Good day and thank you for standing by. Welcome to the BrightView Fiscal Second Quarter earnings call. [Operator Instructions] I would now like to hand the conference over to your speaker today, John Shave, Vice President of Investor Relations. Thank you. Please go ahead, sir.

Thank you, Tabitha, and good morning. Before we begin, I'd like to remind listeners that some of the comments made today, including responses to questions and information reflected in the presentation slides, are forward-looking and actual results may differ materially from those projected. Please refer to our 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 comparable GAAP financial measures are provided in today's press release. Disclaimers on forward-looking statements and non-GAAP financial measures apply both to today's prepared remarks as well as the Q&A. For context, BrightView is the leading and largest provider of commercial landscaping services in the United States, with annual revenues in excess of $2 billion, approximately 10 times our next largest competitor. Together with our legacy companies, BrightView has been in operation for more than 80 years, and our field leadership team has an average tenure of 14 years. We provide commercial landscaping services ranging from landscape maintenance and enhancements to tree care and landscape development. We operate through an integrated national service model, which delivers services at the local level by combining our network of more than 240 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 customers understand the financial and reputational risks associated with inadequate landscape maintenance and consider our services to be essential and nondiscretionary. BrightView creates the best landscapes on earth. I will now turn the call over to BrightView's Chief Executive Officer, Andrew Masterman.

Thank you, Andrew, and good morning to everyone. I am very pleased with the results we delivered in our second quarter of fiscal 2021. The stability of our maintenance land contract business, coupled with a very solid snow quarter, drove excellent results. Combined with efficiencies gained from our investments in technology and our ongoing focus on productivity and cost management have all been meaningful in driving improved margins and collectively underscore the strength of our business. Turning to Slide 14, second fiscal quarter 2021 revenue for the company increased 16.6% versus the prior year to $651.9 million. Maintenance revenues for the three months ended March 31 increased 29.6% versus the prior year to $535.7 million. Despite continued ancillary demand headwinds, impressive snow contract growth, combined with $16.6 million from acquired businesses, resulted in an outstanding quarter. Investments in technology to support our sales and account manager teams are enhancing customer relationships and driving both organic growth and strong cash generation. For the three months ended March 31, development revenues of $117.1 million declined 16.4%, excluding a $6.1 million revenue reduction from the BrightView Tree Company divestiture. While we expected COVID related softness to be more pronounced in the second quarter versus last year, we are also encouraged by our development backlog, bidding pipeline and bid calendar, and we anticipate increased stability during the second half of fiscal 2021. Turning to the details on Slide 15, total adjusted EBITDA for the second quarter was $66.8 million, an increase of 71.7% or a $27.9 million increase versus the prior year. Productivity initiatives and continued SG&A cost containment efforts resulted in a strong 320 basis point expansion and EBITDA margin to 10.2%. In maintenance, adjusted EBITDA of $72.3 million represented an increase of $31.6 million or 77.6% from $40.7 million in the prior…

Thank you, John. Turning now to Slide 20, our second fiscal quarter results were exceptional. The operating and financial performance we delivered is what we know we can consistently deliver. And most exciting is that we see so much more opportunity and potential. In summary, here are the key takeaways. The market we are seeing signs in all verticals that the impact of the pandemic is beginning to recover. The fundamentals of our business and our industry remain strong growth. Our investment in our sales team is driving sustainable organic growth. Our realized snow organic growth and net new sales in fiscal Q2 were the highest ever for BrightView. We are confident this trend will continue technology. We continue to remain focused on deploying technology to enhance productivity, profitability and client engagement. We have fully implemented our ETC labor management tools across both segments and are expanding adoption of HOA Connect, facilitating direct customer communication with our teams. Our expanded usage of the Salesforce Customer Relationship Management tool and quality site assessment software continued our focus on retention and supporting property enhancement. Sales and marketing, in addition to technological enhancements, we continue to grow and invest in our sales organization and expand the use and effectiveness of our sales tools. Digital marketing initiatives in new markets and verticals with a more effective omnichannel approach continue to support the success of these expanded sales teams. 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 retention, while further streamlining our service delivery. M&A. Additionally, the results of our acquisition strategy continue to benefit our revenue growth and, with an attractive pipeline, acquisitions will continue to be a reliable and sustainable source of growth. Our business is cash-generative and low capital intensive, allowing us to consolidate the marketplace in the efficient and disciplined manner that we have shown to be repeatable. Combined with our horticultural knowledge and excellence and our ability to operate multiple service lines under one banner, we believe we are well positioned to drive solid performance in the second half and beyond cash. At the end of the second fiscal quarter, our leverage ratio was a historic low for BrightView. We are on a trajectory to further improve this metric in fiscal 2021. In closing and most importantly, I'd like to thank our dedicated employees, families, clients and partners for their resiliency and dedication during a challenging time. A focus on taking care of each other and our customers and taking pride in how we engage with our clients and the beauty of their properties we design, develop and maintain has sustained our organization. We will continue this focus on our people and our culture to deliver confidence in the future that lies ahead. Thank you for your attention this morning. We'll now open the call for your questions.

[Operator Instructions] And your first question is from the line of George Tong with Goldman Sachs.

Hi, Thanks. Good morning. My first question is around ancillary revenue performance. Can you elaborate on how that trended over the course of the quarter, especially relative to the prior quarter and what type of ancillary growth you're embedding into your forward-looking guidance?

Yes, George, if you look at what – if you look at the progression during the quarter, actually, February was a tough ancillary quarter, or tough ancillary month, because of the amount of snow that we had across the entire country. But I think when you look in total, we actually saw an improving ancillary profile vis-à-vis the last several quarters, whereas ancillary was down about the same amount that the contract was down. So an improving profile over the last several quarters, which we believe will continue to sustain that momentum as we go into Q3 and Q4 and are expecting year-over-year ancillary growth in both quarters.

Got it. That's helpful. And then you mentioned investments into your sales force as being a key growth driver of organic growth acceleration in the coming quarters. Can you perhaps talk a little bit about your plans there, what the hiring plans are, what the plans to drive sales force productivity involve? And how much of a lift to organic growth you would expect from the sales force initiatives?

Yes. In Q2, what we were able to deliver, which we delivered 10% organic growth in snow in 2000 in Q2. That was primarily based on the first kind of initial results we've had from that investment in salesforce. Some of the productivity elements that have helped that performance, really an integrated CRM that allowed them to really tightly manage opportunity pipeline and actually the digital marketing initiatives of omnichannel has expanded the overall opportunity pipeline that we have on new deals. That cascaded from that snow development into land. And so we continue to be hiring. Our plan is to continue to hire 5% plus growth over our current salesforce over the course of the next several months while utilizing those tools. And thus, we're expecting that 4% plus growth in organic growth to happen not only just in Q3 and Q4, but expect that to continue to underpin the 2% to 3% guidance, long-term guidance we've given and our organic growth will be sustainable over the next several quarters.

And your next question is from the line of Andy Wittmann with Baird.

Great, Thank you for taking my questions. Good morning everybody. I guess, Andrew, I thought I talked about, or sorry, you talked about labor and the market for labor and service economy labor trends. There's been a lot of talk about this, it's popular press in earnings calls this earnings season. And I thought you guys are in a place where you have a heck of a lot of labor out there, too. And I wanted to know what you're seeing out there in terms of your ability to keep people? What you're seeing in the wage rates as a result of that, if anything, and how you're managing through it as we get into the busy season here?

Yes. Great question, Andy. And we're not immune to what the country is seeing across the board on labor. This is our big hiring period, right? March and April, May, we bring on thousands of employees as we get into the green season of the business. And we have been able to bring thousands of employees into the business. And in addition, we are utilizing the H2-B program. So a combination of that has allowed us to continue to onboard people into the business. But that being said, it's a constant issue that we have out in the field of continuing to build up labor to the levels that we hope. We're able to do it every year. It always is an issue. I would have to say this year, it's probably a little more difficult than others, but that doesn't mean we haven't been able to succeed on that. What has happened is we have had some wage upward pressure. And I'll maybe have – John might be able to address that.

Yes, good morning, Andy, this is John. You know we've seen wage inflation of circa 4% to 5% over the last three to four years. We've been very clear about that. To Andrew's point, we're seeing more upward pressure on that, certainly in different parts of the country, so another percent or so on top of that. How we're mitigating that is we're aggressively pursuing pricing, surcharges, things of that nature to our customers. We're being very flexible with our workforce. And with the size and scale of our workforce, yes, we have a lot of openings right now, but if you divide that number by 250-odd branches, it's still very manageable at the branch level. So I said we historically may be looking for three to five people at a branch, we're now looking for five to eight people at a branch. So still manageable, but definitely tightening, and we're being as aggressive and proactive as possible.

That's really good context. Thank you for that, John. I just thought maybe my follow-up question here would just be trying to get a little bit more context on the guidance, given that you've done a little bit more M&A since the last call. I think you said, Andrew, on the script, that now you've put in, this year you've closed on $100 million worth of annualized revenue. Just so that we can get this on a comparable basis to the guidance that you've given, can you comment on how much of the revenue, how much revenue guidance is inorganic this year inside of that guidance so we have context how it all phases in?

For the full year, Andy, that's your question?

Yes. I guess, yes, for the fiscal year of 2020, how much inorganic revenue, how much inorganic revenue is in that guidance now?

If you look at it overall, since our last call really, we've only closed on the Birch acquisition that we just announced, because we announced several beginning period January of 2021. If you look at our forecast right now, the $100 million that we referenced out there in total for this year, about 60%, two-third or so is going to be maintenance and one-third or so is going to be development. And we do believe we're going to be realizing about $100 million. So not only is that the annualized level, that's also given the tail we had of business coming over from 2020, that the total amount that we expect to reflect is also about $100 million.

Your next question is from the line of Tim Mulrooney with William Blair.

Good morning Andrew, Good morning John. So one of the large equipment distributors in your space recently reported results, and they're expecting to get really strong pricing this year, up 3% to 5%, which is higher than normal. I'm wondering if you could talk about inflation expectations on the large cost inputs in your business, if that's accelerating and how you think that might affect margins?

Well, most of the material cost inputs we have in the business, Tim, are priced in a pretty short window to when we actually acquire material, right? So when you talk about landscaping material that we buy, it really goes into, most of those are ancillary services. And those ancillary services are bid and priced usually with an anywhere from two to six week window. So whatever the current cost that we're seeing, that tends to be reflected in the pricing that we give in that current period. So any inflationary aspects when it comes to material pricing, we're able to basically pass that through via price into our customer base.

Okay. What kind of pricing are you expecting to get this year, Andrew? And can you talk about how that kind of compares to last year? And how that compares to pricing you'd get in a normal year pre-pandemic?

Yes. I mean, last year, I think when we talked about it, we were, pricing was basically at 0 or actually slightly negative when it comes to scope and kind of look at the overall top line when we saw what was happening in 2020, okay? This year, we're back to kind of more of a normalized approach I'd have to say. And as John mentioned, we've seen some upward pressure on labor costs and we're thus seeing some slight upward pressure on pricing.

Yes. And Tim, I'll add a little bit to Andrew's comment. He's spot on. Last year at best it was flat to slightly down. But we are, historically, we've been able to get somewhere between 1% to 2% of net price. And we're working extremely hard to get back to those historic levels, and we feel pretty confident we can get there. But I think the key for us is we have I wouldn't say it's easier, but when you have the contract piece, that price becomes more visible, right? On the ancillary, it's project-based. And to Andrew's point, it's a much shorter window. And so you have much more discretion in getting the pricing in there based on your current inputs and what's going on with labor. So we have a lot of flexibility there, I guess, is the takeaway.

Your next question is from the line of Hamzah Mazari with Jefferies.

Good morning. My question is just around maintenance adjusted EBITDA margins. I guess they were – they're sitting at 13.5%. Could you maybe talk about as ancillary comes back? And you did also mention $8 million of incremental costs in the second half. When you look at all the puts and takes, how should we think about that margin trajectory on the maintenance side of the business going forward?

Hamzah, I'll start, I'm sure John will have a few things. You're right. I mean, I think we've said this in prior calls, that as we believe things would come back in ancillary, the reality is some of the cost containments that we had during the pandemic will start coming back in. And John talked about that, right, would be roughly $8 million over two quarters. And thus, as ancillary comes back, some of that drop-through that comes through won't be as strong as we typically would have on a pure incremental approach relative to a regular non-pandemic comp. So I think what you'll see, I think what we're going to see is continued improvement relative to our margin performance in 2020. I mean our margin performance total in 2020. And I think that as we look at the higher end of our guidance, we're going to be well in the direction back toward kind of levels you saw pre-pandemic, and I'd expect them to continue to improve as we get into 2022.

Got it. Thank you for the color. And just my follow-up question, as you guys look at your maintenance end markets, which seem like corporates are 40%, HOAs are 34%, somewhere in that range. Are there other verticals or white spaces from an end market perspective that you think you're underpenetrated on that could be bigger verticals for you? I know you compete sort of on the higher end of commercial, but any thoughts there would be great. Thank you.

Yes. I think when you look at the overall marketplace, probably the least penetrated vertical and actually the biggest opportunity for the industry, frankly, is education. Because if you look at in general, Hamzah, education has outsourced books, books and food service to secondary or outsourced suppliers. They haven't made the move yet in landscaping. Some data, the internal data we generated says as few as 20% of the landscaping has been outsourced by indication and still done mostly by self-perform crews. So in that vertical, we believe there is real good opportunity for us to provide, frankly, a better experience and a better performance of property, duty and health and actually while achieving some cost advantages in that segment. And we see results of that in our new wins for every month. We're seeing secondary as well as college and postsecondary schools are converting their in-house landscaping into brand new service contracts. And so I do believe, although it's a very long-term sell because it's not something that's a light decision made, there is good opportunity for particular growth in that vertical.

And your next question is from the line of Bob Labick with CJS Securities.

Good morning. Congratulations on great results and outlook.

Thanks Bob.

I wanted to start, can you give us an update on the rollout of HOA Connect and then the feedback and results you've been getting to date with that exciting product?

Yes, absolutely. HOA Connect, we've actually seen continued adoption. We've added dozens of properties using HOA Connect within the last quarter, and we think we're going to accelerate that as we go into the summer. In fact, what we've done, Bob, and this is really a testament to what we can do, is that we've taken some of our top HOA Connect customers and created an advisory panel about ways we can continue to use technology to enhance how we engage with those properties. And really listen to what the customer wants and then deploy our own internal IT resource to be able to customize that experience and make sure we have a best-in-class product that our customers can use. We believe that kind of customization that we're able to build in and then the development of version 2.0, version 3.0 is going to be a real positive momentum builder as we go into 2022 and 2023.

Okay. That sounds great. And then I guess my follow-up would be, you spoke about the M&A pipeline, and typically, there's seasonality to acquisitions and you are kind of done by now. But I think you mentioned there may be more in the back half of this year. Could you talk about your thoughts on acquisitions over the next six months? Or do they kick in again in fiscal 2022?

Sure. Yes. Acquisitions are something where we – it's interesting, our pattern has tended to be yes that we have a lighter closing of acquisition deals in the summer. Although, I would have to say the largest acquisition we ever did was the Groundskeeper, which we closed in May. And that was May a couple of years ago, but we do tend to see some of those tail off in the middle of summer. That being said, our pipeline is quite strong right now. We see really good deals coming through. We're under several letters of intent and kind of examining, like we usually are, this is not unusual, but we see some nice progress happening. It gives me some confidence that says we'll probably be able to close one or two more deals before we end up this fiscal year. That being said, those deals, as we close deals in Q3 and Q4, obviously have much less impact on the current fiscal year and really help fuel the growth of the wraparound we see into the next year. The pipeline though remains quite strong. And we're very optimistic that being able to continue to deliver on the guidance, I think we gave $60 million in the past of annual revenue, we were delivering on $100 plus. We've built that up to $80 million this year, and we expect we're going to be lifting our overall targets that we communicate out to that $80 million even for 2022.

And your next question is from the line of Judah Sokel with JPMorgan.

Hi, Good morning. First question is a quick one, just to clarify the $100 million of M&A expected in the year. Is that a gross number, and then you have to net off the $25 million from the divestiture of BTC? Or is that a net number already and you're really expecting more like $125 million of contribution and then you take off the $25 million loss from the sale to get you to $100 million?

Yes, it's a good question, Judah. It's – that is a gross number. So if you took, and I'll just use broad numbers, there's about $100 million, about one-third, so about $33 million coming from development and then you need to take out $25 million to $30 million when you set the past on tree from that number.

Okay. So on a net basis, it's more like $70 million to $75 million?

That's correct.

Got it. Thanks for that clarification. And then my other question is just around development. I mean you guys talked about the fact that 2Q was expected to see softness in the backlog and you're expecting some more stabilization over the course of the year. Can you just remind us what exactly caused the increase in the backlog softness in 2Q? And what you're seeing over there that gives you some confidence that the things are improving. Just talk about – a little bit of color of what's going on in that end market. Thank you.

Absolutely. And what we saw – when we saw development softness occurring in Q2, we started seeing it peek through in our fiscal third and fourth quarters last year as just overall architectural activity, construction activity and overall forecast on building that we saw out there, those new projects and the contracting those contracts slow down. And thus, we saw it coming, we knew about what Q4 and Q1 were going to be. And so as we then saw the delivery of our second quarter, we saw the results of that in that bottom half. Then as we now look out into Q3 and Q4, we see a really strong book that we saw again kind of coming through in Q1 and Q2 and validated, I think, throughout this quarter, that we feel relative to prior year levels, which remember were large levels, those were already elevated levels. We had over 10% growth in our first half of 2020 in the development business from 2019. But we do believe as we go out, we look at the book, we see the architectural activities going back to a growth position, we see the development companies coming back with building going on and municipalities increasing the types of investment and infrastructure investment that's going on. Frankly, we're already realizing it, we're seeing those infrastructure projects before any kind of stimulus infrastructure happens. We're seeing it happening today, which then influences on our development business. And thus, as we look out, it will be right around I can't say exactly what Q3 was last year, but let's say around that within plus or minus 5% of what we were doing last Q3 in development in this Q3. And then we believe in Q4, a real solid base as we go forward. But the combined second half, the backlog, the activity going on, the bidding activity really underpins a year-over-year same level of activity in the second half of 2021 versus 2020. And then we believe building into 2022, that we're going to see back to the modest kind of historical growth patterns that development has proven to be, a year-over-year solid and steady growth.

Okay, great. Thank you.

[Operator Instructions] As there are no further questions, ladies and gentlemen this concludes today’s conference call. We thank you for participating. You may now disconnect.