Q1 2020 Earnings Call
Good morning, and welcome to bright.
2021st fiscal quarter earnings Conference call.
As a reminder, this call is being recorded.
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After the speaker's remarks, there will be a question and answer session.
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The earnings press releases are available on the company's website investor Dot Dot com.
Additionally, the online web cast includes the presentation slides, so that will be referenced as part of today's discussion.
Before we begin the company would like to remind listeners that some of the comments made today, including responses to questions and information reflected in the presentation slides will be Ford looking and actual results may differ materially from those projected.
Please refer to the company's recent FCC filings for more detail on the risks and.
Certainties that could impact the company's future operating results and financial condition.
Comments made today will also include a discussion of certain non-GAAP financial measures.
Also reconciliations to the most directly comparable GAAP financial measures and the other associated disclosures.
Our contained in the measures.
The earnings release on the company's website.
Disclaimers on forward looking statements a non-GAAP financial measures apply both to today's prepared remarks as well as the keep an eye.
This does and will include references on todays call to organic revenue.
Then the maintenance services segment.
Which consist of underlying commercial landscaping revenue from snow removal services net of managed egg sets.
The company believes that this measure provides a more complete understanding of the factors and trends affecting the business.
Finally, unless.
Otherwise stated all references to quarterly year to date or annual results for periods refer to our fiscal years, ending September thirtyth and each respective year.
Today the company is presenting the unaudited results for the three month period, ending December 31st 2019.
I'll now turn the call over to bright views CEO Andrew Masterman. Please go ahead Sir.
Thank you Jacob.
Good morning, everyone and thank you for joining us today.
This morning, we're going to take you through our results for the first quarter fiscal 2020 as wells provide an update on the key strategic.
Cedric initiatives that we remain sharply focused on.
Turning to our executive summary on slide four today, we are reporting results for the first quarter fiscal 2020.
Total revenue grew 8.5% mcwhorter versus the prior year period underpinned by positive organic revenue growth in both.
Both of our operating segments.
Revenue in our maintenance segment benefited from increased no contracts Ampyra overall snowfall volume and our strong Armstrong M&A strategy, which continues to be a reliable and sustainable source of revenue growth for a company.
These benefits more than.
The negative impact from the final tale of our minute exit strategy. Additionally, as expected the development services segment delivered a second straight quarter of double digit growth again, demonstrating the robustness backlog would you showing no signs of slowing down as we continue through fiscal 2020.
These results represent the highest revenues ever generated in each segment during a fiscal first quarter.
Adjusted EBITDA for the quarter showed positive growth and was largely inline with our guidance and expectations.
As we exit the first fiscal quarter and the board we remain confident in our ability to deliver.
I guess the full year 2020 guidance total revenues between 2.465 in $2.5 billion to $5 billion and adjusted EBITDA between 312 and $320 million.
Fundamentals of our business remains strong and our position in the industry continues.
The upper opportunities for us to capture.
Additionally, as we look back on our quarterly adjusted EBITDA results over the last three years, we are encouraged.
For the 12 month period, ending December 31st 2018, we generated approximately $284 million of adjusted EBITDA.
For the comparable 12 month period, ending December 31st 2019, we generated approximately $307 million of adjusted EBITDA up 8.1%.
Assuming an average snowfall during the rest of 2020, we believe we can continue on this trajectory, which positions us to meet her guidance.
And continued driving shareholder value for investors.
Moving now to our 2021st quarter results on slide five total revenue grew 8.5% in the quarter with both the maintenance and developments segments delivering strong results driven by record revenues for first fiscal quarter.
First.
Total revenue in the maintenance segment grew 6.7% versus last year and this result included a 5.9% were $23.2 million incremental contribution from acquisitions as we benefited from the wrap around M&A transactions completed in 2019 as well as recent deals completed during the first quarter.
Excluding manage exit organic revenues inclusive of snow removal services were up 1.2%, a $4.9 million versus the prior year quarter.
This was driven by expanding snow removal revenues, which were up $6 million, representing a 12.5% increase versus the prior year.
Although storm it will services provided and.
Overall favorable revenue tailwind, the cadence and geographies of how and where this don't materialize did not offer the most optimal margins.
Markets experienced the most snow and Midwest and Rocky Mountain regions are made up primarily a fixed fee arrangements, which carry lower margins due to the fixed recurring nature of the business.
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Firstly, our mid Atlantic region, which operates under variable billing arrangement. It carries higher margins due to the complexities of managing in a variable environment experienced very little snowfall at all.
Commercial landscaping revenues in the quarter were down about a million dollars. Some of this due to the impact increased snowfall had an era.
Ability to complete ancillary projects in the seasonal markets.
And the winding down of some green contract work in our seasonal markets that will be offset as we ramp up in the spring.
We expect the net impact of contract wins and losses to right size and become positive when we began servicing those new contracts later in the year during.
And the grain season.
Also we are absorbing the final, albeit small quarterly impact of the managed to exit strategy. In this quarter. This is the final quarter that we'll be reporting on this initiative.
Lastly, the development segment maintained its strong momentum into 2020 with its highest first quarter revenue contribution ever.
Revenues were up 13.7% versus the prior quarter.
We're pleased with the overall revenue growth profile for the quarter and we continue to see momentum in both segments not only in what we recognized this quarter, but also the positive leading indicators for both businesses new sales in the maintenance business are ahead of last year's strong pace.
And the backlog in our development business for the balance of fiscal 2020 remains robust more on that in a minute.
Turning to slide six wanted to provide a quick update on the critical investments, we're making in technology and her team members.
As you know we have completed the rollout of our electronic time.
Sure in our development segment.
Continuing to drive full utilization by our team members across the enterprise the increase visibility provided by electronics and capture is enabling our operational leadership to more effectively and efficiently manage our workforce.
We have shifted into the next phase or further integrating the salesforce CRM.
Where into our business and our account managers and other customer facing team members are benefiting from the enhanced visibility into our current and prospective client base.
Both the H. away connect and BB connect portals continued to receive favorable reviews from our customers as they experienced ease with which.
They can seamlessly communicate with great view on how to manage their properties and meet their needs using these proprietary digital channels.
And finally, we have continued to invest in our decentralize sales team, which has grown from 180 at fiscal year end to over 200 at this point in time all of them are working directly with.
Our branch level leaders to locally sourced and validate new business opportunities and our high touch industry.
We're already seeing positive signs from this investment as I mentioned earlier maintenance new sales are ahead of last year's pace and effect are the strongest results we've experienced over the last four years. This.
As evidenced that the continued investment and redesign of our sales team is working.
The team is producing more stable customer portfolios and stronger new business pipelines to support future growth in our underlying maintenance business.
And as I mentioned in the past new sales wins during the first half of the year a strong.
Indicator of how revenue will trend in the coming quarters, particularly during the green third and fourth fiscal quarters.
Our ability to continue to invest in our people and industry, leading technology is a key differentiator in a better benefit of the scale a bright.
Well, we maintain a thoughtful and disciplined approach.
How we utilize our capital.
Uniquely positioned in our industry to pursue multiple value added investment opportunities.
We believe will further enable our organic growth capabilities, while continuing to drive long term shareholder value.
On slide seven we provide a similar recap as we have enough.
Past of the companies that have joined break through our strong Armstrong M&A strategy over the last three years.
We reported last month. The addition of two more talented teams along with their attractive customer portfolios.
Somewhat landscape group, serving customers across the Carolinas, and Nashville, Tennessee and signature coast serving.
Summers and northern California, and Nevada.
These transactions strengthen our presence in several attractive evergreen and seasonal markets.
We're excited to welcome Mike Steven the entire summit team consisting of 180 skilled landscapers to the bright view family Megan Steve along with their senior leaders will remain.
With the business.
We're also proud to welcome the 600 members of the signature coast seem to break view.
Signature codes is a top 50 landscape services provider and the second largest acquisition. We've made since the 2017 inception of our strong Armstrong acquisition strategy.
Over the coming.
It's in years, we will work with Kelly Soma and along with other senior leaders from the organization leveraging their talents to consolidate our strong position and these incredibly important evergreen markets.
As the acquirer of choice in our industry These acquisitions, Mark our 17th and 18th acquisitions.
Since 2017, and we have learned a tremendous amount for every one of them. We've continued to evolve and enhance our integration approach with every acquisition based on what we learn from the past.
More specifically, we've started engaging with branch level leadership earlier in the process to identify ways to accelerate.
Growth, especially in attractive markets like Reno, Napa, and Charleston, South Carolina.
We've also started to accelerate our pace of integrating acquisitions into existing branches. When we have an established presence in that geography.
We are excited about our progress and plan to continue taking advantage of a track.
Attunitys such as the ones I, just described to consolidate our fragmented industry driving profitable long term revenue growth for bright view.
Finally, before I turn the call over to John I wanted to discuss another focus area breakthrough on slide eight which is our commitment to environmental sustainability. So.
Total responsibility and corporate governance or yesterday.
Over the last few years, we've made significant strides in each of these areas to ensure that is the leader in the landscape industry. We're also on the forefront of commitment fee.
These concepts are important to all stakeholders the communities, where we offer.
Operate our employees, our customers and our stockholders.
As it relates to environmental sustainability right view as a leader in the use of environmentally responsible equipment and techniques, including zero, we Mitchell zero emission commercial lawn mowers state of the our comp water conservation.
Okay and end of it the landscape practices, such as green roof installations, LEED certified landscape consulting waste reduction programs as your escaping.
Right view is currently the nations largest purchaser of zero emission commercial landscaping equipment. We've also been honored for helping clients conserve.
For the millions of gallons of freshwater each year through innovative irrigation technology and design strategies.
On the topic of social responsibility, we have been laser focused in many areas, including diversity and inclusion in the workplace. This past quarter, we celebrated the second anniversary of an employee advocacy.
The group for women that bright view the name of the group is grow which stands for growth in relationships and opportunities for women being an industry that has made a predominantly a males. I thought it was critical that we take the lead and changing this dynamic grows mission is to advocate for the recruitment retention and promotion women at bright view.
ROE has grown from an idea to a group of hundreds of women across the enterprise actively participating to advance the mission.
Im personally involved and grow and serve as the executive sponsor along with Amanda orders right views recently promoted chief Human Resources Officer, and co founder of grow.
I congratulate the members of grow on their second anniversary and look forward to continued progress in year three.
On the heels of the success of grow we just rolled out another internal employees support group that is focused on advocating for former members of our armed forces.
Rabo, which stands for bright view recognizing an.
Waiting for veterans opportunities will support the current and future members of the bright view family that a bravely served to protect their country.
The new group is in the early stages of assembly, but I look forward to continued progress and engagement with these team members.
And finally, we have freight view and our board.
Of directors remained committed to driving a best in class corporate governance structure.
This was evidenced by the appointment of two new independent directors during fiscal 2019.
Half of our board now consists of independent directors half of whom are women and all of whom bring a wealth of executive level leadership.
Experience and expertise from across a broad spectrum of industries.
As we move forward, we will continue to work on identifying and pursuing areas of opportunity to lead the charge in all facets of the landscaping industry, especially as Jay.
I'll now turn it over to John who will discuss our financial performance in greater detail.
Thanks, Andrew and good morning, everyone.
Let me start with a snapshot of our first quarter results on slide 10.
As you have already heard total revenue for the company was up in the quarter on the back of increased snow removal revenues in the maintenance segment.
The strong book of business in the development.
Segment.
And the continued revenue contribution from our M&A activities.
Our adjusted EBITDA totaled $51.7 million up 3.2% versus the prior year.
At the consolidated level.
Our results were right in line with our expectations for the quarter.
We were able to deliver overall growth.
While funding additional investments that we believe will allow us to drive even stronger new sales results.
Improved client retention and further streamline our service delivery in the maintenance segment.
Turning to the detailed on slide 11 as.
I mentioned total adjusted EBITDA for the first quarter of 2020.
Was up 3.2% at $51.7 million.
This was driven by solid snow results, although muted in one of our historically strongest regions.
Momentum in our development services segment.
Plus.
Management of corporate expenses.
The maintenance segment's adjusted EBITDA declined by 2.1%.
Which led to a 100 basis point margin contraction.
Versus the prior year quarter in this segment.
This decline in profitability was primarily driven by higher.
DNA spend in the segment related to the timing of certain variable compensation expenses.
What was the increased people and technology investments mentioned earlier.
These two factors amounted to approximately 3.5 million dollar of headwind in the quarter.
Additionally, while.
Overall, we experienced higher snow volumes year over year.
The profitability contribution from snow was not enough to fully offset the cost of this investment.
Due to the lower snowfall realized in the mid Atlantic region.
Which is generally a higher margin book of business for bright view.
Profitability in the.
And segment grew roughly in line with revenue with adjusted EBITDA up 12.4% versus the prior year quarter.
The segment's margin of 12.5% was down 10 basis points in the from the prior year due to the timing of certain variable compensation expenses in the quarter.
To partially offset by increased maintenance SGN a span.
We implemented several initiatives to reduce centralized costs.
As a result.
Operating expenses were half a million dollars lower versus the prior year quarter.
And represented 2.6% of revenue down 40 basis points as a.
Vintage of revenue.
Let's take a look at our capital expenditures and capital allocation on slide 12.
Net capital expenditures for the quarter were $13.5 million.
Representing 2.4% of revenue, which is in line with our expectations.
Our long term framework.
As you May recall, we saw an uptick in capital expenditures expenditures in the second half of fiscal 2019.
Driven by some opportunistic investments as well as some accelerated purchasing to prepare for the snow season.
We're now seeing no spend levels.
Come back in line with our longer term targets.
Net debt decreased $6.3 million compared to the prior year quarter.
Our leverage ratio for the quarter was 3.8 times compared with our prior year Q1 leverage ratio of 4.1 times.
We are pleased with this.
Ill.
And as stated previously with our adjusted EBITDA guidance range and improved cash generation, we expect our leverage ratio to be at or below 3.5 times by the end of fiscal Twentytwenty.
Before I turn the call back over to Andrew Let me reiterate investor cheating can.
Made earlier in the call.
With first quarter results in line with our expectations.
And the continued marketplace opportunity ahead of us.
We remain confident in our ability to deliver against the full year Twentytwenty guidance, we shared on our last call.
On slide 13, you'll see.
Recap of what we shared on that call.
We believe we are on track to deliver total revenue between 2.465 and $2.5 billion to $5 billion.
Adjusted EBITDA between 312 and $320 million.
Net capital expenditures.
Between two and a half and 3% of revenues.
Our assumptions are for the maintenance segment to grow organically between one and 3%.
The development segment to grow between one and 2%.
And acquisitions to deliver at least $60 million and realized revenue.
Including about.
$30 million of wrap around from 2019.
Our guidance range for total revenue and adjusted EBITDA contemplates average snow removal revenue for the rest of 2020.
Finally, our improved cash generation should continue to support our M&A strategy, while also allowing us.
To reduce our leverage to 3.5 times are lower by the end of fiscal 2020.
With that I'll turn the call back over to Andrew.
Thank you John.
Turning now to slide 15 overall, we're pleased with our first quarter results, we were able to continue delivering top.
And bottom line growth and remain encouraged by many of the underlying positive trends that we're seeing in both of our segments. Our new sales in the maintenance segment are the highest they've ever been and as I've mentioned in the past represent a strong indicator of our revenue will trend in the upcoming quarters.
Development services delivered a second straight quarter of double digit growth with a backlog that shows no signs of slowing down through fiscal 2020.
And we were able to deliver overall adjusted EBITDA growth, while increasing our investments in field based sales and operations leadership to drive even stronger new sales.
Results improved client retention and further streamline our service delivery in the maintenance segment.
Additionally, our M&A pipeline shows no signs of slowing down and has delivered a reliable source of growth for three years running.
We are excited about our progress and plan to continue taking advantage of.
The opportunities to consolidate our fragmented industry and drive profitable long term growth for price.
Thank you. Thank you for your interest in bright view and for your attention. This morning, we will now open the call for your questions.
As a reminder for any audio.
Questions. Please press star one now on your telephone keypad, if you've already ask your question, but it has been answered. Please press the pound key to withdraw it now.
We will pause for one moment to compile the roster.
We have a question from Judah Sokel.
Hi, Good morning, Thank you for taking my question.
Good morning good.
Just wanted to ask a question about M&A I know the guidance is still for the same $60 million in fiscal 2020, despite making these.
Two skilled acquisitions I assume that's because you already.
You already incorporating these two deals.
In the previous guidance, knowing that it within the pipeline, but maybe just help help us thanks to the math you mentioned $30 million wraparound.
And now it looks like you made a couple of deals I would've thought that that would have brought us.
Bob incremental 30 million to really be bring us above that 60 million well above 60, So maybe help us think through the math of.
Contribution you had from previous field as well as these new deals. Please. Thank you sure sure drew to.
When we look at what Weve been able to accomplish with the four deals that we've been able to do since the beginning of the since beginning of the quarter, Yes, you're right.
We during the earnings call last time, we'd already know known about two of.
Those four deals, but that being said, we do believe there's some upside in the overall revenue from an M&A with these deals we've already completed.
It's just.
As we look at the entire picture and we still have the uncertainties around the ancillary flow through as we get into the second quarter, we'll be able to give an update.
Right.
That on the next call. In addition, we when it comes with a full year outlook for the company reality. There still is the remaining second quarter in the so our mobile services, which we have to.
I understand what those are through the second quarter before we can give an overall updates the impact.
Just a quick.
Understood.
Just one other quick question as far as development organic revenue growth is concerned.
Two straight quarters of double digit organic revenues in development.
Yes, the guidance is still for once 2% for the full year. So maybe help us understand why is that going to slow down so materially it sounds like the pipeline.
No it's fairly strong so just trying to understand the cadence.
Panic revenue growth in development. Thank you sure yes.
And the organic revenue growth continues the pipeline continues to be strong for development, we're not fully booked for the entire year, yet although there are very strong indications that bookings pace.
That being said the second quarter, we expect this quarter I sort of the first quarter. We expect this quarter to be the highest revenue growth quarter for the development segment throughout the whole year, given what we see going forward as we continue to layer in and book.
For development over the next several months again as we get into May.
We'll be able to give you a better feeling as you note development is a project base business.
Overall, given the breadth and size we are it does provide a fairly stable level of revenue growth in revenue for the company and we'll be able to again to give a better visibility as we complete and we should be more or less complete with our bookings.
Profile into 2020 and within the next several months.
Alright, thank you.
Thank you.
We have a question from him some I'm sorry.
Hi, This is merial corelogics filling in for Hamzah.
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Just curious about.
The the investment in sales and operational leadership and didn't know if that was to retain some talent. We know there's some some tightness in the labor market on the field side homage to know if you're also seeing on the management side.
Lastly, could you also maybe give us an idea of what you're thinking about or what you're looking at bat for in for wage inflation in 2020.
Yeah.
Mario Good morning. This is John I will talk about the.
The degradation in the quarter on the on the maintenance margins first and then.
Answer your question.
We reported a 100 basis points of of degradation in margin I want to be very clear that those were didnt deliberate decisions.
That we're focused in the SGN a side.
We added the additional field head count and operational resources.
In addition, this technology to support that Salesforce through CRM and that was the main driver that that 100 basis point degradation. The.
The piece was just around some timing and better snow performance on our incentive comp.
And then as we as we talked about the M&A when they first come in there they're lower from a margin standpoint versus our process of 12 to 24 months to getting them up to our our level. So that was a smaller piece of.
Of that walk as far as on the labor side.
We really havent seen anything.
Different.
As far as wage inflation, we factored in our modeling.
4% to 5%, that's what we've consistently seen.
We've been able to manage that I think quite.
Well.
And I think the other telling thing in the quarter, that's not as evident.
So if you look at our gross profit.
In the quarter, which we disclosed we're dead nuts flat year to year, and I think Thats, a testament to our ability to continue to focus on pricing and other efficiencies and productivity.
To offset any labor inflation.
Great and Walmart I'll turn it over.
Yes, so what we're seeing in other sectors and other roll up stories is that to some urgency from sellers specifically in private or are smaller businesses, just trying to get it done before the election was just some unknown.
Tax consequences, depending on who is an office didn't know if you're seeing the same thing in the landscaping industry.
You know over the last shows this is Andrew speaking.
Over the last several years, we've seen a fairly robust M&A pipeline I can't say that has dramatically changed one way or another I can say that we continue to see a very strong.
Long pipeline.
And we are engaged in any given time with a dozen companies across the country that really are looking at potentially joining great view what stays is.
Our discipline is that we're looking at strong companies with our strong on strong strategy and we'll continue to be that discipline, but I'd say.
Theres really no dramatic or different.
Some degree of quality or of size of the pipeline that we see.
Great. Thanks, so much.
Thank you.
We have a question from Kevin Mcveigh.
Great. Thanks, Hey.
Given that.
The strength on the maintenance side or on the development, rather I wonder if we can just revisit fresh kind of sensitivity on kind of the development and how that ultimately translates into maintenance.
In terms of the sensitivity from a revenue perspective, and then just.
From a margin perspective, do you think will continue to see kind of the.
Im historical.
Deltas or do you see any kind of NARIET those those margin trends within maintenance as opposed to development.
Well take the first part of your question on development is we see a continued strength within the overall development business.
It's as we actually see given the fact that we have.
25 branches across the country looking at projects in most every major metropolitan area.
I think that the revenue side that we see in development is a fairly steady indicator don't see it don't see it coming down and in fact, we're looking at projects now.
That extend out into 2021 and 2022, so well we still do have some room to fill in our guidance or fill in the development backlog for this year. The inquiry is going out into future periods continue to be quite strong and we remain.
Very optimistic on where the development falls.
Within that.
So the development conversion into maintenance.
Historically, we see some projects move into maintenance, but the the nature of the customer is different the development customer is a general contractor in general the maintenance customer tends to be a property manager our property owner, so that really differently shifts.
But how the nature of the transaction occurs between our development customers at our maintenance customers that being said handoff happens between roughly 20% to 25% of times and continues to be a good pipeline of opportunity for our maintenance group.
And your second question was on maintenance margins is that right.
Yes, the margins tend to maintenance versus development and if you should expect any kind of you know that relative spread to continue or narrow overtime.
Yeah, Kevin This is John ill take down one look.
Good morning, we we still expect to see differentiation those margins.
I don't see them.
Engine.
The near term or are we look out.
There.
There there are different types of businesses.
Different cost structures different gross margin profiles et cetera, et cetera, and that translates into the bottom line, where we have historically seen.
Deferred.
French operation in the EBITDA margins of the maintenance versus development, we don't expect that too.
To come closer together or to differentiate widely versus what we've seen historically.
Super Super and then just real quick on the snowfall can you remind us.
What the differences in terms at the margin on the six contracts versus.
Area Boland.
What the mix is overall.
Well number one we don't really breakout between snow margins, but I can tell you that in general across the industry. As you go to more predictable high snow areas typically in the north like Boston.
Troy.
Great Chicago, Colorado, Denver places like that those tend to have fixed fee arrangements, which which means you're paying a certain service fee, regardless of whether its nose or not and then when you go down into some of the less predictable areas such as Washington, DC Baltimore.
Delaware North Carolina places all the way it pretty much in the mid Atlantic and some of the southern northeastern areas like Philadelphia.
You see there is a pricing model that is much more variable in nature.
In periods, where it's those on average it can be well within the guidance of what we gave.
I would kind of its a very solid business in times when it does though a lot you have to carry the extra fixed costs to support that when it does know you can actually actually see a nice benefit because of the deployment to those folks were waiting for.
Got it and just one quick follow did that factor into kind of the decision earlier in the year to.
Increase the in sourcing.
In some ways. It doesn't mean the in sourcing idea that we have especially in our fixed fee markets. We have a revenue stream, which which is pretty much.
Quite predictable so that allows us to build our teams to provide more stability for the labor.
As to allow us to than utilize those employees in both the predictable fixed be fixed fee type arrangements, and then cascade that right into the green season.
Thank you.
Thank you we have a question on from Andrew Wittmann.
Great. Thanks.
Let me go back to the first question to ask a little bit different way.
On the revenue guidance and you guys touched on this and you said that you thought at least on the revenue side there is some upside but.
Like there might be maybe more upside or I want to understand this little bit more because previously talked about 30 million of wrap from last year and that is the last conference call you us.
Theres 20 million already factored in June you'd closed for this year as over the last conference call. So you only had a $10 million hold the Phil.
And since then you've had two acquisitions and one of these looks like it's pretty big.
I mean, just based on head count alone at this kind of feels like these two acquisitions combined to deliver I don't know somewhere in the.
$50 million of annual revenue.
So three quarters of that.
Would imply probably about $40 million revenue this year.
Which should be more than the 10.
Pull that you had to fill so I mean.
Why why isn't revenue substantially higher than high end are coming in above.
Plant.
Yes, Andy this is Andrew.
Yeah, you're right as we look at the overall basis for what the acquisitions coming in at.
At this point in time relative to M&A, we would expect the revenue as with the deals we've already done to come in 20 million plus.
Kind of where we're sitting although.
So when it comes to the overall company just as we as we've said, we just don't know exactly where snow revenues actually come in for the quarter as long as snow revenues come in at the average.
What we forecast for 2020 with the remainder of the year.
We would expect as we get into the May period.
To be looking at a positive move on the overall revenue as long as that's no revenue comes out.
Thank you can use that you're correct in your analysis of looking at the overall capital deployed in the new deals there should be able to to be calling up that that.
That M&A side of the business. Okay. Okay. That's helpful and then just as.
It relates to the margins I guess this is probably for John.
Basically the three and half million that you called out for the investments that you made in the PNM will explain the maintenance segment's margin.
Entirely I guess my question is on the on a go forward basis, John I mean these investments are are.
Early part of the TNL.
Now and I was just wondering if as you look over the next couple of quarters.
If you continue to see that the maintenance segment margins, we'll see some of these headwinds I know that snows.
Factor as well so I was hoping you could tease out how the puts and takes work out here for the margins as the year goes on I mean.
Maybe the other way of asking that question would be when do the compares are when are these investments in the base, where you can start again, showing some margin lift inside of the maintenance segment.
Yes.
Great question Andy.
You know I think as we as we as we reiterated.
Good.
And reaffirmed our full year guidance I think thats, that's that's pretty important as a starting point.
This quarter was impact will be the highest for the year.
You're right there will be impacts in future quarters, but as our revenue growth.
There will be to a lesser.
Degree and again this was all contemplated when we developed.
Our full year guidance.
I think at the end of the day. We also historically said or read recently said for a full year guidance, but the second half of the year would be stronger than the first half of the year. We always we obviously have to.
The snow to contend within the second quarter, so that's a little bit harder to predict but once we get into the green quarters and in the back half of the year, we expect to see some some improvement I think any headwind that we could expect would be really related to the M&A right and exactly what we've said and what.
We've been able to demonstrate.
Historically with our results.
No. They come in you know somewhere between 10 and 12% on an EBITDA margin basis, depending on the business and then over time, we're able to get those up to our.
Add three or 400 basis points to it I wouldn't expect any difference the Andean that cadence this year, but this quarter was definitely.
Probably the highest regarding yesterday it was a deliberate decision.
As I said, it's why I mentioned, the gross profit I'd be more concerned if there were issues there, but this was a controllable and we think it's the right thing to do.
Okay. That's very helpful. Thank you very much sure.
Thank you. Our next question comes on George Tong.
Hi, Thanks, Good morning, your lubricate maintenance revenue this quarter was impacted by lower ancillary sales in the wind down of certain contracts can you elaborate on these headwinds and specific initiatives you have to re accelerate organic growth in landscape.
And.
Yes, sure George it really when it comes down to.
You have the maintenance organic growth side, we did have the positive on the snow contract growth.
That was offset somewhat by the timing admit it was pretty much as the timing of wind down of some contracts and the ramp up of others primarily on the seasonal.
It was really the seasonal segment that had the biggest impact.
And you can imagine one contract coming coming off before the then start up again, that's what caused a little bit the relatively small gap, we had combined with the fact that with the additional snow that we primarily based on our Midwest Midwest and Rocky Mountain regions. If you can recall.
It was there was no in October and November was a pretty early start to the snow season, so by by that happening with that early start we weren't able to get all the ancillary projects that were necessarily on the books, we believe as we get into the busy season as we get into the green season that latent demand will reset resurface as well as the fact with these.
Increased sales folks coming into the business, we should start seeing incremental growth when it comes to incremental above where we where we had last year.
On the sales through that incremental sales team, it's going to have an impact in 2020 and has to have an even bigger impact in 2021.
Got it.
That's helpful and then with respect to margins can you confirm if you're reiterating your guidance of EBITDA margin expansion of 10 to 30 Bips in fiscal 2020 and discuss the puts and takes l. determined where within this range you land.
Yes, we definitely.
As we set up for enjoyed weve.
We reconfirmed our guidance on.
The revenue.
And the EBITDA and obviously those margins are what they are.
Taking a long term guidance, we've not wavered on our objective to deliver incremental margin improvement of 10 to 30.
Turn to.
He bips.
As we said is well we feel the second half of the year will be stronger.
Then the first half assuming normal weather you know.
Dealing with some of these investments, which we think bode well for the business long term, but we were we're quite confident and being able to.
See improvement in organic growth in the land maintenance business in the second half of the year, which should we should have very good results took to the bottom line you know what could be risks there.
Unfavorable weather, we had too much rain in the second half of the year, if we don't get as much enhancement.
Penetration.
That could be a headwind.
In labor labor can always be potential headwind, but I think we're managing that quite well on the plus side. We have a maturing sales team. We got a number of initiative to improve our retention and I think the CRM that be investment is tied to.
During the first quarter.
Very very early days and I know the folks are excited about that and as we've alluded to in some bypass discussions. The fact that we've hired the maintenance business into three discrete leadership functions really is allows Andrew and myself along with those three leaders evergreen east evergreen west in the.
It'll business to really honing in on what's driving the business and.
Everybody knows we want to drive that profitability and growth and Georgia. This is Andrew.
The thing is the one thing that puts a little pressure on margins is effect, we've done a great companies to add into this business signature coasts.
And summit that we've been able to do in the.
Last couple of months. These are fantastic leadership teams with great positions in the market they might come in a little lower than our average and might put a little pressure overtime as we continue to develop more and more M&A, it's going to involve putting more EBITDA more earnings into the company, albeit it might be a slightly lower margin.
Sure, we'll have a better view that I think as we continue to the layer and understand where we sit over by the time, we get to our May in August calls as relative margins, how that really is going to impact the overall year.
Got it very helpful. Thank you.
Thank you. Our next question comes from Shlomo Rosenbaum.
Hi, Thank you for taking my questions Hey, Andrew I, just wanted to follow up on that last question a little bit it's been a decent amount of investment into sales resources in that kind of.
The leadership over there.
Where where do you see this going in terms of kind of a normalized organic level, 1.2%. This.
Quarter.
A decent amount of investment momentum building talking about a lot of sales I mean, what's what's a realistic expectation for where this business can you can get to.
Just looking at it.
In terms of where we arent any kind of economic cycle and in where you are where should we think about this business going.
Yes.
So thanks for the question.
If you look at overall, we've guided in the kind of 1% to 3% as far as organic growth industry itself grows it one to one of the half percent when it comes to the overall segment growth According to ibis, and some of the industry kind of Prognosticators.
I believe we.
Can grow double that rate, meaning that one of the half is where they can we grow at three yes, I believe that's a very doable thing across.
Credibly diverse and widespread Red group.
Last year, we didnt do that but this year I believe strongly the sales team that we have and generating that while keeping retention levels that varies.
Stable level compared to last year is going to resulted that 2% to 3% as we continue to look forward and continue to invest in our sales force from the the sales of the deliberate salesforce training that we've introduced across the entire enterprises and really getting the sales team humming it doesn't happen immediately because the new person you bring.
Today isn't necessarily delivering what a full person has been here a couple of years, but I'm very optimistic and very very competent, saying that we will get the double growth of the industry.
And potentially as we add more as we go forward.
Okay, and then John how should we think about free cash flow. This year is there any changes.
Versus.
What you've talked about last quarter and if you can just kind of walk us through.
Like you've done in the past kind of an EBITDA to to kind of real free cash flow how to think about it this year.
Yeah, I don't think does any changes.
Shlomo again, assuming a normal weather patterns and assuming.
We.
You know hit our guidance of 312. The Threetwenty, then obviously would be the starting point.
Capital.
We're right on right, where we want to be we had a good first quarter. We're spending more time are not really scrutinizing, not and we've talked about $70 million.
For the year I don't see anything changing off that especially with our a good start to the year.
Working capital, we assumed to use their of 20 million that ebbs and flows as you know based on the business and where that where that business is whether it's on the development side or the the maintenance side, but I don't see anything.
Changing drastically in there are interest we're doing a good job.
Our managing our interest expense and I don't I don't foresee any changes there we had we had.
Although at approximately 70 million for fiscal 2020 cash taxes.
We had some refunds in the in the.
Our year, which which helped last year I think this year, we had talked about $35 million I don't I'm.
See anything changing there.
The only item.
It could move a little bit is the nonrecurring that was a little bit higher in the first quarter, but that was driven predominantly by M&A.
Okay, and some infrastructure costs, mainly around CRM and in estimating tool, but outside of that.
If you do that math and we've talked about nonrecurring of 15 ish.
That would get you somewhere between 101 hundred 10, and we're not waiting on that certainly not now.
And what about.
Debt.
There was a big kind of receivable in terms of a project that didn't occur last year or is there any update in some of that kind of flowing through into this year.
Yes, I think it's a lot of its around the timing on the development business. The terms, our working capital on our maintenance businesses stellar less than 10%.
On the development side, it's a little.
A bit more challenging because you're dealing with gcs and you have to deal with things like paid when paid its related to that in the ramp up in the business that we've seen there, but we expect that to one wind during the year.
So should that be an upside to this number is that already factored into this number we factored that into our full year look in the working capital.
Little but.
We working hard to.
Improve in turn that working capital into a source versus use yes, but we thought it was prudent in the guidance to make sure. We can do what we say we're going to do.
Demand to guide prudently as opposed to aggressively.
But I can tell you.
Shlomo we are working to.
Collect that money as aggressively as possible, which would be a benefit to us.
Great and then can you just go through a little bit more detail is the incentive comp.
In the quarter.
Factor in terms of development just coming in so strong is that where you guys are kind of seeing anymore.
Yes, exactly it's a little bit more pronounced in the development side, a little bit less on the maintenance side maintenance driven by the uptick in snow development.
Driven by the the strength in what they're seeing in the first half of the year.
Okay very good thank you.
Thank you.
Thank you.
Our next question comes from Tim Mulrooney.
Yes, good morning.
Regarding contract renewals I think you're about two months into your renewal season at least for the seasonal markets can you help frame how the renewal process is going this year.
And what pricing improvements you're targeting.
Yeah, absolutely 10.
You're spot on we are a couple couple of months and usually starts from the beginning of December and lasts through the end of April is really the time period, the primary seasonal renewal markets.
Things are trending well in fact for trending a little better than we were last year as.
The pace of which were getting renewals in house.
We feel very.
Confidence that we will be able to achieve if not beat.
The renewal rates that we had last year and the retention rates, we have so overall theres obviously.
Thousands of accounts for you're dealing with so there's pluses and minuses that.
Come in every day, the big thrust of that will will come however.
You see that really happening heavily in the March time period is when a lot of that and then into the middle of April for the startup season, the real it really targeting kind of a made time period when when most of the contracts have been done inside so we feel pretty good about that the.
We continue to focus on.
The same type of pricing increases that we've seen in the past it.
Theres really no change, we we see the same inflationary pressures that all our competitors fee and the whole service industry season, and as we've said before we tend to be able to get pricing around that 2%.
Plus plus range across a broad that somewhere between 2% to 4% depending on the client.
That we see or going forward with an average of about two to cover primarily labor inflation.
Okay. Thanks, Thanks for the update there Andrew maybe I'll I'll ask again next quarter, how April and May.
Thanks.
Yes that that as well.
Oh on how.
That's absolutely right you're spot on really are our may car. When we it's timely because we'll be able really to report on how that retention and how that renewal rate was because we will next time, we have call.
We will be done will be through that renewal process from the seasonal markets.
Gotcha, just one more from me your one third the way through your big Snow quarter here, how are you looking so far.
Well.
I think the only thing we can say is definitely in the.
Mid Atlantic the northeast areas. It was a late January.
Look at that that being said.
It's snowing right now in Denver in Chicago, and a lot of those places there it's too early to call.
We've got eight weeks left.
What is a full.
Full quarter and there have been times, it's one thing about the business that we run.
Sometimes it'll show up on January Onest.
I will help on March Thirtyth.
Just.
Don't know how the weather's going to fly, but you can look at historical averages and some months some quarters. The early some quarters or late and we don't make a particular.
Forecast on that we just look at the averages.
Gotcha I was thinking about you guys announced shoveling My drive way this morning.
[laughter], we're going to help you [laughter].
Yes.
Thanks, Dan.
Thank you. Our next question comes from Seth Weber.
Hey, guys good morning.
Got a hedge an offer Seth.
Lot of questions have been answered already.
Just to go back to the margins on the maintenance segment in particular.
John can you just clarify I know those some of it was related to timing, but are these more one time.
[music].
You know incremental cost or is this something that particularly on the technology people investments that's likely.
But if we are or what just to clarify that.
Yeah, Let me let me just reiterate what we what we said on the maintenance side.
We had we had the investment in the quarter around the additional Salesforce head count that Andrew articulated to get us up to 200 headcount.
Conjunction with.
Technology to support that mainly around.
CRM.
This this quarter's impact we feel will be the highest for the year, there will be impacts in future quarters, but as I said as our revenue grows it will be it'll be less of a headwind or less of a.
It will be to a lesser degree for sure.
And.
All of this as we said was factored in when we looked at our full year guidance.
That was.
Of the headwind in the quarter in the quarter that was.
That was the biggest chunk the other piece around incentive comp as I said was tied mainly around.
The development piece and the increase.
Since now.
And then the M&A piece, that's expected we've been very clear on that when they come in in their new we've got a little bit more in the first after the year. Some of these deals or the time sensitive like the deal that Andrew alluded to you know that just didn't happen overnight that was a 15 month.
Discussion and meeting between a combination of Andrew and myself and that team.
It just happened to hit when it hit and when that does that will impact quarters that could happen in the future depending on when that those things materialize, but as I said I, we don't expect it to be showstopper for the full year.
Okay that makes sense then.
I guess, just with with the sensitivity around the Q2 snow revenue I know the expectations are kind of for an average.
It.
The revenue contribution for the second quarter last few years has been obviously pretty variable what what is kind of.
The standard baseline average snowfall that you guys are kind of handicapping.
In its place there.
Well, we look at 10 30 year averages that's how.
We we plan you know if I go back over the last two years.
The snow in the snow.
During the second quarter was very very consistent if I look at you know second quarter fiscal 19, and second quarter fiscal 18, if I go back to.
Second quarter fiscal 17 is a different story.
The million dollars less so there is some variability and again I think Andrew answered. It perfectly. We're we're early early days into the quarter there's a.
Got left.
We'll see how it shakes out and we'll obviously have a lot to say in our second quarter call on what materialize.
Yes, Okay, that's fair and I guess.
Andrew just on kind of the business development hires you guys have made obviously that's been expanding.
Since you guys have kind of introduced at initiative.
Could you speak maybe Tim how some of the more mature.
Yes personnel have.
Performed in kind of how they're ramping and what the expectations are for this to one group of 200 people.
Sure Yeah.
We are going to disclose what our target is for our.
Goals are for each individual sales version.
It is natural to assume that the 20 folks that we brought on the net 20 folks that we brought on in in the first quarter, they're not going to sell at the same rate as a season or tenured salesperson.
Thats going to start out.
Relatively slower we deem them up with.
Other leaders, we have regional sales leaders in every market.
To be able to help guide those folks in the business and and the reality is but it will take somewhere between nine months to 12 months before that that person.
Ramps, all the way up to being able to really soft shell at what we would see at an average across the entire company.
So.
First year little less of an impact Thats why my statements before we see some impact coming into 20, but we really believe as we get in the 21. These folks are actually in the seats. The pace that we would expect sales growth will accelerate as we go into the outer years.
Yes, just to follow up on that I mean, how much white spaces, there or opportunity to to continue to add more salespeople. I mean are you kind of early innings or is this.
Yes, maybe speak of that.
So that's the industry's usseventy, we will operate in the $70 billion maintenance and snow removal market in the.
Country.
If you look at that and you look our ability to strategically look at the top 50, m. assays and grow into those as well as some of the sub tier markets beyond that.
There is absolutely.
A significant amount of white space to continue this pace of hiring to the pace the pace that we.
We can actually digest it within the teams we feel our pace right now.
Adding about 10% or so salespeople in the last quarter in kind of hitting that steady for the rest of the year is something that may not be as high as 10%, but but kind of that high single digit adding kind of growing that we believe we can digest going for the foreseeable next several years.
Great. Thanks.
Thank you everyone for dialing in are there any other closing comments or remarks from the speakers our presenters.
Yes.
The one again once again I want to thank everyone for participating in the calls and for your interest.
Just in bright view, we do look forward to speaking with everybody over the course of the quarter as well as when we report our second quarter fiscal 2020 results in early May.
Have a great day and look forward to speaking with you soon.
Thank you.
Everyone for joining todays conference you may now disconnect at this time.