BrightView(BV) - 2022 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Presents BrightView Holdings' unaudited consolidated financial statements and detailed notes for periods ending March 31, 2022, and September 30, 2021 Item 1. Financial Statements (Unaudited) Presents BrightView Holdings' unaudited consolidated financial statements and detailed notes for periods ending March 31, 2022, and September 30, 2021 Consolidated Balance Sheets Provides a snapshot of the company's financial position, detailing assets, liabilities, and equity at specific dates | Metric | March 31, 2022 (in millions) | September 30, 2021 (in millions) | | :-------------------------- | :--------------------------- | :------------------------------- | | Total Assets | $3,294.6 | $3,237.6 | | Total Liabilities | $2,041.1 | $1,894.9 | | Total Stockholders' Equity | $1,253.5 | $1,342.7 | - Total assets increased by $57.0 million from September 30, 2021, to March 31, 2022, primarily driven by increases in property and equipment, and goodwill[14] - Total liabilities increased by $146.2 million, mainly due to an increase in long-term debt and deferred revenue[14] - Total stockholders' equity decreased by $89.2 million, influenced by treasury stock repurchases[14] Consolidated Statements of Operations Details the company's revenues, expenses, and net income or loss over specific reporting periods | Metric (in millions, except per share) | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | Six Months Ended March 31, 2022 | Six Months Ended March 31, 2021 | | :------------------------------------- | :-------------------------------- | :-------------------------------- | :------------------------------ | :------------------------------ | | Net Service Revenues | $711.9 | $651.9 | $1,303.8 | $1,206.3 | | Gross Profit | $157.1 | $158.1 | $297.0 | $291.7 | | Income from Operations | $11.7 | $17.7 | $3.3 | $14.0 | | Net Income (Loss) | $0.7 | $6.3 | $(12.1) | $(5.7) | - Net service revenues increased by 9.2% for the three months and 8.1% for the six months ended March 31, 2022, compared to the prior year periods[17] - Net income decreased significantly for the three months ended March 31, 2022, to $0.7 million from $6.3 million, and the net loss widened for the six months to $(12.1) million from $(5.7) million[17] Consolidated Statements of Comprehensive Income (Loss) Presents net income or loss alongside other comprehensive income or loss components for the reporting periods | Metric (in millions) | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | Six Months Ended March 31, 2022 | Six Months Ended March 31, 2021 | | :------------------------- | :-------------------------------- | :-------------------------------- | :------------------------------ | :------------------------------ | | Net Income (Loss) | $0.7 | $6.3 | $(12.1) | $(5.7) | | Other Comprehensive Income | $2.4 | $1.8 | $2.9 | $5.4 | | Comprehensive Income (Loss)| $3.1 | $8.1 | $(9.2) | $(0.3) | - Comprehensive income decreased for the three months ended March 31, 2022, to $3.1 million from $8.1 million, and comprehensive loss widened for the six months to $(9.2) million from $(0.3) million[19] Consolidated Statements of Stockholders' Equity Outlines changes in the company's equity accounts, including net income, share repurchases, and compensation - Total stockholders' equity decreased from $1,342.7 million at September 30, 2021, to $1,253.5 million at March 31, 2022, primarily due to a net loss of $12.1 million and common stock repurchases of $90.8 million[24] - Equity-based compensation contributed $9.3 million to additional paid-in capital for the six months ended March 31, 2022[24] Consolidated Statements of Cash Flows Summarizes cash inflows and outflows from operating, investing, and financing activities | Metric (in millions) | Six Months Ended March 31, 2022 | Six Months Ended March 31, 2021 | | :----------------------------------- | :------------------------------ | :------------------------------ | | Net Cash Provided by Operating Activities | $42.3 | $83.4 | | Net Cash Used by Investing Activities | $(145.7) | $(100.0) | | Net Cash Provided (Used) by Financing Activities | $25.2 | $(16.7) | | Net Change in Cash and Cash Equivalents | $(78.2) | $(33.3) | | Cash and Cash Equivalents, End of Period | $45.5 | $123.8 | - Net cash provided by operating activities decreased by $41.1 million, from $83.4 million in 2021 to $42.3 million in 2022, primarily due to changes in accounts payable and other operating liabilities[29][174] - Net cash used in investing activities increased by $45.7 million, from $100.0 million in 2021 to $145.7 million in 2022, driven by higher capital expenditures and business acquisitions[29][175] - Net cash provided by financing activities was $25.2 million in 2022, a significant change from net cash used of $16.7 million in 2021, due to proceeds from receivables financing and revolving credit facility, partially offset by stock repurchases[29][177] Notes to Unaudited Consolidated Financial Statements Provides detailed explanations and additional information supporting the unaudited consolidated financial statements 1. Business and Basis of Presentation Describes the company's core business operations and the foundational principles for financial statement preparation - BrightView Holdings, Inc. provides landscape maintenance, enhancements, development, and snow removal services for commercial customers across the U.S., operating through two reportable segments: Maintenance Services and Development Services[32] - The company is no longer a 'controlled company' under NYSE standards since May 14, 2021, following the termination of certain stockholder agreements[32] 2. Recent Accounting Pronouncements Discusses the adoption and evaluation of new accounting standards and their potential impact on financial reporting - The company adopted ASU No. 2019-12, 'Simplifying the Accounting for Income Taxes,' in Q1 fiscal 2022, with no material impact[35] - The company elected hedge accounting expedients for LIBOR-indexed cash flows under ASU No. 2020-04, 'Reference Rate Reform,' and is evaluating the impact of ASU No. 2021-08 on business combinations[37][38] 3. Revenue Details the company's revenue recognition policies and provides a breakdown of service revenues by type - Revenue is generally recognized over time as services are performed, using output-based methods for fixed-fee contracts and cost-to-cost input methods for development services and certain enhancement/per-occurrence contracts[39][40][41] | Revenue Type (in millions) | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | Six Months Ended March 31, 2022 | Six Months Ended March 31, 2021 | | :------------------------- | :-------------------------------- | :-------------------------------- | :------------------------------ | :------------------------------ | | Landscape Maintenance | $345.2 | $309.7 | $747.4 | $672.0 | | Snow Removal | $208.2 | $226.0 | $244.2 | $281.8 | | Maintenance Services Total | $553.4 | $535.7 | $991.6 | $953.8 | | Development Services | $159.7 | $117.1 | $314.4 | $254.4 | | Net Service Revenues | $711.9 | $651.9 | $1,303.8 | $1,206.3 | - Remaining performance obligations with an original expected duration greater than one year were approximately $386.0 million as of March 31, 2022, with 52% expected to be recognized in the next 12 months[45] 4. Accounts Receivable, net Presents the net balance of accounts receivable and the allowance for doubtful accounts | Metric (in millions) | March 31, 2022 | September 30, 2021 | | :------------------------ | :------------- | :----------------- | | Accounts Receivable, net | $411.4 | $378.9 | | Allowance for Doubtful Accounts | $4.3 | $3.2 | 5. Property and Equipment, net Details the net value of the company's tangible assets and associated depreciation | Metric (in millions) | March 31, 2022 | September 30, 2021 | | :------------------------ | :------------- | :----------------- | | Property and Equipment, net | $301.3 | $264.4 | | Accumulated Depreciation | $455.0 | $422.3 | - Depreciation expense for property and equipment was $45.8 million for the six months ended March 31, 2022, up from $42.3 million in the prior year[50] 6. Intangible Assets, Goodwill and Acquisitions Reports on the company's intangible assets, goodwill, and the impact of recent acquisition activities | Metric (in millions) | March 31, 2022 | September 30, 2021 | | :------------------------ | :------------- | :----------------- | | Total Intangible Assets | $718.2 | $701.4 | | Goodwill | $2,017.8 | $1,950.8 | - Goodwill increased by $67.0 million due to acquisitions during the six months ended March 31, 2022, with $30.1 million allocated to Maintenance Services and $36.9 million to Development Services[53] - The company acquired 100% of six unrelated companies for approximately $84.4 million (net of cash acquired) during the six months ended March 31, 2022, primarily recognizing customer relationship intangible assets of $16.8 million[54] 7. Long-term Debt Provides a breakdown of the company's long-term debt obligations and their scheduled maturities | Debt Component (in millions) | March 31, 2022 | September 30, 2021 | | :--------------------------- | :------------- | :----------------- | | Series B Term Loan | $996.8 | $1,001.7 | | Receivables Financing Agreement | $202.4 | $150.4 | | Revolving Credit Agreement | $80.0 | $— | | Total Debt, net | $1,269.7 | $1,141.0 | | Long-term Debt, net | $1,259.3 | $1,130.6 | - The company borrowed $80.0 million under its Revolving Credit Facility and $147.0 million under the Receivables Financing Agreement during the six months ended March 31, 2022[58][59] - Scheduled maturities of long-term debt include $5.2 million for the remainder of fiscal 2022, $90.4 million in 2023, $212.8 million in 2024, and $972.2 million in 2025[61] 8. Fair Value Measurements and Derivative Instruments Discusses the company's use of derivative instruments and fair value measurements to manage market risks - The company uses interest rate swaps to manage exposure to variable interest rates on its Series B Term Loan, with a notional amount of $500.0 million as of March 31, 2022[70] - No fuel hedge contracts were outstanding as of March 31, 2022, indicating a change in strategy or market conditions compared to the prior year[73] | Derivative Type (in millions) | March 31, 2022 (Assets) | September 30, 2021 (Liabilities) | | :---------------------------- | :---------------------- | :------------------------------- | | Interest Rate Swap Contracts | $1.6 | $3.6 | | Fuel Hedges | $— | $1.2 | 9. Income Taxes Details the company's income tax expense, benefit, and effective tax rates for the reporting periods | Metric | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | Six Months Ended March 31, 2022 | Six Months Ended March 31, 2021 | | :------------------------ | :-------------------------------- | :-------------------------------- | :------------------------------ | :------------------------------ | | Income (Loss) before Income Taxes | $0.6 | $8.6 | $(16.8) | $(7.1) | | Income Tax (Benefit) Expense | $(0.1) | $2.3 | $(4.7) | $(1.4) | | Effective Income Tax Rate | -16.7% | 26.7% | 28.0% | 19.7% | - The effective tax rate for the three months ended March 31, 2022, decreased to -16.7% from 26.7% in the prior year, primarily due to the geographical distribution of pre-tax income[75] - The effective tax rate for the six months ended March 31, 2022, increased to 28.0% from 19.7% in the prior year, mainly due to state tax law changes[75] 10. Equity-Based Compensation Outlines the company's equity compensation plans, awards outstanding, and associated expenses | Award Type (Shares) | Outstanding at Sep 30, 2021 | Granted (6 months) | Vested (6 months) | Forfeited (6 months) | Outstanding at Mar 31, 2022 | | :------------------------ | :-------------------------- | :----------------- | :---------------- | :------------------- | :-------------------------- | | Restricted Stock Awards | 802,000 | — | 229,000 | 23,000 | 550,000 | | Restricted Stock Units | 1,299,000 | 759,000 | 394,000 | 103,000 | 1,561,000 | | Stock Option Awards | 7,017,000 | 783,000 | 1,000 (exercised) | 122,000 | 7,677,000 | - Equity-based compensation expense was $9.3 million for the six months ended March 31, 2022, compared to $10.2 million in the prior year[82] - Total unrecognized compensation cost was $31.8 million as of March 31, 2022, expected to be recognized over a weighted average period of 1.4 years[82] 11. Commitments and Contingencies Discloses the company's self-insurance reserves, legal proceedings, and other potential future obligations - The company's self-insurance reserves for unpaid and incurred but not reported claims were $152.5 million at March 31, 2022, with $47.9 million classified as current liabilities[84] - The company is subject to legal proceedings and claims in the ordinary course of business, but management is not aware of any matter expected to have a material effect on financial condition or results of operations[85] 12. Segments Presents financial performance data for the company's Maintenance Services and Development Services segments - The company operates in two reportable segments: Maintenance Services (recurring landscape maintenance, snow removal, enhancements) and Development Services (landscape architecture and development for new construction)[87] | Segment Performance (in millions) | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | Six Months Ended March 31, 2022 | Six Months Ended March 31, 2021 | | :-------------------------------- | :-------------------------------- | :-------------------------------- | :------------------------------ | :------------------------------ | | Net Service Revenues: | | | | | | Maintenance Services | $553.4 | $535.7 | $991.6 | $953.8 | | Development Services | $159.7 | $117.1 | $314.4 | $254.4 | | Adjusted EBITDA: | | | | | | Maintenance Services | $62.9 | $72.3 | $108.2 | $121.9 | | Development Services | $12.8 | $10.9 | $27.3 | $27.9 | | Capital Expenditures: | | | | | | Maintenance Services | $27.1 | $15.3 | $48.9 | $24.2 | | Development Services | $6.9 | $2.0 | $8.1 | $2.3 | 13. Earnings (Loss) Per Share of Common Stock Reports the basic and diluted earnings or loss per share for the company's common stock | Metric (per share) | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | Six Months Ended March 31, 2022 | Six Months Ended March 31, 2021 | | :-------------------------------- | :-------------------------------- | :-------------------------------- | :------------------------------ | :------------------------------ | | Basic Income (Loss) Per Share | $0.01 | $0.06 | $(0.12) | $(0.05) | | Diluted Income (Loss) Per Share | $0.01 | $0.06 | $(0.12) | $(0.05) | - Basic and diluted EPS decreased for the three months ended March 31, 2022, and the loss per share widened for the six months[92] 14. Subsequent events Details significant events that occurred after the balance sheet date, including share repurchases and credit agreement amendments - On April 4, 2022, the company completed the repurchase of 5,906,954 shares from MSD Valley Investments, LLC at $12.33 per share[94] - On April 22, 2022, the company amended its Credit Agreement, establishing a new $1,200.0 million Series B Term Loan maturing April 22, 2029, and a $300.0 million Revolving Credit Facility maturing April 22, 2027, with interest rates based on Term SOFR or ABR[94] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's financial condition, operational results, key trends, and liquidity for the reporting periods Overview Provides a high-level description of BrightView's business, market position, and operating segments - BrightView is the largest commercial landscaping services provider in the U.S., operating through Maintenance Services and Development Services segments across 34 states with nationwide coverage via a service partner network[97][98] - Maintenance Services include recurring landscape maintenance and snow removal, while Development Services focus on landscape architecture and installation for new construction and redesign projects[99][100] Components of Our Revenues and Expenses Explains the primary sources of revenue and the major categories of expenses impacting the company's financial performance - 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[102] - Development Services revenue is recognized over time using the cost-to-cost input method, based on the percentage of costs incurred to estimated total costs[103] - Cost of services provided includes employee costs, subcontractor costs, purchased materials, and operating equipment/vehicle costs, with a large variable component[104] - Selling, general and administrative expense covers management, sales, and administrative personnel costs, equity-based compensation, facility costs, and professional fees, with corporate expenses not allocated to segments[105] Trends and Other Factors Affecting Our Business Discusses external and internal factors, such as seasonality, acquisitions, and economic conditions, influencing business operations - The business experiences seasonality, with higher revenues and net income typically in spring and summer (fiscal Q3 and Q4), and snow removal offsetting lower activity in seasonal markets during winter (fiscal Q1 and Q2)[111] - Weather conditions, including snowfall, hurricanes, and rainfall/drought, can impact service timing, revenues, and costs, with extreme events potentially increasing enhancement services but also disrupting operations[112] - Acquisitions are a key growth strategy, with six businesses acquired for $84.4 million (net of cash) during the six months ended March 31, 2022, incurring $4.5 million in integration costs[113] - Economic conditions, including rising inflation, fuel prices, and labor market fluctuations, can increase costs and impact profitability, though landscape maintenance is considered non-discretionary[116] - The COVID-19 pandemic continues to pose uncertainty, with potential for future operational restrictions, economic deterioration, and impacts from vaccine mandates and increased material costs[117] Results of Operations Analyzes the company's financial performance, including revenues, gross profit, and net income, for the reporting periods | Metric (in millions) | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | Six Months Ended March 31, 2022 | Six Months Ended March 31, 2021 | | :------------------- | :-------------------------------- | :-------------------------------- | :------------------------------ | :------------------------------ | | Net Service Revenues | $711.9 | $651.9 | $1,303.8 | $1,206.3 | | Gross Profit | $157.1 | $158.1 | $297.0 | $291.7 | | Income from Operations | $11.7 | $17.7 | $3.3 | $14.0 | | Net Income (Loss) | $0.7 | $6.3 | $(12.1) | $(5.7) | | Adjusted EBITDA | $59.7 | $66.8 | $102.3 | $119.3 | | Adjusted Net Income | $18.3 | $27.2 | $26.5 | $40.1 | | Earnings (Loss) per Share | $0.01 | $0.06 | $(0.12) | $(0.05) | | Adjusted Earnings per Share | $0.18 | $0.26 | $0.26 | $0.38 | - Net service revenues increased by $60.0 million (9.2%) for the three months and $97.5 million (8.1%) for the six months ended March 31, 2022, driven by growth in both Maintenance and Development Services[121][132] - Gross profit decreased by $1.0 million (0.6%) for the three months, and increased by $5.3 million (1.8%) for the six months, but gross margin decreased by 220 basis points and 140 basis points, respectively, primarily due to higher materials and fuel costs[122][133] - Adjusted EBITDA decreased by $7.1 million (10.6%) for the three months and $17.0 million (14.2%) for the six months, with Adjusted EBITDA margin declining to 8.4% and 7.8% respectively, mainly due to lower snow removal revenues and higher fuel costs[130][141] Non-GAAP Financial Measures Defines and reconciles non-GAAP financial metrics used by management to assess performance and liquidity - 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[143] - Free Cash Flow is defined as cash flows from operating activities less capital expenditures, net of proceeds from asset sales, and serves to assess the ability to pursue business opportunities and service debt[143] | Non-GAAP Metric (in millions) | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | Six Months Ended March 31, 2022 | Six Months Ended March 31, 2021 | | :---------------------------- | :-------------------------------- | :-------------------------------- | :------------------------------ | :------------------------------ | | Adjusted EBITDA | $59.7 | $66.8 | $102.3 | $119.3 | | Adjusted Net Income | $18.3 | $27.2 | $26.5 | $40.1 | | Free Cash Flow | $30.5 | $62.9 | $(19.3) | $58.9 | Segment Results Presents a detailed breakdown of financial performance for the Maintenance Services and Development Services segments - Maintenance Services net service revenues increased by 3.3% for the three months and 4.0% for the six months ended March 31, 2022, driven by commercial landscape services and acquisitions, partially offset by decreased snow removal revenue[155][163] - Maintenance Services Segment Adjusted EBITDA decreased by 13.0% for the three months and 11.2% for the six months, with margins declining by 210 bps and 190 bps respectively, due to lower snow removal and higher fuel costs[156][164] - Development Services net service revenues increased by 36.4% for the three months and 23.6% for the six months, driven by increased project volumes and revenue from acquired businesses[159][167] - Development Services Segment Adjusted EBITDA increased by 17.4% for the three months but decreased by 2.2% for the six months, with margins declining by 130 bps and 230 bps respectively, primarily due to higher material and fuel costs[160][168] Liquidity and Capital Resources Discusses the company's sources and uses of cash, working capital, and overall financial flexibility - Principal liquidity sources include existing cash, cash from operations, and borrowings under the Credit Agreement and Receivables Financing Agreement[169] - Net cash provided by operating activities decreased by $41.1 million to $42.3 million for the six months ended March 31, 2022, primarily due to payroll tax deferral repayments and reduced cash from other operating assets[174] - Net cash used in investing activities increased by $45.7 million to $145.7 million, driven by a $36.3 million increase in capital expenditures and $8.7 million more for acquisitions[175] - Free Cash Flow decreased by $78.2 million to an outflow of $19.3 million for the six months ended March 31, 2022, due to increased capital expenditures and decreased operating cash flows[178] - Net working capital decreased by $76.4 million to $138.3 million at March 31, 2022, mainly due to a decrease in cash and cash equivalents and an increase in deferred revenue[179] Critical Accounting Policies and Estimates Highlights the accounting policies and estimates that require significant judgment and can materially impact financial results - There have been no material changes to the company's critical accounting policies compared to those described in the Annual Report on Form 10-K for the year ended September 30, 2021[182] Recently Issued Accounting Policies Refers to disclosures on new accounting standards and their potential effects on the company's financial statements - Information on recently issued accounting policies is incorporated by reference from Note 2 to the unaudited consolidated financial statements[183] Item 3. Quantitative and Qualitative Disclosures About Market Risk Refers to the Annual Report on Form 10-K for detailed disclosures on market risk exposures - For detailed market risk disclosures, refer to Item 7A of the Annual Report on Form 10-K for the fiscal year ended September 30, 2021[186] Item 4. Controls and Procedures Confirms the effectiveness of disclosure controls and procedures with no material changes in internal control over financial reporting - The CEO and CFO concluded that disclosure controls and procedures were effective as of March 31, 2022, at a reasonable assurance level[188] - No material changes in internal control over financial reporting occurred during the fiscal quarter[189] PART II. OTHER INFORMATION Contains additional information not included in the financial statements, such as legal proceedings and risk factors Item 1. Legal Proceedings Refers to Note 11 of the financial statements for details on legal proceedings and commitments - Information regarding legal proceedings is incorporated by reference from Note 11 'Commitments and Contingencies' to the Condensed Consolidated Financial Statements[192] Item 1A. Risk Factors States no material changes to risk factors from the Annual Report on Form 10-K - No material changes to the risk factors were reported compared to the Annual Report on Form 10-K for the fiscal year ended September 30, 2021[193] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds Details the company's share repurchase activity under its publicly announced program for the reporting period | Period | Total Shares Purchased | Average Price Paid Per Share | Total Shares Purchased Under Plans/Programs | Approximate Dollar Value Remaining Under Plans/Programs (in dollars) | | :-------------------------- | :--------------------- | :--------------------------- | :------------------------------------------ | :------------------------------------------------------ | | January 1 - January 31, 2022 | 5,906,954 | $13.98 | 5,906,954 | $167,338,854 | | February 1 - February 28, 2022 | 466,532 | $13.12 | 466,532 | $161,217,551 | | March 1 - March 31, 2022 | — | — | — | $161,217,551 | | Total | 6,373,486 | $13.92 | 6,373,486 | $161,217,551 | - The company repurchased 6,373,486 shares of common stock during the three months ended March 31, 2022, at an average price of $13.92 per share, as part of its $250 million share repurchase program[194] - As of March 31, 2022, approximately $161.2 million remained available for repurchase under the program[194] Item 3. Defaults Upon Senior Securities Confirms no defaults occurred upon senior securities during the reporting period - No defaults upon senior securities occurred[195] Item 4. Mine Safety Disclosures States that mine safety disclosures are not applicable to the registrant - Mine safety disclosures are not applicable to the registrant[196] Item 5. Other Information Indicates that no other information is reported in this section - No other information is reported in this section[197] Item 6. Exhibits Lists all exhibits filed or furnished with the report, including organizational documents and certifications - The report includes exhibits such as the Third Amended and Restated Certificate of Incorporation, Amended and Restated Bylaws, a Repurchase Agreement dated March 13, 2022, and various certifications (e.g., Section 302, Section 906)[199] - XBRL (eXtensible Business Reporting Language) documents, including the Inline XBRL Instance Document and Taxonomy Extension Schema, are also listed as exhibits[199]