Q2 2020 Earnings Call
Thursday
good morning, and welcome to Bright views 20 20 second fiscal quarter earnings conference call as a reminder. This call is being recorded all lines have been placed on mute to prevent any background noise after the speakers remarks. There will be a question-and-answer session. The earnings press release is available on the company's website investor. Additionally the online price includes the presentation files that will be referenced as part of today's discussion and a downloadable copy is also available online. I will now turn the call over to Bright views vice president of investor relations with John shave, please go ahead.
Thank you operator and good morning. Before we begin I would like to remind listeners at some of the comments made today including responses to questions and information reflected in the presentation slides will be forward-looking and actual results May differ materially from those projected. Please refer to the company's SEC filings for more detail on the risks and uncertainties that could impact the company's future operating results and financial conditions comments made today will also include a discussion of certain non-gaap Financial measures reconciliation to the most directly comparable gaap Financial measures and other Associated disclosures are contained in the earnings release from the company's website.
Disclaimers on forward-looking statements and non-gaap financial measures apply both to today's prepared marks as well as the Q&A.
Finally unless otherwise stated all references to quarterly year-to-date were annual results were periods referred to our fiscal years ending September 30th in each aspect of year today. The company is presenting The Unwanted results for the three-month and six-month period ended March Thirty One twenty twenty
Bal I will turn the call over to Brightview CEO Andrew masterman
Thank you, John and welcome to the brave new team morning everyone and thank you for joining us today this morning. We look forward to providing you with an update on a response to covid-19 initial observations all building off our pre-release from April 23rd, 2020 will also review our current Financial results and progress regarding our strong on strong Eminem.
Turning to slide for before we discuss our results the first wanted to express our thoughts to those impacted by the covid-19 outbreak. We are extremely grateful for First Responders and Healthcare professionals. Each of them bear the greatest person, you're thankful for all essential workers and throughout virtually the entire Country Landscape Maintenance is recognized as an essential Service as defined by the whole Homeland Security.
Continue to work with all jurisdictions to ensure a dedicated workers can provide these essential services to our customers at this time all branches our operation. However in Boston New York City in San Francisco, there are certain limitations as in the scope of services, we can provide that said I must acknowledge that keeping our employees their families and our customers say is our number one priority that I truly believe our differentiated focus on safety and consistent excellence and Service delivery shining through at this difficult time.
In response to covid-19. We have been quick to act for both the health and safety and business continuity perspective in early March. We began proactively communicating critical information from the CDC to all employees implementing Branch based hygiene and sanitization operating procedures and social distancing protocols and our development business team member continue to report directly to the job site.
In the maintenance business many of our team members now also report directly to the job site and for those reporting to the branch we have reduced the number of workers at dispatch per truck from 5 to 2.
We reduced our crew size no more than 5 and those by members remained as a team to ensure. We don't mix Cruise.
We're also further utilizing technology to maintain our customer touchpoints prohibiting non-essential travel and supporting a work-from-home policy as applicable.
As we deliver consistent excellence and service to our customers keeping our employees and their families safe continues to be our number one priority.
Moving now to slide five in addition to health and safety. We have been laser-focused on business continuity for the benefit of all stakeholders company-wide. We are undertaking prune juice to navigate through the uncertain times ahead while moving quickly on opportunities to protect revenue and margins to preserve cash.
As a testament to the safety protocols established and employed by our team. As of today. We have 67 positive infections against an employee population of more than 21,000 off those. In fact that we have done our best to be supported by assigning internal caseworkers with daily check-ins and launching paid sickly.
And as a precautionary measure, we tapped the portion of our bank lines and of also Frozen salaries deferred discretionary Merit increases and if suspended 401K matching contribution employees in addition are independent board members have elected to be paid exclusively in stock other discretionary spending such as travel and entertainment and capital expenditures would have been Limited.
We have a healthy and diverse mix of customers and projects and we continue to aggressively pursue Public Works projects and accelerate our bid outfit across all segments.
And depending on the severity and duration of the pandemic we are preparing additional mitigation and cost strategies evening.
At the branch level. We are developing plans focused on people equipment other spending measures that can be rapidly implemented.
Most importantly our senior leadership team has an average of 17 years experience in the industry and have the benefit of having navigated difficult Cycles in the past. We will meet this challenge head-on.
To that point and for historical reference during the financial crisis in the late-2000s our maintenance Revenue experienced modest declines driven primarily by a reduction in ancillary Revenue.
Going forward we anticipate ancillary softness in most markets and this impact will be higher among hospitality and Retail customers fortunately for us all off of the country are largest vertical homeowners associations has shown to be a stabilizing factor in the business the stay-at-home orders of highlighted the importance of our services to the millions of residents Faith communities maintained by writing so much snow that we received many thank you notes and appreciation posters for people of all ages across the United States. We are proud to be this calming voice.
Our development segment saw a greater impact during the 2000s financial crisis. And since then we have successfully taken proactive measures to ensure our project mix would be more resilient to Boston area environments.
In 2008. Our private public mix of work was 80% private and 20% public and we had higher exposure to new home builders.
Fast forward to 2020 and we've almost doubled work mix which tends to be more resilient than our exposure to new home builders is significantly reduced as a result of a much better Diversified and our development backlog remains strong. It could be hampered by delays from subcontractors ahead of us being slowed down but ultimately as jurisdictions continue to open their economies and projects are brought back to speed we anticipate delivering on a more normalized work site.
in April we continue to
Operate as an essential business with our branches open and servicing customers. We are trending to an overall Revenue decline of mid-single digits for the quarter and continue to operate under the premise that similar Trends will continue life as mentioned earlier. We have taken multiple spending reduction actions, which should reach significantly realign our cost structure to revenues office. We also anticipate continued Improvement overall economic activity accelerates and we remain focused on maintaining business continuity while protecting our financial strength liquidity and flexibility in additional revenue from Acquisitions will help to offset any organic weakness.
Turning to slide 6 today. We are reporting results for the second quarter of fiscal 2020 total revenue of 559.1 million dollars was a decline of 6.3% tax inclusive Lee driven by historically low stoffel.
In terms of profitability, we generated adjusted ebitda the second quarter of 38.9 million dollars, which is 61.1 million dollars in the prior-year, assuming an average during the second quarter. We would have continued on a positive trajectory from an adjusted ebitda perspective. Well, we saw solid growth in our snow contracts during the quarter snow revenues declined ninety-nine million dollars or 46.5% versus the prior year due to the historically low snowfall in the East Coast.
Well, the 3 months ended March 31st, 2020 snowfall across our Branch network was approximately 43% of the historical 10 year average versus approximately 86% of the historical average for the year.
Signature Coast is a Top fifty landscape services provider with a diverse client portfolio. The acquisition is the second largest we've made since the 2017 Inception of our strong strong addiction strategy.
With the addition of signature Coast, we have increased our density in the strategically critical Northern California region, and it solidifies our position in Reno, Nevada another regional growth Market in the West.
Lastly we're delighted to welcome Four Seasons and more than a hundred fifty new skilled team members into the Brightview family. Bring you in for ceases have shared values towards our customers and employees and this Thursday is our position in the attractive Atlanta Market.
Over the coming months and years. We look forward to working with these organizations The Leverage their talents to consolidate our position in these important Evergreen markets.
The acquirer of choice in our industry these Acquisitions Mark are Seventeen eighteen and nineteen January 2017. And we learn a tremendous amount everyone else you continue to evolve and hands are integrated approach with each acquisition based on what we've learned from the past more specifically we engage with Branch level leadership early in the process to identify ways to accelerate growth, especially an attractive market like Reno Napa Charleston. We've also started to accelerate our pace of integrating Acquisitions with existing branches off. We have an established presence in that geography.
Additionally our acquisition pipeline remains robust with many near-term opportunities representing over three hundred million dollars. That being said, we do not expect to close any deals directly to drink.
Over the previous few years. We have witnessed valuation increased and the current environment could create opportunities and more favorable terms and conditions for us during the second half of calendar 2020. We will be T. We're aggressive or disciplined approach against or attractive pipeline as we speak Market expansion and New Market entrants. We are excited about our progress and plan to continue taking advantage of these opportunities such as the ones I'm just trying to consolidate our fragmented industry driving profitable long-term Revenue growth.
Don't turn it over to John will discuss our financial performance in Greater detail.
Thank you, Andrew and good morning. Whoever first our heart goes out to the communities and individuals including health care workers and First Responders most deeply hit by the Panthers.
Much has changed over the past few months as a country continues to respond to the covid-19 outbreak.
As a result of the current economic uncertainty including the unknowable severity and duration of the pandemic. We issued a pre-release and withdrew our full year 2020 guidance on April 23rd.
Our Focus remains on serving our customers and caring for our teens as we navigate this current environment.
Now let me provide you with a snapshot of our second quarter results on slide 9.
Total revenue for the company declined 6.3% to 559.1 million dollars driven by significant decrease in snow removal services.
Maintenance segment revenue of 416.2 million dollars for the 3 months ended March 31st, 2020 decreased by 57.1 million dollars off Avenues from snow removal services were one hundred two point five million dollars a decrease of $89 over the 2019. May land revenue of 313.7 million dollars represented an increase of 11.3% compared to the prior-year of 281.8 million.
The increase in maintenance land was driven by solid Revenue contribution of twenty six point six million dollars from acquired businesses as well as 5.3 million months or 1.9% of Maintenance land organic growth, which was the strongest since our IPO.
Investments in people in Technology support our support our sales and account manager teams are enhancing customer relationships and driving both organic growth and strong cash generation month for the 3 months ended March 31st, 2020. We realized continued robust growth and margin accretion in the development segment.
Revenues were one hundred and forty three point six million dollars an increase of 19.6 million dollars or 15.8% compared to the 2019. Walk-in continued strong booking pipeline pro-growth in this segment.
Turning to the details on slide ten total adjusted ebitda for the second quarter of 2020 was 38.9 million dollars that negative variance was lodged be driven by the detrimental margins due to the lower snow Revenue, which would normally better leverage our fixed cost base during the snow season and a modest increase in sg&a cost to get a new business and increase customer retention.
Helping to offset the decrease was continued solid growth in the development segment combined with improved efficiencies and Cost Containment. The maintenance segments adjust wage even. Declined by 36.6% to 41.2 million dollars, which led to a 380 basis point margin contraction versus the prior-year quarter of a segment.
This decline in profitability was primarily driven by significantly lower snow removal revenues especially due to the historically lower snowfall in the Mid-Atlantic and Northeast regions, which are both typically higher-margin geographies for Brightview.
And the development statement as a result of higher project volumes and productivity improvements adjusted ebitda increased 24.5% the 13.7 million dollars for the segments margin increased sixty basis points to 9.5% driven by increased productivity and efficiencies.
Corporate expenses for the fiscal second-quarter or a 1.1 million dollars representing 2.9% of Revenue. This was principally due to the timing of certain expenses, which we expect will normalize over the fiscal year.
Let me provide you with a snapshot of our first half fiscal year 2020 results on slide 11.
Total revenue for the company increased 6% to 1.13 billion dollars in the maintenance segment first-half revenues were 835.1 million hours in 30.7 million dollar decline with 3.5% versus 2019.
He drivers were an eighty five point six million dollar decline in first-half snow Revenue offset by positive underlying land organic growth of 7% off in solid Revenue contribution of 52.2 million dollars from acquired businesses.
Element segment a strong project pipeline through a robust growth as revenues increased 14.7% to 296.4 million dollars compared hundred fifty eight point four million dollars in the prior. Total adjusted ebitda for the first half of the fiscal year was Nineteen point five million dollars compared to 111.2 million dollars in the prior-year.
Maintenance segments adjusted ebitda declined by 21.8% to eighty eight point nine billion dollars compared to one hundred and thirteen point seven million dollars in the prior-year principally to the significant Decline and snow removal services mentioned earlier as a result of higher project volumes and productivity improvements adjusted ebitda for the development segment increased 16.7% and 32.8 million dollars for the first half of a fiscal 2020.
Cover expenses were up slightly for the 6 months essentially in line with our expectations and reflective of the timing of certain expenses.
Was it moved out of our balance sheet and capital allocation on flight 12?
Capital expenditures total 35.1 million dollars in the first half of fiscal 2020 down from forty two point six billion dollars in the first half of fiscal 2019.
Capital expenditures as a percentage of Revenue was 2.9% in the first half of fiscal 2020 down from 3.5% in the prior year. We remain diligent Lee focused on Capital expenditures as we continue implementing proven actions to preserve cash and increase our productivity.
A leverage ratio was 1.1 times at the end of the second quarter of fiscal 2020 versus four times at the end of the second quarter in the prior year.
In the first half of fiscal year twenty-twenty. We generated 53.3 million dollars of free cash flow that compared favorably to 25.1 million dollars in the prior-year month and was principally due to the lower Capital expenditures and our continued focus on net working capital specifically accounts receivable and inventory.
We also offer a a self-insurance program for workers compensation general liability Auto liability and our employee health care programs as we navigate the uncertainty of this month environment. We will continue to assess the efficacy of these programs to ensure our reserves remain adequate and our balance sheet remains strong.
As we look to the Future, let me review out with what did he profile and slide thirteen at the end of fiscal Q2. We had 124 million dollars of availability under our revolver 23.5 million dollars of availability under our receivables financing agreement and eighty eight million dollars of cash on hand on the balance sheet.
total
As of March 31st 2020 with 235.5 million dollars.
As of May 6th 2020. Our total liquidity was $239. This decline is driven by a reduction of Thirteen point five million dollars off in our receivables financing agreement driven by aggressive collections offset by an increase of 8.9 million dollars in our cash balance to 96.9 million.
We also have flexible and Covenant like credit facilities with the following maturities. Our receivables financing agreement matures in February of 2022. Our revolver birthday is in August of 2023 and our Term Loan matures in August of 2025. Additionally, we have completed downside analyses and are confident that the example the quantity and cash on hand. Do not only run Brightview effectively, but to also maintain our focus on paying down debt and continuing are accretive m&a strategy off with that. I'll turn the call back over here.
Thank you, John.
Now turning to slide fifteen. I want to emphasize what we believe or six key market dynamics first. We are pleased with our second quarter results in the organic growth trajectory second looking forward fiscal Q3. Total revenue is trending down in the mid-single digits due to covid-19 impacts third across the Enterprise including office and Retail base contract maintenance services remain steady at about 97% of pre-code levels.
Or we are experiencing softness and ancillary services within maintenance and project delays and development. We are uncertain as to the overall impact in Q3 and the total fiscal.
We continue to provide basic although reduced maintenance services to hospitality and Retail customers which represent approximately 10% of our contract base. These are the highest them back to Burton's finally. We are seeing resiliency that are two largest verticals homeowners associations that commercial which are experiencing considerable stability off the fundamentals of our business and our industry remains strong our sales and marketing strategies and structure are a formula for long-term success and our continued Investments in Palm Bay sales and operations leadership wheel drive strawberry new sales.
Results in improved client retention well further streamlining our service delivery the investment and expansion of our sales team combined with targeted Regional efforts in digital marketing have grown ourselves an opportunity pipeline to its highest level in the company's history overtime this enhanced and robust pipeline should support organic growth well ahead and just realities.
In technology to support our operations our customers and our leaders have provided us provided us with the tools to further differentiate ourselves leading to improved customer satisfaction and stronger Financial results as a result. The Strategic initiatives we have been implementing will help us navigate this unprecedented environment.
Additionally our m&a pipeline shows no sign of slowing down and is deliberate and reliable source of growth for three years running. We plan on taking advantage of our attractive pipeline of or utilizing our strong cash position and liquidity to continue to consolidate our fragmented industry.
I would also like to personally thank all of our dedicated employees families and partners for their resiliency and dedication during these challenging times.
Or Twenty-One thousand people in bright blue come to work every day and make sure the living Assets in which we live work and play are safe and beautiful. We enter this crisis and emotional strength and inspect accident even stronger. Although we are mindful of the challenging macro Trends and forecasts. We are optimistic about our prospects to drive profitable growth for the long. Thank you for your interest in Brightview. And for your attention this morning will now open the call up your questions.
At this time. If you would like to ask a question, please please press star one on your telephone keypad home for just a moment while we compiled the Q&A roster.
Your first question comes from Judah Soco from JPMorgan your line is open.
Hi, good morning. Thank you for taking my questions. My first question was around that 5% decline or a mid single-digit decline. They did mention you were trying to charge to the the next quarter really appreciate you giving that kind of visibility. I mean, if you could just help peel back from that mid mid single-digit framework and how much of that is due to prove it. And how much would you have been in office in accounting Park without without the impact of Provident? Maybe help us think through exactly the impact, you know on ancillary work as opposed to just ongoing regular contractual green work off. Yeah. Good morning Judah. If you look at overall the trajectory we've posted at 1.9% organic growth in the second quarter. Yeah, we feel that that that was kind of the momentum package in the overall organization. And so we don't see any reason why that wouldn't have continued to to continue as we go forward. So, you know between that kind of momentum and wage
Impacts obviously starting in in early March that started affecting us from being able to actually closed on new sales opportunities as we were looking for a job down a combined with some of the service adjustments that were the route. They're all those service adjustment says we said, you know, we have about 97% of our base contract level control that we expected before so it really isn't in that base contract maintenance. It really comes down to really what level of ancillary pull through we got combined with the the speed with which frankly our subcontractors before us a development projects get done with their work so we can get in and complete our work. Those are things that we don't know. We don't have complete visibility out there that that range of somewhere in the mid single-digits on on revenue and that can be in the range of anything in the mid-range is why you know as we we stand here today, we can't definitively say where that's going to be and why we dead.
Removed our guidance for the year.
We do feel though comfortably saying that because of the stability we see in our in our overall contract Revenue combined with the strong backlog in general we have in development seeing going forward and we've confidential.
Okay, that was really helpful and maybe maybe just a follow-up and I apologize if this is if this should be obvious, but how does it work exactly when you when a customer such as a university or a hotel is closed down. Do you still have the ability to come in and do certain levels of basic maintenance work so that when they do reopen, you know the the effort the initiative is not too large.
That's exactly right. And what we've done is we work proactively with those customers to be able to make sure that the living has that they have has a basic level of Maintenance. So there isn't some massive coughing customers as they come back to work as they come back to normality. So it's the basic level of service that we go out maintain it in most cases that have more significant impacts Thursday when we come back we get back to the normal level when people are coming back to those properties every single day.
Perfect. Thank you.
Your next question comes from Georgetown from Goldman Sachs your line is open. All right, thanks. Good morning. You mentioned that 97% of your base contracts are continuing at a precog levels. Can you talk about What proportion of your land maintenance business consists of ancillary work which is seeing most of the the sensitivity to the coronavirus and and What proportion is the state wage and and how that sort of fits into your mid single-digit growth outlook for the next quarter.
Yeah, it's not been single digit growth. Sorry. I'm a single digit decline. Yeah.
Yeah, Georgia. We think we've talked about the past when you look at some maintenance.
Okay, and we don't specifically break out contract versus ancillary, but in general when you take the entire maintenance business when you're the golf business or Outsource business and bring you in a price systems kind of the whole business is roughly a three quarter 1/4 split between ancillary and and and Contract Services, but that's rough. But that that that again that ancillary can vary quite a bit.
Got it. That's helpful. And then on the cost side you talked about spending the abductions to align your overall cost structure to reserve margins how much of this Productions which is there a temporary versus permanent nature and and what do you think the timing of the savings will look like over the course of the Year George morning? This is John. What does wage initiatives are a meeting?
I would say some of them like the Andrew mentioned on on his comments around 401K match, you know, those would be temporary but we're looking across the entire business the maintenance development of corporate structure. We have a deep dive on all the costs of initiatives, you know managing future of managing labor managing over time managing discretionary items disposable items like tools and gloves and things of that nature. I would say the temporary items would be things like a merit T&E any open positions that we put on hold but we will continue as we as we see more through the quarter we will continue to be very aggressive in our cost so that we managing according it as as managing the cost according to the revenue that we see
Got it. Thank you.
Your next question comes from Whitman from Baird your line is open like that. I guess maybe asking same question a different way John is when you think about a mid-single-digit decline. What's the right way to think about the draft through effect to evit the decremental margins you help us with wage with that? Yeah. I think you know where you look at the business in and you think about you know, where we are and you you think about you know, the main business in the development team.
You know, we think we could see a little bit more of an impact in the development side from a margin standpoint just because of the fact that and the fact that we tend to be at the end of those projects, but that's would prefer. Oh as opposed to cancellations and I think that's an extremely important point is that we think is is the inter said we make me feel you know, really good about where the contract work is we've seen them continue into the early part of the third quarter with our revenue on the contract signed enable the pretty much exactly where we thought it would be and obviously month is going to be buoyed through the m&a side where we were ahead of the curve of where we thought we'd be this time of the year. I think the challenge for us and they even impact will be on the birth.
I think that's just one more important point to any feedback on that developed the development the development business as we went to Q3 was fully booked for the quarter and and the dog has any kind of development softness between do believe there is some is due to project delays and us being able to get into the properties at the speed that we initially anticipated.
Yep, and that makes sense anything that was if to imagine that anything that was that late in development from the building perspective like the the Landscaping needs to come in. You're just waiting those guys down to you can't get there and when you can get there, you'll do the job as basically what you're saying, right? That's correct, whether it happens, you know, we just don't know at this point in time. Yeah. Yeah. Yeah, and it's yeah, you know not surprising any you know, we're seeing the biggest impact up in the north east in Boston not surprising what's going on up there and in the San Francisco Bay Area. Those are the two that have really what we've seen an impact on on the development. I want to be very clear. It's not cancellation of work. It's you know, when those things start to open back up the projects continuing and us getting back in there is a big difference in New Jersey.
Yeah, that makes sense.
I guess you've talked a lot of it sounds like a lot of the impact here is on the ancillary and I guess that makes sense. But I was just curious if you could just talk about if some of these more hard-headed customers of yours or coming to you. I'm looking for price on on the base contract as well and how that Dynamic is playing out. Yes at all.
Yeah, it was it's given a diverse level of customers.
Situation across the board and and mostly what we find is, you know again in those hospitality and Retail based customer verticals is where wage impact and what we we do is we absolutely need to continue to work with them on their in their situations we want to do and we'll be pretty much across-the-board get as being able to talk with them to maintain it at a basic level to understand how we can minimize costs with hotels with hotels get back fault. They're going to need to have their maintenance looking double standards. They have initially contracted. So we quickly get back in all that being said, you know, we continue in our in our new negotiations our new sales coming in maintaining our pricing levels that we have seen him in the past, you know about 2% of a new deals. So we haven't seen that that being impacted and we are working with current customers, but we do believe that's reflected in the total kind of wiener dog.
That 97% level across the whole organization.
I have two other questions that I think are important. Sorry. We've seen other service providers to businesses kind of that delaying and deferring some cash payments for summer most hard-hit customers as well in an effort to show partnership with them and keep the business and you know, they think you know, they've had a long-term relationship. I have to imagine some of those same factors apply to too much of your customer base John. It should be expecting any impact on free cash flow as a result of this as well and and and bad debt as it relates to that. If you could, please God let me think about that question. Let me take your questions in reverse and our track record on that that already up that does stellar. I don't expect that to change at all, We don't really good relationships with our customers. You know, we seen you know, some delay meant some delays and and working with customers. Absolutely the key the key and all of this is is dead.
Having that communication being forthright with your customers really shines in times like this. If you don't have the relationship and times are happening. Like we're in now dead things can do fractured as far as Cash 3 cash flow, you know when I think about it and obviously we looked at it very very hard and done pressure testing. And when I look at the main component of how we think about it, right? Obviously we would do our guidance so our starting point of view, but you know that that was hard to give you a feel for right now, but I would tell you in the capex. I'm certainly not starving the business but I think if you've seen our performance in the second quarter on our free cash flow, we've improved our controls Andrew and I are all over it and involved in in in everything and that's really the to to to the folks running the business among both development and maintenance so I don't see you know any changes on on what we said four year in capital. I think we're ahead of the Curve.
Where we thought we'd be on working capital and that's been our initiative of being arrested on on on AR and collecting our money. I feel very good about where we we we project it on our own expense and
I feel very good about cash taxes and the other interesting thing about our performance. This quarter is you know, we had a refund last year which we didn't see that repeat this year in our taxes off. And then the normal occurring is the Hard One to get her arm. So it's a little bit higher than we thought it would be but that's mainly driven strictly by the m&a and you know, we will take advantage of things that we can do around things like covalent because you know, we bought a lot of things like hand sanitizer which are not operating which will show up and that's one of the reasons why the non-recurring is off outside of that. We are managing the cash very tightly and that's why we had to liquidity slides to share that and very transparent. I feel good about that right now.
The the the one outside it seems like from this environment for for your business in particular is the availability of of Labor. It's always been hard even in you know, good hiring environments. It's sometimes hard to hire landscapers given the nature of the work. I was wondering if you are seeing increased job applications or ability to hire and fill some of those openings and the turnover that you always experience in this business and if that's affecting the cost of Labor in your p&l.
Talk to the recruiting side and trying to jump on the cost. But as far as recruiting, you know, we we continue to ramp up in recruiting in this. Just like we do every single year. We hired thousands of people in in April and May as we ramp into the season. We we have not seen a one way or the other is Thursday all although I will say you're going to be in the very I mean we're talking like in the last several weeks, you know our ability to get people to come work is kind of a normal level. I can't say there's been a massive influx of new applicants into the branches, but I think we're a normal level and we're finding an ability to bring up people without any problem to support the level of activity that we have similar to last year.
Course either. Yeah, have you on the car side? You know we've been
Very clear historically we've seen labor inflation around 4 to 5%
through haven't seen the first half of our fiscal 2020. It was still right around 40% But that decline in the future in the second half it might but right now we're not fact that in cuz we still seeing that, you know kind of flourish flourish plus wage inflation and we've been able to mitigate that for the most part with our life, but we've been able to get you know enough price through the first half of the essentially offset that from a marketing standpoint.
Your next question comes from Shlomo Rosenbaum from Steve your line is open. Hi, good morning. Thank you for taking my questions. Typically when if talked to people in the industry about what happens in the downturns, they tell me the development side is more supportive in the maintenance side because of the ancillary business services are is hold down a little bit. Are we seeing the opposite right now? We're just, you know more slow downs in terms of project work, but for some reason the maintenance is is more stage actually. Think about that.
I think you're seeing the maintenance continuing to be stable.
You know, I think the issue you have a development is unique in this circumstance now because it's really only impacted by the fact that the subcontractors before us aren't getting the work done as quickly as the other wise as we otherwise would expect now that's being relieved now, right you're seeing it across the country construction workers going back to work. So we believe this development impact is basically right now kind of a q 3 Q or impact only our pipeline is strong. And so no we would be really a very very short temporary impacts of the business on development and we see that coming back frankly to a fairly normalized level of pace as we get ended you for exactly why don't you for it can't suck but as we get into Q4, we see it back at the regular Pace. We're at
In our pipeline remains robust as we look towards towards the rest of calendar 2020 and even as we voting into into calendar 21 the maintenance, I'm Larry piece of the business I and again, we really don't have great visibility more than two or three weeks out. Ancillary. So I really can't say exactly how that's going to play itself out of it and we'll of the rest of the fiscal year.
Okay, it's helpful. And then just in stuff opening up made an acquisition down there in Atlanta. Georgia is is you know is pretty much opening up right now what I'm hearing from four seasons over there in terms of pacing of things or things coming back at you know at at a faster clip. Can you just give us some insight what you're hearing from from those guys make sure yeah absolutely and I would say in in Georgia specifically with the Four Seasons group, you know, they they seem they they're seeing kind of a a normal level of operating should we wage and we see that pretty much throughout our south east or Southeast area is kind of a normal level of operating now also within those those markets, you know, that's a that's a heavier waiting on homeowners associations, which tends to be a more stabilizing factor in the overall book of business to that could have something that does have some some impact on that but that being said, you know
Look at relative weightings of impact Southeast to seeing less of a of an impact on other parts of the country.
Okay, great little bit a little bit. I think you guys are typically buying and wage, you know five to seven. I think you said you've grown go to 6 to 8, but you know, what are what is the mismatch been in you know, if you know you had a pretty healthy Cadence of Acquisitions and where do you see that kind of coming back down or where do you want to see it? Go to before you start getting more active against? Well, I think you know where it is. I wanted to go but realistically if we do believe that the range that we purchased Acquisitions is and we'll probably come down towards the lower end of the Range Rover Velar end of the range as we looking forward some of it being the fact that if we you know, we when we look at the companies to buy we look at their forecast ebitda, and then really the trailer off
and the future twelve months and
Reality is we have to make adjustments and and impacts that this is going to have in know companies immune to to kind of this kind of overall impact, you know, better companies are going to get obviously come through this month better depending on the mix of business they have but we do believe that the deals we talked with these are good companies. They have a solid books of business, but you know, there's going to be a $1 out there chasing and working on acquisition deal. So that should provide us some opportunities as we go forward. All that being said, you know, we did the Acquisitions early on Thursday in the in the. Yeah. We have a really good, you know good pipeline ahead of us, but we're really focused on the strong Acquisitions to come into our company the strong strong strategies, and we also temper that with our cash cash strategy and that's we said, you know, we really have had we had planned earlier frankly to take a bit of a pause in the third quarter. We continue to take a pause and the dead
But we're still in active negotiations with multiple potentials that could fit well within the within a company.
Your next question comes from the Weber from your line is open.
Hey, good morning, guys. This is Gunnar Hansen on for Seth. I guess just a clarification on the mid-single-digit decline commentary for the third quarter. Is that a organic or a recorded phone number and I guess just to follow up on that. What are the expectations for the m&a rap given the reason I'm an activity.
Yeah, that's a total company. That's all in as we look at the whole business and many multiple moving pieces that we're not we don't have a solid wage. We don't have a solid grasp over some of the ancillary and development shifts that we talked about before. So that's what we can't say specifically where that's all going to fall out and that's why you know, mid single-digits is dead because it can be a broad range obviously, but we wanted to give at least a call as to what that's going to be. Do you have an 8 a.m. And a portion of that, you know, we would expect that to be kind of a similar range as wage mm Q2 was as far as the amount, you know in in about a similar magnitude.
Okay, thanks. And and I guess you know, it sounds like some of the development were given the backlog should at least return as as you know time progresses and the subcontractors get their work done. But I guess could you talk a little bit about the ancillary services and if they would benefit, you know, I guess would you be able to recoup any of those Los Angeles revenues later in the year or are there really more sensitive to this kind of signal. And maybe just get some more background on what exactly the ancillary services are how you would expect those bigger us?
Yeah, well, if you there are some of the ancillary services are going to occur regardless of the economy, right? What a tree limb Falls in a parking lot needs. It needs to remove it. When asked what when the irrigation system Springs a leak. Is there a certain elements of things like in the fall leaf removal needs to be taken away in control needs to happen at best elements of of of some ancillary Services which need to occur regardless. So those will continue now that being said we have a fixed group of folks who deal with our services and you know, there isn't there's a certain Staffing level we put in place a train people with ancillary services are not things which you just stick someone out in the field to go do they tend to be more specialized services with drained levels of employees. And so we step up and and focus on people bring that in in line. So when we miss out on ancillary service dog
a stronger backlog for the subsequent but it isn't something which
Specifically, but we would expect after we get through the cobit at that we would see ancillary Services returning to more normalized levels would allow us as we go forward in the future quarters to experience several levels of of total overall growth that we were beginning to experience and we did experience the second quarter.
Okay, I tell him what makes you guys.
Again to ask a question, please. Press star one on your telephone keypad. Your next question comes from Missouri from Jefferies. Your line is open. Hey, good, I hope you guys are healthy and safe out there. My first question is just on on on client retention. Who could you let me talk about what you saw in client retention, you know during the shutdown and then and then the mid-single digit decline in April it that changed through the month. Did it accelerate at all or it stayed pretty consistent.
Well, let me take both of those one. We did the same in single day in April coming through the whole quarter. We see the whole the whole business kind of trending in that direction. So we're not necessarily report giving you a view for where we believe the whole third quarter is going to land. Secondly we talked about retention. We've seen actually a slight wage environment in in this in this situation, but I can't tell you whether that's code related or not. I think I actually believe is what we were seeing and we had planned for a given the different elements of really that test customer focus. We put around our client and some of the improvements that we have in our overall field service operations and the focus that are talented account page out there that we've been able to really harness some of those relationships. So we've actually seen a little bit of a little bit. I don't want to say this is a dramatic shift, but just an overall a client retention dead.
A slight Improvement, but you know that's also been offset by also a Slowdown in sales. They mentioned earlier as New Deals aren't close quite the level that we we anticipated as you could expect. I think it's happening across the board.
Got it, and just my follow-up question, you know what's covered. Some people are talking about less need for commercial real estate working from home. Is there a correlation with less commercial real estate need and and less Landscaping? I guess 40% of your business is Corporate, or maybe that's just the general Landscaping Maintenance and Market, but any thoughts long-term structurally any changes to Landscaping coming out of covid-19. Thank you.
Yeah, right. Now we don't number one. We operate kind of in the upper quartile the Landscaping industry. So where we are positioned is more of those high-intensity bulb, you know places with really value creating beautiful properties and have an affinity for their operations. We we don't we don't see that as being in the impacted area. You might have places other sectors of the of the economy which might have more sensitivity or more volatility relating to that but we see where we operate in landscaping which is still a massive market, right? That's the way we operated a $17 billion dollar upper quartile market right with the whole Market being seventy billion plus or show that quartile. We operate in home ec good stability going forward.
Great.
Help you.
At this time. We have no more questions. So now I'd like to turn the call back over to mr. Masterman for closing remarks.
I appreciate it. Once again. I'd like to thank everyone for participating in the call today and for your interest in Breaking. We look forward to speaking with you and Report our third quarter of fiscal 2026. Please stay safe be healthy and we look forward to seeing you at the Vue.
This concludes today's conference call you may now disconnect.
Thursday