BrightView(BV) - 2020 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) This section presents the unaudited consolidated financial statements for BrightView Holdings, Inc., including the balance sheets, statements of operations, comprehensive income (loss), stockholders' equity, and cash flows, along with detailed notes explaining the company's business, accounting policies, revenue recognition, assets, liabilities, equity, and segment information for the period ended December 31, 2019 Consolidated Balance Sheets | Assets/Liabilities & Equity | Dec 31, 2019 (Millions) | Sep 30, 2019 (Millions) | | :-------------------------- | :---------------------- | :---------------------- | | Assets | | | | Total Current Assets | $542.6 | $551.4 | | Property and Equipment, net | $268.6 | $272.4 | | Intangible Assets, net | $242.2 | $251.5 | | Goodwill | $1,823.0 | $1,810.4 | | Total Assets | $2,986.9 | $2,928.6 | | Liabilities & Equity | | | | Total Current Liabilities | $362.7 | $332.7 | | Total Liabilities | $1,703.8 | $1,644.8 | Consolidated Statements of Operations | Metric | Three Months Ended Dec 31, 2019 (Millions) | Three Months Ended Dec 31, 2018 (Millions) | | :------------------------ | :--------------------------------------- | :--------------------------------------- | | Net Service Revenues | $570.7 | $526.0 | | Gross Profit | $143.0 | $131.9 | | (Loss) Income from Operations | $(0.8) | $6.6 | | Net (Loss) | $(12.6) | $(8.8) | | Basic and Diluted (Loss) per Share | $(0.12) | $(0.09) | Consolidated Statements of Comprehensive (Loss) Income | Metric | Three Months Ended Dec 31, 2019 (Millions) | Three Months Ended Dec 31, 2018 (Millions) | | :----------------------- | :--------------------------------------- | :--------------------------------------- | | Net (loss) | $(12.6) | $(8.8) | | Other comprehensive income (loss) | $2.1 | $(2.5) | | Comprehensive (loss) | $(10.5) | $(11.3) | Consolidated Statements of Stockholders' Equity | Metric | Dec 31, 2019 (Millions) | Sep 30, 2019 (Millions) | | :----------------------------------- | :---------------------- | :---------------------- | | Total Stockholders' Equity (Dec 31, 2019) | $1,283.1 | $1,283.8 | | Net (loss) for the period | $(12.6) | | | Other comprehensive income, net of tax | $2.1 | | | Equity-based compensation | $8.2 | | Consolidated Statements of Cash Flows | Cash Flow Activity | Three Months Ended Dec 31, 2019 (Millions) | Three Months Ended Dec 31, 2018 (Millions) | | :----------------------- | :--------------------------------------- | :--------------------------------------- | | Operating Activities | $7.3 | $6.4 | | Investing Activities | $(31.9) | $(17.2) | | Financing Activities | $(4.2) | $(6.7) | | Net Change in Cash | $(28.8) | $(17.5) | | Cash & Cash Equivalents, End of Period | $10.3 | $17.7 | Notes to Unaudited Consolidated Financial Statements 1. Business and Basis of Presentation - BrightView Holdings, Inc. provides landscape maintenance and enhancements, landscape development, and snow removal services for commercial customers across the U.S., operating through two reportable segments: Maintenance Services and Development Services[36] - The unaudited consolidated financial statements are prepared in accordance with GAAP for interim reporting, including all necessary adjustments for fair presentation[37][38] 2. Recent Accounting Pronouncements - The Company adopted ASU No. 2016-02, Leases, on October 1, 2019, using the modified retrospective approach, recognizing a lease liability of $76.3 million and a right-of-use asset of $70.6 million. The adoption did not materially impact results of operations, liquidity, or debt covenant compliance[41][42][45] - The Company is evaluating the impact of ASU No. 2016-13 (Credit Losses) and ASU No. 2019-12 (Income Taxes), effective fiscal 2021 and 2022 respectively, and does not expect a material impact from ASU No. 2018-13 (Fair Value Measurement)[46][47][48] 3. Revenue - Revenue is recognized as services are performed, typically ratably over the contract term, reflecting the total consideration expected from the customer[49] - Maintenance Services revenue includes landscape maintenance and snow removal, provided under recurring annual contracts or per-occurrence contracts. Development Services revenue is recognized over time using the cost-to-cost input method[51][52] | Revenue Type | Three Months Ended Dec 31, 2019 (Millions) | Three Months Ended Dec 31, 2018 (Millions) | | :----------------------- | :--------------------------------------- | :--------------------------------------- | | Landscape Maintenance | $363.3 | $344.5 | | Snow Removal | $55.6 | $48.0 | | Maintenance Services | $418.9 | $392.5 | | Development Services | $152.8 | $134.4 | | Net Service Revenues | $570.7 | $526.0 | - Remaining performance obligations with an original expected duration greater than one year totaled approximately $388.2 million as of December 31, 2019, with 62% expected to be recognized in the next 12 months[55] 4. Accounts Receivable | Metric | Dec 31, 2019 (Millions) | Sep 30, 2019 (Millions) | | :---------------------- | :---------------------- | :---------------------- | | Accounts Receivable, net | $363.9 | $333.7 | | Allowance for Doubtful Accounts | $5.6 | $5.0 | | Retention on Incomplete Projects | $47.8 | $43.2 | 5. Inventories | Inventory Type | Dec 31, 2019 (Millions) | Sep 30, 2019 (Millions) | | :----------------------- | :---------------------- | :---------------------- | | Finished Products | $7.1 | $6.8 | | Semi-finished Products | $10.5 | $11.0 | | Raw Materials and Supplies | $10.8 | $8.7 | | Total Inventories | $28.4 | $26.5 | 6. Property and Equipment, net | Asset Category | Dec 31, 2019 (Millions) | Sep 30, 2019 (Millions) | | :----------------------------- | :---------------------- | :---------------------- | | Property and Equipment (Gross) | $603.2 | $602.0 | | Less: Accumulated Depreciation | $334.6 | $329.6 | | Property and Equipment, net | $268.6 | $272.4 | - Depreciation expense for property and equipment was $20.2 million for the three months ended December 31, 2019, up from $19.3 million in the prior year period[68] 7. Intangible Assets, Goodwill and Acquisitions | Intangible Asset Type | Dec 31, 2019 (Millions) | Sep 30, 2019 (Millions) | | :-------------------- | :---------------------- | :---------------------- | | Customer relationships | $237.2 | $246.3 | | Trademarks | $3.1 | $3.1 | | Non-compete agreements | $1.9 | $2.1 | | Total Intangible Assets, net | $242.2 | $251.5 | - Amortization expense for intangible assets decreased to $13.5 million for the three months ended December 31, 2019, from $15.1 million in the prior year[69] | Goodwill Segment | Dec 31, 2019 (Millions) | Sep 30, 2019 (Millions) | | :---------------------- | :---------------------- | :---------------------- | | Maintenance Services | $1,628.6 | $1,616.0 | | Development Services | $194.4 | $194.4 | | Total Goodwill | $1,823.0 | $1,810.4 | | Acquisitions (Q4 2019) | $12.6 | | 8. Long-term Debt | Debt Component | Dec 31, 2019 (Millions) | Sep 30, 2019 (Millions) | | :------------------------ | :---------------------- | :---------------------- | | Series B Term Loan | $1,019.2 | $1,021.7 | | Receivables Financing Agreement | $140.0 | $140.0 | | Financing Costs, net | $(16.3) | $(17.1) | | Total Debt, net | $1,142.9 | $1,144.6 | | Less: Current Portion | $10.4 | $10.4 | | Long-term Debt, net | $1,132.5 | $1,134.2 | - The Company has a $260.0 million Revolving Credit Facility maturing in August 2023, with no outstanding balance as of December 31, 2019. The Receivables Financing Agreement provides a borrowing capacity of $200.0 million through February 2022[75][76] | Scheduled Maturities of Long-term Debt | | :------------------------------------- | | 2020: $10.4 million | | 2021: $10.4 million | | 2022: $150.4 million | | 2023: $10.4 million | | 2024 and thereafter: $979.8 million | | Total: $1,161.4 million | 9. Fair Value Measurements and Derivatives Instruments - The Company uses interest rate swaps to manage exposure to variable interest rates on its debt, converting a portion to fixed-rate debt. These derivatives are classified as cash flow hedges[84][86][88] | Fair Value Measurements (Dec 31, 2019) | | :------------------------------------- | | Investments held by Rabbi Trust: $11.8 million (Level 1) | | Interest rate swap contracts: $13.8 million (Level 2) | | Obligation to Rabbi Trust: $11.8 million (Level 1) | - Net deferred losses on interest rate swaps were $9.5 million (net of taxes) as of December 31, 2019, expected to be recognized in interest expense over the next 12 months[88] 10. Income Taxes | Metric | Three Months Ended Dec 31, 2019 (Millions) | Three Months Ended Dec 31, 2018 (Millions) | | :----------------------- | :--------------------------------------- | :--------------------------------------- | | (Loss) before income taxes | $(17.5) | $(12.0) | | Income tax (benefit) | $(4.9) | $(3.2) | | Effective income tax rate | 28.0% | 26.7% | - The increase in the effective tax rate for the three months ended December 31, 2019, was primarily due to a benefit from state tax law changes[91] 11. Leases | Lease Type & Metric | Dec 31, 2019 (Millions) | | :----------------------- | :---------------------- | | Operating Leases | | | Right-of-use asset | $65.0 | | Total operating lease liabilities | $71.3 | | Finance Leases | | | Right-of-use asset | $36.9 | | Total finance lease liabilities | $6.2 | | Lease Cost Components (Three Months Ended Dec 31, 2019) | | :------------------------------------------------------ | | Operating lease cost: $7.3 million | | Finance lease cost: $1.1 million | | Short-term lease cost: $6.4 million | | Total lease cost: $14.8 million | - The weighted-average remaining lease term for operating leases is 5.6 years with an incremental borrowing rate of 3.2%, while for finance leases it is 1.8 years with a 4.2% rate[98] 12. Equity-based Compensation - On November 22, 2019, the Company issued 194,000 nonforfeitable restricted stock units (RSUs) and 454,000 RSUs, with associated compensation expenses of approximately $3.3 million and $6.8 million, respectively[103][104] - The Company also issued 953,000 stock options on November 22, 2019, with an estimated compensation expense of approximately $6.6 million over the requisite service period[105] | Metric | Three Months Ended Dec 31, 2019 (Millions) | Three Months Ended Dec 31, 2018 (Millions) | | :----------------------------------- | :--------------------------------------- | :--------------------------------------- | | Total equity-based compensation expense | $8.2 | $5.9 | 13. Commitments and Contingencies - The Company maintains self-insured retention programs for various liabilities, with a reserve for unpaid and incurred but not reported claims of $126.4 million as of December 31, 2019[108] - BrightView is involved in stockholder litigation alleging misleading IPO prospectus and undisclosed labor shortages. The Company intends to vigorously defend itself and is currently unable to determine the amount of possible loss[112] 14. Segments - BrightView operates through two reportable segments: Maintenance Services (recurring landscape maintenance, snow removal, enhancements) and Development Services (landscape architecture, installation, tree and nursery division)[113][114] | Segment Financial Data (Three Months Ended Dec 31) | | :------------------------------------------------- | | Net Service Revenues (Millions) | | Maintenance Services: 2019: $418.9, 2018: $392.5 | | Development Services: 2019: $152.8, 2018: $134.4 | | Total Net Service Revenues: 2019: $570.7, 2018: $526.0 | | Adjusted EBITDA (Millions) | | Maintenance Services: 2019: $47.7, 2018: $48.7 | | Development Services: 2019: $19.1, 2018: $17.0 | | Total Adjusted EBITDA: 2019: $51.7, 2018: $50.1 | | Capital Expenditures (Millions) | | Maintenance Services: 2019: $11.7, 2018: $11.1 | | Development Services: 2019: $2.0, 2018: $3.2 | | Total Capital Expenditures: 2019: $14.5, 2018: $17.3 | 15. Earnings (Loss) Per Share of Common Stock | Metric | Three Months Ended Dec 31, 2019 | Three Months Ended Dec 31, 2018 | | :----------------------------------- | :------------------------------ | :------------------------------ | | Net (loss) available to common stockholders (Millions) | $(12.6) | $(8.8) | | Weighted average common shares outstanding (Thousands) | 103,307 | 102,502 | | Basic and diluted (loss) per share | $(0.12) | $(0.09) | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides an overview of BrightView's business, segments, components of revenues and expenses, and key trends affecting its operations. It analyzes the financial results for the three months ended December 31, 2019, compared to the prior year, focusing on revenue, profit, and expense changes, and discusses liquidity, capital resources, and non-GAAP financial measures Overview - BrightView is the largest commercial landscaping services provider in the U.S., offering landscape maintenance, enhancements, tree care, and landscape development through a national network of over 220 branches and service partners[122][123] - The company operates in two segments: Maintenance Services (recurring services like mowing, snow removal, irrigation) and Development Services (landscape architecture, installation for new construction and redesign projects)[124][125] Components of Our Revenues and Expenses - Maintenance Services revenue is primarily from recurring annual contracts for landscape maintenance and snow removal, recognized over time or using the right-to-invoice practical expedient. Development Services revenue is recognized over time using the cost-to-cost input method[128][129] - Cost of services includes direct costs like employee wages, subcontractor costs, purchased materials, and operating equipment/vehicle costs. Selling, general and administrative expenses cover management, sales, administrative personnel, equity-based compensation, and facility costs[130][131] - Amortization expense relates to intangible assets from acquisitions, while interest expense is primarily from long-term debt. Income tax benefit is influenced by federal, state, and local taxes, credits, and nondeductible expenses[132][134][135] Trends and Other Factors Affecting Our Business - The business experiences seasonality, with higher revenues and net income typically in spring and summer (fiscal Q3 and Q4), partially offset by snow removal services in winter (fiscal Q1 and Q2)[137][138] - Weather conditions, such as snow events, hurricanes, rainfall, or drought, can impact the timing and performance of services, affecting both revenues and costs[139][140] - Acquisitions are a key growth strategy, focusing on increasing market density, entering new geographies, and expanding service portfolios, leading to transaction and integration costs[141][143] Results of Operations | Metric | Three Months Ended Dec 31, 2019 (Millions) | Three Months Ended Dec 31, 2018 (Millions) | Change (Millions) | Change (%) | | :------------------------ | :--------------------------------------- | :--------------------------------------- | :---------------- | :--------- | | Net Service Revenues | $570.7 | $526.0 | $44.7 | 8.5% | | Gross Profit | $143.0 | $131.9 | $11.1 | 8.4% | | Selling, General & Administrative Expense | $130.3 | $110.2 | $20.1 | 18.2% | | Amortization Expense | $13.5 | $15.1 | $(1.6) | (10.6)% | | (Loss) Income from Operations | $(0.8) | $6.6 | $(7.4) | - | | Net (Loss) | $(12.6) | $(8.8) | $(3.8) | - | | Adjusted EBITDA | $51.7 | $50.1 | $1.6 | 3.2% | | Adjusted Net Income | $10.6 | $10.4 | $0.2 | 1.9% | - Net service revenues increased by 8.5% due to growth in both Maintenance and Development Services. Gross profit increased by 8.4%, maintaining a consistent gross margin of 25.1%[146][147] - Selling, general and administrative expense rose by 18.2%, primarily due to acquired businesses, business integration costs, incentive compensation timing, and equity-based compensation[148] Non-GAAP Financial Measures - The Company uses non-GAAP measures like Adjusted EBITDA, Adjusted Net Income, Adjusted EPS, and Free Cash Flow to evaluate operating results and liquidity, excluding certain non-cash, non-recurring, and other adjustment items[157][158][160] | Non-GAAP Metric | Three Months Ended Dec 31, 2019 (Millions) | Three Months Ended Dec 31, 2018 (Millions) | | :------------------------ | :--------------------------------------- | :--------------------------------------- | | Adjusted EBITDA | $51.7 | $50.1 | | Adjusted Net Income | $10.6 | $10.4 | | Free Cash Flow | $(6.2) | $(9.1) | - Free Cash Flow improved by $2.9 million to $(6.2) million, driven by increased cash from operating activities and decreased capital expenditures, partially offset by lower proceeds from asset sales[190] Segment Results | Segment Results (Three Months Ended Dec 31) | | :------------------------------------------ | | Maintenance Services | | Net Service Revenues: $418.9M (2019), $392.5M (2018) (6.7% increase) | | Segment Adjusted EBITDA: $47.7M (2019), $48.7M (2018) (2.1% decrease) | | Segment Adjusted EBITDA Margin: 11.4% (2019), 12.4% (2018) (100 bps decrease) | | Development Services | | Net Service Revenues: $152.8M (2019), $134.4M (2018) (13.7% increase) | | Segment Adjusted EBITDA: $19.1M (2019), $17.0M (2018) (12.4% increase) | | Segment Adjusted EBITDA Margin: 12.5% (2019), 12.6% (2018) (10 bps decrease) | - Maintenance Services revenue increased by $26.4 million (6.7%), primarily from acquired businesses and increased snow removal services due to higher snowfall. However, Segment Adjusted EBITDA decreased by $1.0 million (2.1%) due to higher employee and technology-related costs[171][172] - Development Services revenue increased by $18.4 million (13.7%) due to higher project volumes. Segment Adjusted EBITDA increased by $2.1 million (12.4%) due to revenue growth and productivity improvements, despite increased employee costs[174][175] Liquidity and Capital Resources - Principal liquidity sources include existing cash, cash from operations, and borrowings under the Credit Agreement and Receivables Financing Agreement. Uses of cash are for working capital, debt service, capital expenditures, and acquisitions[176] - The Company believes current cash flow, Revolving Credit Facility, and Receivables Financing Agreement will provide sufficient liquidity for the next twelve months[178] | Cash Flow Activity | Three Months Ended Dec 31, 2019 (Millions) | Three Months Ended Dec 31, 2018 (Millions) | | :----------------------- | :--------------------------------------- | :--------------------------------------- | | Operating Activities | $7.3 | $6.4 | | Investing Activities | $(31.9) | $(17.2) | | Financing Activities | $(4.2) | $(6.7) | | Free Cash Flow | $(6.2) | $(9.1) | - Net working capital decreased by $38.8 million to $179.9 million at December 31, 2019, primarily due to decreases in cash and unbilled revenue, and increases in operating lease liabilities and deferred revenue, partially offset by increased accounts receivable[191] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section refers to the disclosures on market risk provided in the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 2019 - For detailed quantitative and qualitative disclosures about market risk, refer to Item 7A of the Annual Report on Form 10-K for the fiscal year ended September 30, 2019[199] Item 4. Controls and Procedures This section confirms the effectiveness of the Company's disclosure controls and procedures as of December 31, 2019, and states that there have been no material changes in internal control over financial reporting during the quarter - The CEO and CFO concluded that the Company's disclosure controls and procedures were effective as of December 31, 2019, at a reasonable assurance level[201] - No material changes in internal control over financial reporting occurred during the fiscal quarter[202] PART II. OTHER INFORMATION Item 1. Legal Proceedings This section incorporates by reference the information on legal proceedings from Note 13, 'Commitments and Contingencies,' in the Condensed Consolidated Financial Statements - Information regarding legal proceedings is incorporated by reference from Note 13, 'Commitments and Contingencies,' in the financial statements[205] Item 1A. Risk Factors This section states that there have been no material changes to the risk factors previously disclosed in the Company's Annual Report on Form 10-K as of December 31, 2019 - No material changes to the risk factors included in the Annual Report on Form 10-K for the fiscal year ended September 30, 2019, have occurred as of December 31, 2019[206] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This item is marked as not applicable for the reporting period - This item is not applicable[207] Item 3. Defaults Upon Senior Securities This item reports that there have been no defaults upon senior securities - No defaults upon senior securities occurred[208] Item 4. Mine Safety Disclosures This item is marked as not applicable for the reporting period - This item is not applicable[209] Item 5. Other Information This item states that there is no other information to report - No other information is reported under this item[210] Item 6. Exhibits This section lists all exhibits filed with the Form 10-Q, including organizational documents, equity grant forms, and certifications - The exhibits include the Third Amended and Restated Certificate of Incorporation, Amended and Restated Bylaws, forms for Restricted Stock Unit Grants and Stock Option Agreements, and certifications by the CEO and CFO under the Sarbanes-Oxley Act[212]