Good morning, and welcome to BrightView's 2020 Third Fiscal Quarter 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. The earnings press release is available on the company's Web site, 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 Brightview's Vice President of Investor Relations, John Shave. Please go ahead.

Thank you, Operator, and good morning. Before we begin, I would like 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 the actual results may differ materially from those projected. Please refer to the company's SEC filings for more detail on the risks and uncertainties that could impact the company's future operating results and financial condition. Comments made 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 Web site. Disclaimers on forward-looking statements and non-GAAP financial measures apply to today's prepared remarks as well as the Q&A. Finally, unless otherwise stated, all references to quarterly, year-to-date or annual results or periods refer to our fiscal years ending September 30 in each respective year. Today, the company is presenting the unaudited results for the third quarter and nine-month period ended June 30, 2020. For more context Brightview is the leading and largest provider of commercial landscaping services in the United States with annual revenues in excess of over $2 billion, approximately 10 times our next largest competitor. Together with our legacy companies, Brightview has been operating for more than 80 years, and our field leadership team has an average tenure of over 17 years. We provide commercial landscaping services ranging from landscape maintenance and enhancement to tree care to landscape development. We operate through differentiated and integrated national service model, which systematically deliver services at the local level by combining our network of more than 270 maintenance and development branches with a qualified service partner network. Our branch delivery model underpins our position as a single source end-to-end provider to a diverse customer base at the national, regional, and local levels, which we believe represents a significant competitive advantage. We also believe our commercial customer base understands the financial and reputational risk associated with inadequate landscape maintenance, and considers our services to be the essential and nondiscretionary. I will now turn the call over to Brightview's CEO, Andrew Masterman.

Thank you, John. Good morning everyone, and thank you for joining us today. Starting on slide four, let me start by providing you with an overview of our third fiscal quarter, the nine-month period ended June 30, and expectations for our fourth fiscal quarter. First, I'm pleased to report all BrightView branches are operational with no limitation on the scope of services. Second, free cash flow generation continues to be strong. During the third quarter, we generated $66.5 million of free cash flow, and during the first nine months, we generated $119.8 million of free cash flow, a 200% increase year-over-year. Third, compared to prior year, total consolidated fiscal Q3 revenue declined 7.5% to $608.1 million, driven by headwinds due to COVID-19. Fourth, total adjusted EBITDA for the third quarter was $91 million with a solid EBITDA margin of 15%. Fifth, inclusive of acquisitions, our contract-based business remained at 98% of prior year, which helped balance pressures we saw in ancillary revenues due to a pullback on discretionary spending. Sixth, net capital expenditures as a percentage of revenue were 2.4% or $42.1 million, down from 4% of revenue in the prior year period. And finally, the results of our Strong-on-Strong acquisition strategy benefited our revenue growth in the quarter and with an attractive pipeline, acquisitions will continue to be a reliable and sustainable source of revenue growth. Before we turn to the details of our fiscal third quarter, let me provide you with our outlook for our fourth quarter on slide five. We have continued to see, so far in July and early August, COVID-19 business impacts on ancillary demand in the Maintenance segment and project delays in the Development segment. Helping to offset these headwinds, our contract-based business remains at 98% from prior year and our two largest verticals,…

Thanks, Andrew, and good morning to everyone. What has changed over the past few months as our country continues to respond to the COVID-19 outbreak. At BrightView, our focus remains on serving our customers and caring for our teams as we navigate this current environment. Let me first provide a snapshot of our third quarter results on slide 12. Total revenue for the company declined 7.5% or $49.1 million from $657.2 million in the prior year to $608.1 million in the current quarter, driven principally by COVID-19 business impacts on ancillary demand in the Maintenance segment and project delays in the Development segment. Maintenance Services segment revenue of $460 million for the three months ended June 30, decreased by $32.1 million from $492.1 million in the prior year. Maintenance land revenue of $454.9 million represented a decrease of 6.5% compared to the prior year of $486.4 million. The decrease in maintenance land was driven principally by ancillary demand softness and project delays with solid revenue contribution of $28.6 million from acquired businesses. For the three months ended June 30, Development Services segment revenues declined $17.2 million or 10.3% to $149.1 million from $166.3 million in the prior year, driven by project delays and scheduling changes. While there is a continued strong backlog pipeline, uncertainty around COVID could cause project delays and negatively impact our ability to install this demand. Turning to the details on slide 13; total adjusted EBITDA for the third quarter was $91 million, a decrease of $10.9 million or 10.7% from $101.9 million in the prior year. The negative variance was largely driven by revenue shortfalls in both segments. In the Maintenance segment, adjusted EBITDA decreased by $7.1 million to $84 million, attributable to the previously mentioned revenue decline, driven by ancillary softness due principally to COVID-19…

Thank you, John. Turning now to slide 18; anticipated softness in ancillary services within maintenance and project delays in development led to a 7.5% decline in total consolidated revenue, which was in line with expectations we shared in May. Our free cash flow generation and contract-based business remains exceptionally strong, and we have ample cash on hand to increase our pace of acquisitions and pay down debt. Despite the anticipated continued COVID-related impacts, the fundamentals of our business and industry remains strong. Our sales and marketing strategies and structure are a formula for long-term success, and our investments in field-based sales and operations leadership will drive stronger new sales and result in improved client retention, while further streamlining our service delivery. The investment and expansion of our sales team combined with targeted regional efforts in digital marketing have grown our sales opportunity pipeline to its highest level in the company's history. Over time, this enhanced and robust pipeline should support organic growth well ahead of industry averages. Additionally, our M&A pipeline shows no sign of slowing down and has delivered a reliable source of growth for three years running. We plan to utilize our strong cash position and liquidity and expect to take advantage of our attractive pipeline of opportunities. I would also like to personally thank our dedicated employees, families and partners for their resiliency and dedication during these challenging times. Over 21,000 people in BrightView come to work every day to make sure the living assets in which we live, work and play are safe and beautiful. As I said before, we entered this crisis in a position of strength and expect to exit even stronger. Although we are mindful of challenging macro trends and forecast, we are optimistic about our prospects. Thank you for your interest and for your attention this morning. We will now open the call for your questions.

[Operator Instructions] Your first question today comes from the line of Andy Wittmann with Baird. Please proceed with your question

Great. Good morning guys, and thanks for taking my questions here. Before we get started on more, I guess, fundamental questions, I just wanted to understand the quarter a little bit better and some of the adjustments, and I guess, John, in your comments you talked about the $24 million of adjustment for your insurance liabilities, I mean those liabilities are general liability, those are worker compensation, a lot of different kinds of insurance that factor into that adjustments. It looks like COVID may have had some sort of impact this quarter as well. I was just wondering if you could help explain this a little bit more by talking about which periods this applies to? Oftentimes with these actuarial reserves, they apply to more than just this quarter, but oftentimes over a period of years, and so, kind of why it was such a big number this quarter, and then if there's any implication on the accrual rate from the size of this adjustment here for the insurance liabilities and the expenses that you're accruing to the income statement for general liability for workers' compensation, and accordingly, if there's any implication that you need to change the amount that you're accruing to avoid these kind of adjustments in the future?

Andy, there's a lot in there. So let me address that. I'm sure it's on everybody's mind. First and foremost, as far as what period, this is not related to prior periods, this is all related to future periods. BrightView's self-insurance programs, which is inclusive of our workers' comp, GL, auto and medical, like most companies is experiencing significant continued headwinds. We're seeing increased premiums plus carrier pressure to increase deductibles and things of that nature. This is not unique to BrightView, and we've talked about this, and it's being experienced across multiple industries. Absolutely impacted for us taking a look at it this quarter by COVID, and that's one of the reasons that it triggered in this quarter. We did an extensive analysis with independent third parties outside of D&T, our auditor, to look at the appropriateness of our assumptions in methodologies. We decided to record a non-cash charge of $24.1 million in fiscal Q3 to increase our balance sheet reserves to reflect the changes in estimates and actuarial assumptions for what we're going to see in the future, which we don't know. It's nonrecurring. It's a non-operational charge. Therefore, we felt it was important to add it back to EBITDA, has no impact to free cash flow, and it's not related to prior periods. It will have no impact on your other question on the accrual rates and no changes in future assumptions. So hopefully, that gives you a lot more color as far as the logic and the timing of that charge.

Okay. Yes, it does. I guess my follow-up is just on another one of the adjustments here. I guess, related to that one, it actually feels like because you took a charge this quarter so it's based on an expectation for the future. I guess maybe the follow-up there would be, does it help the margins in the future? And then also on the business integration and transaction costs, you are about $25 million year-to-date. I think when you gave initial guidance, you're looking for something closer to $15 million, and I was wondering if you could talk about where the variance stemmed from and what's the updated outlook for the year is, particularly as it relates to the fact that it sounds like you're going to be ramping up your M&A activity here in the fourth quarter?

Yes, another great question, Andy. Let me give you some color on the nonrecurring that's explained in detail in our press release. We're actually we're seeing an increase around the business integration. That's not surprising related to our acquisitions. So that's a big part of it. We also have our COVID-related expenses around onetime items, that's part of it. The changes in the self-insurance liability reserves is reflected in this quarter and the year-to-date number, and I would say going forward, the only other nonrecurring charge that we would expect would be related to our M&A, which, as you know, is higher, and we got off to a bigger start, that's why it's higher this year versus last year.

Okay, got it. My last question then for now; I might jump in later, is just related to the CARES Act and the benefit that you got from the payroll tax deferral, you actually have a lot of labor, so I imagine it's fairly significant. I mean, your payables and your accrued liabilities were up $62 million quarter-over-quarter. And I was just wondering, I think the CARES Act is a decent part of that, but could you quantify the CARES Act payroll tax deferral specifically and other notable items inside that quarter-over-quarter increase?

Yes. When you look at our consolidated statement of cash flows and you see the line, accounts payable and other liabilities of $50.8 million, there's really three things in there. There's the insurance piece that I talked about, which is a big chunk of it. There's also the payroll tax deferral related to the CARES Act, and that's approximately $13 million, and I'm sure the question is, is that what you expect going forward? Pretty much, that's what we expect going forward. So there's really we're not we want to be very clear, we're not generating this cash on the back of our vendors with expensive push on our payables. There's a modest amount in there on AP, but the two big drivers of that movement are reflective of the self-insurance liability and the $13 million of payroll tax.

Very helpful, thank you so much.

Yes. Thank you, Andy.

Our next question today comes from the line of Judah Sokel with JPMorgan. Please proceed with your question.

Right. Could you to how you know them good, thanks. So I wanted to know how much M&A you guys are embedding in your guidance for 4Q, so that we can get to a run rate of the underlying organic built into that guidance.

Yes. If you look at our overall M&A pipeline, we obviously are higher than what we had said initially, right? The $60 million guide that we had overall for the year. As we spill into Q4, we expect that M&A to kind of be in the $25 million to $30 million range of revenue. It does at higher pace, kind of probably a similar kind of level to what we saw this quarter. We don't the thing is now sitting here in early August, any transactions that we might conclude before the end of the fiscal year really won't have any significant impact just as we're running out of time. So really, we have a pretty good vision as far as where that M&A comes in. The uncertainty comes around ancillary, and that's no different than the rest of the business.

Okay. Perfect. So with that in mind, with M&A similar to 3Q and 4Q, that implies that your organic revenue declines will improve somewhat by a few points based on the guidance. So I was hoping you could give us a little bit of color into what's driving that improvement? And how much of it is stemming from underlying organic improvement in contract business versus perhaps COVID-19 impacts moderating from the third quarter?

Yes, a good question, Judah. We're seeing kind of, overall, a very similar level of underlying operating within organic the organic business. We see slight improvements relative to improved retention, combined with our sales, what we call our net new, which is new sales retention. So that's slightly upticking. So slight underlying, I don't want to call it organic growth because the reality is this quarter versus last quarter last year, we still are expecting kind of a similar mid single-digit decline, but we are seeing beginning signs of improvements on both the contract and ancillary sites, but nothing that's going to turn it around, let's say.

Got it. And then just a final question, I was wondering if you could just talk a little bit about the kind of conversations you're having with clients around those ancillary projects that have been postponed and then same thing on the development side, did you see any improvements through the quarter and in July? Are they showing more receptivity in doing those projects? You mentioned that you're going to see organic growth challenges over the next several quarters. So I was just hoping you could help us see the cadence of those drags as we build out our models and our forecast?

Yes. We're seeing ancillary levels. I'm not seeing a I mean, a noticeable material shift in ancillary performance versus Q3. We're seeing a steady book, but it's not at the levels that we saw prior to COVID. So we're seeing we expect a similar level of ancillary penetration to our contract base that we see in this quarter. In addition, we see some level of contract retention, which has really believed the business, and we feel it provides a great deal of stability when you look at the overall profile. We're cautious on that. I mean, given the current COVID environment, again, hotels and hospitality being not a huge part of our business, but also our driver of ancillary, and we don't see that rebounding anytime in the fourth quarter or frankly, as we look out in the first quarter to any significant measure. On the development side, you asked that question, we're fully booked to our forecast. And it really is depending on the ability of the trades before us to get their work done, to allow us to get in, and that's almost across the board in all the regions. We're frankly almost fully booked in through our first quarter targets in 2021. So it really is coming down to, can we get in kind of the trades before us, get their work done, and can we get it done in a timely manner? We're not restricted to work in any region. It just comes down to can the business be the construction projects be completed in time as our customers have forecast.

Got it. Okay, thank you.

Our next question comes from the line of George Tong with Goldman Sachs. Please proceed with your question.

Hi. Thanks and good morning. Ancillary services were down this quarter due to pullback in discretionary spending. Could you provide more color on that, specifically how those ancillary trends performed moving through the quarter as well as through the month of July?

Yes, sure, George. We saw, clearly, there was a big impact in April that we saw as things really dried up. I would say, kind of starting mid-April. Because what happens is you have a tail of projects on the books, and it completed through mid-April, new projects start much slower and so I would have to say during toward the end of the quarter, mid-June to early July, I guess we could kind of say a bit of a pickup and then as you see quiet incoming as COVID crisis increased through mid-July and August, a bit of a slowdown. So I guess that gives us it's a bit of a roller coaster right now when it comes to the ancillary side of the business and kind of the surges that we see back and forth. That being said, the kind of overall, there aren't big variances relative to where our forecasts were at, and we see a fairly level across, again, 250-plus branches. So we're seeing a fairly kind of balanced approach when we look across the company, in line with for the quarter that we saw in Q3 happening also again in Q4.

Got it, that's helpful. And then you indicated that your contract based business is at 98% of pre COVID levels, but can you talk a little bit about how the reductions in scope of work have progressed and what percentage pre-COVID is assumed in your fiscal 4Q guidance?

Sure. Yes, it's it was assumed I'll answer the first part of the question second part first. In Q4, we expect similar levels of contract to continue. So almost 100%, whether it's 97%, 98%, 99%, I can't give that level of specificity, but I'd say it's buoyed up very close to similar levels of contract that we had in prior periods. And the first part of your question again, George?

Yes, just how do the reductions in the scope of work had progressed?

Yes. And the scope, we saw that really upfront. So, that happened quickly out of the gate; again, highly in the hospitality and retail segments. I'd say, in April, we saw a lot of those shifts and now as we head into the summer and into July and August, the scope shifts have really, really, really dramatically reduced. We don't see many of the alterations coming in now, which gives us a lot of predictability. So that kind of was a onetime surge that happened kind of April to mid-May. People really looking at the crisis and kind of adjusting their overall their discussions with us about what we do. And since that mid-May time, we've been able to pretty much dial that in, which gives us some confidence around how our contract book looks going out.

Very helpful, thank you.

Your next question comes from the line of Sam Kusswurm with William Blair. Please proceed with your question.

Good morning, guys. Yes. In the maintenance business, I know you service corporate customers and commercial buildings. Assuming the work-from-home trend continues, are you expecting lower demand from the corporate real estate customers in the future? And do you think additional demand from the HOA side can make up for the shortfall?

We actually don't believe that we'll see a significant drop in commercial customers because we see the trend is going to be more suburban working which, you've seen over the last several years, the trend has been more cut debts, downtown working, move toward downtown, where frankly, there isn't a lot of landscaping. As you do then move into future periods, more suburban working and attracting people to environments that have more outside amenities and environment actually is going to play to our hand, which frankly has been the trend away from that, right, in the last several years. So we actually believe commercial is going to be a fairly decent stabilizer. That and at the same time, as work-from-home, HOAs are going to be an increasing environment. And we actually have seen that with increased ancillary offsetting some of the decreased ancillary and from the other verticals that you see going out as people pay more attention to what's going on within their communities that they are spending a lot more time.

Fair. It's good to have both of the best worlds there. Turning more to trends, are certain regions experiencing any noticeable changes in recent maintenance demand, particularly in harder-hit areas such as Florida, Texas or California?

Yes. When we look at the geographical impacts as far as the contract base, we have not seen a shift in, let's say, July August relative to the prior periods. We really saw more of the impact overall as you looked at adjustments of scope that might have happened early in April-May, but recently, it's been a fairly stable environment. What we had would happen, I guess, in those areas where we were hoping that we would see more open reopenings of hospitality and retail, those reopenings, which would provide upside, really have continued to remain relatively quiet.

I appreciate the color. Thanks, guys.

Your next question comes from the line of Ryan Gunning with Jefferies. Please proceed with your question.

Hey, guys. This is actually Ryan Gunning on for Hamzah. Real quick on M&A, can you talk a little about what you are doing right now? Are they waiting for better multiples given the bounce back in the public market or most looking to cash out now?

If you look at our M&A pipeline, what we see is a pretty steady line of deals that we're currently in negotiations with. I can't say it's changed dramatically from prior periods. It just continues to flow. I would say that perhaps those folks who maybe were on the sidelines, and were hoping for continued, let's say, tailwind, taking their business even more over the next several years, are looking at the realities of that perhaps some of the impacts they might have had have slowed down their growth profiles and stimulated them to go ahead and move forward with discussions around M&A. That has been the case in several of the folks that we're talking with right now. So, I would expect that to continue in kind of a slower growth or even recessionary environment is it's going to stimulate those folks who maybe were on the fence on whether they're going to go ahead and put their market put their business on the market; it's going to allow them to now perhaps take a step forward. That's probably some of the reasons we have seen a little bit of an uptick in the overall pipeline.

Great, that's helpful. And then as a follow-up, just with the elections coming up, is there anything on your radar that we should be paying attention to regarding potential policy changes that could impact you to the upside or downside?

No. There's really, when it comes to the election, as long as the grass still grows, which I think the election will have very little impact on whether the grass grows or landscaping continues to flourish. We will continue to be out every single day making sure anywhere in the country stays beautiful and safe.

Great, thank you.

Our next question comes from the line of Shlomo with Stifel. Please proceed with your question.

Can you hear me? I'm sorry.

Yes.

Okay, great. Good morning. Thank you for taking my questions. Andrew, I just wanted to ask you, is more of a deep dive on M&A economics in the discussion this morning. And I want to know if that's kind of a signal that this is going to be more of a focus for growth versus kind of the organic plus M&A that you had discussed for the last several years and kind of being in tandem. Is that kind of the reason why you're bringing that up a lot more now?

Yes. I think, look, we're looking out over the next several quarters and absolutely seen the uncertainty on what we live in, believing that growth that we believe actually has a very balanced approach versus organic versus M&A, meaning that the investments to make in M&A are similar to the investments in organic when talking about new branches, that we believe that there are opportunities which may allow us to accelerate M&A as we go into fiscal 2021. So painting that picture, and showing not only that we think it's a good use of capital. It allows us to grow at similar cost levels organic, combined with kind of the natural headwinds that we're facing as an economy, will still allow us to show an ability to grow using M&A as a proxy.

Okay. And then I thought maybe this might be for John. In the slide deck, you showed the example of like five times EBITDA multiple. Historically, whenever we talked about multiples, it's been like five to seven. Are you showing five because the pricing is going down in the environment?

Not necessarily, Shlomo. We're showing five because that's more indicative of the example of a smaller transaction, right? We're not wavering from our range of five to seven. We wanted to just give a very simple illustrative example of what it would look like day 1, roughly 10-ish percent EBITDA that falls in line with our Strong-on-Strong mantra that we haven't wavered on. And then just an overview of the areas that we focus on, early days to increase and improve the business to get it up from, say, 10% up to the mid-teens, but my the example of 5% was in no way indicative that all deals are at 5% excuse me, five times, excuse me.

Yes. And the example we put out there, Sholomo, was five times to six times, I think, is what we showed on the slide and the math was five times. So then as you go forward, some projects, depending on the mix of business, depending on the capital that's needed to actually inject into a business as you look into it, every deal is definitely different, but many as you get toward larger sizes of business that tend to go up somewhat in the multiple, but I think we're firm kind of in that five to seven range, but the smaller deal is going to be smaller, the larger deal is going to be larger.

Okay. If I could just sneak in a quick one on free cash flow. Was there any what should be kind of normalized next quarter? Really strong free cash flow this quarter, is there something that when I'm calculating that I should expect to reverse next quarter just as because there's a change in working capital that goes back the other way?

Yes. As you know, Shlomo, we focused very hard on this area. We had very good results in Q2, very good results in Q3. When we think about the fourth quarter, I think a couple of things I want to comment on. First, if you go back to my statements that I made a couple of quarters ago, we gave a very detailed walk on our range of free cash flow expectations for this year of $100 million to $110 million. Obviously, sitting here today at $119 million, $120 million, we obviously feel good about that. When we think about the fourth quarter, we've obviously given you the starting point with our range in EBITDA. We expect our CapEx to be pretty much in line with what we did last year. Working capital could be a little bit more of a use because we could see some of those progress come in from development and things of that nature. So I'd be conservative and assume a use on our working capital for the fourth quarter. Interest is down a couple of million bucks because of lower rates year-to-year. We are going to pay some taxes in the fourth quarter. And as I said in my earlier comments, any increase in nonrecurring, which is inclusive in our guidance, would be related to M&A. That would be your quick build, but we expect a decent fourth quarter, and that's obviously going to take us north of the $120 million that we have year-to-date.

Okay, great. Thank you. Sure.

Our next question comes from the line of Kevin McVeigh with Credit Suisse. Please proceed with your question.

Great, thank you. Hey I want to just follow-up on the acquisition a little bit. Is part of the stepped-up initiative is that taking advantage of a post-COVID world? Is it maybe just a structurally lower level of snowfall in the business to enhance the organic growth? Just any thoughts around that, because again, it seems like there's definitely going to be some increased emphasis on that, but again, is that just taking advantage of the current environment, or is there just maybe some structural changes in the business that you're looking to bridge the gap on?

I think it's multiple factors. I wouldn't put it all on one, but I think one of the driving factors is, is that we do look at the investment in building a new branch from a greenfield and really critically looking at what M&A returns are that with a similar investment with low risk, is to grow via M&A. And I think that's probably one of the driving factors we believe. Using dollars that way is going to allow us to continue to build up that. That being said, we will have a continued, a very disciplined focus on maintenance land-focused acquisitions because we believe that's where we want to grow most of the business. Some might have a small development component with them, but it's going to be a maintenance land-focused deal. And it's going to primarily be in evergreen markets. So to your comment on snow, well, we absolutely will consider acquisitions that have snow components to them in our seasonal markets. We see many of the opportunities emerging in evergreen markets, which will also kind of move us more into that land growth as opposed to the snow growth from an acquisition perspective.

And then just are you seeing anything demographically? Obviously, there's been a pretty big shift of people leaving the cities, and are you seeing any kind of near-term trends around that, that you're positioned for or just any thoughts on that aspect of just, I guess --

Yes. What I actually can't comment on is that the HOA business that we do continues to be quite strong. And that as you see people moving into homes, which have landscaping around them. That certainly is something which benefits our overall business. We've not seen a slowdown in the home business, and the homeowners association or the new building that we see, especially in the growth markets of Florida, Texas, California, we see that continuing to be a good source of growth, and we believe that's going to continue to be where we see focus. In addition, I have to say, parks and outdoor-type venues, which will continue to be quite strong and as well from both the development and the maintenance part of that, we see continued inquiries and continued strength in those areas, which we believe will continue to be a part of trends going forward.

Thank you.

Our next question comes from the line of Seth Weber with RBC. Please proceed with your question.

Hey, good morning guys. This is Gunnar Hansen on for Seth. I guess just to get some clarification for the fourth quarter guide, Andrew, can you just clarify what, if any of the organic growth outlook is for each segment based on some of the ancillary commentary as well as the development backlog?

Yes. If you look at overall, we still believe in total that our land will kind of be a similar kind of the magnitude, and I'm not going to say exactly. That's why there's fairly wide band in our guide. It's still kind of that mid-single-digit year-over-year decline kind of that magnitude. I can't tell you today, whether it's trending toward the higher end or the lower end, we need to see that as the ancillary business comes through. On development, we'll probably be a little lighter as far as it will be an improvement in the decline, if you can say. And that's really dependent on how much we can get in. We have the backlog. We have the backlog to actually go in and have a fairly good quarter for development, but I can't comment exactly to where that where they're actually going to get to because literally delays are happening weekly on our when we plan to get into a project, and then we're not allowed to get in because of the trades before it's not getting done. That being said, I think development will have again, they will have relative to the year-over-year positioning. They're going to have a better quarter in the fourth quarter than they did in the third.

Okay. And on the cost management side, I think margins on a segment level were better than most had anticipated. I guess, with the cost actions, how much of that stability was kind of temporary cost actions versus permanent? Should we expect that as revenue and when revenue returns to growth, will those costs return? Just trying to get a sense as to how margins should progress going forward?

Yes. There will there were certainly some shorter-term cost actions, such as the wage freezes and the 401k match and things like that, which will go back; travel and entertainment, things like that, will layer back in to a certain degree, but we're going to be very prudent. We're going to be very diligent in making sure that those costs are not going to come back in until you actually start seeing revenue coming back in. So I would say that's a very sustainable level of cost management that we have matching our revenue shortfalls that there will not be any increases coming back into this business until you start seeing the revenue improvements and the COVID-related effects dissipated.

Okay. And just last one on the M&A pipeline. It sounds like it's a pretty solid pipeline and with several active dialogue. I mean are these could you describe the pipeline a little bit more? I mean, are these kinds of smaller or single branch operators, or are these more larger kind of networks of branches, a little bit of context in terms of what's included and also what your preference is going forward?

Yes. We've done two very large acquisitions in the last three years. We've done Signature Coast, we've done the Groundskeeper. Those were large top 10-type top 20-type acquisitions, multi branch, sophisticated and very strong management teams that came along with them. When we look at the pipeline going forward, it is more smaller, probably why we put the example of a smaller branch in there. These are more $5 million to $15 million type branches, single site or single branch-type organizations; strong leadership teams, kind of what we talked about in the example, the embedded local player with one maybe two, but most likely one, that's the nature of what we see, and there's multiple deals in that pipeline, so, more of the single brand type examples, less of the large multi-branch deals.

Sure. Okay.

Your next question comes from the line of Sam England. Please proceed with your question

Hi guys, thanks for taking the questions. And the first one, you talked about weakness in hospitality and retail side of the business, but I wondered what level of recovery you've seen so far as the lockdowns have been eased? And I suppose how far through the recovery we are and how you're thinking about the shape of the recovery in that segment?

Yes. It's really interesting. We saw it's interesting, we saw in May and June, some rebound in the southern economies as things opened up, preparing for an increase in visitors to some of the hotels. So we saw a bit of that rebound. I think in general there's a modulated effect right now where many of those properties are being maintained at their basic level, but the occupancy rates have not come near back to what they were at before. So, I expect really where we're at today, they are not we are not planning for a big improvement and that's included within kind of the guidance that we've kind of given out there for Q4. We expect it to be where we're at. If there was a big turnaround, we'd expect some a bit of an upside as those hospitality and retail properties start coming back to what they were before, but we don't see any signs right now that those are going to be coming back in any kind of major way in the foreseeable future.

Okay, great. And then the next one was, given what you've seen in terms of continued weaker demand in July and early August, I just wondered whether you're planning to take further actions on cost reduction, just some of the levers that you might have demand continues to be weak in Q4?

Yes. We will maintain absolutely all the cost actions that we've taken to be able to continue to manage the profile that we delivered in Q3 and be able to sustain a similar direction that we had in Q4, matching kind of our cost conservation with any kind of a shortfall in revenue. So there are other levers, obviously, we could always pull. Again, our declines are only as I say, we're happy about this in any way, shape or form, but our declines are kind of in the single-digit mid-single-digit for whatever reason, which we do not foresee, but for any reason, those accelerated, we would have further actions to take, but we will absolutely prudently manage our overall profile.

Okay, great, thanks very much guys.

Your next question today comes from the line of Andy Wittmann with Baird. Please proceed with your question.

Okay. Okay, great, thanks for that. We take the follow up here guys. With all this talk in M&A, I wanted to just give a little bit of conversation to the balance sheet here and get expectations set appropriately because earlier this year, you guys were talking about deleveraging and paying off some debt. And I understand that the snow season had a 2/10 impact on the net leverage ratio, but even withstanding that, I mean, the leverage is essentially on a ratio basis, not materially changed, and so it sounds like that should be the expectation that somewhere in this four neighborhood is probably where you're going to be operating for the next several quarters at least, and it's a little bit different than before. So I just wanted to make sure that we're all on the same page and get your latest thoughts on that.

Yes, Andy, this is John. I think that's very accurate, your comments. We're not going to sit here in pro forma what it would look like if we have the EBITDA from snow. I think we all know that math. Outside of that in COVID, we felt we were in a really good shape, but we've been conservative. We're holding cash right now. We could have paid down more debt, but we wanted to make sure we had ample liquidity to be opportunistic, but I think your comments about our leverage ratio being in that 3.9%, 3.8% to 4% over the next couple of quarters is probably realistic.

Okay. Greg, I just want to make sure. Thanks.

Your next question comes from the line of Sam Kusswurm with William Blair. Please proceed with your question.

Hey guys, thanks for the follow-up. I want to quickly circle back to COVID impacts. What would you quantify as the overall COVID-related impact on revenues EBITDA for the quarter?

Well, if you look at overall, I mean, clearly, we were expecting growth to occur at our overall land business. We exited Q2, growing organically at 1.9%, a little more than 2%. So if you continue that trajectory, we felt we were on that path. We thought we could actually grow that. So in the third quarter, if you look at those trajectories, we estimate the impact probably was somewhere around $75 million or so. I think if you layered that in across both development and maintenance, because we would have expected development also to be able to come in and show although when we talked about it, it was going to be a slight growth profile, but not near what we had in the first-half, but we thought combined, there was no reason there were no indications that we wouldn't have anything but slight and positive momentum of organic growth in the second quarter and development maintaining there. They're kind of continued positive profile in the third quarter. So it's all in about $75 million.

I appreciate the insight there. Look for the next quarter here. Thank you.

Thank you. Now and that concludes our time for questions today. I now turn the call back to the presenters for any closing remarks.

Okay. Thank you, Operator. Once again, I want to thank everyone for participating in the call today and your interest in BrightView. We look forward to speaking with you when we report our fourth quarter results. And stay safe. Be well.

This concludes today's conference call. Thank you for your participation. You may now disconnect.