BrightView Holdings, Inc. — Form 10-Q Summary
Reporting period: Fiscal first quarter ended December 31, 2020; comparisons are with the three months ended December 31, 2019. BrightView provides commercial landscaping, maintenance, snow removal and development services in the United States.
Financial performance
| Metric | Q1 FY2021 | Q1 FY2020 | Change |
|---|---|---|---|
| Net service revenue | $554.4 million | $570.7 million | Down 2.9% |
| Gross profit / margin | $133.6 million / 24.1% | $143.0 million / 25.1% | Profit down 6.6%; margin down 1.0 percentage point |
| Operating loss | $3.6 million | $0.8 million | Loss widened |
| Net loss / diluted loss per share | $12.0 million / $0.11 | $12.6 million / $0.12 | Loss narrowed |
| Adjusted EBITDA | $52.4 million | $51.7 million | Up 1.4%; margin 9.5% vs. 9.1% |
| Operating cash flow | $5.1 million | $7.3 million | Down $2.2 million |
| Free cash flow | $(4.0) million | $(6.2) million | Improved $2.2 million |
Maintenance Services revenue was $418.0 million, down 0.2%; segment Adjusted EBITDA rose 4.0% to $49.6 million, with margin up to 11.9%. Development Services revenue fell 10.1% to $137.4 million; segment Adjusted EBITDA declined 10.5% to $17.1 million.
Balance sheet, debt and liquidity
- Cash was $81.6 million at December 31, down $75.5 million from September 30, 2020. Net working capital was $135.3 million, down from $183.0 million.
- Total debt, net, was $1,136.2 million, including $1,009.2 million of Series B term loans and $140.0 million under the receivables financing agreement. The $260 million revolving facility had no borrowings outstanding.
- Cash from operations was insufficient to cover capital expenditures; acquisitions were the main driver of investing cash outflow. Investing activities used $71.4 million, including $62.2 million for acquisitions.
- Management said cash generation 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 and management commentary
- Revenue declined mainly because Development Services revenue fell, including a $13.2 million COVID-19-related reduction and the effect of the BrightView Tree Company sale. Three businesses were acquired for approximately $62.2 million, net of cash acquired.
- Management attributed the lower gross margin principally to acquisition timing. Cost containment reduced SG&A, while COVID-19 response expenses increased; the company added back $7.5 million of COVID-19-related costs in its Adjusted EBITDA reconciliation.
- Interest expense fell 21.8% to $13.6 million, helped by a lower weighted-average term-loan rate (2.69% versus 4.36%) and interest-rate swap effects.
- The quarter is seasonally affected by winter activity and snowfall; management cautioned that quarterly results may not indicate full-year results. COVID-19 restrictions, customer demand and economic effects remain uncertain. No specific earnings or revenue guidance was provided.
Risks, contingencies and unusual items
- Key risks include COVID-19 disruption, customer retention and contract profitability, weather and seasonality, labor availability, fuel and material costs, acquisition integration, and substantial debt service and variable interest rates.
- A shareholder securities class action concerning IPO disclosures received final court approval for settlement in December 2020. The settlement is substantially covered by D&O insurance, subject to retentions; the company and individual defendants deny wrongdoing.
- Self-insurance reserves totaled $149.3 million. Management considered recorded reserves adequate. The filing states that ordinary-course legal matters are not expected to have a material effect.
- Acquisition purchase-price allocations remained preliminary. The company reported effective disclosure controls and no material change in internal control during the quarter.
Investor verification points
- Track whether Development Services demand and COVID-19-related revenue pressure recover, and whether Maintenance Services growth offsets them.
- Assess the sustainability of Adjusted EBITDA improvement, including the effect of excluded COVID-19, integration and equity-compensation costs.
- Monitor cash conversion, working capital, acquisition spending and liquidity after the quarter’s substantial cash decline.
- Review debt maturities, borrowing availability, interest-rate exposure and LIBOR replacement plans.
- Verify final acquisition valuations, integration progress, and any remaining settlement costs or insurance recoveries.