Q4 2020 Brightview Holdings Inc Earnings Call
Fiscal 2020 earnings conference call.
The reminder, this call is being recorded.
All lines have been placed on mute to prevent any background noise.
The the speakers remarks, there will be a question and answer session.
Good day of press release, it's available on the company's website investors dog bite you Dot Com addition.
Additionally, the on line webcast includes the presentation slides that will be referenced as part of today's discussion of the downloadable copy is also available on line.
I will knock on the coal over the bright views Vice President of Investor Relations John Shave. Please go ahead.
Thank you one day and good morning, before we begin I would like to remind listeners that some of the comments made today, including responses to questions and information are reflected in the presentation slides.
The forward looking and actual results may differ materially from those projected.
As for parts of the company's that's the SEC filings for more detail on the risks and uncertainties the could impact the company's future operating results and the natural condition.
Net spread today will also include a discussion of certain non-GAAP financial measures reconciliations to the most directly comparable GAAP financial measures of.
Along with other disclosures provided in todays press release disclaimers on forward looking statements and non-GAAP financial measures apply both the todays prepared marks as well the secure went on.
Finally, unless otherwise stated all references the quarterly and year to date were on your results for periods for federal fiscal years, ending September 30 in each respective year.
For context, right. The was the leading the largest provider of commercial landscaping services in the United States.
Without any walls.
Total revenue was in excess of $2 billion, approximately 10 times, the or next largest competitor together.
Together with our legacy companies right you had spent an operation from more than 80 years and our field leadership team has an average tenure of 14 years, we provide commercial landscaping services ranging from landscape maintenance of enhancements to treat carried the landscape development.
We operate through differentiated and an integrated national service model, which systematically deliver services at the local level like the body our network of more than 240 maintenance and development branches, where the qualified the service partner network.
Our branch delivery model underpins our position as the single source and the N. provider to a diverse customer base of the national regional and local levels, which we believe represents a significant competitive advantage.
We also believe our customers understand the financial and reputation low risk associated with the inadequate landscape maintenance and consider our services to be of central and non discretionary.
I will now turn the call over break the you CEO Andrew asked of him.
Thank you John Good morning, everyone and thank you for joining us today.
Starting on slide four let me provide you with an overview of our strong fourth quarter and full year fiscal 2020 results.
First of all I'm pleased to report the all break new branches continue to be operational with no limitation on the scope of services.
Second inclusive of the acquisitions, our maintenance contract base business for the quarter grew 3% versus the prior year. This compares favorably with the third quarter fiscal 2020, what our maintenance contract base business declined 2%.
Contract maintenance is our core book of business and continues to represent the current and durable revenue stream.
Third the total adjusted EBITDA for the fourth quarter was $90 million with the solid EBITDA margin of 14.8%.
10 basis points versus prior year.
For the net capital expenditures as a percentage of revenue were two per cent for $47.9 billion down from 3.5% of revenue in the prior year.
Our model continues to demonstrate the ability to generate consistent revenue and profitability, coupled with very modest levels of working capital and capital expenditures.
The free cash flow generation continues to be exceptional during.
During the fourth quarter, we generated a record $77.4 million of free cash flow for the.
Full fiscal year 2020, we generated $197.2 million of free cash flow, a 128% increase year over year and also a record for the company.
And finally, the result of our strong on strong acquisition the strategy benefited our revenue growth during fiscal 2014, and with an attractive pipeline of acquisitions will continue to be a reliable and sustainable source of revenue growth.
Our performance was of the upper end of the guidance provided during our third quarter call reflects the solid finish to the year our financial performance in the fourth quarter showed strong sequential improvement and we remain confident and the opportunities to generate value of all of which the school.
Before we turn of the details of our fourth quarter and full year.
Let me provide you with the outlook for the first quarter on slide bar.
As expected October and early November has seen COVID-19 business impacts on ancillary demand from the maintenance segment and project pipeline softness in development the.
Additionally, we will have about a $7 million revenue reduction on the first quarter due to the sale of the tree nursery business as.
As mentioned, our maintenance contract base business, the growing and our two largest verticals homeowners associations and commercial properties have remained resilient.
And we expect the favorable tailwind from acquisitions that were completed in fiscal 2020. The ended early fiscal 2021.
As a result.
For first quarter fiscal 2021 day, we anticipate total revenues between 525 of the $550 million and adjusted EBITDA between 45 of $49 million with the lower end of the range contemplating a light and snowfall.
Due to the uncertain outlook regarding the full extent of cobot, 19th impact on the economy and its longevity, we will not be providing annual guidance for fiscal 2021 at this time.
We will operate on the premise that the headwinds will continue to impact the ancillary demand on maintenance segment and caused project delays in development.
These factors will impact our ability to grow organically over the next several quarters. Despite that we believe with an average snowfall during the first half of the fiscal year and the modest recovery from a pandemic on the second half we.
We will be poised to deliver improved results year over year.
Turning now to slide six before continuing with the discussion of our results. Once again, we want to express our thoughts to those impacted by the code of 19 outbreak. We continue to be extremely grateful for the first responders health care professionals in the fall the central workers.
Despite the difficult circumstances I continue to be very proud of our persistent focus on safety.
The landscaping industry standard incident rate is 4.0 at.
The bright view of our total recordable incident rate in the fiscal 2020 is 1.27 far exceeding industry wide metrics. What this means the mean is that we have less than one instead of per 100000 hours work and we have many branches with no incidents at all during the year.
The incident rate has improved significantly over the past four years, the combined with our consist of excellent service delivery, we continue to shine and it's reflected in our results.
In recognition of our team we awarded our field employees with a much deserved recognition.
Earlier this month, we paid $6 million the frontline team members more the 13500 employees in branches across the United States received an extra picture. This is our way of acknowledging their work and commitment under very difficult circumstances.
Moving now to slide seven in addition to health and safety, we are laser focused on business continuity.
Company wide, we continue to exercise extreme prudent as we navigate through challenging period, but moving quickly on opportunities to maintain and grow our base contract service protect margins and a half the cash and liquidity.
Maintenance capital expenditures and readers reduce working capital.
Fortunately across all regions of the country, our two largest verticals each weighs on commercial properties continued to be resilient.
Both stay at home at work from home highlight the importance of our services the millions of residents who live in communities we maintain.
Commercial and corporate campuses combined with a true ways represent approximately three quarters of our maintenance contract book.
Hospitality retail of been the most impact the verticals represent less than 10% of our overall maintenance contract book, we have the healthy and diverse mix of customers on projects and we continue to believe in the resiliency of our business and our ability to meet the challenge head on.
Condition of the presented by COVID-19 are made fluid, but our quarterly results highlight the resiliency of our contract base business and reflect the positive underlying trends in our acquisition strategy cash generation and growth from liquidity.
Our team has done an incredible job the delivering steady results.
Ultimately, we continue to be confident we will emerge from the current price is a better and stronger company, while remaining focused on building our long term fundamental strength of creating superior value from stockholders.
Turning now to slide eight since the.
Beginning of fiscal 2020, we completed eight acquisitions, the strengthen our position as the presence in several key markets.
Overtime, we expect these acquisitions to add approximately $100 million in incremental annual revenue.
In September we acquired all commercial landscape services headquartered in Fresno, California, All commercial is a full service landscaping company entry points into a desirable on my side.
On October we acquired commercial free care of San Jose, California, combined with the acquisition of all commercial break the is now the leading Creek care company in all of Northern California.
The purchase of commercial free fall the sale of bright viewed free company or tree nursery division. The typically generated between $25 million on 30 million of annual revenue of the redeployment of assets from our development segment to our maintenance segment is consistent with our overall strategic growth plan.
Most recently tens of subsequent to the end of the quarter right view acquired full service commercial landscape from W. Ell. The the 250 member W. Ell each team serves h. away the developer commercial amulets of of clients.
Our free market in Central Texas, an important and growing region.
Our business is cash generative with low capital intensity and minimal inventory, allowing us to consolidate the marketplace in an efficient manner.
Our horticultural knowledge and excellence and our ability to operate multiple service lines under one banner positions us well.
We have a very disciplined and repeatable acquisition and integration framework, which results in the less risk and generates predictable and accretive returns.
Acquisitions provide us with an established client base accompanied with the track record of operating results of field leadership team and an experienced workforce.
Currently our M&A pipeline has over $400 million in revenue opportunity and we are in discussions with multiple companies on.
From intentional on pause during the third fiscal quarter, we resumed our acquisition strategy.
As the acquired twice in the industry, we have deployed over $300 million and close the 22 acquisitions. The January 2017, and are accelerating our pace of acquisitions and integration. We will continue our aggressive of a disciplined approach to get through attractive pipeline as we see market expansion and new market entry.
As we progress through fiscal 2021, we will continue to update you on this core strategy.
Turning to slide nine we remain focused on deploying technology to enhance the 360 degree client engagement across all verticals.
Over the course of the last couple of years revenue has invested in industry, leading technology to support our customers and enable our field based accounts and branch management.
Each of away or BB connect site quality state assessments and Salesforce CRM software have all been implemented as digital tools to improve retention and support property enhancement highly.
Highlighting age away from that.
This digital customer portal introduced at H. ways in late 2019 has been implemented the almost 100 sites across the country.
Allowing for quick collaboration digital pictures and direct follow up on issues within the community each way from that become a great view differentiator in the summer of 2020, a platform per into a residence to take advantage of bright your ancillary services via the web portal was introduced along for incremental service offerings.
Although early on adoption initial indicators show double digit increases in ancillary services feature weighted utilizing the tool more to come on as we roll is industry, leading software out to be the customers.
Turning to slide 10. In addition to the technological enhancements, we continue to invest in our sales organization growing our teams, 10% during fiscal 20 and 25% since fiscal 18 the.
We also continue to expand the use and effectiveness of our sales tools like sales force our customer relationship management solution and other sales enablement technologies the.
Drive the success of these expanded sales team, we continue to invest in digital marketing initiatives in new market and through new channel over the last two years, we of realize the three times increase in our marketing driven qualified sales leads.
These leads of then led to a seven times increased and close deals, indicating a high quality of marketing driven opportunities.
We expect this trend to continue to increase as we evolve our digital marketing strategy into a more effective omni channel approach.
Turning to slide 11, we remain focused on driving the maintenance contract growth during fiscal 2021.
Our contract business represents the core part of the maintenance, including moving edging pruning trimming blowing and other basic landscaping services and 2020 was about two thirds of on maintenance business.
This slide provides more granular look at our maintenance contract book of business. We think it is a valid way to better understand both the resiliency and stability of our core maintenance business as.
As you can see Tim.
Total maintenance contract base business showed positive growth in fiscal 2020.
Through the third quarter, we did experience the 7% decline however, the fourth quarter, we delivered strong sequential growth seeing the underlying improvement in coated related impacts and are optimistic the that trajectory will continue.
Turning to slide 12 in the constant Harper profitable organic growth and this in addition to leveraging technology, we are fine tuning our sales force and strategy.
We will invest in the growth of our maintenance sales team and our new virtual training and coaching programs, allowing us to more effectively and efficiently efficiently onboard new team members.
The incentives motivate high levels of of the right sales activity, we continue to refine the invest in growth incentives to encourage bundling services around fertilization sweeping on Puerto services free maintenance and snow removal on.
Our recent acquisitions include offerings, the low allow us to more effectively bundled services well eventually positioning great view as the industry leader across a number of service lines.
Growth is the primary focus and growth will be recognized and rewarded throughout the organization.
We also continue to realize the benefits of digitizing bright view, our technology support the engagement, providing client touch points and mobile field solutions.
Each way of BB connector of property management portal are driving deeper connectivity to the customers we serve the.
The portals not only provide a platform to digitally engaged with customers, but also facilitate additional ancillary momentum.
As our customers become more familiar with use we are seeing a greater willingness to request services view of the portals. In addition.
Our mobile quality management solution sales.
He is enhancing customer satisfaction by enabling us to share virtual sidewalks, low incorporating customer feedback and potential ancillary work.
Providing our sales teams with the data and technology tools, the yield insights and support client engagement is also critical to support growth.
Our proprietary electronic time capture labor management tool is resulting in performance efficiencies and are bidding and estimating tools continued to be improved and enhance.
Digital marketing are critical with our efforts efforts focused on code resistant verticals and geographic market expansion. Our omni channel approach is all about utilizing data efficiently will integrate and customer interactions via our website, social media channels and mobile advertising increased digital marketing efforts will.
Will be supported by growing inside sales capability.
Technology is the key competitive differentiator and the and and advantage of scale and when combined with the refined sales strategy structure and increased sales force size should return bright views of positive growth on.
Ill now turn it over to John will discuss our financial performance in greater detail.
Thank you Andrew and good morning to everyone.
I am very pleased with the strong results, we delivered in our fourth quarter and during fiscal 2020.
Our record cash generation combined with modest capital needs resulted in a reduction in our net debt of approximately $116 million and the leverage ratio of 3.7 times at September Thirtyth 2020.
Versus 4.1 times at the end of the third quarter.
Additionally, the growth on our contract maintenance business.
Combined with the efficiencies gained from our investments in technology.
In our ongoing focus on productivity.
The bulk and meaningful and driving improved margins and collectively underscore the strength and resiliency of our business.
With that let me now provide a snapshot of our fourth quarter results.
Fourth fiscal quarter 2020 revenue for the company declined 2.7% or $16.7 million from $624.8 million in the prior year to $608.1 million in the current quarter.
Driven principally by COVID-19 business impacts on ancillary demand and maintenance.
And project delays in the development business.
Maintenance revenues of $443.9 million. The the three months ended September thirtyth decreased by 11, and a half million dollars or 2.5 per cent from $455.4 million in the prior year.
The decrease in maintenance was driven principally by ancillary demand softness with solid revenue contribution of $25.1 million from acquired businesses.
For the three months ended September Thirtyth develop.
Development revenues declined $5.6 million what.
3.3% to $165.1 million from $170.7 million in the prior year driven predominantly by project delays.
We expect kobin related softness during the first half of fiscal 2021.
And more pronounced in Q2 versus last year, but we were also encouraged by our bidding pipeline and bid calendar and we.
We anticipate increased stability during the second half of fiscal 2021.
Turning to the details on slide 15 total adjusted EBITDA for the fourth quarter was $90 million, a decrease of $1.9 million or 2.1%.
$91.9 million in the prior year.
The impact of lower revenues due to COVID-19 was offset by productivity initiatives in SG day cost cutting.
In the maintenance segment adjusted EBITDA of $77.2 million was flat to prior year.
Cost containment initiatives and solid Labour management, offset revenue losses, which led to strong margin expansion.
The result was an impressive 40 basis point, the expansion and the EBITDA margins to 17.4%.
In the development segment, adjusted EBITDA decreased $400000 to $26.3 million compared to $26.7 million in fiscal Q4 2019.
The modest decline was driven by lower revenue however.
However through strong cost containment efforts the development business was able to significantly mitigate against the revenue loss.
Which resulted in a 20 basis point expansion in EBITDA margins to 15.9% in fiscal Q4.
Corporate expenses for the fiscal fourth quarter increased $1.4 million, representing 1.9% of revenue.
Now let me provide you the snapshot of our results for the full fiscal year 2020 on slide 16.
Total revenue for the company decreased 2.4% to $2.35 billion from $2.4 billion in the prior year.
In the maintenance segment fiscal year revenues were 1.74 billion, the $74.3 million or 4.1% decline versus 2019.
Key drivers were COVID-19 business impacts on the ancillary demand.
Partially offset by solid revenue contribution from acquired businesses.
We were also impacted by an $86 million snow revenue decline in the first half of fiscal 2020 results.
In the development segment. Despite project delays from the second half strong first half project price pipeline from.
Growth as revenues increased 2.6% to $610.6 million compared to $595.4 million in the prior year.
Total consolidated adjusted EBITDA for the fiscal year was $271.6 million.
Compared to $305.1 million in the prior year.
The variance was largely driven by second half softness in our maintenance the ancillary revenues.
The project delays in the development segment and lower snow revenue.
The maintenance segment's adjusted EBITDA declined by 11.3%.
The $250.1 million compared to $282 million in the prior year due principally to ancillary softness and the significant decline in snow removal services.
As a result of COVID-19 business interruptions and project delays of.
Adjusted EBITDA for the developing segment decreased 1.8% to $80.2 million compared to $81.7 million in the prior year.
Corporate expenses were essentially flat compared to the prior year.
And as a percentage of revenue corporate expenses were 2.5%.
Let's move now to our balance sheet and capital allocation on slide 17 net.
Net capital expenditures totaled $47.9 million for the fiscal year ended September thirtyth debt.
On from $83.1 million in fiscal 2019.
This represents a 42% decline in demonstrates again, our ability to judiciously manage cash.
Expressed as a percentage of revenue net capital expenditures were 2% in fiscal year 2020.
Down from 3.5% in the prior year.
We will continue to demonstrate a diligent focus on managing capital expenditures.
We expect fiscal 2021 capital expenditures to be approximately 3% of revenue in line with our long term guidance.
In fiscal year, 2020, we invested $90.3 million on acquisitions and decreased net debt $116 million to $1.02 billion.
Our leverage ratio was 3.7 times at the end of the fourth quarter of fiscal 2020 versus 4.1 times at the end of fiscal Q3.
During the fourth quarter of fiscal 2020, we also completed the sale of breaking free company, our tree nursery business.
In addition, the generating cash the transaction reduces our working capital needs and supports our overall strategic growth plan to redeploy capital from development to maintenance.
In connection with this transaction, we recorded a onetime noncash charge in the fourth quarter of approximately $22.1 million primarily related to goodwill.
During fiscal 2020 free cash flow increased $110.6 million on the.
Highest achieved in our history to a record $197.2 million. This.
This represents a significant increase compared to the $6.6 million in the prior year and was principally due to an increase in cash flows from operating activities.
Our continued focus on diligently managing on working capital, including receivables and payables aggressively managing capital expenditures.
On a reduction in interest expense driven by lower rates.
To further elaborate on working capital let me briefly review the progress we have made over the previous three years on slide 18.
In 2017 as a percent of last 12 months revenue net working capital was 12.5% through.
Through the continued focus on reducing dsos and increased focus on driving more favorable vendor payment terms and aggressively managing our inventory net.
The net working capital was significantly reduced to less than 9% of revenue in fiscal Twentytwenty.
Going forward, we expect to remain very diligent in regards to managing our working capital.
An update on liquidity is on slide 19 at the end of fiscal 2020, we had approximately $182 million of availability under our revolver.
Approximately $50 million of availability under our receivables financing agreement and.
And approximately $157 million of cash on hand.
Total liquidity as of September Thirtyth 2020 was approximately $389.1 million. This compares to $283 million as of September at the.
Sales and 19, a true testament to our ability to generate cash.
We are confident that we have ample liquidity and cash on hand to not only run bright view effectively but also maintain our focus on paying down debt and continuing our accretive M&A strategy with that let me turn the call back over to Andrew.
Thank you John.
Turning now to slide 21, our fourth fiscal quarter results are at the upper end of the expectations we share in August of.
The cash flow and contract base base business remains strong.
Combined with our liquidity, we expect to continue our pace of acquisitions and the pay down debt.
Despite anticipate continued COVID-19 related impacts the fundamentals of our business and our industry remains strong.
Our sales and marketing strategies and structure, our formula for long term success and our investments in the field based sales and operations leadership will drive stronger new sales and result in improved client retention will further streamlining our service delivery.
The investment and expansion of our sales team combined with targeted regional effect efforts in digital marketing have grown our sales opportunity pipeline to the highest level in the company's history.
Overtime, this enhanced and robust pipeline from support growth well ahead of the industry averages.
Additionally, our M&A pipeline shows no sign of slowing down and the deliberate of reliable source of growth for three years running we.
We plan to utilize our strong cash position and liquidity and expect to take advantage of of our attractive pipeline of opportunities.
I would also like the personally thank our dedicated employees families customers clients and partners, where the resiliency and dedication during a challenging time almost 20000 people come to work every day to make sure the living assets, which we live work and play per Se and beautiful.
Most importantly, the strong customer and team oriented bright view culture drives of the resiliency of our business.
At all levels on the organization of focus on taking care of each other and our customers and taking pride in how we engage with our clients and the beauty of their properties, we design develop and maintain has sustained our organization.
We will continue this focus on our culture to deliver confidence in the future that lies ahead. Thank.
Thank you for your interest and for all your attention. This morning, we will now open the call for your questions.
At this time of the would like to ask the question. Please press star followed by the number one on your telephone keypad.
First question comes from Andrew Wittmann with Baird. Your line is now open.
Great. Thank you for taking my questions. Good morning, everyone I have several questions on probably back and maybe save some of them later, so the other people get a chance to have the floor, but but the Andrew I guess I wanted to start a little bit talking about on the maintenance segment.
The last quarter organic growth rate was minus 12 this quarter of minus eight so a sequential improvement you talked about this briefly in some of your prepared remarks, but I was hoping you could dig in a little bit more in describe a little bit more about what you saw on the quarter what were the truly the biggest factors in driving the sequential improvement was it just really more real.
Openings of customers or was it driven by wins and account retention or was it just the ancillary coming back on I'm sure. It's all of these things and I'm really looking for what the the couple of the key drivers where the helps the sequential improvements in can understand better.
Yeah. The good morning, Andrew I think the if you if you pick of that that the list and that's those are the primary drivers.
Surely.
Some of the reopening that occurred in the fourth quarter versus the third quarter was a particular impact.
Although as you noted still debt some of the decline I will say the probably the the the another underlying the impact of the improvement was the higher retention rate well sales.
Clearly has slowed down some just due to the ability to get in front of our customers.
Also of the same time the retention we have with our current clients has maintained a strong position. So I think those two drivers ancillary well improving settlement of the shortfall in 2000 and the fourth quarter did not come back as strong as the contract came back so insular continues to provide.
Pressure on the overall picture.
But I would say on a very positive note retention improving as well as just a general reopening of the.
And the great. Thanks for that and the just the is the implication of this I guess on your first quarter guidance is my next question. We've seen a lot of service companies kind of the leveling off in the September timeframe seeing kind of October even November trends and are more consistent with the.
But the saw in the quarter is that the case free to your business on on an organic basis as well.
Or how should we think about whats implied in the Nick on getting from hedging.
I think thinking about the first quarter is what you will see overall is you're right the kind of a good resilient space in our contract business I think ancillary our assumptions are that we continue to see pressure in the ancillary world of that has is not coming back and the range really is due to the variability on so which does happen in December.
So that does pose another uncertainty kind of in our December as the particular December month.
Okay.
And then just over on developments I thought I would just ask you mentioned some project delays.
We've noticed in your filing that you're a recorded but on performed backlog performance obligations are down.
Pretty significantly since the start of the year, but the previously you mentioned that your fiscal 21 was well booked or even maybe you said nearly fully booked and so I guess the question is what's the status update on the start or some of the delays that you saw in the quarter.
I wanted to continue throughout 21 to maybe change the way you see the 21 development of picture laying out.
And I was just wondering if given the uncertainty in the commercial real estate market on the.
If you're seeing in the cancellations.
Yes, I previously mentioned, we are booked for the first quarter and of that continued cash that the.
The first quarter is kind of booked at our expectation level is.
It's where I said the before is that in the first half of the calendar year that we saw some weakness overall on the development and we continue to see some of that is not cancellations in more so has to do with the fact that during the April through July period. Overall project activity was lower in the construction area and the causes us to Paul.
The little bit on a dip we see in the first half of the calendar year 21 of that being said.
Actually bidding activity is increasing and we're actually seeing from some nice upticks in overall project inquiries kind of the reverse of cancellations. The gives us some optimism as we look out nine months from now.
Our next question comes from Tim Mulrooney with William Blair. Your line is now open.
Good morning, John Good morning, Andrew.
Good morning, Tim.
Couple of questions. The first can you talk about.
How you're enhancement revenue trended through the quarter and maybe in the October you talked about your base contract revenue, which was really helpful. But the variability really seems to be around the enhancement revenue. So curious if you could share what enhancement revenue was as a percentage of sales maybe relative to this time last year or how it moved through the quarter.
Yeah. If you look at overall enhancements will we did note the contract. The total contract was up about 100 of about 3% of though of 103% of last year. The ancillary continues to show the weakness obviously with the overall profile of the business.
Being being debt being.
Moving down.
About 3%. So so the corollary to that is the is ancillary and we are seeing ancillary although improved off of the fourth quarter of off of the third quarter still.
Still about 20% or so down year over year.
Okay, that's really helpful. Thanks, Andrew and on.
On.
Wanted to ask about employee retention doesn't really.
You don't necessarily directly correlated year results, but I know this is the critical metric for the business. So I'm thinking about a couple of different factors here and I know we talked about this from the past Andrew but now on seeing these onetime bonuses. You recently paid out do you expect that to have an impact on thinking about suspension of the age to be visa program in June how has that affected your.
Operations can you just touch on your branch level retention rates and how that's changed if at all through this covered period.
Yeah, and what you see out there is that we continue to have a very dedicated and strong base of employees throughout the organization. The critical core the continues to operate we talked about we paid over 13000 people on the company.
Of central work on this and that shows you the extent of the of the.
The stickiness that we have with our employees I mean, the fact of the matter is those wells had been with us since may to get that bonus and that was not those were the people who actually glad doing the work.
Landscaping gardeners on the field every single day. So so when you look at that overall attention. We're very very pleased to be able to say that we had a very strong.
Retention element of throughout the entire the and.
Tired.
As you look out towards the day to be the eight to the visa announcement back in June were through December 30, Onest and so the the program itself continues to be.
Active with taking applications for 2021.
There has not been any declaration, specifically related to how the impacts 2021.
Okay understood. Thanks for the color.
Our next question comes from the line of Shlomo Rosenbaum of Stifel. Your line is now open.
Hi, Good morning, Thank you Tim.
Can you walk me through again why you sold.
The tree nursery business.
Sure.
Shlomo Good morning, this is John part.
Part of our development segment much more cyclical in nature.
The user of the.
Working capital as you've heard me say before the company.
That's about $30 million of the of inventory 20 of it was tied up in the in the tree Sri business.
And we had a really good offer at a really good multiple.
We wanted to take advantage of the I think sling will also if you look strategically the.
The nursery business within what we do we don't growth, we don't grow products from make products, we basically develop landscapes installing the screen to maintain the strategically the the company. The acquired this was the nursery company and so taking the nursery company and putting the with another nursery company really gave us a strategic reason for it to be in more of a group focused on that line of business.
Rather than the line of business. The strategically is is really what we're per se.
The change any of your costs in terms of development that you now have to buy as opposed to produce by yourself.
No no we treated all transactions between the tree of nursery and our own development business pretty much as an arms length transaction. We did buy we continue actually with the encouraging is we actually have of having very cooperative agreement now with several mountain, which is the company that bought the nursery to continue a very price.
Positive and healthy working relationship between the companies and we actually think it's going to expand our relationship by tapping into the double mountains. Other nursery businesses, increasing overall really strategic synergy with the company that is focused in on nursery the.
Free business.
Okay. You said 7 million next quarter is there any EBITDA impact there.
Yeah.
About a million dollars Shlomo in Q1, Okay said small okay, great and then can you talk a little bit about the increase in contract revenue margins.
During the quarter or what what's going on what are the client conversations that you're having that are enabling that to happen is it is it pricing at all or is it really the fact that you guys are just being very very disciplined on on costs. If you can elaborate on that.
Yeah, I would say, it's more of the latter than the former we are being aggressive where we can be and prudent on on pricing as we have been historically, but I would say the main driver of the incremental margin improvement in the maintenance side was driven by a really good utilization of our technology tools around.
Our electronic time capture and managing the labor. So there was a benefit there and then also the cost side Shlomo those were the two main a day.
Drivers of the enhancement in margin for the quarter.
Okay, and if I could squeeze one more in the Didnt really good job on working capital on net that's something that is really driven the cash flow over here.
Is there any how should I think of this going forward. He feels like you've squeeze the down to kind of a run rate level here.
Or is there more work that you think you can do there John.
Well I think for us it's all about continuous improvement Shlomo. So we're going to continue to be true.
Prudent and disciplined we have made a lot of structural improvements in how we manage the working capital.
But our goal right now is true to hold on to the improvements that we've made but we as I said in my comments will continue to manage it very aggressively on the working capital side.
And we really want to focus on the on the on the items that of controlled at the branch level, mainly collecting collecting our money and we've done a very good job.
In being aggressive on our collections across the board both development and maintenance.
Our next question comes from George Tong with Goldman Sachs. Your line is now open.
Hi, Thanks, good morning, the pace of development the revenue decline improved pretty meaningfully in fiscal Fourq you even against the relatively tough comp in the year ago period can you talk a little bit about how project delays are currently impacting the development of business, if you're seeing a broad based reopening now or if things are still pretty much under low.
Continued.
Yes, George I think overall on development, it's really spotty, meaning it's the right.
On the country different areas of different pieces of the and the reality is.
The for example, the Boston area.
Seems to seems to have a little more impact on the ability to speedily get skin project on so we're seeing a little more delays and those kinds of areas I think overall, we're seeing demand in in the development area in Q1 kind of similar to last year with the light relative to last year, it's really where we see.
One of the impact of the slowdown is really kind of our Q2 with and kind of coming back in Q3 and Q4, the probably more typical levels that we saw in Twoq and 2020, so really our debt happens in Houston.
Got it that's very helpful.
In your prepared remarks, you did cite several organic revenue growth drivers looking ahead. So sales team growth marketing effectiveness, you talked a little bit about some of the virtual coaching and training programs.
Can you can you elaborate on and which of those levers you think has the most the potential to accelerate your growth exiting coated.
Yes exited cobot, we're seeing some there's multiple levers there as I tried to outline.
So I'd pick on a couple of them I mean, we're seeing some real positive shoots coming out of our digital marketing efforts, which is which is really showing.
On a deliberate attempt to get out into the market using omni channel or really on multi pronged approach the generates significant qualified lead generation.
We started this about a year ago with.
With the single stream kind of approach and now going into a multi omni channel approach and targeted markets. We're seeing the most from mentioned before the three X improvement and leads that's that's leading to a sevenx flows so a very significant element of.
And where we're seeing some of that is as its as recently as October we've talked about before is our net new our net new number at October was the highest net new we've seen in the company's history, which means our sales efforts are beginning to work that doesn't mean realized revenue coming tomorrow, but it means the contracts, which we start booking now.
Early into into the into contracts that will start in April we're seeing some real positive shoots coming out of that marketing initiatives.
Got it very helpful. Thank you.
Our next question comes from Q, the so called with JP Morgan. Your line is now all from.
Hi, Good morning, I wanted to ask the little bit about the comment you made around fiscal 21, you said.
Assuming a couple of caveats switches average snow fall at a modest recovery you expecting improved results year over year. So just wanted to make sure I understood. What that meant is that the thanks for the full year, we should be looking at revenues.
In total up year over year as the tucking that EBITDA as well or is this maybe just the maintenance comments I, just hoping to dig into a pretty encouraging comment on.
That you made.
Yes, the overall comment I think the Judah. It's the answer is yes revenue is up and EBITDA off as we as long as those loans, we have average snowfall and we see a modest recovery. We're very encouraged by what we see out there not only with as I mentioned on our new sales pipeline, but also with the overall development the booking trends.
Thing is and as I noted our contract maintenance business is stable.
And growing that contract base business with the return to normalized activity with cogan, the ancillary pull through will call.
And so yes, it's the we're encouraged as long as we see recovery and cobot, which we believe with the vaccine will occur.
And overall snowfall happening at average levels.
Great and then but also not be relying on increased M&A right that would let's just put M&A aside on an organic basis do you think that this can be up year over year, assuming like you said average snowfall in a modest recovery.
Yes.
Okay, Great and then the other thing I just wanted to ask I. Appreciate the slide that you guys included which showed the trends from the contracts I believe the slide 11, I just want to make sure I understood. Its the this is this is the piece of maintenance that is just contracts right. So it excludes the enhancement work is that is that how am I understanding.
That's correct Jude or its contract only it excludes the ancillary.
And that mix is generally like a 70 525 mix if I recall correctly.
Judah on so yeah, I mean, the excluding snow, including style would be 25 75, excluding so no rep roughly two thirds one third.
If you look at it but the overall maintenance business about 25 per side of the overall maintenance business the ancillary services.
Okay, so putting it altogether, if we stop on going to just quantify how much impact you're seeing from Covance I know you quantified it last quarter I believe that was the $75 million in total 65 million of that was the maintenance could.
Could you help us maybe you did and I missed it can you just quantify how much you saw an impact from coordinate the on your revenues in the fourth quarter, and then what you're sort of expecting what's embedded in your guidance for the first quarter.
Okay.
Yes, if you look at it.
Look of the maintenance business in general you're right, we said about $75 million in the third quarter, I think thats flow down a little bit. So we we think the total impact the co that in the fourth quarter in maintenance is somewhere around $2 million the.
In the fourth quarter.
And that's in the maintenance development simple epithet of.
Quite a bit less.
Or so in revenue. So you look of the overall picture.
60 out of the 75, you know what about 135 million or so impact for the year on co, but so far we would expect that to the there's no indication of that won't come back.
As we come out of the hands on it.
Okay, great. Thanks for that.
Our next question comes from Hamzah Mazari with Jefferies. Your line is now open.
Hey, guys. This is as Merial portal actually filling in for Hamzah I just wanted to touch on some of the.
The decremental margins kind of expected in Q1, which is again the implied in the guide, but I guess, just how should we think about incremental margins throughout the remainder of 2021 as as comps get easier and growth turns positive.
Is there could you could you give us some guidance or outlook on on how we should think about that the cadence to that in.
In 21.
Yeah the.
Oh excuse me Mario Good morning. This is John I'll start on.
On that question as we said in our comments, we still expect.
On the maintenance side the impact of.
The pressure on ancillary.
Well the impact on margins, we think through the first couple of quarters.
Of the fiscal 2021 so.
We don't see any big change in that we are encouraged by what we're seeing on on the contract piece of the business and how we've been able to manage our labor and our costs are <unk>.
Which was evident in our results for the fourth quarter on the development side for a little the little bit trickier because of the the project nature of those.
That business and when projects get delayed.
That is indicative of how the the margins are going to hold up in that business, but again, we saw the.
Recent results in managing the cost in the fourth quarter, there, which led to an increase of margins are challenging development in in fiscal 2021 will be.
In the as Andrew said, we have good visibility on Q1 things look okay into Q2, we expect some of that softness from materialize and then of things.
Backhaul, we hope we'd see a more normalized level in Q3 and Q4 on the development side.
Great that's helpful and then.
I mean, you guys said that you added 10% of the sales force this year of 25% in 2018.
You made some comments around marketing leads growing three times and the you added some detail on one of the other questions, but I guess just.
How are you thinking about sales force productivity or how are you measuring that are you guys looking more at total sales per per sales person.
Total contract revenue or ancillary revenue just trying to get a sense for per how you're basing that and then what did that I guess look like versus history.
And how.
How quickly can net sales person ramp once you guys are adding the into the into the six month type of ramp or does it take a year or two for them to get up to being fully productive and fully profitable.
Yeah. If you look at the our primary Capex, we use this contract revenue per sales employee and with the ramp that we've had to me. If you look at that 25% ramp over two years of.
Yeah, and the couple that with the ability of the.
The training and the the in person kind of debt.
Development. The you typically have the sales person has slowed down no question because of Kogut of the the point is of we continue to invest we've continued to build our sales force and we've seen from quite nice stickiness with our employees that we brought them on during this pandemic. So what we do believe that as we come out of the Pandemics of the sales and the.
We have also seen as you bring on the more new employees, you see that metric come down a little bit the combined with new employees and the reality the the sales process with the landscaping is a very personal in person the sale dealing with the client going on customer walks with the with the properties understanding the issues at the property.
With the with the property managers in the owners. So that combination has caused that metrics of the slide a little bit recently, but we are very optimistic that when we look at tenure of people who've been with us for over a year the amount they sell dramatically improves.
And we see we're seeing that metric go up so as you see on impasse and the new employees gain in experience combined with the the the removal of the pandemic weight. The are really really energized about what the sales team and the continued investment in the sales is going to produce.
Great if I could just sneak in one more on on the M&A I mean, you see you have the $400 million pipeline of anymore.
I mean, there's a lot of chatter and other services industries that 2021 could be an outsize year in M&A with 2020 being towards the lower end of of the expected ranges.
I mean, the that's an opportunity for for you guys in 2021 and that could be an outsized year or how much of that 400 million in your current pipeline could you recognize in 21.
The our pipe is up we've typically said we of about 300 of 350 or our pipeline now is about 400 million and opportunities on the pipe.
You should expect I think everyone should expect the type to convert the if we converted at similar rate, we should be doing slightly more M&A.
But you know the M&A is more of an art than the science. So we are dealing with making sure that the companies that were connecting with have an ability to match with the culture of break and Thats. The most critical but so right as we sit here today opportunities out there have grown and we continue to be very optimistic about.
What that can mean for acquisition.
Acquisitions in 2021.
Our next question comes from Seth Weber with RBC.
Line is now open.
Hey, good morning, guys. The Gunnar Hansen on per set I guess, you guys that person a lot of things, but I guess, John going back of the net working capital benefit.
The opposite below 9% of revenues of trended down pretty significantly in the last couple of years I mean should we assume that that picks back up the kind of the 10% of that.
The been realized in prior years or.
How confident are you that that 9% working capital is a share.
Daniel.
Okay.
Well as I said earlier and good morning, Governor what we're going to work extremely hard to maintain what we've achieved here.
We have.
Income from structural thing.
On the AR side, we've had a heavy focus on anything that's aged to get that to get that in the building is as soon as possible one of the things I do want to mention is that we haven't done these dramatic improvements on the back of our vendors. So we're not aggressively extending our vendors we have very good.
Relationships there.
And I think that's that's those are really the key elements.
Combined with managing our capital expenditures aggressively and we're certainly not starving the business at all.
I think those two components.
Really help us to maintain our consistency and ability to generate free cash and cash in this business. The both as we said de lever and continue our acquisition.
Okay. That's helpful and Andrew I guess, just with some of the metrics you provided around the the sales pipeline in the marketing leads all of that seems pretty encouraging.
Can you give us a little bit more color on the background of those programs. I think you mentioned net it really started a year ago and this and the.
It's moving more to the omni channel today, I mean, how is that done on a centralized bases in the nose leads pushed out to the local branches. How pervasive are those leads across the country are there any end markets that are better than others.
And with the with the leads that you're seeing is it.
The white space or are you winning share from competitors is there been a shift of greater outsourcing any color around kind of some of the cash.
Contracts of those.
Yeah, we put a deliberate approach on about a year ago and there are various stages that we're introducing.
The start out with the single stream channel Omni channel something we're just starting right now.
When you look at what we think we can create as far as pipeline. It is targeted at certain markets throughout the country. We've done is about about a year ago. We started deploying regional digital marketing resources the partner with our divisions out is the about regions.
So that it's kind of we've taken the first step on that we do believe there's kind of multiple steps. We are taking step one Doug. So the results were now taking it down to expanding our market presence step two we believe there's even more combing instead of Threed, which probably will be beginning of starting from about six months nine months from now sort of multiples.
Stage levels that were going at that and the initial.
Initially what we're seeing on whatever quarters from very positive results and if you look and landscaping. The reality is it is the delay of exists and so most of it is going to have some competitive element of the market is so big we only have about a two to two the 3% share of the landscaping market right and so as we're going out there were basically reaching out.
Okay, and engaging with customers. Many times you don't know who we are.
So the shot show being able to go out and and stimulate brand awareness is really what the marketing is doing and by doing that reached the bidding more customers coming into the pipeline that ultimately convert at a higher rate of the Brady.
Great. That's helpful. Thanks, guys.
Our next question comes from the line of Kevin The same with credit Suisse.
Your line is now open.
Great. Thanks.
How much snow fall E D of factored in to kind of the low end of the high end of the Q1 guidance is there any way to think about.
You know just ring fencing, what type of range, we should think about for 2021 overall as well and we're you know appreciating your not giving formal guidance, but just share way to think about the bands not only for the quarter, but I guess for the full year.
Yes, if you look at snowfall in general on Q1 last year was was a pretty good good first quarter.
And so if you look at kind of the range that we have the top end of the range with the kind of the average.
Average snowfall doesn't doesn't it doesn't the anticipate anything big to get the top end of the range in other words, we go through the range of if there was a.
Blizzard event in December the bottom of the range I'd say late snowfall, probably a shrinkage of roughly $10 million or so off of prior year at the bottom and the range $5 million to $10 million from.
Off of last year.
That's kind of the range of what we really need to get the.
As many people know.
No. This is important and so you know events that occur in the high snow markets tend to be more fixed contracts and those that have more variable or kind of mid Atlantic type. So we need to see though in all areas to some degree ice of so that's the kind of hit the average of we'll give more color as of that goes as far as 2021.
On the rest of the quarter quarters ago, we really need to get closer into December and January to see kind of weather patterns to see what that's looking like before we get any more specificity on where we believe that of the pit.
Helpful. And then just from I, just because I know you've taken some actions in terms of bringing some of the capacity in the house to try to minimize the you know I think Tim of the expense of volatility around surge.
Are you just kind of where you need to be on that or the you know is there any way to think about how much of the coverage would be in house versus outside.
Outsourced obviously, you know in the normalized environment as opposed to something Super Super disruptive.
We look at the balance all the time between outsourcing and insourcing of we are trending towards putting more to our in store side of the branch perform we will continue that measure.
Measured in the meaning that the capital expenditures involved with the outfitting or our capabilities and so it was going to be a multiyear process, where we continue to do and more more itself in sourcing with the capex deployment supported by overall got on Capex.
Thank you.
Our next question comes from Sam England Standard Your line is now open.
Hi, guys. Thanks for taking the questions on the first of on the market data that you call. In your 10-K has debt the agro Malki gang back about 2019 levels in sort of 2020 2023 do you think you can outperform not on an organic basis over the next companies.
Yeah. If you look at the I've just stated that we have of the you're right it's showing.
The rebound more in 2022 23, yes, we believe the given the the marketing the digital marketing investments. The increased sales force. We have we believe that we the and then also the return of ancillary demand would be fully expect will happen as we get out of the the part of the crisis all of those will be able to fuel they better the market.
Gross.
Okay, Great and then just on the on the Capex your guidance Capex going back out of 3% of sales in 2021 not funded by the that's just the catch up on stuff that you. The late this year on there's any sort of new investment gang in anyway, and then you mentioned the technology improvements you've made the same more investment to day dying for what's on the.
Technology side as well.
Yes, Sam good morning.
The guide we gave was.
Directionally, what we think we're going to be doing in fiscal 2021 are.
We spent less obviously in 20 than we did in 19.
As I said, we certainly are not starving the business we just.
On the guide was based on a prudent level of of capital versus what we expect on revenue, but nothing incrementally or large projects out there that would stimulate any ancillary capital expenditures and let me emphasize on technology, the what I'm thrilled about this.
This is why break the was different we can go deploy a million dollars of capital in the capitalizing and doing software development that is unique to the industry that enables thousands of people on our company to operate more efficiently. It's something only we can do and frankly when it comes to our capital of the $65 million number is a relatively small net.
Of our capital its something Thats a differentiator for this company that we will continue to invest in and continue to the Hansen deploy our tools that's going to drive the greater sales result.
Okay, great. Thanks, very much on any of that thanks guys.
Thank you Sam.
That concludes our share any session for today's call. Thank.
Thank you all for participating.
You may now disconnect. Thank you.
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