Q4 2021 Brightview Holdings Inc Earnings Call
Hello, and welcome to the bright bold fiscal fourth quarter.
It's called my name is one and I will be coordinating your call today.
I would like to ask a question during the presentation you may do so by pressing star one on your telephone keypad. If you have joined US online new campus. The flag icon on your web browser to ask a question I will now hand over to your host John <unk> Vice President.
<unk> of Investor Relations took again John Please go ahead.
Thank you operator and good morning.
I'd like to remind listeners that comments made today.
In response to your questions information with one another.
Pas are 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 condition.
Comments made today will also include a discussion of certain non-GAAP financial measures reconciliations to comparable GAAP financial measures are provided in today's press release.
<unk>.
On forward looking statements and non-GAAP financial measures apply both to today's prepared remarks as well as the Q&A for.
For context, probably use the leading and largest provider of commercial landscaping services in the United States with annual revenues over $2 5 billion.
Seven times, our next largest competitor.
Together with our legacy companies Bright view has.
It's been in operation for more than 80 years, and our field leadership team has an average tenure of more than 14 years, we provide commercial landscaping services ranging from landscape maintenance and enhancements to <unk> and landscape development, we operate through an integrated national service model, which deliver services at the local level by combining our network.
At work with more than 280 maintenance and development branches for the qualified service partner network are.
Branch delivery model underpins our position as a single source end to end provider to a diverse customer base, the national regional and local levels, which we believe represents a significant competitive advantage. We also believe our.
Our customers understand the financial and Reputational risks associated with inadequate landscape maintenance and consider our services to be essential and non discretionary.
I'll now turn the call over to Brian <unk> CEO, Andrew Masterman.
Thank you John and thanks to all of you for joining us this morning.
Your marketable to consider that we are officially close you know bright bright views fiscal year with this announcement of fourth quarter and full year 2021 results.
And so much of our day to day news is still consumed by the Covid pandemic. He told me at this time last year that would still be talking about COVID-19 and its immense challenges today I would.
I believe you.
And yet the breakthrough team has amazed me everyday with their resilience and fortitude at the end of the day, we are a people business and I could not be prouder of every single one of my more than 20000 breakthrough colleagues who've continued to show up and serve our customers with excellence.
Rob.
It is it is certainly not been easy and there have been many challenges, but as I mentioned during our Investor day back in September <unk> is built on an 80 year legacy of providing best in class landscape and other services to customers across the country.
Just as our predecessor companies persevered through.
Rob macroeconomic disruptions, while continuing to deliver significant value to their owners. So we will break.
Moving to slide four as.
As I will discuss in more detail in a moment. Despite the difficulties of 2021. The breakthrough team has accomplished so much while driving strong operation.
<unk> and financial results, we continued to invest in our people and our technology and we completed eight acquisitions, adding close to $160 million of annual revenue.
Slight labor shortages, our HR team recruited over 5000, new employees, we committed to carbon neutrality by 2035.
And so much more.
Investing in our future. We were also sharply focused on delivering superior financial results.
Additionally, I'm delighted to welcome Frank Lopez for the bright New board of Directors Franklin brings a depth and breadth of knowledge and experience to our board from as.
Five years, and an executive leadership role with Ryder system, Inc.
I look forward to working together with Frank and the rest of the bright view board.
Our team of more than 20000 employees has continued to go above and beyond their perseverance made it possible for us to deliver a strong maintenance land organic.
Many revenue growth and our people their performance and their intense customer focus is why I'm confident in our ability to deliver continued profitable growth.
Starting on slide five.
I'm thrilled to report another solid quarter led by maintenance the maintenance.
Panic with growth of 14, 5% underpinned by nine 2% of maintenance land organic growth. This.
This expansion was driven by continued growth in our contract business as well as a rebound in ancillary services penetration.
<unk> Q3 in which we grew organically 11%.
Segments and in Q2 are still contracts grew 10% plus in short we have grown from fiscal 2019 organic revenue levels. Despite operating in an environment presented with continued challenges.
For the full year total revenue was a record $2 55 billion.
And adjusted EBITDA increased.
Plus 3% to over $302 million.
Full year adjusted earnings per share increased approximately 32% to $1 20 per share a record for the company.
Second because of the strategic investment we've been making in our sales force impressive maintenance land organic growth trends.
11, our second half of fiscal 2021 land organic growth of 10, 5% was a result of the continued positive net new sales we discussed over the past few quarters.
Third.
Adjusted EBITDA for the quarter was $89 5 million.
Which was relatively flat to the prior year.
Double digit growth in our maintenance segment was offset by softness in the development segment due to increased inflationary pressure on material spend more on that later.
Fourth our consistent and predictable free cash flow generation continues to be robust for the fiscal year, we generated $96 $7 million of free.
Cash flow.
And finally, the results of our strong on strong acquisition strategy benefited our revenue growth by $44 2 million during the fourth quarter.
Our fragment industry presents many more opportunities for consolidation and you should expect to see M&A execution from us every quarter.
Our adjusted EBITDA performance was within the range of our guidance provided during our third quarter call and our revenue was above the top of the guidance range, resulting in a solid finish to the year.
Before we turn to the details of our fourth quarter and full year. Let me provide you with our outlook for our first quarter of fiscal 2022.
On slide six.
As expected we continue to see COVID-19 business impact specifically related to labor and material costs, but we are optimistic about our ability to deliver solid results.
Our maintenance land contract based business is growing and demand for ancillary services is improving.
As more than 3% to 4%. It just is a little too early to tell.
Got it thanks very much.
Thank you. Our next question comes from Andy Wittmann from Baird.
Please your line is now open.
Yeah, Great and sorry, I'm, just thinking here I've got more than.
Two questions I'm trying to figure out which ones don't want to do alright, So I guess well.
Let's talk about ancillary.
Can you talk about the.
What the performance on ancillary in the quarter was compared to pre COVID-19 levels.
So I'm just trying to get.
Sense of how far back that is on a run rate basis today and how much further is to go tomorrow.
Yes, Andrew.
Good morning. This is John when you look at the detail between both.
Both contract and ancillary in the fourth quarter.
Versus the same period of 2019.
Better.
We're ahead on the contract side.
Modestly by about 1% to 2%.
And on the ancillary were still slightly behind where we were.
In the fourth quarter.
But we're still positive net when you combine both ancillary contract.
For the quarter versus 19, so good.
Good good results on the contract side.
Getting very close on the ancillary side.
Got it okay.
For my follow up I wanted to just kind of.
Talk about some of the reconciling items in free.
<unk>.
In particular.
The COVID-19 costs that you called out in the quarter as well as the integration costs.
Covid has kind of subsiding at your number.
The costs that you're excluding is still relatively high in fact, it's a little bit higher.
So I wanted to understand.
Cash was something in there that was onetime ish or what the expectation was on a go forward basis for those costs in 'twenty two and then similarly with the company and you guys have been running $3 million to $4 million per quarter, almost every quarter for two years.
And so I was just wondering when the expectation for the it spend.
Spend too.
And if there.
Substantially all go away is going to occur. Thank you, yes, yes sure. Andy again this is John the breakout of the.
Nonrecurring in the fourth quarter.
About half of that is.
As Ms transformation and integration costs.
The other half is.
We saw a slight uptick in the quarter driven driven by the Delta variant.
In the quarter.
Like all companies, we don't know when that's going to subside, but we would expect that to subside on a quarterly basis as we get into fiscal 2022 on.
<unk> it.
And.
In infrastructure several technology initiatives that we have discussed amongst them.
Another version of our ERP going to 2.0 the.
Salesforce in CRM, but we'd expect those like Covid to certainly slow down as we head into 2022 and yes, we will.
One comment on the Corona.
A virus impact.
The fact that we continue to quarantine anybody in the company, who has exposure to anyone who has the.
The Corona virus.
Private predominant expenses that we have that we didn't see as slow we.
We didn't see a slowdown in fact, we saw an increase in our in our fiscal.
With the case, but we are seeing a reduction now as we as we see some time in November coming down.
Actually.
Increased pretty significantly in the July through December time period, and that's what really drove that cost.
Yes.
Got it okay.
Thank.
Our next question comes from Shlomo Rosenbaum from Stifel. Please go ahead. Your line is now open.
Okay. Thank you for taking my questions.
You mentioned that Youre looking for maybe potentially other ways to return capital to investors.
Mind, expanding on that would you.
Guys be doing the share buyback would you be doing introducing a dividend.
Be putting in a variable dividend or anything depending on how snow comes out during the year, maybe you can expand on that.
Yes sure Shlomo.
That was a comment that really carries off but what we talked about at Investor Day, We said.
Said that going forward, depending on where we feel the share price trades that we would possibly enter into some form of a share buyback.
We have not executed that yet, but we want to continue to be available to make that decision.
If we deem that.
For our company.
So thats really what that relates to.
Okay, and then how much in total do you plan to spend on your ESG initiatives in fiscal year 'twenty, two that are going into the capex number.
Yes, when you talk about what fiscal 'twenty, two we will pack it really comes down to some of the incremental.
Electric vehicles.
The incremental cost savings of electric vehicles, which.
Over 500 vehicles.
That really isn't that much.
Super Big number right. So we're talking about 500 vehicles at.
At most somewhere between $5000 premium to $7000.
<unk> per vehicle.
<unk>.
That's kind of a total impact the branch that we're intending to outfit in 2022, that's going to be consumed in the normal capex.
Shlomo Good morning. This is John I would add that.
We got a lot of opportunity in the handhelds.
Two cycles.
One thing that's going to be like for like essentially theres not a lot of cost differentiation today between the gas and electric.
And we get that's fertile territory for us to make traction in ESG.
Is there any difference in that functionality.
This tight to cycle I mean, just whats why didn't you do it beforehand.
And what what's your trade off here.
Really what's happened I did say in the last couple of years, you're seeing increased battery performance of the two cycles, which are allowing us to actually have duty cycles that last longer and that's been really the.
The limited limiting factor if you think about a blow.
Blower that might have.
A 30 minutes to 45 minute battery cycle.
In the past now as that Cascades towards a couple of hours with backpacks, even extending into three hours.
It really allows us two years or three changes a day, rather than eight pages, a day and that really that battery life and the technological.
<unk> placements that are coming in that's really what's driving the ability to move forward and we believe those technological advancements will continue over the next several years, allowing us to achieve our goals.
Great. Thank you.
Thank you. Our next question comes from Tim Mulrooney from William Blair. Please.
Advanced line is now open.
Yes.
Andrew John Good morning.
Good morning, good morning.
So.
It looks like EBITDA margins are expected to step down.
In the first quarter kind of at a similar rate to what we saw in the fourth quarter here.
Here.
But based on all the mitigation actions in your prepared remarks, when would you kind of expect that margin headwind or tailwind is that.
Back half of 'twenty two thing.
In line with the improvement in your development business or is it more of a 2023 expectation at this point.
Yes, Tim.
The real for the first the largest driver is really the development side of the business and to be clear. What that is is when we entered into contracts, let's say about nine months ago. There were certain material costs that are fixed and those contracts with inflationary pressures that have come in most.
And what the impact of the developed business.
The costs that we're buying materials that are significantly higher.
Now so those contracts were priced again, maybe nine months ago. So what we're seeing is as we look at our bookings were.
<unk> booked right now here in Q1 and Q2.
And even partially into Q.
Significantly I should say in the Q3 with those kinds of contracts with those other materials. So as we are now booking into our Q3 and Q4 with more current costing in current contract structure. We believe that we'll see that turnaround to the development segment as well as in the business because of that as we get into.
Into Q3 and more so into Q4 and then the board after that.
Yes.
Andrew.
That's really clear and really helpful. Appreciate you walking us through that in detail.
I'm sure all of US model it out my second question's on.
Your branch of the future.
I'm just curious how you think about the unit economics.
The branch of the future relative to your current branches with 90% fuel reduction, 50% reduction in maintenance costs and other energy savings with those solar panels I would really think the unit level.
Economics and return profile for our branch would look really different.
But I'm curious how you think that could could impact your 13% long term margin outlook.
Yes, great question Tim.
We're very optimistic about long term economics, because the reality is.
As fuel one of our major inputs as we move away from fuel that debt will be significantly reduced and frankly, the volatility around fuel prices also reduced.
So we believe the investments in the branch of the future from a fuel perspective.
Alone will drive significant return.
It's not investment, which will improve our overall margins now the thing is that it's not going to count it doesn't come tomorrow, because the reality is most of our trucks in the short term our heavy duty vehicles and the ability of electric to be able to co trailers and Terry are heavier equipment around really the technology.
Technology isn't there in 2022, but we believe and after talking with multiple heavy duty.
Truckload Ford and general Motors or those types of bolt, we believe as we get into the second half of a decade, that's going to really start becoming technology, which is available and usable for us and we will start seeing that nice return.
Turn on it I think as we move into that period.
Yes.
Okay. Thank you.
Thank you. Our next question will come from Bob <unk> from CJS Securities. Please Bob Your line is now open.
Hi, Good morning, this is brendan on for Bob.
Just wanted to ask about.
Don.
The labor issue in your contracts.
How has it impacted your contract negotiation up to now and could you dive into that that 10 to 15 day.
Shortened pricing commitment kind of give us more detail on.
What that means versus the historical.
The.
Yes regarding the 10% to 50 day pricing cycle historically.
We have contracts.
<unk> to what we had said earlier about nine months, we would quote a certain price and materials and because over the last four to five years with almost no inflation on those materials, we actually ended up.
<unk>.
Having having just regular performance on that with the inflationary pressures now we've been able to really shrink that up but this is all in the development segment that within this is happening to restricted up 10 to 15 days, so that someone can't sit on a quote for three months or six months come back to us and say here's what you put into your bid will go with.
We're saying you can only come back to us within a.
Weak or two weeks, if you come back with after that period, the pricing and the quote.
Is it good anymore, and we'll need to read to reap to redo that.
So it's really been a complete change coupled with the fact that as we then when those contracts. We then take those material.
Levels that are in those bids and we match those with PFS and we send it to our suppliers.
Great and then following up on that obviously, you talked to a lot.
A lot of companies with your M&A pipeline. What are you hearing from them about pricing are they are some of the smaller guys getting getting.
So what what are you hearing across the industry on an as everyone is renegotiating contracts.
And looking at pricing.
Yes.
Insight into.
Into what's happening out there in the marketplace. There are unquestionably several players out there that we've actually talked with who are struggling.
Significantly on the pricing side of things, especially the smaller players. If you are a quite a smaller player you need to be able to to be able to negotiate and get the additional price.
And they're having to deal with that living through the cycle, whether while they're in their contract period. So its put some stress on the industry.
Getting squeezed on the industry itself knows that this kind of pricing activity that is going to be going on is something that the customers are going to need to expect.
Great. Thank you. Our next question comes from Andrew Steadman from DP Morgan. Please <unk>. Your line is now open.
Hi, Andrew.
John two questions. The first one has to do with seasonality on the maintenance side. So after the first quarter fiscal quarter that you just guided for.
Help us think about kind of sequential organic revenue growth for maintenance should we expect kind of a normal seasonality building off that first.
Sure Dave.
Or do you expect maybe better than normal seasonality, because there's still some rebounding nature to the maintenance business and I have a second question.
I think when you look at overall growth in the maintenance segment.
The things that we've invested in our sales.
We will continue to drive contract growth what the seasonality will be is how much the ancillary growth really pulls through so the fact that we may have base levels of growth in our seasonal markets.
It is relatively low and so we don't have the extra push that we have in the ancillary bucket, so I would say that well.
In the winter months in the Q1, our Q1 and Q2, we'll have a little tempered.
Seasonal growth because we take out really a good portion of the contract maintenance in those segments.
Would expect to see.
Higher than average growth happening in the Q3 and Q4, so Q4 quarters.
Yes.
John think about the revenue that's still been dragged residually by Covid, both on the maintenance and the development side when that revenue comes back can you give us a sense of the incremental margins on that rebounding revenue.
Yes.
Yes.
We're working very hard indeed.
On the maintenance side I gave that measurement of our results.
Fourth quarter versus 19.
And so we're encouraged by that 30 basis point increments that we saw this quarter.
<unk> versus fourth quarter.
19.
It's very encouraging we're moving aggressively.
On pricing.
We're managing our labor.
Absolutely.
Fortunate for restaurant in that part of the business.
The material component of our P&L.
Yes.
We've been on the development side.
So less of a headwind there and so we're encouraged.
Really hard.
In the quarter, but this coming quarter the Q1.
We can see if we can have that continued incremental improvement because of the impact of snow, but we're encouraged.
<unk> by what we're seeing with <unk>.
Leslie confident that we can get that in the back half of the year and when you talk about margin Andrew what you see is as you enter Q2 Q3 Q4, you'll see the double impact of number one the pricing initiatives that we're putting in place. So that should have a help on margins and then secondly.
Well, it's not near as much as it was here in 2021.
Certain to see a slight pick up slight pickup of the ancillary as that normalizes completely back to pre COVID-19 levels. If it does.
Okay. Thank you.
Yes.
Thank you as a reminder to ask any further question. Please press the star followed by one on your telephone keypad now.
Our next question will come from Shlomo Rosenbaum from Stifel. Please <unk>. Your line is now open.
Hi, Thank you for sneaking me back in I wanted to clarify something that I didn't catch well in the call you said something about getting the acquisitions and the higher growth housing markets.
If you wouldn't.
And just clarify what you were talking about it in terms of higher growth housing markets.
Yes, absolutely Shlomo.
If you look at three acquisitions that we've done Baytree, GTI and WLR and Austin in Las Vegas, and frankly down Charles Atlas.
Atlanta, but also in Charleston, South Carolina. These are.
Good housing markets, we typically have had less activity in our development segment on housing.
And with those acquisitions, they have really introduced us into those housing markets working on new developments for landscaping development in those housing markets. And then also allows us to have a little bit of a drag it drag.
Really long.
Hello, along with our maintenance contracts that those development projects. Most housing developments complete we've seen an interesting segment because again, we've kind of not put paid as much attention to those housing development markets and we see taking those examples and actually we've launched an initiative in several new markets.
But we are starting to see some good traction on with the learnings we've had from those M&A acquisition.
But I'm trying understand these like condos. So it's more HOA is.
What kind of pull through activity is thereafter theres like.
Residential homes.
And initial landscaping what happens after that.
HOA HOA, so what's happened in the industry.
And in Asia.
You develop a new homeowners association the infrastructure maintenance, but also what happens in many of these as the <unk>.
<unk> also get maintenance.
Under the <unk> contract, so an HOA, a two or 300 homes might include.
<unk> within their HOA dues us maintaining the front yards.
<unk> banner, but only dealing with one customer with the HOA.
And then that led guy using it.
Glenn you using HOA connect and BV connect which is the service ticket management software that we have that allows the actual residents.
<unk> the HOA to communicate how our performance is do it kind of is it really lends itself to really push it harder into that segment and we're seeing some really positive initial signs of a couple of new markets of growth.
Got it Okay, and then just wanted to piggyback on one of the questions that was asked earlier in terms of the COVID-19 costs year over year.
Could you break down the price of $8 $8 million and just kind of explain what the costs are for.
On the ground what are you spending the money on.
Well the biggest part Shlomo.
The PTO without a doubt and as I said on my earlier.
In your comments.
With the Delta variance.
There's been a there's been.
Another resurgence.
But when you look at when you look at the fourth quarter. The biggest chunk without a doubt was PP&E between masks gloves sanitizers just because we have so many people in the field.
An extensive branch network.
The other the other big driver was exactly what I just said.
T O in the six pad.
For folks those are those are the.
Predominant costs that we've seen and again those were up slightly versus the fourth quarter of last year.
But again when you look at the numbers through the through the through the year, we had about $7 $5 million in the first quarter tapered down in the second quarter at slightly under four under three in the third but then that that ramp up again because of the.
But again as I said in my comments, we're certainly hopeful.
No no.
We will see.
Okay. Thank you.
Yes.
We currently have no further questions I would now I'll turn it back to Andrew Masterman for any final remarks.
Right.
Thank you operator, once again I want to thank.
Participating in the call today and for your interest in bright view, we look forward to speaking with you. When we report our first quarter results stay safe and be well.
This concludes today's call. Thank you for joining you may now disconnect your lines and enjoy the rest of your day.
Thank you everyone.
Yeah.
[music].