Behind The Numbers – BrightView Holdings (BV)
A recent IPO from June, BrightView Holdings is the largest commercial landscape maintenance and development company in the United States.
The company’s services are divided into two segments: Maintenance (75%) and Development (25%). The Maintenance segment consists of basic services such as lawn-mowing, gardening, mulching, and snow removal, as well as more specialized services such as water management, irrigation maintenance, tree care, and golf course maintenance. In the Development segment, BrightView provides landscape architecture and construction services for new facilities and large re-designs.
From Stifel’s July 23rd initiation note, BrightView is 9x the size of its next largest commercial landscaping competitor, provides a very broad array of landscaping services to over 14,000 clients, and has a national presence with a focus on local servicing through the company’s 200+ branch network.
On Tuesday, after the close, the company reported its Q4 earnings results and would see its stock pop 14.5% in Wednesday’s trading session.
-EPS of $0.35 vs $0.29 estimate – Beat
-Revenue of $581.8M vs $586M estimate – Miss
-Total Revenue increased 2.6% Y/Y
-Maintenance Services increased 3.5% Y/Y
-Development Services decreased 0.1% Y/Y
Management would comment that at first glance, you will see a decline of $5.8M in commercial landscaping services revenue. But it’s important to keep in mind that this result includes a difficult comparison with an episodic part of our business. I’m talking about the $12M in Hurricane Irma revenue that we received in fiscal 2017’s fourth quarter. Excluding this event, our underlying commercial landscaping revenues were actually up $6.2M in the quarter.
In addition, this was also the second fiscal quarter with a more material revenue shortfall due to managed exits, in this case, a $11M decline versus the prior fiscal year quarter. “I cannot stress enough that this was a strategic decision to focus our company on generating and servicing long-term profitable accounts to become more efficient operationally, focus our account managers on more accretive customer relationships and thus improve the quality of our earnings. I’m confident this is the right long-term decision for our business, and as you’ll see over the course of today’s presentation, we’re already capturing some of these benefits.”
What to Watch For in 2019
Managed Exits – CFO John Feenan would say on the conference call that they also expect that the material revenue impact from their managed exit initiative will continue into fiscal 2019 with declining amounts over the course of the fiscal year. The total impact of the initiative in 2019 will be between $15M and $25M.
Labor – Goldman Sachs analyst George Tong asked BrightView to discuss how much input cost inflation they’re currently seeing as it relates to labor and materials.
CFO John Feenan responded with, “Look, we are seeing a modest amount of non-labor related inflation in typical items that we would purchase. The bigger challenge for us has been on the labor. We’ve been very clear that we’ve seen an average of roughly a 5% increase in our wage rates. We modeled that accordingly. In 2019, we don’t see that going away.”
Electronic Time Capture – Credit Suisse analyst Susan Maklari would ask management of any efficiencies they are looking to gain going forward.
CEO Andrew Masterman would discuss their Electronic Time Capture, or ETC, which is for their crew leaders in the field and provides accurate information for compliance and payroll purposes but also enables leadership with granular, analytically-driven insights into job costing and crew productivity.
He would add that they’ve taken over 4,000 iPhones and put them into the field in the hands of all crew supervisors. “Now what we have is we have a proprietary process with the business intelligence software delivering daily information to every account manager and branch manager on how their crews are performing and making sure we’re getting every single hour of the day dedicated to our clients.”