Q4 2023 BrightView Holdings Inc Earnings Call
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Hello, everyone and welcome to death.
101 country returned earnings call.
My name's.
Hopefully you all today.
Yeah.
During the presentation you congratulate you to ask questions.
On your telephone keypad.
Post Christmas.
Right.
Good morning, and thanks for joining us.
With water.
Oh yeah.
Right.
Yes, Sir.
And Brett.
Third of all mall.
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Once we got all the time.
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Barbara.
This call May include forward looking basis.
Right.
Nicole we will.
Well, yes.
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Reconciliations.
I would now out under law.
Yes.
Thank you Brad and good morning, everyone I'm honored to.
Joining me.
During the call.
Right.
Not all of it.
First I wanted to thank all of you there.
After this year.
And priority.
And motivated and committed to continuous improvement.
Dave.
At this meeting.
Yes.
Immersing myself in all aspects.
Great.
Yes.
Great Radio media interaction.
There are opportunities.
To learn.
Yes, yes.
We're going to need them anymore.
And we have more in August.
I will give you the data at all.
What are you hearing from them.
There's a lot of interest.
Above all your area.
And some of my initial priorities.
Hi, My life for physical gear here.
Murray beforehand Bret.
More detail and provide our initial automotive or physically.
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With the appropriate resources to serve our customers all everything because I aggregate all of it.
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Sure Eric.
A profitable level.
Finally, I referenced in my experience as an operator.
And any leader.
We haven't.
To begin some temporary business and partner to our customers in order to capitalize on the opportunity in <unk> anyway.
The growth, we must invest in our employees and priority.
Our relationship with our customers while delivering delivery this is vincent.
Connection infusion and service, we will do we will do this.
Wanted to gather together to operate as one bright deal.
As CEO I am focused on establishing a unified breakthrough accompany that prioritizes its employees the customer and a winning culture.
This renewed commitment and investment in the business will be critical to our ability to drive profitable growth.
It will also allow us to leverage our vast branch network to drive operational efficiency.
Another key area of focus will be the strategic allocation of capital.
Ensuring that our investments in the business, both organic and inorganic are creating value and generating attractive returns for our stakeholders.
Moving to slide five.
The initial goal of operating its one breakthrough is to become the employer of choice.
We do that by putting our employees first and by delivering a culture, where people seek to achieve individual and group success.
By prioritizing our employees, we are ensuring that they have the capabilities and tools required to do their jobs at a high level.
Doing this materially impacts the level of service provided to customers and leads to them to an exceptional customer experience.
This includes investing in employee safety fleet and systems, all of which will allow us to better serve our customers.
By making these investments in our employees and in turn employees taken care of our customers. This will allow us to become the partner of choice in our industry.
These investments are aimed at improving customer retention and accelerating profitable growth.
Creating a customer centric focus for our employees is critical to our objective under one breakthrough.
As you can tell we are highly focused and committed to one breakthrough and building a stronger foundation.
There's a lot of work ahead of us on these initiatives.
Firmly believe these are the areas we must prioritize.
Once we have established this foundation, we will have to earn the right to expand strategically.
M&A it can be a powerful lever for growth and generating meaningful returns on capital.
But only when it fit strategically culturally and financially.
And in order to have that fit we must be a better owner that accelerates revenue increases operational efficiencies and create significant synergy so that one plus one equals three.
As one bright view, we have to be the best at what we do for our customers and I'm confident that we can deliver on these goals.
Now moving to our results.
You can see on slide six physical 2023 was a successful year for Brexit.
As we achieved solid execution and deliver results in line with expectations.
During the year, we focused on targeting profitable growth driving consistent EBITDA margin expansion and improving our cash flow.
We were pleased with the results for the year, considering the challenging economic environment, consisting of elevated inflation higher interest rates and a winter with very little snow.
Despite these challenges we executed our plan for the year.
Additionally, during the year, we achieved a true transformational reduction in our leverage driven by the strategic investment from one rock capital and our improved profitability.
As shown on slide seven.
Prior to one rock, our leverage profile and interest expense payments, we're restricting our growth and cash flow and.
And reducing the overall financial flexibility of the business.
By partnering with one rock, we were able to use those proceeds to pay down debt.
<unk> and a significant reduction of our leverage and interest expense.
This added flexibility ability allows us to invest in the business with an emphasis on profitable growth in.
In addition to the financial benefits of this partnership we are also leveraging Walker rocks operational expertise.
Including previous experience in our industry.
It will allow us to accelerate the execution of our strategy.
The investment also reflects a strong vote of confidence in bright new strategy and potential to drive profitable growth for years to come.
With that I'll turn it over to Brett who will discuss our financial performance and outlook in more detail.
Brett.
Thank you Dale and good morning to everyone.
I'll start on slide nine.
I am pleased to report on another solid quarter.
We grew total revenues by two 8% increased.
Increased EBITDA by $10 million.
Delivered margin expansion in all segments and.
And generate significantly more cash despite increased interest expense.
Our ability to achieve these results reflect breakeven attractive business model and gives us confidence as we pursue new opportunities to drive further financial and operational improvements.
Moving to slide 10.
Total revenue during the quarter increased two 8% year over year to $744 million.
Reflecting two 1% year over year organic revenue growth.
Revenue during the quarter benefited from demand in our core businesses.
Favorable pricing and M&A contribution.
And our maintenance business total revenue decreased one 5% to $521 million as we continue to pursue higher quality contracts, which reflects our relentless focus on profitable growth and margin expansion as we discussed last quarter.
We grew our development business, a robust 13, 5% organically due to our ability to convert our strong backlog into higher project volumes.
We remain very optimistic about the pipeline of projects and the momentum of our development business heading into fiscal 'twenty four.
Turning now to profitability and the details on slide 11.
Total adjusted EBITDA for the fourth quarter was $101 6 million, an increase of $10 million driven by both land and development growth.
Margin expansion in all segments.
And a strategic asset sale, which came in above expectations.
In the maintenance segment total adjusted EBITDA of $81 7 million.
It was up slightly year over year.
This resulted in margin expansion of 30 basis points and marks the fourth consecutive quarter of margin expansion in our core land business.
As I mentioned, our focus on higher quality contracts led to a modest near term impact on land revenue.
As evidenced throughout this year. This strategy led to continued profitability growth and margin expansion.
And the development segment adjusted EBITDA for the fourth quarter was $29 1 million an increase.
Of approximately 14% compared to the prior year.
Adjusted EBITA margin expanded 10 basis points.
Which marks our fifth consecutive quarter of development margin expansion and we expect this trend to continue as we head into fiscal 'twenty four.
As part of our ongoing initiatives, we executed a strategic sale of our corporate airplane that generate the cash and future cost savings.
This sale benefited profitability and cash flow, which allowed us to immediately reinvest back into the business by replacing some of our oldest trucks and vehicles.
Important to note in our previous guidance.
Two an approximate $4 million EBITDA benefit from selling the airplane in our corporate segment.
Through favorable negotiations, we were able to secure an approximate 7 million benefit to EBITDA on the sale of this asset.
Lastly, the sale had both a positive impact on our corporate and environmental initiatives.
Turning to slide 12 I'll provide.
Reviewing our full fiscal year 'twenty three results.
Total revenue for the year was 282 billion.
This represented a one 5% increase compared to the prior year.
Total oriented services increased one 7% to $1 86 billion, reflecting healthy growth. Despite the contraction in our noncore business.
Additionally, snow represented a year over year headwind of $47 million due to the absence of material snowfall.
Revenue in the development segment increased a meaningful eight 5% with a robust six 8% organic growth for the full year.
As you can see on slide 13, we delivered EBITDA growth and margin expansion throughout the year.
We committed to growing profitability and expanding margins in fiscal 'twenty three and we are proud to report that we delivered on these commitments.
I am extremely delighted with the team's ability to execute this growth and margin expansion. Despite the challenging operating environment.
Let's now turn to slide 14 to review, our free cash flow debt and capital expenditures for the year.
We committed to improving our cash flow in fiscal 'twenty, three and delivered upon this commitment.
This improvement was a result of higher profitability.
<unk> reductions to capital expenditures.
Favorable working capital and.
And benefits from our tax planning, which more than offset the higher cash interest expense in the year.
The reduction in capital expenditures reflects the resiliency and flexibility of our balance sheet in a year with low snowfall.
For the full year, we generated $80 million in free cash flow compared to $7 million last year.
These levels of cash generation, reflecting improvement in our business and lay the foundation for continued momentum going into fiscal 'twenty.
In addition to the improved cash levels of the business, we announced a strategic investment from one rock capital that contributed to a significant reduction of our leverage profile.
This investment resulted in leverage coming down by approximately two turns and reaching a historical low of two nine times compared to the four eight times in the prior year.
This strengthens our balance sheet and provides us with flexibility and the opportunity to reinvest in the business.
Specifically towards customer and employee satisfaction, which as al mentioned will lead to profitable growth and operational improvement.
Let's now turn to slide 15.
An update on project Liberty as a refresher on our Q3 earnings call, we announced an expanded strategic review of our business beyond just cost initiatives.
These initiatives include areas such as branch performance.
Customer growth and retention.
Procurement.
And capital allocation.
The collective goal of expanding profitable growth and generating higher returns.
We have seen the early success of these initiatives reflected in our EBITDA margin and cash flow performance in the back half of the year.
Under the House leadership project Liberty continues to take shape across the business and is aligned with our goal of becoming a collaborative and unified one braces.
Branch performance will be driven by investing in our employees.
While also aligning sales and operations to better service our customers.
Profitable growth led by new sales and improved customer retention will be driven by prioritizing the customer and aligning incentives for our employees.
We will continue to focus on high quality business strategic pricing efforts and deliberate capital allocation underscoring our prioritization of profitable growth.
Taken together continuous execution of these initiatives will create higher returns to.
To shareholder value.
Let's now turn to slide 16 to review our outlook for fiscal 'twenty four.
Profitable growth will continue to be our guiding factor and key focus.
We are now providing full year guidance for fiscal 'twenty four with expected total revenue of $2 825.
The two 975 billion.
Reflecting a range of relatively flat to 5% revenue growth.
This assumes the following.
In maintenance, we expect our focus on profitable growth to continue to have a near term impact, but we remain encouraged by the underlying health of the market and recent trends within our business.
Personnel, our fiscal 'twenty four guidance range assumes flat at the low end and a return to five year historical averages at the high end.
And for development.
The conversion of our strong backlog of projects will continue to benefit revenue and margin growth.
Moving to adjusted EBITDA, one bright view will be the key driver to growing profit in expanding our margin and.
In fiscal 'twenty, we expect margin expansion in both maintenance and development segments benefiting from one bright view key initiatives and disciplined management of the business.
We expect these improvements to generate margin expansion of 40 to 80 basis points and adjusted EBITDA of $310 million to $340 million.
In fiscal 'twenty, four we expect a continuation of healthy cash flow generation, driven by profitable growth and improved operating performance.
Our outlook on slide 17 reflects significant growth as we expect an increase in capital intensity to support our strategy.
These higher levels are consistent with historical requirements to support the business and reflect a more normal snowfall this year.
Contributions from reduced interest expense.
Will be managed alongside the ongoing requirement to optimize the business.
Altogether, we expect to generate free cash flow of $45 million to $75 million supporting the financial flexibility maintained today, while enhancing our ability to generate future profitable growth.
With that let me now turn the call back to Dow to wrap up on slide 18.
Thank you Brad before we open the call for questions I'd like to provide a few final thoughts.
Is an exciting time at breakthrough and I'm honored to be leading such a talented team.
There are tremendous opportunities ahead of us we.
We are moving this business forward with a clear strategy and vision for one breakthrough.
We are strategically positioned to accelerate profitable growth and to create meaningful values for our shareholders.
We will now open the call for questions.
Ladies and gentlemen, if you would like to ask a question. Please press star one on your telephone keypad.
Thats Star one on your telephone keypad.
We'll be doing your questions start phone two I'm pleased to also remember too and mutual microphone when is your turn to speak.
We do have asked this question comes from Bob <unk> from CJS Securities.
Your line is now open. Please go ahead.
Thank you good morning, and Dave Congrats good morning, Bob your new role and your new position.
Thank you very much I wanted to start.
Absolutely no very excited for you for sure.
I wanted to start and I think you began the call. This way. So you know reiterate your employee first focus will drive customer satisfaction and improve retention and all that kind of good stuff.
So that all makes a lot of sense could you take it one level further and talk about what you've seen so far I know, it's 45 days, but thoughts on how to improve branch operations.
Change things tweak things what are your intentions operationally to do to to grow organically from here.
Yeah, Great question, Bob first I think Youre right 45 days I've had a chance to as I said visit many of our associates some of our customers in different parts of the country.
And what I've seen to start with is we have a very talented group of people that service to our customers. Every day, we have a development group, we have a tree care business. We have a turf business. We have an irrigation business, we have a golf course maintenance business and of course, our primary business the maintenance group.
All of these groups service customers at extremely high levels, our biggest opportunity to entity like I said in my statement.
B to get everybody operating as one bright view getting all these people to leverage their skills together to service our customers and when we do that Bob we will accelerate our organic growth internally because we have talented people with the right focus of customers we have.
Just haven't leveraged the ability for them to really act as one team when they go to market to the customer so that upside is there within our own control of working as one bright view one group to drive profitable growth. So I would tell you I am more optimistic than ever by talking to the <unk>.
<unk> in the field, because the closer I get to the customer the more our team is engaged to service the customers. So that's a great way to start when you're going to focus on how can we grow the business and that starts and ends with those people that touch our customer every day and we as a leadership team has to.
Find a way to provide them all the tools they need to be able to do it efficiently and make our customers feel the choice. They made to choose bright view is the obvious choice.
Okay, Great I appreciate that and it sounds obviously with the employee and therefore customer focus.
That's that's the direction you're going to start with how does this align with your.
Investing in employees in line with margin enhancement. So it is there.
Lull period, where you invest more in the employees you'd get your improved retention and then later margins start improving is it like how do those connect if youre going to continue to really invest employees first because obviously the goal being lower churn higher retention and therefore better growth.
The investment comes before the M prove.
Approved.
Our retention rate it can't be simultaneous so how do you think about that as it relates to margins over the year or next 123 years.
Yeah, I would I would just say in our business. We have obviously a lot of seasonality, but even the number of employees that were tasked with hiring to service our customers training and on boarding every year is a significant number and the more we put those employees as our primary focus to give them.
The tools the safety equipment the systems the vehicles to operate their jobs.
Right way the more of their job satisfaction will go up and the more we will see that valuable resource of our employees turnover come down so that will Bob drive margin expansion, just by being able to reduce the cost we pay to recruit and onboard employees.
That is our first step and by doing that that translates to them being able to serve the customer better and help us in that retention as you said to drive additional organic growth in the business, but our efforts to onboard and train customers right now are too high.
Why we have to prioritize our employees. So we can make sure those employees are embracing as customer centric focused business and they know the importance they play in that journey.
That sounds great. Good luck and thank you I'll get back in queue.
Thanks, Bob.
Our next question comes from Tim Mulrooney.
<unk> from William Blair, Tim Your line is now open.
Hi. This is good morning, Tim for Tim Thanks for taking our questions today.
Hey, good morning, you're welcome so it looks like land organic growth was down about two 5% in the fourth quarter.
I think you had previously expected to be flat could you share what drove that decline was primarily attributable to lower contract renewals were lower enhancement revenue or maybe something else.
Yeah, So I'll start off and then I'll kick it over to Brett.
I'd, just remind everybody our focus was profitable growth and margin expansion. So the team has been focused to make sure. The customers that we're going after are the customers that fit that profile.
And the businesses that we're focused on growing our businesses that are focused in that area more of our core business that you heard Brett mentioned on the call. So let me let me, let Brent kind of decompose that for you, but just to remember our focus is not just chasing revenue, it's going to be make sure. The revenue we bring.
It is accretive to our base business as we bring in new customers. So Brent why don't you give them a little more detail on the financial side, Yes, Hey, how are you doing this morning I. Appreciate the question, yes, as Dow mentioned profitable growth is going to be our guiding factor moving forward and I think as you heard in previous calls previous quarters. We were we were growing but margin.
<unk> was not and I think as you look at this year and you normalize for snow, which we've talked about quite a bit in the margin profile has improved significantly not only in development business in our maintenance business and corporate segment as well.
And if you think about organic growth for the quarter look I think that drive towards profitable growth and high quality business will continue in the near term as we move forward.
We're still getting favorable.
Benefits from pricing were still being strategic and those efforts are about 50 basis points with a pricing efforts.
We did last year with heightened fuel have.
Fuel surcharges that were in our top line of about 50 basis points as well. So those two things sort of offset from a jump off point Q4 over Q4.
And then as Dow mentioned, there's a there's a heightened focus on one bright view, bringing all of our businesses together, whether it be golf, our aggregator business et cetera.
If you look at our core underlying land business, we saw very stable demand and growth in that business.
Offset by maybe some contraction in our noncore businesses, but as we move forward under <unk> leadership and really towards one bright view, you'll see that alignment of the businesses, especially over the medium to long term.
Great. Thanks, so much for that color there and then maybe switching gears here.
On your guidance for 2024.
Looks like Youre, assuming maintenance land organic growth.
We're between down 2% to up 2%.
Can you share what you're assuming in both those situations and maybe if you could give us give us a sense breakdown just between pricing and volume expectations as we head into next year.
Yes, I think obviously it's.
Good question I think if you look at what we've done for guidance as we gave a full annual guide on revenue.
And really in that annual revenue guide of $2 85 to $2 975, we've also given a range for where we believe our snow revenue will come out which is $2 10 to $2 70, our development business, which had an outstanding year last year, we think will continue to grow slightly.
So we give a range because we don't want to really break down exactly each component, we think potentially as we go through Q1 here, we will see a similar trend to what we saw in Q4 as we focus our employees. So that we can look in.
Enhance our employees so they can make sure they drive retention with our customers. So I know that the change to give an annual guide is a little different so one way I think everybody should think about those numbers is.
Our Q1 would normally be roughly about 22, 5% of our total revenue.
And then that snow business, you could consider roughly about 25% of it coming in Q1, 75% coming in Q2 and that probably would allow you to kind of back into your assumptions looking at last year's development by quarter of where we think revenue will grow over the next couple of months.
Maintenance I hope that gives you enough on the pieces, but Brad you got anything you want to add or.
No I'm just look at the change in guidance, we're going from from prior years, where we would only provide Q1 guidance at this point in time, we would not provide Q2 or full year.
So now we're going out providing a full year guide and I think in that land guide as you can see on slide 16 in the presentation. It's minus two to positive two and as Dow mentioned, we are working through our our guiding factor of profitable growth and through that profitable growth mantra and bringing together as one bright view.
What we experienced in Q4 of a revenue impact will probably experience in land in Q1 and in the early half of.
24, but that's one bright view gained traction as we take care of our employees and in turn they take care of our customers, we're going to get back to that profitable growth over the medium and longer term in this business.
Just important to know too just one factor Q1 Q1 of last year, we did have a hurricane impact in the business of about $7 million.
We don't see any type of unusual events like that happening right now for this quarter.
Great. Thanks, so much.
Our next question comes from Phil <unk> from Jefferies.
Your line is now open. Please go ahead.
Hey, guys. This is maggie on for Phil.
Good morning, Maggie just start out.
Yeah, I wanted to just start out on free cash flow.
You had a really impressive step up this year can.
Can you talk about the nonrecurring benefit from this year and any of the other moving pieces that kind of gets you to that.
24 guidance and then on the Capex side. This item highs are pretty big.
Big increase next year.
Is that more of a catch up for.
The business or is this a reasonable level to assume.
Going forward.
Yes, let me start I'll take the back half of your question with the capital and then I'll kick it over to Brett on the free cash flow.
As Brad commented the business did the right things in 2023, when we made strategic decisions to manage the capital down when we saw the snow business with the record level of reduced snow that we saw last year in the business reacted very well thus demonstrating.
Our ability to flex the business up or down.
And drive it by our Capex and produce the free cash flow that we did as far as the future guide on that free cash flow I think a healthy range is probably closer maybe three 5% that Brent mentioned is a little elevated but I do think there is a plan for us to drive maybe.
A little shorter term use of our vehicles and get a little more residual value as we go through the process and we're going to have a little catch up on that because don't forget. These vehicles that are employees operated and they are our billboards that goes out and visits our customers. So the appearance to those that are employees working every.
Data is critical for our brands that we represent the customers, but let me let me kick it over to Brett and he can give you some on the non reoccurring.
Yes, Maggie Great question look first of all I will say, we are extremely pleased with our cash flow performance. This year.
Coming off a year in FY, 'twenty, two where we generated $7 million of free cash flow.
And then we went and bought acquisitions after that and essentially took out debt to do so that that was not the game plan coming into 'twenty. Three we were very clear with that early in our in our conversations on earnings calls and just really excited to report we delivered great cash flow performance of $80 million in the year.
And we actually put money into the bank to keep on the sidelines for future strategic investments.
Investments in the business so extremely pleased about that.
Think about last year to this year, the $7 million of the $80 million, we saw as it wasn't snowing in Q2, we made a strategic decision to pull back on Capex that benefited our cash flow year over year, roughly $50 million for the capex year over year down but.
Look I think that was very strategic and shows the flexibility of our balance sheet as Dow mentioned in year with low snow, we're able to flex capital down a bit in years as regarding in 'twenty four we're expecting a more call. It historical snowfall, we would flex that Capex guide up a little bit and do you think about 'twenty four guidance your range of cash flow of 45 to <unk>.
$75 million.
That's coming off the year, where we did have about $25 million of one time favorable impacts in our cash flow whether it was related to.
Tax benefits, we got from our from our tax planning.
Or partial sale of our interest rate hedge we had on our caller, but regardless of that as you think about 'twenty four guide, we're looking at guiding to a point of <unk>.
62, even at the high end $75 million to $80 million of free cash, which would put us back to where this year was.
And that's through improved operating results and some of the savings on our on our interest expense, which as you can see we will redeploy capital back into the business. So now those were saving our capital dollars we're saving.
Sorry dollar savings in interest in dollars we're saving.
Other areas of the balance sheet will redeploy back into capital as Dow mentioned bolt refresh our fleet and be able to put our employees in a much more favorable working environment every day.
Okay, Great that's super helpful.
And then daily you kind of touched on this and your prepared remarks, but.
The guide for.
For next year assumes minimal contribution from incremental M&A.
<unk>, which has previously been a bigger focus for the company I guess, how do you think about the strategy around M&A over the near term and should we expect to pause.
On deals and fiscal 'twenty four.
Yes, Great question, Maggie first of all IMA absolute firm believer in M&A.
I am a supportive person that when we can make an investment when we can be a better owner of the asset.
We should take advantage of that and as being the nation's largest landscape provider, we should be able to do that unfortunately, I think historically the way we've done M&A.
Bright view needs to be revamped.
We have to get our operators involved earlier, we have to evaluate M&A not just on the short term financial benefit we have to look at culturally and strategically as important as <unk>.
Just the initial math.
And then the data we buy a company we must be integrated into our business. We are going to put our precious capital to work deploying it for M&A. So we have to find a way to make sure. Our foundation is ready that when that capital gets deployed we grow that business and we grow it very profitably because as the owner.
That business, we can leverage our size and scale to provide our processes to provide systems and corporate overhead that they shouldn't need on their own. So I am a firm believer in M&A, maybe for the next couple of quarters. We don't plan on doing much but we have already started to revamp our process to get everybody working together starting.
With our field leaders to make sure. The deals we do are the right deals and then as we bring them in we find a way to make sure. We're in much better owner of that asset as part of breakthrough.
Make note we didn't put a lot into our guide, but make no bones about it I am a firm believer in M&A, we just need to pause here to make sure we get ready. So once we do M&A it creates shareholder value for all of our shareholders.
Alright, thanks, guys.
Luck on the next quarter.
Thanks, Matt and thanks Maggie.
As a reminder, if you'd like to ask a question. Please press star one on your telephone keypad.
Thats Star one on your telephone keypad.
Our next question comes from George Tong from Goldman Sachs.
Your line is now open.
Hi, Thanks, good morning.
Good morning, Joe talked about engaging in contract optimization and your maintenance business.
In order to drive profitable growth.
Can you elaborate on some of the initiatives there in other words are you screening existing contracts are you turning down new business with unfavorable terms and then when would you expect this initiative to be largely complete.
Yes, so it's a good question George what I would say is <unk>.
As Brett talked about through our price realization our focus on every account is to make sure as we feel some of those inflationary impacts we find a way to work with our customers to make sure that the service, we're providing reflects the value they see sometimes that.
Creates price.
Increases sometimes its service reductions because they don't want to spend more money and we partner with our customers to find a way to make sure. It's a win win situation. So what I can tell you is we continue to evaluate all of our businesses to make sure. They are working together well and every part of our business is accretive to our customer value that we put.
Out there so after 45 days.
The team is doing the right thing and I also think there's a better way for us to go to market to look at new accounts that could fill out our existing route and our partners at one rock have really helped us start to look at ways that we can enhance the profitability of existing route just by adding strategic customers. So I don't think that.
On a point I think it's going to be an evolution for us to continue to go through and continue to focus on because that is the essence of this business route optimization, enhancing making sure that our people service the customers and finding customers that can fill in those routes.
And I always looking at what it costs us to service the business that we're providing so I think short term, we made some decisions, but long term George its a much bigger discussion about how are we going to manage the business long term and has won breakthrough that's where we really see the benefit for our customers.
Got it that's helpful.
And then in development you had strong 7% organic revenue growth on a full year basis in.
This followed.
Strong growth of 10%.
Organic in fiscal 2022 can you unpack the strong growth and development you have been seeing in the extent to which.
The development business is structurally step up in growth potential to something north of 5% organically.
Yes, Great question first we have a very strong backlog in our development group and I think as many people know the economy has been on a roll and some of that backlog is at the end of those jobs that have occurred over the last couple of years in the construction industry. So that team has done a very good job securing a bag.
Log of business.
Well north of what we would typically see at this time, but let me, let Brett unpack it a little bit for you if that would help yes, George look I would echo <unk> comments. The backlog is strong we see no signs of any type of weakening in the economy, we see no signs of any type of recession looming.
Our backlog in development is as high as it's ever been to that historical high levels.
In 2022, we reported revenues of $700 million 23, as close to $760 million and we're guiding at the midpoint of three 5% growth.
On 2023 results. So we see no slowing down to that business, we see quite the contrary.
We are selling.
As of this point, we're selling really into Q3 and Q4 of 24.
And then as we get through this quarter into next quarter, we will be selling into 25 at that point. So just really really robust growth in that business, we're very bullish on their ability to grow their backlog.
The projects in the ground and by the way they just posted our fifth consecutive quarter of margin improvement in that business works. We're extremely excited about and we expect that margin improvement to continue as you can see in our guidance for 2004.
Got it and just to follow up on the second half of the question.
To what extent do you think structurally the growth has stepped up to maybe something north of 5% at the midpoint, you're guiding to three and a half in other words is there upside.
Potential given the strength you just talked about in the development business.
Yes.
George I would say, there's always potential for upside in this business is very dependent on cycle. Some somewhat dependent on whether you get it into the into the winter months, but as you think about the business in general it's been pretty consistent growth year over year on a full year basis, and I think as you look at our full year guide when you think about last year Q2 spot.
Small.
A small revenue decline in Q2 of 'twenty three but you can see for the full year basis, the business growing north of 7% organically, we feel very bullish that over a course of a full year that business will grow could it grow more than 5%.
That's a possibility, but I think as we stand here today and really look at margin improvement in that business as well, which has been a focus and being more selective in projects that we sell.
We still expect to grow the business revenue margin has that come along with it which we showed in 'twenty three and we expect margin to come along with it in 'twenty four and that May mean, not growing at 10% to 15% that may be growing at 5% with higher margins.
Yeah, and George Let me, let me jump on it that's helpful develop it has been.
I mean, I would just add George I think the development business for US has been a key area of growth.
Where we need to get better as a team is finding a way to convert that development business that we generate.
Two new maintenance business, and that's where that one bright view will come into play we have one of the top 50 specialty companies in construction in North America and they do some of the biggest development on landscaping projects in the country, we need to find a way to make sure we have a successful hand.
From that development to our maintenance team as one breakthrough. So this is the lead in to help that organic growth on maintenance. So I like that it keeps growing and our team in the field continues to enhance and beautifying. Our communities now we just need to convert that over to future maintenance revenue. So we can get.
The maintenance group growing just as fast as the development group.
Very helpful. Thank you.
Our next question comes from Andy Wittmann from Baird Andy.
Your line is now open.
Great. Thanks, and good morning, and thank you for taking my questions I have several questions, but I think maybe I'll start with.
Has to do with I guess project Liberty.
And in other business transformation costs the question being.
Obviously project Liberty has been in flight for some time now and many of the actions have already been taken and some of the cost benefits realized in 2023 I was just wondering how much cost benefits from actions already taken so far on project Liberty are going to be benefiting your profit margins in 2024.
The words, what hasnt been recognized in the annual run rate of those cost reductions. So far maybe Brian if you could talk about related item to that what do you expect for the business transformation costs here in 2024.
Yes, so that's a great question, Andy I would just say at a high level.
Liberty was focused on some initial benefits from cost saves and if you go back it started out as project accelerate.
So I think we've seen a lot of that we still have an area to go when it comes to the procurement initiative that will work through in 2024, but as you've heard we're going to try to transition from primarily those cost save initiatives to more of that one bright youll approach, where we can focus on customer retention.
And on new account conversion to make sure we're growing the business at the same time, so we can leverage that size and scale, but Brad can probably give you. The numbers. Obviously the benefit we said that would come in 2024 of $20 million is embedded in our guidance that you see coming out with a midpoint EBITDA $325.
I'll, let Brad talk to what he feels came in during 2003 and where we're at towards our run rate for 'twenty four.
Yes, and look at it.
Think about 2023, we said on our last call, we saw about $2 million or so realization from project accelerate which was just the cost cutting initiatives essentially.
And then as we morphed into project Liberty on our Q3 call. We mentioned that we would see 20 million plus of savings related to the entire project.
We saw roughly another $2 million to $3 million savings come through in Q4 related to the original accelerate and some early signs of Liberty, but just thinking as you think about our guidance for 'twenty four and Liberty now morphed into one bright view, one bright youre just going to be the way we operate the business, we're going to take care of our customers who in turn take.
I'll take care of our employees, who in turn take care of our customers.
If you think about our guide for.
2024 were guiding at a midpoint of 60 basis points of margin expansion, we're guiding at a midpoint of $26 million of EBITDA growth. That's inclusive of one brave you previously talked about as project Liberty.
And to be able to get to that transformational cost able to get to that.
To get to get the project Liberty AK, one bright view and move that needle forward.
We don't expect any significant increase in transformational costs above what we had this year right. This year, we went through a CEO change we had some.
Business transformation costs that was related to that and some.
Transition to the new CEO, we don't expect the transformation of getting from Liberty to one bright view and the way we operate the business to have any type of significant impact on our cash flow that hasnt been already included in our guidance.
Okay, that's really clear on the transformation costs. So I heard a couple of million dollars <unk> saved maybe $3 million in <unk> say so.
The implication being that if youre doing for 'twenty, you've got about 15 coming benefiting the 'twenty for EBITDA is that.
The quick summary.
Yes, that's a quick summary, but just as we think about moving forward and we get on our next call as we talk about one bright view. This is the way we're going to operate the business. So we are we are morphing a project that had a at a sticker tag on at a $20 million to the way we operate the business and the way we operate their business will be included in our future.
We did our best to include that in our full year guide. This go around to $3 10 to $3 40. So yes, I would say that includes somewhere around $15 million of call. It legacy project accelerate project Liberty, but the remainder of the improvement and that Guy is going to just be the way we run the business.
Yes, okay.
That's helpful and I guess, I guess stepping way back I.
I guess, just philosophically <unk> being the new leader of this company, it's always such an opportune time when things can use a change to kind of.
Step back and take.
Take stock of the situation as it comes to the guidance philosophy I guess.
It seems like this would be a time, where you guys put out a guidance, which.
<unk> has very little expectations are low bar.
Knowing that you've got the opportunity to kind of clear the decks and reset things.
Is that the way, we should kind of think about this guidance from here or.
Is this is there a different approach in terms of how you formulated the approach in putting this guidance together.
No.
I definitely think our guidance is a guidance that we feel comfortable with with an EBITDA range thats well above the 299, we delivered this year. So I don't see by any means that being a conservative range going from 310 to $3 45 is $3 40 is very realistic or $3 45.
It's very realistic so.
Think somewhere around that 325 is a good starting point for us now to be fair we do.
Don't know how much its going to snow and we don't know when it's going to snow and we gave you a guide on that range. If it snows at the high end of that expected $2 10 to $2 70, we can come in at the high end of that range.
It doesn't snow like it Didnt snow last year.
There is a chance we will come in towards the low end, but I wouldn't look at the guide as a complete.
We're trying to be conservative as we come out we feel that we're our plan is this year with what we felt in Q4 were realistic to get into this range, where we come up where we came out with to start the year and shifting from given quarterly guidance, giving an annual guidance.
That's a big shift I think we are going to start helping people.
See what we plan on doing for the full year versus just running the business tactically quarter by quarter.
Yeah.
Okay.
For context, thank you very much.
Okay.
Currently we have no further questions. So I'd like to hand, the call back to Dale Asplund for closing remarks. Please go ahead.
Thank you operator.
And thank you to everyone for your interest in breakthrough.
As you can tell by our tone we are.
We are very excited about the opportunity ahead for bright view and I'm thrilled to be leading this great company through this improvement period. Our objectives are clear we are committed to becoming one bright view growing profitably and creating meaningful shareholder value.
I look forward to getting know many of you in the weeks and months to come.
There's a lot of work ahead of us.
But for the future is bright for one for breakthrough.
Operator, you can now end the call.
Ladies and gentlemen, this concludes today's call.
Thank you for joining you may now disconnect your lines. Thank you.
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Yeah.