BrightView Holdings, Inc. (BV) Q4 2021 Earnings Report, Transcript and Summary

00:06 Hello and welcome to the BrightView Fiscal Fourth Quarter Earnings Call. My name is Juan and I will be coordinating your call today. [Operator Instructions] 00:24 I will now hand over to your host John Shave, Vice President of Investor Relations to begin. John, please go ahead.

00:34 Thank you, operator. 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 on the presentation slides are forward-looking and actual results may differ materially from those projected. 00:49 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 comparable GAAP financial measures are provided in today's press release. 01:10 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 over two point five billion dollars and seven times our next largest competitor. Together with our legacy companies, BrightView has been in operation for more than eighty years and our field leadership team has an average tenure of more than fourteen years. 01:37 We provide commercial landscaping services, ranging from landscape maintenance 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 with more than two hundred and eighty maintenance and development branches with a Qualified Service Partner Network. 01:56 Our branch delivery model underpins our position as the single source end-to-end provider to a diverse customer base 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 non-discretionary. 02:20 I will now turn the call over to BrightView's CEO, Andrew Masterman.

02:26 Thank you, John, and thanks to all of you for joining us this morning. It is remarkable to consider that we're officially closing our Brightview’s fiscal year when this announcement on fourth quarter and full year twenty twenty one results. And yet so much of our day-to-day news is still consumed by the COVID pandemic. You told me at this time last year that we would still be talking about COVID and its immense challenges today, I would not have believed you. 02:50 And yet, the BrightView team has amazed me every day with their resilience and fortitude. At the end of the day, we are a people business, and I could not be prouder of every single one of my more than twenty thousand BrightView colleagues, who have continued to show up and serve our customers with excellence. Don’t get me wrong, it is certainly not been easy and there have been many challenges. 03:14 As I mentioned, during our Investor Day back in September, BrightView is built on an eight year legacy of providing best-in-class landscape and other services to customers across the country. Just as our predecessor companies persevered through multiple macroeconomic disruptions, while continuing to deliver significant value to their owners, so will BrightView. 03:37 Moving to slide four, as I will discuss in more detail in a moment, despite the difficulties of twenty twenty one, the BrightView team has accomplished so much while driving strong operational and financial results. We continue to invest in our people and our technology, and we completed eight acquisitions adding close to one hundred and sixty million dollars of annual revenue. Despite labor shortages, our HR team recruited over five thousand new employees. We committed to carbon neutrality by twenty thirty five and so much more. 04:13 While investing in our future, we were also sharply focused on delivering superior financial results. Additionally, I'm the delighted to welcome Frank Lopez to the BrightView Board of Directors. Frank brings a depth and breadth of knowledge and experience to our Board from his many years in an executive leadership role with Ryder System Inc. I look forward to working together with Frank and the rest of the BrightView Board. 04:40 Our team of more than twenty thousand employees has continued to go above and beyond. Their perseverance made it possible for us to deliver a strong Maintenance Land organic revenue growth and our people, their performance and their intense customer focus as why I'm confident in our ability to deliver continued profitable growth. 05:02 Starting on slide five. First, I'm thrilled to report another solid quarter, led by maintenance by the Maintenance segment with growth of fourteen point five percent underpinned by nine point two percent of Maintenance Land organic growth. This expansion was driven by continued growth in our Contract business as well as a rebound in ancillary services penetration. This follows Q3 in which we grew organically eleven percent plus. And in Q2 or still contracts grew ten percent plus. In short, we have grown from fiscal twenty nineteen organic revenue levels, despite operating in an environment presented with continued challenges. 05:44 For the full year, total revenue was a record two point five five billion dollars and adjusted EBITDA increased eleven point three percent to over three hundred and two million dollars. Full year adjusted earnings per share increased approximately thirty two percent to one point twenty dollars per share, a record for the company. 06:03 Second, because of the strategic investments we've been making in our sales force impressive Maintenance Land organic growth trends continued. Our second half of fiscal twenty twenty one land organic growth of ten point five percent was a result of the continued positive net new sales we discussed over the past few quarters. 06:23 Third, adjusted EBITDA for the quarter was eighty nine point five million dollars, which was relatively flat to the prior year. Double-digit growth in our Maintenance segment was offset by softness in the Development segment due to increased inflationary pressure on material spend more on that later. Fourth, our consistent and predictable free cash flow generation continues to be robust. For the fiscal year, we generated ninety six point seven million dollars of free cash flow. 06:35 And finally, the results of our strong-on-strong acquisition strategy benefited our revenue growth by forty four point two million dollars during the fourth quarter. Our fragmented industry presents many more opportunities for consolidation and you should expect to see M&A execution from us every quarter. 07:12 Our adjusted EBITDA performance was within the range of the guidance provided during our third quarter call and our revenue was above the top of the guidance range, resulting in a solid finish to the year. 07:24 Before we turn to the details of our fourth quarter and full year, let me provide you with our outlook for our first quarter of fiscal twenty twenty two on slide six. As expected, we continue to see COVID-19 business impacts specifically related to labor and material costs, but we are optimistic about our ability to deliver solid results. Our Maintenance Land contract-based business is growing and demand for ancillary services is improving. Our primary end markets homeowners’ associations and commercial properties remain durable. 07:57 Hospitality and retail verticals are returning to pre-COVID levels. We are encouraged by what we see happening in the market, and we believe this will result in another quarter of maintenance planned organic growth of approximately three percent to four percent or more. 08:11 In our Development segment, experienced pandemic related obstacles that impacted project volumes and introduced material cost increases driven by supply chain issues and inflationary pressures, all of which collectively put pressure on revenue and margins. We expect these headwinds to continue in the first half of calendar twenty twenty two. 08:30 With that said, in Development, one external tracker we monitor the Architecture Billings Index. The ABI is an economic indicator for non-residential construction activity with a lead time of approximately nine to twelve months. The ABI scores over the last eight months continued to be among the highest ever seen in the immediate post-recession periods, underscoring just how strong the bounce back has been following the abrupt downturn in twenty twenty. 09:00 We are encouraged by the pipeline of work we are all tracking across all markets and our backlog are robust. Our revenue streams are diversified with a mix of public and private market, owner direct and general contractor channels and a balanced segmentation of contract sizes. As a result, we remain optimistic that modest organic growth trends in the Development segment should return towards the second half of fiscal twenty twenty two and into fiscal twenty twenty three. 09:31 As such, for our first quarter fiscal twenty twenty two, we anticipate total revenues between five hundred seventy million dollars and six hundred million dollars and adjusted EBITDA between forty four million dollars and fifty two million dollars. We believe with an average snowfall during the fiscal year continued salesforce performance and ongoing M&A execution, we will be poised to deliver revenue and margin growth year-over-year. Annual guidance for fiscal twenty twenty two will be provided post to our snow season and during our fiscal Q2 report in May. 10:03 Now moving to slide seven. Let me provide you with a snapshot on how we expect to deliver reliable consolidated annual top line growth. As we shared with you in our Investor Day, we have multiple levers to drive top line growth. The first lever is a dedicated locally-based sales force to generate new sales along with newer technologies to support sales. The second lever is our omni-channel digital marketing to help expand the targeted customer base. 10:32 And the third lever is a continuation of accretive acquisition as part of our strong-on-strong M&A strategy. Our sales enablement technologies to continue to be a differentiator and have continued to support growth and improve customer retention and satisfaction. BrightView Connect and HOA Connect are our proprietary technologies that allow our customers to review the status of submitted service requests expedited the response time from BrightView and track the progress of the service requests. Today, we have over one hundred and fifty active homeowners associations on BrightView Connect. 11:08 Another tool Quality Site Assessment is critical to delivering quality services in the field. It allows our account teams to walk alongside customers, collect markup visual feedback, note service priorities and identify additional ancillary opportunities. QSA is a critical enabler that drives value for BrightView team members in the field and was a contributor to the slight uptick in retention. Both of these technology platforms will see 2.0 versions launched in fiscal twenty twenty two allowing for an enhanced customer experience. 11:45 We also continue to invest in our sales organization growing our team by over ten percent fiscal twenty twenty one. To drive the success of these expanded sales teams, we remain focused on digital marketing initiatives in new markets through new channels. During fiscal twenty twenty one, our lead generation increased forty one percent and our opportunity pipeline, which are the leads to get further qualified expanded by thirty eight percent. 12:12 Most importantly, as a direct result of our expanded sales teams and sales enablement technologies, combined with our more effective omni-channel approach to digital marketing, our sales pipeline increased forty one percent year-over-year to over three point seven billion dollars. Prior to the pandemic, the Development segment has proven they can grow consistently in the range of two percent to three percent. Given our backlog and current industry trends as evidenced by the ABI, we remain optimistic that modest organic growth trends should return towards the second half of fiscal twenty twenty two and into fiscal twenty twenty three. 12:51 Turning to slide eight, Maintenance Land organic growth of nine point two percent during the fourth quarter of fiscal twenty twenty one reflects a balanced combination of growth in our contract business, as well as a rebound in our ancillary services realized across all three of our maintenance divisions, Evergreen East, Evergreen West and Seasonal. 13:12 Additionally, this is the third successive quarter of organic growth in our Maintenance segment, recognizing Q2 snow contract growth. Inclusive of our forecast for the first quarter of fiscal twenty twenty two, it represents one full year of primary service line organic growth. Maintenance Land organic revenue for the fourth quarter is now above fiscal twenty nineteen levels and we expect to continue on this trajectory and to be above fiscal twenty nineteen and twenty twenty levels in fiscal twenty twenty two, further proof that our strategy is perfect. 13:50 Our current maintenance trajectory coupled with two percent to three percent acquired growth, creates confidence in our ability to deliver at least four percent to six percent sustainable consolidated annual growth going forward. 14:04 Moving now to slide nine. Since twenty seventeen, we have completed twenty eight acquisitions that position us as market leaders in several key MSAs. We have a dedicated team and a disciplined and repeatable framework. Our acquisitions are accretive and are value creating use of free cash flow. Our strong-on-strong M&A strategy leverages our scalable infrastructure while building on best-in-class platforms, processes and people. 14:31 Our M&A success is core to our top line growth, and we will continue to deliver as we execute on transactions and the strategy we have developed and deployed over the last five years. We expect the eight acquisition is completed during fiscal twenty twenty one to add close to one hundred and sixty million dollars of incremental annualized revenue. Fiscal twenty twenty one has been a record year for M&A and we still have attractive opportunities in our pipeline which continues to develop. 14:59 For acquisitions of WLE based in Austin, GTI based in Las Vegas, and Bay Tree based in Atlanta reflects our refined strong-on-strong acquisition strategy and expanded ability to operate to the high growth housing development market, which benefit both the Maintenance and Development segments. We expect to leverage these acquisitions, which will allow us to further penetrate or enter large MSAs with high growth housing markets across the country during fiscal twenty twenty two. 15:31 Turning to slide ten. Despite operating in an environment presented with continued challenges, such as labor availability and wage inflation, materials cost escalation and supply chain constraints. We have a pathway to consolidated margin improvement. In fiscal twenty twenty one, we delivered eleven point eight percent consolidated margins, that's a twenty basis point improvement over fiscal twenty twenty in a very challenging environment. 15:57 We believe there is a credible path to thirteen percent consolidated margins over the next several years achieved through the following actions. First, in our Development segment, we are confident we can begin to return to historical margin performance by fiscal twenty twenty three and drive leverage through our cost structure. 16:15 Next, our continued focus on pricing and productivity, we have initiated a proactive pricing strategy that we believe will help us to offset challenges with labor and material costs and is structured to begin to deliver margin improvement fiscal twenty twenty two. And third, a continued rebound on focus on ancillary services. Ancillary delivers higher margins and is key to consolidated margin expansion. 16:41 We are also realistic about the labor pressures impacting BrightView and other companies in the service industry and are aggressively pursuing initiatives to mitigate the impact. John will expand upon this in his comments. 16:54 Turning to slide eleven. We continue to be leaders in environmental, social and corporate governance or ESG. We truly embrace our ESG strategy that is embedded into our corporate foundation and culture. The E element of ESG is the assessment of how BrightView interacts with our natural surroundings and how we perform as a steward of the physical environment. The E takes into account our utilization of natural resources and the effect on the environment, both on direct operations and across our supply chains. 17:24 BrightView is actively engaged ways to practically address environmental responsibility and achieve carbon neutrality, a few of these are highlighted on the slide. First, a cleaner fleet. BrightView is reducing emissions and is beginning to supplement our fleet with electric vehicles. To reduce our fuel and minimize our carbon impact, we have begun by deploying over five hundred electric vehicles over the next twelve to twenty four months. Furthermore, by twenty twenty seven, we expect to convert one hundred percent of our management vehicle fleet to electric or hybrid. Approximately thirty percent of our eleven thousand vehicle fleet will be converted by twenty twenty seven. 18:00 Second, greener equipment, we are transforming our mowers and two cycle equipment to sustainable power. We plan to aggressively convert all fifty thousand pieces of two cycle equipment to electric and sustainable energy, resulting in a fifty percent reduction of BrightView’s carbon impact according to our internal estimates by the end of twenty twenty five. 18:22 Third, efficient buildings, BrightView strives to improve energy efficiency and convert to green energy more on that in a second. Fourth, sustainability. BrightView is committed to sustainability. We continue to proactively and purposefully plant one hundred thousand trees per year and we intend to double those efforts. By twenty thirty, we intend to plant upwards of two million trees. A mature tree absorbs carbon dioxide at a rate of forty eight pounds per year. In one year, the two million trees BrightView intends on planting will offset the Co2 produced by approximately seven thousand vehicles. 19:00 We are also transitioning our fertilization efforts to organics, as well as continuing to invest in irrigation technology with a focus on water conservation. We will continue to reduce pollution and implement green energy as a way of reducing sequestering and minimizing our carbon footprint. 19:19 Turning to slide twelve. This is a rendering of BrightView’s branch of the future. As you look at this, you see solar panels on every roof, you see covered parking areas, where our trucks are parked and charging to our electric charging stations. You see wind turbines in the background providing energy to our internal shops that are charging our lawnmowers and hand-held equipment. You see bicycles, our team can ride to and from work, and the trees and greenery surrounding our branch. In the three hundred parcels of real estate, we currently own or lease, we will implement alternative and solar energy solutions and replace outdated energy equipment and appliances, where possible, we will convert all electric service to our buildings to sources of all alternative energy. 19:58 We intend a launch of pilot branch in fiscal twenty twenty two. Back in October, while visiting a branch in Denver, I witnessed one of BrightView’s initial all electric crews. We are currently maintaining a landscape for the town of superior in Boulder County and helping them achieve their sustainability goals to reduce greenhouse gas emissions by at least twenty five percent. Landscaping is going electric and the revolution is to here to stay. 20:25 Additionally, we expect the recently passed Infrastructure Bill of which forty percent of funding is for climate and clean energy investments, will support our efforts at landscaping and infrastructure. BrightView is already having productive and proactive conversations with manufactures that are supportive of our environmental strategies and with municipalities to help them secure funding and credits. 20:48 Although capital investments will be required to build our electrical infrastructure, we do not expect there to be significant incremental CapEx to fund this build out until back half of the decade. Furthermore, any additional spending will generate fuel and other savings resulted in an attractive return on investment. We expect to reduce our fuel consumption by approximately ninety percent by twenty thirty five and additionally, we expect to decrease our equipment maintenance cost by upwards of fifty percent annually. 21:17 The result of our efforts is an expectation of BrightView to be approximately seventy five percent carbon neutral by twenty thirty and to achieve carbon neutrality by twenty thirty five. Most excitingly, BrightView as the leader has a unique ability to change our industry. We look forward to continuing to work with our partners and customers in our efforts to achieve carbon neutrality. We're in the early innings of our journey, and during calendar twenty twenty two, we plan on issuing a formal sustainability report. This will allow BrightView to report on an environmental and social performance as well as having publicized ESG goals. 21:52 I'll now turn it over to John, who will discuss our financial performance in greater detail.

21:57 Thank you, Andrew, and good morning to everyone. I'm pleased with the strong results we delivered in our fourth quarter and during fiscal twenty twenty one. We remain focused on our key investment pillars of organic growth, margin enhancement over time, mergers and acquisitions, and cash generation. We built the foundation and strategy to deliver consistent land organic growth quarter-after-quarter. 22:24 In Q2 of this year, we realized ten percent plus of snow contract growth and then delivered eleven point seven percent and nine point two percent of the land organic growth in the third and fourth quarters of fiscal twenty twenty one. This resulted in full year Maintenance Land organic growth of three point seven percent. More importantly, we are well positioned to continue this into fiscal twenty twenty two and beyond. 22:52 In addition, we have a very consistent and resilient free cash flow generation model, which as I discussed at Investor Day is a key driver of value for BrightView. Since fiscal twenty eighteen, we have delivered approximately zero point five billion dollars of free cash flow and have maintained a steady cash conversion ratio of approximately eighty percent. The key is deploying capital prudently and getting accretive returns. We will continue to deploy our capital for accretive M&A and to deleverage our balance sheet. 23:24 With that, let me provide a snapshot of our fourth quarter results. Moving to slide fourteen. Fourth fiscal quarter twenty twenty one revenue for the company increased ten point eight percent to six hundred and seventy three point seven million dollars in the current quarter, from six hundred and eight point one million dollars in the prior year. Maintenance revenues of five hundred and four point five million dollars for the three months ended September thirty increased by sixty three point eight billion dollars or fourteen point five percent from four hundred and forty point seven million dollars in the prior year. 23:59 The increase in maintenance was driven principally by strong contract growth as well as a continued rebound in our ancillary services, which led to nine point two percent organic growth. Additionally, we realized twenty four million dollars of incremental revenue from acquired businesses. 24:17 For the three months ended September thirty, development revenues increased one point eight million dollars or one point one percent to one hundred and seventy point two million dollars from one hundred and six eight point four million dollars in the prior year. The modest increase was driven by the contribution of acquired companies. We are encouraged by our bidding pipeline and bid calendar and we anticipate increased stability during the second half of fiscal twenty twenty two. 24:45 Turning to the details on slide fifteen. Total adjusted EBITDA for the fourth quarter was eighty nine point five million dollars relatively flat compared to ninety million dollars in the prior year. In the Maintenance segment, adjusted EBITDA of eighty seven point one million dollars was up thirteen point one percent or ten point one million dollars from the prior year. Solid contract growth and a continued rebound in our ancillary services drove the increase. 25:14 Adjusted EBITDA margin of seventeen point three percent was down slightly from seventeen point five percent in the prior year, but more importantly showed a thirty basis point improvement over the pre-COVID fourth quarter of fiscal twenty nineteen. 25:31 In the Development segment, adjusted EBITDA decreased seven point nine million dollars to eighteen point six million dollars compared to twenty six point five million dollars in fiscal Q4 of twenty twenty. The decline was driven by lower organic revenues and higher material costs as a percentage of revenue. Adjusted EBITDA margin of ten point nine percent was a reduction compared to the prior year levels of fifty point seven percent. For fiscal Q4, corporate expenses represented two point four percent of revenue. 26:04 Now let me provide you with a snapshot of our results for the full fiscal year of twenty twenty one on slide sixteen. Total revenue for the company increased eight point eight percent to two point five five billion dollars from two point three five billion dollars in the prior year. In the Maintenance segment, fiscal year revenues were one point nine eight billion dollars, a two hundred and fifty three point five million dollars or fourteen point seven percent increase versus fiscal twenty twenty. The improvement was driven by strong organic growth, contract growth and snow removal services, higher snowfall and revenue contribution from acquired businesses. 26:45 In the Development segment, fiscal year revenues were five hundred seventy four point nine million dollars, a forty five point four million dollars or seven point three percent decline versus fiscal twenty twenty. The decline was primarily driven by project delays and a reduced backlog, which was partially offset by revenues from acquisitions. 27:06 Now turning to slide seventeen. Total consolidated adjusted EBITDA for the fiscal year increased thirty point seven million dollars or eleven point three percent to three hundred and two point three million dollars compared to two hundred and seventy one point six million dollars in the prior year. The improvement was primarily driven by strong execution from the Maintenance segment. 27:30 The Maintenance segments adjusted EBITDA grew twenty point five percent to two hundred and ninety nine point six billion dollars compared to two hundred and forty eight point seven million dollars in the prior year, strong double-digit organic growth in the second half of fiscal twenty twenty one, ten percent plus contract growth in Snow Removal Services, higher snow volume and solid cost management drove the adjusted EBITDA expansion, which resulted in fiscal year consolidated EBITDA margin improvement of seventy basis points to fifteen point one percent. 28:07 As a result of inefficiencies driven by project delays, lower project volumes and higher material costs, adjusted EBITDA for the Development segment decreased twenty point one percent to sixty five point two million dollars compared to eighty one point six million dollars in the prior year. For the full year, corporate expenses were two point four percent of revenue which has held steady for the past several years. 28:34 Let's move now to our balance sheet and capital allocation on slide eighteen. Net capital expenditures totaled fifty one point seven million dollars for the fiscal year ended September thirty, up from forty seven point nine million dollars in fiscal twenty twenty. Expressed as a percentage of revenue, net capital expenditures were two percent in fiscal year twenty twenty one and fiscal year twenty twenty. 28:59 Like many firms, we faced supply chain constraints pertaining to our equipment orders, combined with multiple years of below historical average capital spending, continued growth in the Maintenance segment and costs associated with our ESG initiatives, we anticipate capital expenditures will be approximately three point five percent of revenue for fiscal twenty twenty two, which is within our historical guidance range. 29:27 In fiscal year, twenty twenty one, we invested one hundred and ten point four million dollars on acquisitions versus ninety point three billion dollars in the prior year. Net debt on September thirtieth of twenty twenty one was one point zero five six billion dollars compared to one point zero one five billion dollars at the end of the prior year. 29:48 Our leverage ratio was three point five times at the end of the fourth quarter of fiscal twenty twenty one, down from three point seven times at the end of fiscal twenty twenty. For fiscal year twenty one, free cash flow was ninety six point seven million dollars. As we continue to focus on cash generation and diligently managing our working capital. 30:09 An update on liquidity is on slide nineteen. At the end of fiscal twenty twenty one, we had approximately two hundred and eight billion dollars of availability under our revolver, approximately seventy five million dollars of availability under our receivables financing agreement and one hundred and twenty three point seven million dollars of cash on hand. 30:30 Total liquidity as of September thirty, twenty twenty one was approximately four hundred and six point four million dollars This compares to three hundred and eighty nine point one million dollars as of September thirty, twenty twenty and provides us with ample flexibility and optionality. 30:48 Before I turn the call over to Andrew for closing remarks, on slide twenty, I would like to address labor and pricing. Two topics that I suspect are on the minds of many of you on this call. We are in a difficult inflationary environment, but let me share with you how we are actively mitigating these headwinds. Due to the nature of our business, we hire approximately five thousand new employees each spring. Despite challenges in a tough labor environment, we successfully executed on that again in twenty twenty one. 31:20 We witnessed higher wage inflation about seven percent versus about four percent wage inflation historically, and that has put pressure on our business. However, we have taken proactive actions against that. We have implemented multiple pricing initiatives as we head into fiscal twenty twenty two. Our teams are collaborating with customers to help them understand how wage inflation is impacting our business and ensuring we balance our scope of work. As we come into our contract renewal period, these are the types of candid and transparent conversations we are currently having with our customers. 31:57 Driven by inflation, material price increases have put pressure on the development business over the past few quarters and will continue to impact margins through mid-summer. To address this going forward, we have shifted to allowing ten to fifteen days of pricing commitments in our contracts as opposed to contracts that were historically fixed by three to six months or occasionally longer lead times. We are confident that the materials input inflation that has put short term pressure on the business is transitional. And importantly that our efforts will help to offset these headwinds. 32:32 With that, let me turn the call back over to Andrew.

32:37 Thank you, John. In summary, here are the key takeaways on slide twenty two. First, in the market, BrightView is the number one player in a seventy billion dollars fragmented market. As landscapers, we manage living assets resulting in a resilient market. Additionally, we continue to see signs in all Maintenance verticals, so that the impact of the pandemic is subsiding and business is recovering. 33:05 Second, growth, Maintenance Land growth trends continue as our investment in our sales team is driving sustainable organic growth. Today, we have over two hundred sales leaders and business developers to drive new business opportunities through strategic partnerships at both the national and local levels, combined with our omni-channel approach to digital marketing, we have improved our retention modestly and increased our sales close rates, while growing our sales pipeline in all markets. 33:36 Third, technology. We continue to deploy best-in-class customer engagement and operational management solutions, our technology is successfully enhancing productivity, profitability and client engagement. We recently kicked off a next generation investment in BrightView Connect 2.0, which will deliver a highly requested enhancements for our customers in twenty twenty two. Our investment in BrightView Connect 2.0 and other technological capabilities such as QSA 2.0 will continue to differentiate BrightView’s digital capabilities with new features and improve the customer experience and retention. 34:14 Fourth, 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. The result is increased efficiencies while positioning us to continue to deliver profitable growth. This improved productivity should lessen the need to expand salesforce at the same rates as the last several years. Our sales and marketing strategies and structure are formula for long term success. 34:43 Fifth, M&A. The results of our acquisition strategy continued to benefit our revenue growth and with an attractive six hundred million dollars pipeline, acquisitions will continue to be reliable and sustainable source of growth. Our business is cash generative with low capital intensity allowing us to consolidate the marketplace in an efficient and disciplined manner and we were shown to be repeatable. Fiscal twenty twenty two, we have identified six target MSAs that present us with principal accretive opportunities to expand in new markets and existing markets. 35:18 And sixth, cash. At the end of the fourth fiscal quarter, our leverage ratio continues to be at a historic low for BrightView. We continue to generate significant cash and we'll focus on reducing our leverage ratio, driving profitable growth through M&A leverage ratio driving profitable growth for M&A and potentially looking at other ways to return capital to shareholders. 35:36 Fiscal year twenty twenty one was an unprecedented environment that few have ever experienced what the BrightView teams of accomplished in the face of a pandemic is simply amazing. We are grateful -- we are extremely grateful for First Responders and Healthcare Professions, each of whom bear the greatest burden. 35:54 We also want to personally thank each and every member of our dedicated teams, to all of our gardeners, account managers, business developers and branch leadership, I thank you. Also, thank you to all BrightView customers and partners for your resiliency and commitment during a challenging time. Our focus on taking care of each other and our customers and taking pride how we deal with our clients and the beauty of their properties, we design, develop, maintain and enhance has sustained our organization. We will continue this focus on our people and our culture to deliver confidence in the future that lies ahead. 36:32 Thank you for your interest and your attention this morning. We'll now open the call for your questions.

36:42 [Operator Instructions] And our first question comes from George Tong from Goldman Sachs. Please, George, your line is now open.

37:05 Hi. Thanks. Good morning. Wage inflation has stepped up to seven percent from historical levels of four percent. You mentioned balancing the scope of work with clients to adapt. How much do you expect pricing to increase by an absolute basis in fiscal twenty twenty two in response to the higher wage inflation? And when would you expect the pricing increases to balance or perfectly offset the Expect pricing increases to balance or perfectly offset to the wage increases and input cost increases overall?

37:35 Yeah. Good morning, George. As we look forward, we're beginning our pricing discussions with the customers. So within landscaping really those discussions come right now, it's November, December, October all the way through, through frankly in early May that we’re talking with all our customers. So the degree that which we get the pricing in our actual top line versus our scope reductions that’s something that we're going to be in a constant conversation with our customers. Really understanding the dynamics they have while also acknowledging the pressures that we have within the labor and materials world. So, I really don't know exactly, I will say that this year, we will probably see at least one percent to two percent on the revenue side somewhere in that range, where we have typically not seen that in the past with the scope reductions, or scope adjustments. But we really won't be able to have a definitive kind of level of top line impact that that will have until we get out of that kind of pricing negotiations, and contract renewals that occur through the beginning of May.

38:42 Okay. Got it. That’s helpful. And then with respect to your guidance for fiscal 1Q, you're pointing to organic revenue growth in the maintenance business of three percent to four percent The prior year comps are relatively easy, if you look at the rate of declines are. Are there any factors that are currently preventing the growth in fiscal 1Q even higher than what you're guiding to?

39:07 It really comes down to how much ancillary revenue gets pull through. We're still -- we're only in the early parts of November right now and also seasonally it can be a more challenging year because the environment, the weather gets a little colder. And so we still have a little less pull through ancillary that we typically have. But really that variance comes through at that level. And yes, there is potential at that three percent to four percent delay that I said is more than three percent to four percent it's just as a little too early to tell.

39:42 Got it. Thanks very much.

39:45 Thank you. Our next question comes from Andy Wittmann from Baird. Andy please your line is now open.

39:53 Yeah. Great. Sorry. I'm just thinking here, I've got more than two questions. I'm trying to figure out which ones I want to do. All right. So, I guess well, let's talk about ancillary. Can you talk about what the performance on ancillary in the quarter was compared to pre-COVID levels? On other words, I'm just trying to get a better sense of how far back that is on a run rate basis today and how much further is to go tomorrow?

40:24 Yeah, Andrew. Andy, good morning. This is John. When you look at the detail between both contract and ancillary in the fourth quarter versus the same period of twenty nineteen. We're ahead on the contract side modestly by about one percent to two percent. And on the ancillary we are still slightly behind where we were in the fourth quarter, but we're still positive net when you combine both ancillary and contracts for the quarter versus twenty nineteen. So good results on the contract side and getting very close on the ancillary side.

41:07 Got it. Okay. For my follow-up, I wanted to kind of talk about some of reconciling items in free cash flow, in particular, the COVID cost that you called out in the quarter as well as the IT integration costs. COVID is kind of subsiding yet your number, the cost that you are excluding is still relatively high in fact it's a little bit higher. So, I wanted to understand if there is something in there that was one time-ish or what the expectation was on a go forward basis for those costs in twenty two? Then similarly with the IT cost, I mean, you guys have been running three million dollars to four million dollars for a quarter almost every quarter for two years. And so, I was just wondering when the expectation for the IT spend to reduce substantially or go away is going to occur? Thank you.

42:01 Yes. Sure. Andy, again, this is John. The breakout of the non-recurring in the fourth quarter about half of that is business transformation and integration costs. The other half is COVID. We saw a slight uptick in quarter driven by the Delta variant in the quarter. Like all companies we don't know when that's going to subside, but we would expect that to subside on a quarterly basis as we get into fiscal twenty twenty two. 42:34 On the IT and infrastructure there is several technology initiatives that we have discussed among them continued another version of our ERP going to two point zero. The salesforce and CRM, but we expect those like COVID to certainly slow down as we head into twenty twenty two.

42:53 Andy, I'll make one comment the Coronavirus impact. And that's the fact that we continue to quarantine anybody in the company who has exposure so, let’s say anyone who has the Coronavirus and that's the private predominant expense we have there. We didn't see slowing. We didn't see a slowdown. In fact, we saw an increase in our fiscal Q4 with case load we have. We are seeing a reduction now as we see some time in November coming down, but it actually increased pretty significantly in the July through December time period and that's what really drove that cost.

43:33 Got it. Okay.

43:36 Thank you. And our next question comes from Shlomo Rosenbaum from Stifel. Please Shlomo your line is now open.

43:44 Okay. Thank you for taking my questions. You mentioned that you're looking for maybe potentially other ways to return capital to investors. Do you mind expanding on that? Would you guys be doing the share buyback? Would you be doing introducing a dividend, maybe putting in a variable dividend or anything depending on how snow comes out during in the year, or maybe you can to expand on that?

44:09 Yeah. Sure, Shlomo. That was a comment that really carries off but we invest to talk about at Investor Day, which said that going forward, depending on where we feel the share price trades that we would possibly enter into some form share buyback. We have not executed that yet, but we want to continue to be available to make that decision if we deem the best for the company. So that's really what that relates to.

44:40 Okay. And then how much in total do you plan to spend on your ESG initiatives in fiscal year twenty two that are going into the CapEx number?

44:52 Yeah. When you talk about what fiscal twenty two, it will impact, it really comes down to some of the incremental electric vehicles with the incremental cost that is payable to electric vehicles, which over five hundred vehicles that really is the big number, right? So we're talking about five hundred vehicles at most somewhere between five thousand dollars premium to seven thousand dollars premium per vehicle. So that's kind of the total impact. The brand that we are intending to outfit in twenty twenty two that's going to be consumer in the normal CapEx.

45:28 And Shlomo, good morning, this is John. I would add that we have a lot of opportunity in the handheld the two cycles and that's going to be like for like essentially. There's not a lot of cost differentiation today between the gas and electric handheld and we get that’s fertile territory for us to get traction on ESG.

45:49 Is there any difference in the functionality of the two cycles? I mean why didn’t you do it beforehand? Like what's your trade off here?

45:59 Really what's happened that I'd say in the last couple of years, you are seeing increased battery performance of the two cycles, which are allowing us to actually have duty cycles that last longer. And that's been really the limited flow – the limiting factor. If you think a blower that might have a thirty minute to forty five minute battery cycle in the past, now is that cascades toward a couple of hours with backpacks even extending into three hours. It really allows two or three changes a day rather than eight a day. And that really that battery life and the technological advancements that are coming in. That's really what's driving the ability to move forward. And we believe those technological advancements will continue over next several years allowing us to achieve our goals.

46:50 Great. Thank you.

46:52 Thank you. Our next question comes from Tim Mulrooney from William Blair. Please Tim, your line is now open.

47:01 Andrew, John, good morning.

47:03 Good morning.

47:04 Good morning, Tim.

47:07 So, it looks like EBITDA margins are expected to step down in the first quarter kind of at a similar rate, that’s what we saw in the fourth quarter here. But based on all the mitigation actions in your prepared remarks, when would you kind of expect that margin headwind to the tailwinds? Is that a back half of twenty two thing, in line with the improvement in your development business? Or is it more of a twenty twenty three expectation at this point?

47:36 Yes, Tim, the real -- the first and the largest driver is really the development side of business. And to be clear with that is, is when we entered into contracts, let's say about nine months ago, there were certain material costs that are fixed in those contracts. With the inflationary pressures that have come in most of what the impact in the development business is that, the costs that we're buying materials that are significantly higher. Now so those contracts were priced again, maybe nine months ago. So what we're seeing is and we look at our bookings, we're quite booked right now here in Q1 and Q2 and even partially into Q3 or significantly I should say, the Q3, with those kinds of contracts with those other materials. So as we are now booking into our Q3 and Q4 with more current costing and current contract structure we believe them, we'll see the turnaround in the Development segment as well as in the business because of that as we get into Q3 and more so into Q4 and then forward after that.

48:43 Yes. That's really clear and really helpful. I appreciate you walking us through that in detail, that'll will help I'm sure all of us model it out. My second question is on your branch to the future, I'm just curious how you think about the unit economics, are the branch of the future relative to your current branches with ninety percent fuel reduction, fifty percent reduction in maintenance costs and other energy savings with those solar panels. I would really think the unit level economics and return profile for a branch would look really different. But I'm curious how you think that could impact your thirteen percent long term margin outlook?

49:31 Yes. Great questions Tim and actually, we're very optimistic about the long term economics, because reality is not only is fuel one of our major inputs. As we move away from fuel that will be significantly reduced, frankly the volatility around fuel prices also reduced. So we believe the investments in the branch in the future from a fuel perspective alone will drive significant return on investment, which will improve our overall margins. Now the thing is that's not going to come real -- it doesn't come to tomorrow because the reality is most of our trucks in a short term are heavy duty vehicles and the ability of electric fuels to tow trailers and to carry our heavier equipment around really the technology isn’t there in twenty twenty two. But we believe and after talking with multiple heavy duty truckload Ford and the General Motors or those types of folks, we believe as we get into the second half of the decade, that's going to really start becoming technology, which is available and usable for us and we'll start seeing that nice return, I think as we move into that period.

50:42 Okay. Thank you.

50:44 Thank you. Our next question comes from Bob Labick from CJS Securities. Please Bob, your line is now open.

50:52 Hi good morning. This is Brendan on for Bob. Just wanted to ask about the labor issue and your contracts, how is it impacting your contract negotiation up to now? And could you dive into the ten to fifteen day shortened pricing commitment, kind of give us more detail on what that means versus your historical norm?

51:20 Yeah. Regarding to the ten to fifteen day pricing cycle, historically, we have contracts similar to what we've said earlier about nine months, we would quote these certain price of materials and because over the last four to five years, we had almost no inflation of those materials. We actually ended up having just regular performance off that. With the inflationary pressures now, we've been able to really shrink that up and this is all in the development segment this is happening. So we shrinked it up to ten to fifteen days so that someone can't sit on a quote for three months or six months come back to us and says here's what you put into your bid we'll go with it. We're saying you can only come back to us within a week or two weeks. If you come back with after that period the pricing then the quotes is it good anymore and we will need to redo that quote. So, it's really been a complete change, coupled with the fact that as we then win those contracts, we then take those material levels that are in those bids and we match those with POs we send it to our suppliers.

52:26 Great. And then following up on that, obviously, you talked to a lot of companies with your M&A pipeline. What are you hearing from them about pricing or they -- are some of those smaller guys getting squeezed. So what are you hearing across the industry as everyone is renegotiating contracts and looking at pricing?

52:47 Yes. That's good insight into what's happening out there in the marketplace. There are unquestionably several players out there that we've actually talked with who are struggling significantly on the pricing side of things, especially with the smaller players, if you're quite a smaller player, you need to be able negotiate and get the additional price and they're having deal that living through this cycle, well they're in their contract period. So it's put some stress on the industry and the industry itself knows that this kind of pricing activity that's going to be going on is something that the customers are going to need to expect.

53:29 Great.

53:30 Thank you. Our next question comes from Andrew Steinerman from JPMorgan. Please Andrew, your line is now open.

53:37 Hi, Andrew and John. Two questions. The first one have to do with seasonality on the maintenance side. So after the first quarter, fiscal quarter that you just guided for, help us think about just kind of sequential organic revenue growth for maintenance, should we expect kind of normal seasonality building loss that first quarter base, or do you expect maybe better than normal seasonality because there's still some rebounding nature to the Maintenance business. And I have a second question.

54:10 I think when you look at overall growth in the Maintenance segment that the things that we've invested in our sales team will continue to drive contract growth. What the seasonality will be is, how much the ancillary growth really pulls through. So the fact that we may have base levels of growth in our seasonal markets. It's relatively low. And so we don't have the extra push that we have in the ancillary bucket. So, I would say that well, in the winter months in the Q1 -- our Q1 and Q2 we'll have a little tempered seasonal growth as we take out really a good portion of the contract maintenance in those segments, and then you would expect to see little higher than average growth happening in the Q3 and Q4.

55:00 Yes. And John, think about the revenue that's still being dragged residually by COVID both on the maintenance and the development side. When that revenue comes back, do you have a sense of the incremental margins on that rebounding revenue?

55:18 Yeah. We are working very hard Andy on the maintenance side I gave that measurement of our results in fourth quarter versus twenty nineteen. And so we're encouraged by that, that thirty basis point increment that we saw this quarter in maintenance versus fourth quarter of twenty nineteen is very encouraging. We are moving aggressively on pricing. We're managing our labor aggressively, fortunate for us on that part of the business, the material component of our P&L is less spent on the development side. So less of a headwind there. And so where we're encouraged really hard in the quarter that this coming quarter that Q1 that you put to see if we can have that continued incremental improvement because of the impact of snow, but we are encouraged by what we're seeing, we're certainly confident that we can get that in the back half of the year.

56:21 And when you talk about margin Andrew, what you see is, in the Q3 and Q4, you'll see the double impact of number one, the pricing initiatives that we're putting in place so that should have a help on margins. And then secondly, well it's not near as much that was here in twenty twenty one, you'll see a slight pick up of the ancillary as that normalizes completely back to pre-COVID levels if it does.

56:48 Okay. Thank you.

56:51 Thank you. [Operator Instructions] Our next question come from Shlomo Rosenbaum from Stifel. Please Shlomo, your line is now open.

57:06 Hi. Thank you for me sneaking me back in. I want to clarify something that I didn't catch well in the call. You said something about getting, was it acquisitions in higher growth housing markets? If you wouldn’t mind just clarifying what you're talking about in terms of higher growth housing markets?

57:24 Yeah, absolutely Shlomo. If you look at three acquisitions that we've done Bay Tree, GTI and WLE in Austin, Las Vegas and frankly, down in Charleston, Atlanta, but also in Charleston, South Carolina. These are really good housing markets. And we typically have had less activity in our Development segment on housing. And with those acquisitions, they have really introduced us into those housing markets, working on new developments for landscaping development in those housing markets. And then also allows us to have a little bit of drag along or pull along with our maintenance contracts at those development projects in those housing developments complete. We’ve seen an interesting segment because again we kind of not put aid as much attention to those housing development markets, and we see taking those examples and actually we've launched an initiative at several new markets that we are starting to see good traction on with the learnings we’ve had from those M&A acquisitions.

58:24 Well I'm trying to understand are these like condos, so it’s more HOAs, so that what kind of pull through activity is there after there's like if it's just residential homes, under skin and initial landscaping what happens after that?

58:40 HOA, so what's happened in the industry. Yes, you develop a new Home Owners Association, you have the infrastructure maintenance but also what happens in many of these is the front yards also get maintained in an HOA contract, so at HOA of two or three hundred homes might include within their HOA dues maintaining the front yard to -- in a regular manner, but only dealing with one customer with the HOA. And then let them using HOA Connect BV Connect, which is the service ticket management software we have that allows the actual resident through the HOE to communicate how our performance is doing, it kind of it really lends itself to really push it harder into that segment and we're seeing some really positive initial signs of a couple of new markets of growth.

59:34 Got it. Okay. And then just wanted to piggy back one of the little questions that was asked earlier, in terms of the COVID costs year-over-year, could you break down that like eight point eight million dollars and just kind of explain what the costs are for like I on the ground, what are you spending the money on?

59:55 Well, the biggest part Shlomo is the PTO without a doubt. And as I said in my earlier comments, with the Delta Variant there’s been another resurgence. But when you look at the fourth quarter the biggest chunk without a doubt was PP&E between masks, gloves, sanitizers just because we have so many people in the field in extensive branch network. The other big driver was exactly what I just said PTO and the sick pay for folks. Those are the predominant costs that we've seen and again, those were up slightly versus fourth quarter of last year, but again, when you look at the numbers through the year, we had about seven point five million dollars in the first quarter tapered down in the second quarter slightly under four, under three and the third, but that ramp up again because of the variant. But again, as I said in my comments, we certainly hopeful they go down and we'll see.

61:05 Okay. Thank you.

61:08 We have no further questions. I will now hand it back over to Andrew Masterman for any final remarks.

61:19 Thank you, operator. 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 results. Stay safe and be well.

61:35 This concludes today's call. Thank you for joining. You may now disconnect your lines and enjoy the rest of your day.