.5 | ($13.2) |
| Net loss | ($3.6) | ($22.1) | ($12.4) | ($2.7) |
| Adjusted EBITDA | $61.1 | $51.6 | $111.2 | $118.0 |
| Adjusted EBITDA margin | 10.2% | 8.7% | 9.9% | 10.3% |
| Interest expense | $18.9 | $25.1 | $36.1 | $50.0 |
Basic and diluted loss per share was $0.04 for the quarter and $0.12 for the six-month period, versus $0.29 and $0.04, respectively, in 2018. Adjusted EBITDA is a non-GAAP measure.
Cash flow, debt and liquidity
- For the six months, operating cash flow was $64.7, versus $79.2 a year earlier. Capital expenditures were $42.6; free cash flow, a non-GAAP measure, was $25.1 versus $36.6.
- Cash was $11.2 at March 31, 2019, down from $35.2 at September 30, 2018. Net working capital was $156.9, down from $199.7.
- Total debt, net, was $1,157.8, including $1,147.5 of long-term debt and $10.4 current maturities. The $1,026.7 Series B term loan is due 2025. The company reported no balance outstanding on its $260.0 revolving credit facility at quarter-end.
- The receivables financing facility was amended to increase capacity to $200.0 and extend maturity to February 2022; $150.0 was outstanding at March 31, 2019.
- Management said cash from operations and available borrowing capacity should cover 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 and management commentary
- Quarterly revenue grew 1.1%; Maintenance Services rose 2.9%, while Development Services fell 5.4%. Quarterly segment adjusted EBITDA increased in Maintenance Services and declined in Development Services.
- Six-month revenue fell 1.6% and adjusted EBITDA fell 5.8%. Development Services revenue declined 6.5%, reflecting completion of large prior-year projects. Maintenance Services revenue was approximately flat.
- Acquisitions contributed revenue, but managed exits from underperforming contracts reduced Maintenance Services revenue. Six-month snow revenue was affected by less frequent and lower snowfall: snowfall was 82.6% of the historical 10-year average, versus 87.7% in the prior-year period. Lower hurricane cleanup revenue also weighed on results.
- Lower amortization and interest expense helped quarterly operating results and reduced the net loss. The comparison of six-month net losses was affected by a $41.4 tax benefit recorded in the 2018 period from remeasurement of deferred taxes under the Tax Act; the 2019 six-month tax benefit was $4.5.
- The company spent $49.3 on acquisitions in the first half. Capital expenditures were $42.6. Management cited acquisition integration, efficiency initiatives and continued contract exits as relevant operating factors.
Outlook, risks and contingencies
- No specific revenue, earnings or cash-flow guidance is provided in the filing. Remaining performance obligations for contracts with original durations over one year were approximately $292.0; the company expected to recognize 65% over the next 12 months and the remainder over the following 12 months. This excludes several categories of contracts, including those with durations of one year or less.
- Key disclosed risks include seasonality and weather, labor availability and retention, customer contract retention, cost inflation in fuel and materials, acquisitions and integration, and the ability to generate cash to service substantial debt or obtain future financing.
- Two purported class actions were filed in April 2019, after quarter-end, concerning the IPO. The complaints allege that IPO disclosures omitted information about underperforming contracts and labor shortages, including H-2B visa hiring. BrightView intends to defend itself and said it cannot estimate any possible loss or range of loss.
- Self-insurance reserves were $126.9 at March 31, 2019. Management considered recorded reserves adequate. The filing states that no other known legal matter is expected to have a material effect, individually or in aggregate.
- The company adopted the new revenue recognition standard in fiscal 2019; it reported an immaterial effect on timing and no significant financial statement impact. It anticipated increased lease assets and liabilities upon adopting the lease standard in fiscal 2020.
Important facts for investors to verify
- Whether Maintenance Services growth and margin improvement can continue, and whether contract exits or customer turnover will further affect revenue.
- How Development Services project timing and segment margins develop after the decline in the first half.
- Cash conversion, receivables collection, seasonal working-capital needs and availability under the receivables facility.
- Debt service capacity, interest-rate exposure and the terms and availability of committed borrowing facilities.
- Developments in the IPO-related litigation and any later estimate of potential financial exposure.
- The reconciliation and comparability of non-GAAP measures, including Adjusted EBITDA and free cash flow, to GAAP results.