Hello and welcome to today’s BrightView Holdings Incorporated First Quarter Fiscal 2022 Results Conference Call. My name is Daly and I will be the moderator for today’s call. [Operator Instructions] I will now like to pass the conference over to our host, John Shave, Vice President of Investor Relations. John, please go ahead.

Thank you, Daly. 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. 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. Disclaimers on forward-looking statements and non-GAAP financial measures apply both to today's prepared remarks as well as the Q&A. I will now turn the call over to BrightView's CEO, Andrew Masterman.

Thank you, John. Good morning, and thanks to all of you for joining us. I am particularly happy to be with you all today. And it is snowing heavily in many parts of the country. Well, snowmobile continues in the Northeast following the storm last weekend. As you know, our results during the winter are meaningfully impacted by snow fall. So the current weather can't help us with our first fiscal quarter. It's a great start to Q2 with almost twice as much though in January of 2022 versus the prior two January's and we're very happy to have it. At any strength in Q2, we're built very positive trends that we've seen over the last several quarters and which continued in Q1 2022. That trend is organic growth in the core of our company, our maintenance land business. We are pleased to continue our excellent momentum this quarter with strong maintenance land organic growth of 7.3% with Q1 revenue reflecting a return to above 2019 levels. We expect this performance to continue. Strong execution by our Maintenance Land organization delivered $3.2 million of incremental EBITDA on $40 million of increased revenue. This result is primarily driven by exceptional labor and material management and our organic business offset by fuel escalation and for maintenance service lines that we acquired from recent development M&A transactions, that were not a focal point of those development businesses. We are optimistic this will improve the second half of fiscal 2022. These trends are a result of the culture we have built and of the commitment of our entire organization, from gardeners to leadership team, who are all delivering excellent services to our customers, and so incredibly proud of the BrightView team. Let me begin by reviewing the highlights from the quarter. First, I am…

Thank you, Andrew, and good morning to everyone. Let me start by reiterating some key highlights for Q1 of fiscal 2022. First, we achieved maintenance land organic growth of 7.3% our third consecutive quarter of solid organic growth. Second, we had improved labor and material management in the maintenance segment. And third, while still challenged, the development segment had quarter-to-quarter improvement from the impact of material cost inflation. And fourth, outside of our CARES Act prepayment within the quarter, we continue to generate solid cash in our head of our plan for Q1. As a firm, we remain laser focused on our key investment pillars of organic growth, margin enhancement over time, mergers and acquisitions and cash generation. With that, let me now provide a snapshot of our first quarter results. Moving to slide 15, first fiscal quarter 2022 revenue for the company increased 6.7% to $591.8 million in the current quarter from $554.4 million in the prior year. Maintenance revenues of $438.2 million for the three months ended December 31 increased by $20.2 million, or 4.8% from $480 million in the prior year. The increase in maintenance was driven principally by strong contract growth, as well as a continued rebound in our ancillary services, which lead to 7.3% Land organic growth. Additionally, we realized $17.8 million of incremental revenue from acquired businesses. For the three months ended December 31, development revenues increased $17.3 million, or 12.6% to $154.7 million from $137.4 million in the prior year. The increase was driven by the $21.9 million contribution from acquired companies. We remain encouraged by our bidding pipeline and bid calendar and we anticipate increased stability during the second half of fiscal 2022. Turning to the details on slide 16, total adjusted EBITDA for the first quarter was $42.6 million, down 18.7%…

Thank you, John. In summary, here are the key takeaways on slide 22. First on the market, the landscape maintenance market has a resilient nature and BrightView is growing at rate significantly above the industry. The landscape development market is showing architectural and bidding activity at levels which will support significant growth for BrightView as the industry leader. We are optimistic about trends we see across our segments. Second growth, our 7.3% land organic growth in Q1 is our third consecutive quarter of organic expansion and believe we will sustain above industry average growth rates for the foreseeable future. The investment in our salesforce, combined with increasing use of omni channel and digital marketing continues to deliver year-over-year improvements, and our opportunity pipeline has expanded hundreds of millions of dollars in the last year. The intense customer focused culture within the company is also driving up our retention rates, and combined with our sales performance is creating a reliable source of sustainable growth. 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 the next generation investments in BrightView Connect 2.0, which will deliver highly requested enhancements for our customers in 2022 and will continue to differentiate BrightView’s digital capabilities. 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. The improved productivity should lessen the need to expand the salesforce at the same rate as the last several years. Our sales and marketing strategies and structure are a formula for the long term success. Fifth, in M&A the results of our acquisition strategy continued to benefit our revenue growth and with an attractive $600 million plus pipeline, acquisitions will continue to be reliable and sustainable source of growth. We have added strategic locations and [Indiscernible] enhancements throughout the United States and believe the deals we are currently negotiating will expand our presence and our depth of landscaping services across the country. And fifth, cash. We continue to generate significant cash and we'll focus on utilizing our strong balance sheet driving profitable growth through M&A, share repurchases, and potentially looking at other ways to return capital to stakeholders. I remain as optimistic as ever about our prospects. I thank our teams for their dedicated response to the -- storms and their continued attention to designing, creating, maintaining and enhancing the best landscapes on Earth. Thank you for your interest and for your attention this morning. We will now open the call for your questions.

Thank you.[Operator Instructions] Okay, so we do have our first question and it comes from George Tong of Goldman Sachs. George, please go ahead.

Hi, thanks, good morning. Can you provide updated details and how contracted landscape maintenance revenues now compare versus pre-COVID levels? And how ancillary maintenance revenues have been impacted by Omicron?

Sure, and good morning, George. Now, we’re at a pace we’re running at George, we are actually operating above pre-COVID levels. So we're happy to say that we are back that the organic growth trends have improved to the where we're growing to places we've not been before. We're pretty excited actually about where that's and that’s across, certainly in our contract business. I mean our ancillary business actually if you look at the first quarter, it's actually performing at a very strong pace as well. So that gap between 2019 and 2020, we filled it. And we're back; we're back in the saddle.

Great. You talked about shortening the expiration date for bid prices in the development business to better adapt for rising input costs. Can you highlight your strategies to respond to rising input costs in your maintenance business, particularly around labor, and how pricing changes will mitigate the headwinds?

Absolutely. In our maintenance business, if you talk about I'll take it the both material and labor. Material costs tend to be more in our ancillary portion of our maintenance business, and thus, our bid in a much shorter and a much shorter window. Usually within four to six weeks of installation, we're putting the bids together. So they're very current costs, and they reflect the current per acquisition of those materials in those bids. So we believe we are actually facing or really addressing the inflationary positions on material with a maintenance and, and so don't have any of the negative impacts that you see long term fixed contracts that we see more in our development business.

Yes, and George, this is John. I think one of the things; you've heard it in our comments. We're doing a really good job in managing the labor, we feel in both segments. The other thing that we're focused heavily on is doing more in house labor versus subcontractor, which tends to be more efficient for us, and it has less drag on the P&L. So we made progress on both those fronts within the development segment and the maintenance segment within the poor. And we're going to obviously continue to try to do that going forward to offset some of the escalations that we've seen.

Addressing your last issue on pricing. George, we were going on a very deliberate, and focused approach to engaging with all of our customers, showing that the cost inflation that we've seen in labor and materials are things that we need to address and really work together with the customers on being able to cover those inflationary costs. That effort right now is worth right in the thick of it. And most of those are dealing with contracts as they renew, most of which renew, kind of in the March, April May timeframe as new landscapes come into play. So we expect to see that offset some of those deflationary aspects in the second half of the year.

Got it. Thanks very much.

Thank you, George. Our next question comes from Shlomo Rosenbaum from Stifel. Shlomo, please go ahead.

Hi, thank you very much. Good morning. Andrew, maybe you could comment a little bit about how does the ancillary services as a percentage of total in maintenance, how does that compare to what we saw on a pre-COVID level? Are we back to the kind of two thirds, one thirds in terms of contract versus ancillary? Are we still kind of trailing that, so I’m looking at it more like an a customer by customer basis, as opposed to just know the whole company just to gauge where we are?

Yes, I think, in general, the shape of the business has returned to kind of pre-COVID levels. That’s pretty much across all segments. We used to we clearly saw an impact in the hospitality of retail verticals, during the height of the COVID pandemic. The reality is, I think you can see it is that those segments, especially in the resort areas, have seen like a rebound. And we've been able to go back and go and work with those customers on identifying areas in their properties which continue to differentiate them. So that kind of mix that you said two thirds contract, one third ancillary. That's pretty much where we're operating at. And we feel back in kind of a normalized pace, who would expect that to continue as we move throughout the year, and that we're back to the normalized operating rate.

Great. And then how much longer based on your work, what you see in the future, with the contracts that you had bid on the pre-inflationary. How long is it going to take for you to cycle through those contracts? In other words, you have to fulfill the contracts where you've made a commitment in terms of the pricing, before the inflationary environment really started to take off. How long will it take you to really get those implemented so that we won't have that weighing on the numbers?

We would do a deep dive on that actually going in and working with all of our branches. We would expect, we saw an improvement for coordinated bits that we had a bit of interaction in this quarter. We would expect that to continue to improve slightly over the course of the next several quarters, and we'd expect really it's going to be late in the second half you know probably into the first quarter of 2023, before we seek really fully getting out of that, but we do expect the impact to lessen over time.

Okay. And then in terms of development projects, what's going on with the construction? Are we seeing, is it really delayed? Are you seeing more delays now? Are you seeing any areas where it's accelerating? How should we think about that in terms of like, kind of a timetable, or your visibility to when you'll actually be able to get into the projects, as it's, since you guys are usually the last ones, kind of the capstone on the project?

Yes, I think the delays that we're seeing now in the development sectors segment are actually less COVID related, and they're more just labor availability of our of the other subs for us. And so that's the uncertainty sometimes, subcontractors before us actually get in and get done on time. There are places in the country where they're doing very well. Some of the construction companies and the general contractors do a fabulous job of getting those bodies. Just some of when you take the broad brush, the broad scale that we do landscaping across the country, there are pockets where they they're not quite as on top of it as, as we are, we're ready and primed to go. That's the fortunate thing is the second, the projects and the subs before us get done. We're ready to go. We are seeing a lessening of that impact relative to where it was let’s say six months ago. And so we are optimistic about being able to post 5% organic growth in the in our development segment as we look forward.

Thank you. Our next question comes from Tim Mulrooney from William Blair. Tim, please go ahead.

Good morning, Andrew, John, a couple questions. I apologize if this one's been asked already, but 7% organic growth in your maintenance green business in the first quarter? Can you walk us through how organic growth in the business trended through the quarter? And any more recent color you could provide on January?

Sure, absolutely Tim and good morning. If you look at it, I've put into three months, October is our busiest month. And that's just due to the nature that we were still kind of in the fall mode. And so just naturally, what you'd see throughout the quarter is clearly our seasonal market kind of slows down. And our evergreen markets continue moving right forward. So what I would say is, is that, in general, we're seeing a positive pace, again, 7.3% growth over the whole business. And what we did see, I would say Oh, in November and December. Well, the magnitude, the dollar magnitude is the biggest of October, we're actually seeing an improving profile over November and December, which that's why that gives us optimism as we go into January, February, March actually cascading goals. So as I said, overall, dollars wise, October is the biggest, but an improving trend as we go through November and December when it comes to the growth picture.

Yes, that makes a lot of sense. And I think if I remember correctly, your guide was like 3% to 4%. And you come out with 7%. So it makes sense if things improved throughout the quarter relative to your expectations. And now, I guess your guide is 4% plus, but there's a plus there. Okay.

And yes, the reason the pluses. It just -- in the season the markets, you just don't know exactly whether the snow whether it comes in fast. And if it's a little lighter spell in March, it allows us to really accelerate some of that growth into the March period.

Okay, okay, that's helpful. And then one more for me, Andrew. It looks like your deal pipeline has grown. In the slides I think it's at 600 million today up from 400 million. I don't know, a year or two ago. Is this kind of because you've expanded your internal M&A capabilities? Or is there something broader going on here in the marketplace where there are more folks coming to the table and being willing to have the conversation about selling versus a couple years ago?

It really comes down to our match rate. And we're maturing, and our approach to M&A, and ratting [Ph] people. So the thing is, we've enhanced over the last couple years we've enhanced and built out our dedicated team. We've actually added another business developer, when I call the M&A business developer going out searching for deals. I think now also we've established a reputation. And that's I think the biggest thing you have probably stimulates the M&A market is that we have a reputation for being extremely fair, extremely straight forward and the purchaser reports. Really it's the people have heard we've done almost 30 acquisitions over the course of last five years. And that's success breeds a reputation where people prefers to come to BrightView as others.

And Tim, good morning, this is John. The other thing I would add to Andrew’s comments is exactly what he said. We're getting more people reach out to us directly. Whether it's through our M&A team directly to myself, directly to Andrew. And I think it's a causal of everything that Andrew talked about what we've been able to demonstrate over the last three or four years.

Yes, so you think it's more internal to BrightView than the specific to BrightView than any real change in the market? Can you touch on how valuations have trended relative to the historical average?

Yes, we're staying right within that window of five to seven times. We’re being very disciplined. Very matter of fact, every now and then for a deal that may be a little bigger, we may go a little higher. But again, that's on a pre-synergistic basis. So these are still going to be very accretive for us. But we're for the most part Tim, we have not wavered out of that five to seven times.

Our as people come into the marketplace, obviously, expectations, sometimes to sellers go up. And frankly we stayed very disciplined. The amount of opportunities out there are so big, that we don't have to go out and pay up some of our other competitors that might go and pay up for because we have the companies approaching as John said. They are approaching us and we have a reputation. Those companies -- those other companies out there that compete with us in the M&A marketplace may not have the reputation, may not have the balance sheet, may not have the ability to create career opportunities and the track record of what we have in the business. So frankly, they have to pay up to be able to attract them to deal with another buyer rather than ourselves.

Thank you, Tim. Our next question comes from Justin Hawk of Robert W. Baird. Robert, please go ahead. Justin, please go ahead. Sorry.

Two questions. Okay, so thank you for all the color so far. The question I had, just looking at the lens for Q2. If I use the map, 4% Organic land and 5% for development, organic, keeps it flat. I get over 670 million of revenue versus the 620 to 680 guide. So given the M&A was pretty material here in the first quarter. I was hoping you could give us some commentary on what the inorganic revenue contributions you are expecting for Q2, and then maybe also based on acquisitions you closed last year, or the one you did earlier this year? How much total revenue contribution are you assuming from M&A for 2022?

Yes, one thing as you look at the guide that we have out there is recognizing last year, the snow is slightly above average in total for the quarter. So on a year-over-year basis, I would, I would I definitely would take that down a portion whether that's 10 to 15 [Indiscernible]. So this compares to ordinary February, when we look at the midpoint of our guidance. So [Indiscernible] further delivery on snow. And when it comes to our assumptions, acquisitions, I think what you guys think about is A, number one is primarily weighted more towards our development segments, as it has been significant kind of deals which are rolled into development. So I think it's going to be kind of a balance between the two. But I think overall, when you look at that, it's going to be somewhere around $15 million or so when it comes to development. And then on the maintenance side, that’s probably a similar number too. So, so right around $30 million, but again, much of that depends, they're working. So the risk elements still there and it also depends on the ability of that entity or somewhere between, let’s say $25 million to $30 million in total.

Okay, yes. That's helpful. And I appreciate that on the February headwind. I mean, it's snowing right now. So hopefully that helps. On A, you talked a lot about the inflationary costs on the development side and particularly on materials, labor, we just get them that you're going into or you will be in the next couple of months. Your seasonal hiring time. I think last quarter you were saying that the rate of labor inflation was running kind of 7% range in the second half of 2021. I'm just curious if you're seeing kind of a similar level of wage increases this year, or is that increased or decelerated? Anything you can give on the outside?

Yes, Justin, I think again, it depends on certain parts of the country. But if we go back and look at what we experienced this time, we were slightly over 4%. We've had some quarters between now and then where expense certainly, above that. We've been assuming that we're going to see at least 5%. Could we have a quarter where it's higher than that because of timing? Sure. But I think that's kind of how Andrew and I are thinking about it a little bit higher than what we've experienced over the last three or four years when it was about 4%. So 5% plus, is what we're thinking about.

And that's what we're looking at, as we're talking with customers on price increases, to make sure that the price increases, we're getting adequately covers those kind of inflationary aspects that are out there. And fortunately, so far, the negotiations are gone. And we're just again, in the middle of them. We're really optimistic about what our customers are cooperating with us to make sure that the cost inflation that we see are being covered but with big brush.

Thank you, Justin for that question. Next question comes from Hamza Mazari of Jefferies. Hamza, please go ahead.

Hi, this is Hans Hoffman filling in for Hamza Nazari. So my first question is, can you just talk a little bit about your technology journey? And I guess, what's behind you what's yet to come? And if you're starting to see some of the benefits from tech spend in the margin line or on operating leverage?

Yes, we, we have absolutely invested significant dollars in new platforms and new operating technologies that we see across the board, whether that's internal or whether it's customer facing. And no question that, actually over the last several years has many of our internal our internal investments when it comes to efficiencies around one operating system, when it goes into our ability to capture time, whether electronic time capture those kinds of things, I think fueled some of the margin expansion we saw several years ago. So we're actually very pleased right now, where those investments actually did generate nice returns. I think, as we look forward, and where we see things going forward, is the new BV Connect 2.0, which is really a customer portal, which is the unique experience that customers will be able to have, with BrightView. Being able to engage with us across their entire customer relationship, whether it's ancillary services, whether it's service verification, whether it's history of bids, whether it's your financial relationships, or frankly, whether it's relationships, and who is servicing your account, contact points, and pictures and the videos on things that we do throughout the entire property we manage. That's all going to the web and going to be digital customer. We're really excited about watching us now be probably in our Q3, Q4 timeframe, really taking BVNA to re connect to the next level, that's coming. We also just recently introduced our QSA, which is our Quality Site Assessment 2.0 software that was launched in the winter, or I should say last quarter in Q1, which allows our account managers to regularly communicate and again in a digital way property health, and what's going on and how in the property. The dynamics of the horticultural intensity of the issues that…

Got it? That's helpful. And then can you just maybe talk about what margins on ancillary looks like, again, I guess, versus maintenance and how big ancillary is today versus pre-pandemic levels? And maybe historical peaks, if any?

Yes, this is John, I'll take that. I mean, I think our mix, as we said, it's been about one third, two thirds ancillary versus contracts. That's been pretty consistent certainly was in Q1 when you go back and look at it what it was in Q1 of 19, and 20 versus Q1 of 2022. From a margin standpoint, we don't disclose specifically the ancillary margins, but I will say Hans that they tend to be slightly better than our contract margins, we've been able to maintain that discipline. And the other thing that we focus on that we’re is our penetration rate, we don't disclose that as well. But the penetration rate, meaning the percentage of ancillary dollars to contract dollars, has been very, it's been getting better. And that's that we're starting to see that comeback, which was -- were in Andrews prepared comments. And we expect that to continue throughout the year and give, quite frankly, more historical levels in Q3, and Q4, which are the real good quarters for us when we get past the seasonal snow piece.

Thank you for your question. Next question, we have Andrew Steinerman from JPMorgan. Andrew, please go ahead.

Hi, Andrew. I wanted to go back to your comments about price, price increases and the ability to cover wage inflation the second half of the year in your maintenance visit. My question is do you feel like spending with a typical maintenance customer will go up about 5%? Or do you feel like with the contract price going up, they might get more selective about their ancillary services?

That's a really good question. When you look at the balance, I think there's an acknowledgement right now, which has been different over from less of a years, it just overall inflationary pressures are hitting the business and an acknowledgement that the property also needs to be maintained as a certain level. We have not seen a downtick in ancillary services, because of the pricing increases that we see going out there. So I can't, there are portions of our ancillary business, such as, irrigation management, tree service management, fertilization, those tend to be ancillary lines. So those while they are certainly in our ancillary portion, they're really less there, some of us discretionary. And so, I really, and I think the magnitude of the increase that we're seeing, again, with an overall inflationary environment in the country right now, we're not seeing an indication of ancillary reduction in our pipeline of ancillary projects. So I'm not anticipating a big picture.

That makes total sense. Thank you so much.

Thank you, Andrew. Our final question comes from Bob Labick of CJS Securities. Bob, please go ahead.

Thank you. Good morning, I wanted to follow up on the pricing and just talk a little bit about competition, particularly in the maintenance contract, pricing the annual renewals. So you'll be going into shortly given the fragmented nature of the market, how are competitors reacting to the higher wages and higher costs? Are they seeking to raise prices on their renewals? Are they thinking lower margins? Or do you expect them to and how is this going to impact your strategy on contract, renewals and pricing going forward?

Good question Bob. When we really look at the marketplace, in any given market, we have four to five solid competitors that are compete at the higher end and in the commercial landscaping market. Those competitors are professional companies; they actually become mostly our acquisition candidates that we look at. Those companies are following kind of looking at normalized levels of price increases that we see in most cases. Of course, you may have particular target customers, which are competitors might want to go in and, and take an opportunity to try and cover it. But the reality is they're facing the same economic pressures we're facing in the labor market, in the material market. There's no difference what they're facing. So long term strategy, they might be able to take a customer by taking a price down or not having an increase but you can't that isn't a strategy for long term success in the competitive market brand in the competition that we compete with. So we have not seen broad base, a broad based impact on that. We've seen, frankly, what we've seen is we've seen our retention levels actually improve as we go forward. Although I will say though, there have been some bit of a turn that in the marketplace. So I would expect that to be the case, just given the dynamics of where people think about. So overall, though, our overall business remains healthy. But we talked about before our net new, which is our wins minus our losses, continues to be in a positive trajectory. And we feel supports and organic growth rate of 4% plus as we look going forward for the next several quarters.

Okay, great. Thanks so much.

Thank you, Bob. There are current -- is registered. So I will hand the conference back over to Andrew Masterman for closing remarks.

Thank you, Bailey. Once again, I like to thank everyone for participating in our call today and for your interest in BrightView. We look forward to speaking with you when we report our second quarter results and everybody think snow. Stay safe and be well.

That concludes the BrightView Holdings Incorporated first quarter fiscal 2022 results conference call. You may now disconnect your lines.