BrightView Holdings, Inc. Q2 FY2025 earnings call

• BrightView had a strong start to fiscal 2025 with record Q2 and year-to-date adjusted EBITDA. They are raising full-year guidance on adjusted EBITDA, margins, and free cash flow.
• Prioritizing employees through initiatives like consistent service hours, safety, fleet refresh, and a frontline paid time off program, leading to reduced turnover and higher tenure.
• Resilient business model with 60% of revenue from recurring contract revenue, development backlog, and 10% discretionary ancillary revenue.
• Sequential improvement in frontline turnover and customer retention, with customer retention rates increasing 170 basis points on a trailing 12-month basis.
• Fleet refresh strategy with over 1,000 core production vehicles ordered and mowers all within target useful life. A $100 million share repurchase program was launched.

Total revenue for the second quarter was $663 million, an increase of approximately 3% when adjusting for the unwinding of BES and the sale of US Lawns. Core snow in the quarter increased $22 million or 15% driven mainly by increased snowfall in our East Coast markets. Development business revenue increased 5% as a result of the ongoing conversion of our high-quality backlog. Maintenance segment adjusted EBITDA margin expanded 60 basis points. Development segment adjusted EBITDA for the second quarter was $17.1 million, a record Q2 for this segment, with adjusted EBITDA margin expanding 410 basis points. Revenue contribution: Approximately 60% of revenue is from recurring contract revenue, 10% is discretionary ancillary revenue, and development contributes the remaining relevant portion.

• Raised midpoint of adjusted EBITDA guidance to $355 million from $345 million, reflecting improved maintenance and development margins.
• Expect maintenance margins to improve by 70-110 basis points and development margins by 60-100 basis points.
• Free cash flow guidance revised to $50 million to $70 million, with midpoint at $111 million when normalizing CapEx.
• Maintaining revenue range of $2.75 billion to $2.84 billion.

• Macro-economic uncertainties impacting discretionary spending on ancillary work.
• Potential impact of tariffs and trade dynamics on the business.
• Uncertainty in customer decision-making timing regarding development and ancillary projects.

Q: Congrats on the results here. It's been a while since we've been talking about a positive impact from snow, but it looks like that's kind of what drove a big portion of the revenue upside in the quarter. I guess the question is, did this take away some of the expected revenue from core land? Maybe unpack this if you can help us out with that.

A: Yes. Thanks, Greg. Good question. Let me start it off. We made a commitment that our message behind snow is going to be only good news from snow. So I think in our guidance this year that we issued earlier, we set realistic ranges and we didn't need it to snow a lot. Where we saw some snow, it created some positive momentum. So in fact, we're down here doing this call from our Destin branch in Florida. And we actually saw up to 6 inches of snow in this market as well. So it's snow in areas, Greg, that it doesn't typically snow. But let me let Brett unpack it a little bit because snow did impact, but it wasn't the only driver of all the improvements we've seen. So Brett, why don't you give us some details?

Q: It's been a while since we've been talking about a positive impact from snow, but it looks like that's kind of what drove a big portion of the revenue upside in the quarter. I guess the question is, did this take away some of the expected revenue from core land? Maybe unpack this if you can help us out with that.

A: Yes, Greg, great question. Page 10 of the presentation, if you look at our core snow, we had $22 million of increased core snowfall. That really was from Boston down through the Carolinas and, as Dale mentioned, even into Florida. It was really the East Coast markets that were materially impacted by that snow. And since there was snow on the ground, especially in the Carolinas on South, it limited our ability to put land in. So that had about a 2% impact in our land business in the quarter, about $6 million. So if you think about that, this would be our fifth consecutive quarter of that land -- core land improvement where you date back to last Q1 all the way through this second quarter where we're seeing that land shrink continue to get smaller if you normalize for that snow impact.

Q: Your full year guide for core land growth, excluding the impact of BES and USL, is up 1% to 3%. That implies a positive inflection in performance in the second half of the fiscal year since the first half of the fiscal year was down on a core basis. Can you elaborate on what you expect to drive this improved performance in core land over the next 2 quarters?

A: I think it goes off what we just talked to Stephanie about. Every time we continue momentum, our trailing 12-month customer retention is up 170 basis points, George, as you know, the more of our customers we keep, the more they're willing to spend money on ancillary work. We believe with all the quotes we've done for customers and the engagement our customers are showing us, we are well positioned to not only keep our book of business in the right spot for contract revenue but also drive ancillary revenue. But like everybody, we're not completely immune to the overall macro, and we've got to let it play out over the next couple of months. So we're in a position that we're going to grow this business. The question just is not if, it's when. But it all comes down to continuing to take care of our employees so they can take care of the customers, drive that retention, drive more development-to-maintenance conversion because we continue to grow that business and feed in as much ancillary work as we can and grow the ancillary part of our business. Whether it's irrigation or fertilization or tree work, we have so much opportunity to enable our branches to go after that work. So it's just a matter of timing, George. And look, I wish we didn't have this unknown that's happening out there, but we're not going to let it distract us from our long-term goal.