Good morning and welcome to BrightView's 2019 Fourth Quarter and Full Fiscal Year Earnings Conference Call. As a reminder, this call is being recorded. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions] The earnings press release is available on the company’s website, investor.brightview.com. Additionally, the online webcast includes the presentation slides that will be referenced as part of today's discussion and a downloadable copy is also available online. I will now turn the call over to Dan Schleiniger, BrightView's Vice President of Investor Relations. Please go ahead.

Thank you, Lindsey and good morning everyone. I'm joined on today's call by Andrew Masterman, our Chief Executive Officer and John Feenan our Chief Financial Officer. Before we begin, I want to remind listeners that some of the comments made today including responses to questions and information reflected in the presentation slides will be forward-looking and actual results may differ materially from those projected. Please refer to the company's recent SEC filings for more detail on the risks and uncertainties that could impact the company's future operating results and financial condition. Our comments today will also include a discussion of certain non-GAAP financial measures. Reconciliations to the most directly comparable GAAP financial measures and other associated disclosures are contained in the earnings release on the company's website. Disclaimers on forward-looking statements and non-GAAP financial measures apply both to today's prepared remarks as well as the Q&A. This does and will include references to the performance of the underlying commercial landscaping revenue within our Maintenance Services segment. We believe that this measure, which we also refer to as organic revenue provides a more complete understanding of the factors and trends affecting the business. Finally, unless otherwise stated all references to quarterly or annual results or periods refer to our fiscal years ending September 30th in each respective year. Today, we are presenting the unaudited results for the three-month period and the audited results for the 12 months ended September 30th, 2019. With that, I'll turn the call over to BrightView's CEO, Andrew Masterman, who will provide an overview of our recent results, business strategy, and future outlook.

Thanks Dan. Good morning everyone and thank you for joining us today. Turning to our executive summary on slide 4, today we are reporting results for the fourth quarter as well as for the full year fiscal 2019. Total revenue grew 7.4% in the quarter versus the prior year period underpinned by positive organic growth in both of our operating segments. This important measure in our Maintenance segment improved sequentially throughout the year turning positive in the third and fourth fiscal quarters. Revenue in the quarter also benefited from our strong-on-strong M&A strategy, which continues to be a reliable and sustainable source of revenue growth for our company. Additionally, as expected, the Development Segment Services -- Services segment delivered record quarterly revenues demonstrating the robustness of its backlog which is showing no signs of slowing down as we head into 2020. This healthy topline performance combined with lower corporate expenses drove a 9.1% increase in total adjusted EBITDA and a 20 basis point margin expansion versus the prior year quarter. While this performance reflects a solid finish to the year, I recognize that these are not the results that we expected to deliver for the full-year 2019. But as we look forward, we remain confident in the opportunities that lie ahead and are working hard to capture those opportunities and generate value for all of our stakeholders. The fundamentals of our business are strong and the initiatives that we have been telling you about over the last few quarters to build our teams, train our people, and invest in technology are starting to deliver the results that are envisioned. An early sign of this is the return to positive organic growth in Maintenance Services that I just mentioned. Perhaps more importantly, our initiatives are forming the base off of which…

Thanks, Andrew, and good morning to everyone. Let me start with a snapshot of our fourth quarter results on slide 12. As you've already heard total revenue for the company was up in the quarter on the back of good organic growth in the Maintenance segment, a strong book of business in the Development segment and the continued revenue contribution from our M&A activities. Our adjusted EBITDA totaled $91.9 million, up 9.1% versus the prior year with a 20 basis point improvement in margin to 14.7%. At the consolidated level this was a solid quarter for BrightView. While a strong result versus the prior year, this is not the EBITDA performance that we expected to deliver. As a result, we've taken actions that impacted our 2019 numbers and have implemented a few changes to drive better results in fiscal 2020. We are squarely focused on continuing to generate efficiencies in our business, keeping the customer at the center of everything we do, while promoting a culture of accountability across the organization. Turning to the details on slide 13. The Maintenance segment's adjusted EBITDA declined by 3%, which led to 140 basis point margin contraction versus the prior-year quarter in this segment. This decline in profitability was driven primarily by lower enhancement services margins and to a lesser degree by a lower margin mix from recent acquisitions. Work on enhancements, experienced weather-related delays and inefficiencies that carried over from the third quarter in many of our markets. Additionally, our Florida and Southeast regions faced delays and cancellations related to the threat of Hurricane Dorian. They also incurred expenses associated with preparing to provide storm recovery services that in the end were not needed due to Dorian's unexpected turn to the North. These factors led the margin compression driven by the higher…

Thank you, John. Turning now to slide 20. I want to close with a few important takeaways from our first full fiscal year as a public company. The strategic initiatives that we began implementing three years ago helped us navigate a very challenging year. In the end, we delivered solid results despite difficult revenue and profitability comparisons with certain episodic events in 2018 and operating disruptions from the unusual weather patterns that we faced throughout 2019. More importantly, the fundamentals of our business and our industry remains strong. As you've heard today, the underlying trends in both of our operating segments reflect those strong fundamentals. The Maintenance segment improved its land organic revenue growth sequentially throughout 2019, turning positive in the second half as well as for the full year. Looking ahead, our net new sales trends in Maintenance remained strong thanks to our growing localized sales team. Our M&A pipeline can only be described as robust, and has delivered a reliable source of growth for three years running with no signs of slowing down. And our Development segment's backlog is as strong as ever. In other words, while it's important to keep in mind that this is a seasonal business, with considerably more activity and earnings in the second half of the fiscal year, the main drivers are in place for BrightView to continue growing faster than the broader industry for years to come. You may have seen in a recent filing that we reorganized the leadership of our Maintenance segment. Jeff Herold was named Chief Operating Officer for Maintenance Services and President of the Seasonal Division within the segment. With Jeff now focused more on the seasonal markets, and our operational excellence efforts. We have added a second senior leader to our evergreen markets, Ed Marcil, who joined…

[Operator Instructions] We will take our first question from Judah Sokel with JPMorgan. Your line is now open.

Hi, good morning. Thank you for taking my questions.

Good morning, Judah.

First question, I wanted to ask was about free cash flow. Last quarter, John you gave the great – very helpful bridge between EBITDA to get us the free cash flow guidance for the year, and I was hoping, you could do the same thing, specifically digging into working capital to understand exactly what's going to – what your assumptions are there?

Yeah. Judah. Good morning. Last call, well, first of all, we define free cash flow, or the definition of free cash flow includes non-recurring items identified in our financial statements. On previous calls, we guided to free cash flow excluding non-recurring items. So, I want to be very clear with everybody, there were approximately $23 million of non-recurring items in our full year 2019 results. So, moving forward for clarity and transparency, we will guide to our defined free cash flow, which gets published in our financials as you know. On our last call, we guided to $140 million of free cash flow, which excluded any of the $23 million of non-recurring, which would have taken that number to $117 million. We reported $87 million, or $30 million less, and that was driven by three reasons. The higher CapEx of approximately $10 million, driven by two things, snow equipment where we made a conscious decision where we wanted to self-perform and reduce our exposure to subcontractors, and also some investments in recent acquisitions a little bit earlier than we had planned. The other piece was approximately $20 million used in working capital around our Development business. The revenue as you know from earlier calls was deferred from the first half into the third quarter, and specifically, the fourth quarter, and because of the paid when paid industry dynamic, we were really very optimistic of collecting and we weren't successful because of that paid when paid dynamic. And the final piece was the $5 million shortfall in our lower EBITDA versus the guidance on the last call.

Okay. So if you take the $87 million that you reported and then you add back the one-time as the non-recurring, and then you account for the receivables and the $10 million of extra CapEx, what's the delta between that number and the $100 million to $110 million? Because that would have implied that next year given normal patterns otherwise you would have been maybe above the $100 million to $110 million. So just trying to understand fully maybe, what your working capital exact assumptions are exactly or just anything else that could close that delta. Thank you.

Yeah. No problem, Judah. What I'll do now – again, let me now give you the free cash flow guidance for fiscal 2020. As we alluded to in the call, our adjusted EBITDA range is $312 million to $320 million. We now expect our CapEx to be between 2.5% and 3%, but lower versus 2019, so assume approximately $70 million. Because of our growth, we expect another use in working capital. So we expect approximately $20 million there. We expect our interest to be about the same in fiscal 2020, so approximately $70 million. We're going to pay more in cash taxes, because we benefited this year from some tax planning and some timing's around the refund. But because we will have higher pre-tax, we expect our cash taxes to be around $35 million. Our non-recurring items will mainly be centered around, our continued focus on M&A. So that's about $15 million and that's our defined free cash flow range somewhere in the range of $100 million to $110 million for fiscal 2020.

Our next question comes from George Tong with Goldman Sachs. Your line is now open.

Hi. Thanks. Good morning. Your EBITDA margins came in lower than your expectations on the full-year basis and you cited weather labor inefficiencies and M&A margin dilution as some of the reasons. Can you elaborate on the initiatives you're taking to generate better efficiencies heading into 2020?

Sure. I think – let me start with the fourth quarter George, in the margin compression of 140 basis points. It was really driven by the ancillary inefficiencies. We basically had more labor, more overtime, because we had a lot of late orders that really generated time constraints, and we really want to keep our customers happy. That was the biggest headwind of the 140 basis points. We then had the impact of Hurricane Dorian. We had to move people and equipment around, we wanted to be prepared in case we got hit with that hurricane and that was more of a margin impact as opposed to a revenue impact. But that was the second largest item. And then, we had the slight headwind around recent acquisitions which was lower when we get them. And then as Andrew alluded to, we're building our team. So we had some -- we had some increase of people that we brought on, mainly around business developers and account managers, all of those items offset by the final piece of our Managed Exit. When we think about the guidance and where we're going, we're still confident in targeting our long-term guidance range of 10 to 30 basis points. We expect a similar sequential profile or shape, as we executed in 2019 for both revenue and margin. Second half will be stronger than the first half. That's assuming normal weather. We have investments in retention. We expect to continued tight labor market. But the first half, as you know, is sensitive to the snow business. And we could see better top-line growth and productivity initiatives, which would help on our efficiencies, driven mainly by ETC and more importantly our CRM project. And that's what gives us confidence in that Maintenance organic of 1% to 3%. What could happen, risk-wise? We could have unfavorable weather. It could be either snow or not enough snow, or too much rain. Our enhancement sales penetration and profitability could be lower than we are planning. We've done a good job of getting price increases to offset labor and materials. We could see some risk there. But on an opportunity side, and if those risks don't materialize, we got the maturing sales team; we're working hard to improve our retention. We could get a quicker adoption of CRM. And I think the Maintenance reorg that Andrew talked about, allows our leaders to get closer to our customers and our operations. And we really want to make sure that we can provide guidance that we have high confidence that we can hit. That's really the walk in our guidance in margin for fiscal 2020.

Got it. That's helpful. And on the organic revenue side, for next year, you're guiding to 1% to 3%. How do you think about where you would likely land within that range and how Maintenance and Development will shape up next year?

Yeah. As usual, I'll take that one. Actually, what we're seeing out there with our sales force is we're seeing a positive momentum building throughout the organization. You saw that with the results we saw in Q4, a positive organic growth, frankly the best we've seen in our reported time as a public company. We believe, especially, as it gets to the back half of that continued organic build, we'll have a tangible impact in the regions that we operate in, but it's also across -- also our national accounts and golf business as well. We forecast an average level of snow. We're not relying on that necessarily to drive our top line. And we do believe M&A will continue to have a positive impact on our overall revenue profile for the Maintenance business. Development, the answer to your question -- I'm sorry, to answer your question on Development. Development is focused on that 1% to 2% organic revenue growth. The fortunate thing is we're booked strong as we've ever been going into 2020. And we're highly confident we can maintain that same level of growth that we experienced in 2019.

Our next question comes from Andy Wittmann with Baird. Your line is now open.

Great. Yeah, I guess, I wanted to just dig in a little bit more, excuse me, to the guidance. I think I heard that there's $30 million of wrap from deals that you've already closed in 2019. You've announced two deals here that closed in November. Does that account for the other $30 million of the $60 million, or are there some unidentified acquisitions that factor into the incremental $30 million that come in this year? I just wanted to understand what the underlying acquisitive revenue assumptions are in this guidance. I had also wanted just to check how does -- I think I heard a comment that you assume that flat was -- that snow was flat to maybe slightly negative in the guidance, John, if you could just clarify those couple of things on the revenue guide?

Okay. Yes. Andrew, this is Andrew talking. When it comes to our M&A, the last two acquisitions or the two acquisitions we announced today of Clean Cut and Heaviland will, obviously, add to our 2020 forecast. And it really helped to satisfy that total $60 million look. It doesn't complete it in total. We have a very diligent robust pipeline that we've built. We feel confident that that's going to fill in relatively quickly within the first two quarters by the end of Q2. We certainly believe we should be able to achieve that. These particular two acquisitions combined with the wraparound, we're kind of in that 70% to 80% of that target in total when we look at the total M&A. Regarding snow and the overall snow, yes, in our guidance right now, we do see a range and that range is slightly -- we're forecasting a slightly lower snowfall than what we experienced last year. If you remember, last year, first quarter was quite low, offset by a really good second quarter. So we see it slightly off of last year, but not dramatically off. The range that we present out there though gives you that ability to feel confident, we're able to execute as we get greater snowfall coming in, should be able to push ourselves well into the range.

Got it, thanks. I guess, my follow-up question was then on kind of the market you're seeing for your people on the labor side. I just noticed here in the filing, that you actually had a pretty good year and your H-2B visas; I guess you commented on that earlier. But as you head into 2020, is that a tough comp on H-2B visas? Are you seeing any moderation or inflections and is it the cost changes of the labor that you're having to pay nationally? And just, can you comment on the pricing environment and any developments or changes that have happened on that side of the equation too?

Hi, Andrew. Good morning. It's John. I'll take that one, on the labor cost trends. The labor market remains very tight. We've been saying that for a while. We expect inflation in that area to be in the 4% to 5% per annum on our composite wage rate. And, as you know, and as we talked about our composite wage rate is about twice the federal minimum rate. And this cost related to recruiting, training, retention, the higher average ranges and quite frankly some lower productivity when we're bringing people in the door. So we expect -- we continue to expect our pricing in our operating efficiencies to offset the wage pressure, which we've been able to do historically. As far as the update on H-2B, the number of H-2B labors, this is a small fraction of our total labor force. We are not dependent on H-2B labor in order to meet our commitments. Also, H-2B labor is not cheap labor. The wage -- we don't set the wages. They are set by the federal government. And despite a tight labor market, we annually hire more than 5,000 people, not inclusive of H-2B as part of our seasonal flex of labor, which usually occurs in the February to April time frame. So we think we have it well managed, and we will continue to focus on that relationship between wage inflation and price.

Our next question comes from Tim Mulrooney with William Blair. Your line is now open.

Good morning.

Good morning Tim.

Good morning Tim.

Hey, on the organic growth within the Maintenance business, that's where I'd like to focus my two questions on. So the first one, you expect 1% to 3% underlying growth in the landscape maintenance business in 2020 I believe. How does that translate to organic growth? Does the 1% to 3% include acquisitions? What about managed exits? What are the other moving pieces here so we can make sure our model reflects your guidance?

Absolutely, Tim. That guidance on the growth is organic, okay? That 1% to 3% is underlying organic growth in the business in the maintenance part of the business. The development side has a 1% to 2% growth. So we believe there is slightly more growth in maintenance than there is in development, but that does not include acquisitions. Acquisitions will be in addition to those numbers. That gives us that range of $2.465 billion to $2.525 billion. That encompasses both organic and inorganic M&A growth.

Got you. Okay. That was easy. Sticking with the subject. Thinking about the cadence throughout the year, you expect stronger organic growth in the second half of the year Andrew, but that's when the comps get materially more difficult. I just want to make sure that I'm thinking about this the right way that you expect organic growth to be higher in the second half of 2020 expanding sequentially from the first half of 2020. Thank you.

Yes, Tim. That's exactly right. And there are some of the dynamic of the market, okay? In the seasonal markets, green organic growth basically stops in the first and second quarters, because there's nothing to do. So that kind of revenue base dries up. Yeah you have snow, but you don't have green, and so you don't have any either up or down in the contracts in this first and second quarter in the green side of the business. When you start getting into the third and fourth quarter, that's when actually a lot of the landscaping activity picks up, and that's when you're going to see the organic growth layering in. We're positive. We feel really good about the net new sales coming in and the retention where we're seeing out in our overall contracts. Even today as we see the new sales layer in and the renewal of contracts, even in the evergreen markets some of those are as you push out into Q2 and Q3 in the seasonal markets, all of those start in basically the very, very beginning of Q3 and into Q4.

Our next question comes from Kevin McVeigh with Credit Suisse. Your line is now open.

Great. Thank you. Just, I guess, going back to that revenue guidance for 2020, if I have the math right, it looks like weather between kind of the hurricanes and snow was about a $27 million headwind in 2019. There was about $35 million of managed exits, so about $62 million. If you layer the acquired revenue as $60 million, it feels like there is kind of $120 million or so that's one-off. But if you look at the guidance like, it would imply kind of the low-end is down year-on-year. Is in fact is that the case and is there any kind of weather and managed exit impact modeled into the 2020 guidance? And if it is like what…?

Absolutely. Let me address that on the weather impact in 2020. We have -- and Managed Exits, the Managed Exits as far as the initiative that we started last year and for the end of the prior year, we don't manage -- we don't have any of that built into the guidance for 2020 with the exception of a very small tail that we previously discussed in Q1 of a couple of million dollars. But other than that in Managed Exits there is nothing in 2020 around that. The only other thing on the revenue side which would be weather specifically weather would be -- as we previously talked about briefly was snow that we are forecasting a slightly lower snow number in the revenue guidance, but that's somewhere between $10 million to $20 million range. So that would be the only weather-related forecast we're putting on the revenue side.

Got it. And then, how much of the snow removal? How much of that is subcontracted? And then what's the margin to kind of the subcontracted versus in-house? Obviously, it seems like you're making a strategic shift there to take more that in-house given the CapEx?

Yeah. And it really -- it all depends on the degree of snow of what's subcontracted versus what's not subcontracted. So what we're doing is we're preparing ourselves to shift more and more to self-perform at smaller levels. However, if you have very significant snow storms that come in that is where the unpredictability of the actual underlying snow business comes and why we use subcontractors, because let's say, it's snowed a foot or two feet at one time, we have to get out there and service all the properties. We've said we have to have a portion of self-perform and a portion of sub to both attack that or to support that at all the properties, it's when it's in the smaller level of the slighter snowfalls that we actually then are transitioning more and more toward that self-perform model that we think is how we really support our customers in a tighter and closer customer intimacy.

Our next question comes from Seth Weber with RBC. Your line is now open.

Hey, good morning, guys. This is going to Gunnar Hansen on for Seth.

Hey, Gunnar.

I guess I'll take one last cut at the guidance and particularly on the Maintenance side. So the 1% to 3% includes the expected decline in snowfall that is the message?

Yeah. No the 1% to 3% is only on the green side of the non-snow business. So, that 1% to 3% is actual growth in our underlying business that we feel quite confident about. The snow is kind of a separate -- we treat that and we disclose overall snow performance on the revenue side and so that snow -- that $10 million to $20 million shortfall depending on snowfall that's a separate -- that's away from the organic growth.

Right. Okay. That's fair. And so I guess just to follow up on that, I mean you guys ended the fourth quarter with Maintenance green kind of being at 1.9% as you highlighted the underlying growth. It strikes to me that there's a lot of momentum in especially some of the commentary around premium retentions and getting closer to customers as well as some of the business development hires. I mean, how should we expect the cadence of that throughout 2020 if you're kind of exiting this fourth quarter at nearly 2%? I mean what are the puts and takes between the range of 1% to 3% that you guys provided that would help us kind of understand how that all plays out?

Absolutely. What happens in the business, even though contracts get struck sometimes here in the first -- our first quarter and in the second quarter, the business doesn't actually start until you start seeing growth happening in landscaping as spring emerges. So, I think it's a very similar profile to how you looked at this year in -- that's where really growth doesn't start occurring even in evergreen markets in a big way until spring starts coming in strong. So similar to this year, where you saw -- where you saw growth really starting to emerge if you looked at the four quarters in 2019, we showed an underlying shrinkage in Q1 and Q2 and then growth happened in Q3 and Q4. We expect that similar level of pattern going into 2020.

[Operator Instructions] Our next question comes from Sam England with Berenberg. Your line is now open.

Good morning, guys. First one for me was just, can you give us an idea of the tail-off in managed exits next year and is that something you'd stop disclosing at some point?

Yeah. Absolutely, Sam. This is Andrew speaking. On managed exits, we basically in the Q for disclosure we talked about our managed exits that's really the end of the major part of the program. In 2020, we expect a small tail to happen in Q1 small tail if we've called it out as a couple of million dollars and that's it. We will always be looking at our account portfolio. We're always going to be examining our customer layout and our customer composition, but as far as this specific identified initiative we've concluded that.

Okay, great. And could you just give us an idea of the timeline for improving the margins in the acquired businesses this year that you said was sort of a headwind to margins this quarter?

Absolutely. As we highlighted in the M&A, the example used in Groundskeeper, once we get a hold of the acquisition we get into it, it usually take somewhere between 12 to 18 months, sometimes as long as 24 months to really achieve that. It all depends on the size and scale of the acquisition. In The Groundskeeper example, we've -- it was about 18 months ago that we bought Groundskeeper and we have seen that 300 bps improvement over the course of those 18 months. It's a great management team. They've embraced the processes and procedures that we put in front of them and they've really delivered throughout the entire Groundskeeper acquisition. Great team, great results. We are implementing ETC now at Groundskeeper. We feel that's going to continue to be able to fuel even further improvements in that acquisition and we'd expect to see those kinds of improvements layering in again in that 12 to 24-month time period after we have -- after we conclude the acquisition.

At this time, we have no more questions. So, I'd now like to turn the call back over to Mr. Masterman for closing remarks.

Thank you, Lindsey. Once again, I want to thank everyone for participating in the call today and for your interest in BrightView. We look forward to speaking with you when we report our first quarter of fiscal 2020 results in early February. Have a great and happy holiday season.

This concludes today's conference call. You may now disconnect.