Yahoo Finance BrightView Holdings, Inc. (NYSE:BV) Q2 2024 Earnings Call Transcript
BrightView Holdings, Inc. (NYSE:BV) Q2 2024 Earnings Call Transcript May 5, 2024
BrightView Holdings, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good morning everyone and welcome to the BrightView Holdings Second Quarter 2024 Earnings Call. [Operator Instructions] With that, I'll turn the conference over to Chris Stoczko. Please go ahead when you're ready.
Chris Stoczko: Good morning and thank you for joining BrightView's second quarter fiscal 2024 earnings call. Dale Asplund, BrightView's President and Chief Executive Officer; and Brett Urban, Chief Financial Officer, are on the call. I will now refer you to Slide 2 of the presentation which can also be found on our Investor Relations website and contains our Safe Harbor disclaimer. Our presentation in today's call include forward-looking statements subject to certain risks and uncertainties. In addition, during the call, we'll refer to certain non-GAAP financial measures. Please see our press release and 8-K issued yesterday for a reconciliation of these non-GAAP financial measures. I will now turn the call over to Dale.
Dale Asplund: Thank you, Chris and good morning, everyone. I'd like to begin by briefly reflecting on my first 7 months as CEO. We have made incredible progress in such a short period of time and our organization's ability to absorb these changes has been exceptional. As I sit here today, I am even more enthusiastic than I was on day 1 about the incredible opportunities ahead of us. I have the utmost confidence that all the changes we are making to transform this business are the right long-term decisions to operate as a unified One BrightView, drive profitable growth and create shareholder value. I will start today on Slide 4 by emphasizing our achievements and ongoing progress, along with strategic updates that will enhance our position to accomplish our objectives.
Through the first half of the year, our commitment to executing our strategic vision and focusing on profitable growth has proven successful. As a result, we are reaffirming our full year EBITDA midpoint and raising our margin and free cash flow guidance, all while selling our franchise business, unwinding our noncore aggregator business and snowfall coming in at the low end of our original guidance range. We have seen meaningful growth in profitability and margin expansion and are gaining momentum in our business as we continue to implement our strategy of operating as One BrightView. As we move forward, we are confident that the actions we are taking will improve our ability to deliver on our strategic initiatives and enhance our position as the number 1 player in the commercial landscape industry.
After a strong beginning in Q1, we continued our momentum in Q2 marked by margin improvement across all our operating segments. This reflects the early returns on our actions and investment in operating as One BrightView. Also contributing to our results and outlook is our focus on the core businesses while deemphasizing the noncore. On our Q1 call, we discussed the divestiture of our U.S. Lawns business which we sold at a highly attractive low-teens multiple. Additionally, we have evaluated and are actively unwinding our noncore aggregator business known as BES. It's important to note this action will have no impact on our bottom line. Brett will discuss the full impact of this unwind during the financial segment of today's call. Ultimately, this decision stems from our commitment to operate as a unified BrightView, maintain high-quality brand reputation and focus on our self-performing core businesses.
During the quarter, we introduced initial programs aimed at prioritizing the safety and well-being of our employees, notably, our Boots program. Additionally, we advanced the One BrightView culture by streamlining our operating structure to reinforce our revitalized go-to-market strategy under a less is more approach. These initiatives are designed to inspire our frontline employees, enhance our ability to service customers and underscore BrightView's dedication and progress towards operating as One BrightView. On Slide 5, I'll showcase our Boots program in partnership with Red Wing Shoes to equip over 18,000 team members with high-quality footwear, further highlighting our investment in our team. Our dedication to providing team members with the best personal protective equipment is not only an investment in their safety and well-being but also inspires them to deliver exceptional service to our customers.
As you can see from the picture on the right, employee reaction has been incredible. This picture reflects Carlos Latoia [ph] from our Orange County, California branch receiving his pair of boots and is one example of countless inspirational moments this initiative created where we truly focus on prioritizing our employees. Moving to Slide 6. Let's discuss our streamlined operating structure. So far this year, we implemented significant measures to enhance our go-to-market strategy as we operate as One BrightView. Central to these efforts was the realignment of our operating structure aimed at ensuring optimal market and customer coverage while maximizing efficiency and effectiveness. This structure allows for fewer layers and removes silos and puts us closer to our customers by eliminating inefficiencies and aligning under One BrightView.
This improved structure enhances our capabilities with both new and existing customers. At the market level, our maintenance and development segments are now aligned, fostering meaningful growth opportunities. Our sales and operations are now integrated at the branch level, reinforcing our focus on cross-selling opportunities. Additionally, we also elevated one of our most seasoned leaders into our Chief Commercial Officer, overseeing all aspects of growth. Positioning ourselves for success is paramount. And I am confident these actions will drive us forward and lead to enhanced service and profitable growth. Before turning the call over to Brett to discuss our financial results for the quarter, I want to summarize on Slide 7 how what we are doing today at BrightView is positioning us for sustainable success over the long term.
As the nation's largest provider in our industry, there is tremendous opportunity to leverage our size and scale to unlock growth in our business and gain market share. Our streamlined operations and go-to-market strategy as One BrightView will allow us to begin to convert more development services in the reoccurring maintenance work. This is a simple example of a previously untapped opportunity. In order to maximize our potential and capitalize on our opportunities, we must be the best at what we do and provide best-in-class service to our customers. By simplifying our customer satisfaction survey and leveraging predictive AI technology, we have significantly improved our communication with customers and our ability to proactively service their needs.
These efforts, combined with investments in our employees, are aimed at driving higher customer retention. We also have the opportunity to optimize our customer and market penetration as we enhance our footprint and strategic approach to winning large accounts and sales efforts. Clearly, we are excited about our business and the significant opportunities ahead. Our enthusiasm mirrors the meaningful growth and profitability we have achieved through Q2 and our progress towards becoming One BrightView. While there is more to do, I am proud of the team's effort and increasingly confident in our ability to deliver value to our shareholders. With that, I'll turn it over to Brett who will discuss our financial performance and outlook.
Brett Urban: Thank you, Dale and good morning to everyone. I'll start on Slide 9. I'm pleased to report that we are continuing the momentum in our business and progressing with our strategy towards One BrightView which yielded strong results in the second quarter. We remain focused on the execution of our strategy and profitable growth in our core business evidenced by the unwinding of the unprofitable noncore aggregator business and the sale of our franchise U.S. Lawns business. These actions led to quality revenue, EBITDA growth and significant margin expansion across all segments of the business. Enhanced net working capital, coupled with the timing of capital investments and reduced interest expense, resulted in a meaningful increase of free cash flow compared to the first half of last year.
This resulted in a net leverage ratio of 2.4x, allowing for financial flexibility for ongoing execution and investment in the core business. Moving to Slide 10. Total revenue during the quarter increased 3.5% year-over-year to $673 million. Our noncore businesses, including BES and U.S. Lawns and our focus on profitable growth within our core land business, both had a near-term impact on our land revenue. We remain, however, very encouraged by the underlying health of the market and recent trends within our business. Revenue growth during the quarter was driven by higher snowfall relative to the prior year. Important to note, snow revenue year-to-date is comparable to the prior year season and at the low end of our original guidance range. We continue to see solid demand in our development business which we grew 5.7% compared to the prior year due to our ability to convert our robust backlog.
Development's performance in recent quarters reflects the appealing nature of the business model while also furthering the momentum for future growth as we capitalize on cross-selling into maintenance. Turning now to profitability and the details on Slide 11. Total adjusted EBITDA for the second quarter was $64.8 million, an increase of $18 million or 39% versus the prior year, a significant margin expansion of 240 basis points, reflecting continued benefits of our One BrightView initiatives and improved profitability in all segments of the business. In the maintenance segment, total adjusted EBITDA of $66.5 million was an increase of $15 million or 29% compared to the prior year. This increase was driven by improved profitability in our core land maintenance business and increased snowfall compared to the prior year.
The adjusted EBITDA margin expanded an impressive 260 basis points due to the revenue growth and a more streamlined operating structure. In the development segment, adjusted EBITDA for the second quarter was $14.4 million, an increase of 10% compared to the prior year and adjusted EBITDA margins expanded 40 basis points. This is a result of the quality backlog conversion while simultaneously reducing our costs, ultimately resulting in accretive growth. And in our corporate segment, corporate expenses for the second quarter decreased year-over-year as we made further progress with our One BrightView strategy. We continue to evaluate opportunities for centralization which we expect to lead to further efficiencies. Turning to Slide 12 to discuss the unwinding of our aggregator business, as we mentioned on our previous earnings call.
Our aggregator business, also known as BES, is a noncore unprofitable subcontractor business. This business was originally set up to outsource work to local providers in markets where BrightView was unable to provide direct service. However, our ability to control and maintain service levels was limited. As a result and aligned with our goal of One BrightView, we are in the process of unwinding the majority of the contracts within this business. We will, however, retain a few select relationships of high-quality customers where we can self-perform the majority of the work directly from our branch network. While the unwinding of the business will have an impact on revenue, it's important to note this unwind will have no impact to our EBITDA.
In fact, we anticipate an annualized EBITDA margin benefit of approximately 20 basis points from this strategic decision. This action reinforces our commitment to One BrightView, enhancing customer service and improving our position as a service provider of choice. Let's now turn to Slide 13 to review our free cash flow, capital expenditures and leverage. For the first half, we are extremely pleased with our free cash flow generation of $89 million compared to $16 million in the prior year. It's important to note, we are committed to reinvesting in our fleet strategy and our capital expense reduction is purely timing-related. More to come on this on the next slide. Net leverage for the quarter came in at 2.4x compared to 5.0x in the prior year period.
This lower leverage reflects the significant reduction in our debt, improved liquidity and improved profitability in the business. Our leverage profile allows us for financial flexibility for ongoing execution of our profitable growth strategy and investment in the business. Moving to Slide 14. With our enhanced profitability and strengthened balance sheet, we have the financial flexibility to invest in the business and execute our growth strategy. One of our top priorities for reinvesting in the business is upgrading our fleet and equipment. To facilitate this change, we recently hired 2 central leaders to further unlock, leveraging the size and scale of the organization. We aim to rejuvenate our fleet, optimize asset life cycles, enhance our overall brand and continue to take better care of our employees.
This capital deployment will directly benefit our employees and customers while also yielding financial advantages by reducing future maintenance and rental costs. It's important to note that we do not anticipate this changing our long-term net CapEx outlook of approximately 3.5% of revenue as the higher residuals will offset the gross increase in investment. Now let's turn to Slide 15 to review our outlook for fiscal '24. As Dale previously mentioned, we are reaffirming our fiscal year '24 EBITDA midpoint and raising our margin and free cash flow guidance. Now let's hit on some of the details. We are updating our revenue range to $2.74 billion to $2.8 billion to primarily reflect the BES unwind and snow coming in at the low end of our original guidance range.
The updated revenue guidance assumes the following, the unwinding of BES and the previously announced sale of U.S. Lawns is expected to have an approximately $70 million impact on revenue for the year. For snow, now that snow season is complete, we are incorporating revenue of $215 million which is within but at the low end of our original guidance range. And for development, we are maintaining our assumption of 2% to 5% growth for the year as the conversion of our strong backlog of projects will continue to benefit revenue growth. For core land, we are refining this to the lower end of our original guidance range as we focus on profitable growth. And in regards to acquisitions, we are now assuming 0 versus minimal in our previous guidance as we focus on streamlining our operating structure and ensuring stability for acquisitions in the future.
Moving to adjusted EBITDA. One BrightView will be the key driver to growing profit and expanding margins. Despite adjusting our revenue guidance and despite snow revenue at the low end of our original range, we are maintaining the midpoint of our EBITDA guidance which, in turn, translates to raising our margin expansion expectations. We expect these improvements to now generate total margin expansion of 90 to 130 basis points with adjusted EBITDA of $315 million to $335 million. We expect a continuation of healthy cash flow generation driven by improved operating performance. Our outlook reflects our commitment to growth and investment in our core business. Contributions from reduced interest expense will be managed alongside the ongoing requirements to optimize the business.
Altogether, we now expect to generate free cash flow of $55 million to $75 million which is an increase to the previously provided guidance range. Before I hand the call back over to Dale, I'm going to wrap up on Slide 16. I want to reiterate my excitement around the investments we are making and the impact it has had on the business and our culture. By taking better care of our employees who, in turn, are taking better care of our customers, I feel more optimistic than ever regarding the future of our company. With that, let me now turn the call back to Dale to wrap up on Slide 17.
Dale Asplund: Thank you, Brett. Before we open the call for questions, I'd like to provide a few final thoughts. We are making considerable progress on our goals and we are seeing the returns on these efforts begin to materialize in the results and gain traction across the company. I firmly believe that all the strategic changes we are making to transform this business position us to accelerate profitable growth over the long term and create value for all of our stakeholders. With that said, operator, you can now open the call for questions.
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