BrightView Q4 2023 Earnings Call Transcript

Quartr
Provided by Quartr
November 16, 2023

There are 7 speakers on the call.

Operator

We must invest in our employees and prioritize our relationships with our customers while delivering consistent execution and service. We will do this by everyone working together to operate as 1 BrightView. As CEO, I am focused on establishing a unified BrightView, a company that prioritizes its employees, the customer and a winning culture. This renewed commitment and investment in the business will be critical to our ability to drive profitable growth. It will also allow us to leverage our vast branch network to drive operational efficiency.

Operator

Another key area of focus would be the strategic allocation of capital, ensuring that our investments in the business, both organic and inorganic are creating value and generating attractive returns for our stakeholders. Moving to Slide 5. The initial goal of operating as 1 BrightView is to become the employer of choice. We do that by putting our employees first And by delivering a culture where people seek to achieve individual and group success. By prioritizing our employees, tax the level of service provided to customers and leads to an exceptional customer experience.

Operator

This includes investing in employee safety, fleet and systems, all of which will allow us to better serve our customers. By making these investments in our employees and in turn employees taking care of our customers, this will allow us to become the partner of choice in our industry. These investments are aimed at improving customer retention and accelerating profitable growth. Creating a customer centric focus for our employees is critical to our objective under One BrightView. As you can tell, we are highly focused and committed to One BrightView and building a stronger foundation.

Operator

There is a lot of work ahead of us on these initiatives, but I firmly believe these are the areas we must prioritize. Once we have established this foundation, we will have earned the right to expand strategically. M and A can be a powerful lever for growth and generating meaningful returns on capital, but only when it fits strategically, As one BrightView, we have to be the best at what we do for our customers and I'm confident that we can deliver on these goals. Now moving to our results. As you can see on Slide 6, fiscal 2023 was a successful year for BrightView.

Operator

As we achieved solid execution and delivered results in line with expectations, during the year, we focused on targeting profitable growth, Driving consistent EBITDA margin expansion and improving our cash flow. We were pleased with the results In a winter with very little snow. Despite these challenges, we executed our plan for the year. Additionally, During the year, we achieved a transformational reduction in our leverage, driven by the strategic investment from One Rock Capital and our improved profitability. As shown on Slide 7, prior to OneRock, our leverage profile and interest expense payments were restricting our growth and cash flow and reducing the overall financial flexibility of the business.

Operator

By partnering with OneRock, We were able to use those proceeds to pay down debt, resulting in a significant reduction in our leverage and interest expense. This added flexibility allows us to invest in the business with an emphasis on profitable growth. In addition to the financial benefits of this partnership, we are also leveraging OneRock's operational expertise, including previous experience in our industry, which will allow us to accelerate the execution of our strategy. The investment also reflects a strong vote of confidence in BrightView's strategy and potential to drive profitable growth for years to come. With that, I'll turn over to Brett, who will discuss our financial performance and outlook in more detail.

Operator

Brett? Thank you, Dale, and good morning to everyone. I'll start on Slide 9. I am pleased to report on another solid quarter. We grew total revenues by 2.8%, increased EBITDA by $10,000,000 delivered margin expansion in all segments and generated significantly more cash despite increased interest expense.

Operator

Our ability to achieve these results reflects BrightView's attractive business model and gives us confidence as we pursue new opportunities to drive further financial and operational improvement. Moving to Slide 10, total revenue during the quarter increased 2.8% year over year to $744,000,000 reflecting 2.1% year over year organic revenue growth. Revenue during the quarter benefited from demand in our core businesses, favorable pricing and M and A contributions. In our maintenance business, total revenue decreased 1.5% to $521,000,000 as we continue to pursue higher quality contracts, which reflects our relentless focus on profitable growth and margin expansion as we discussed last quarter. We grew our Development business a robust 13.5% organically Due to our ability to convert our strong backlog into higher project volume, we remain very optimistic about the pipeline of projects the momentum of our Development business headed into fiscal 2024.

Operator

Turning now to profitability and the details on Slide 11. Total adjusted EBITDA for the Q4 was $101,600,000 an increase of $10,000,000 driven by both land and development growth, margin expansion in all segments and the strategic asset sale, which came in above expectation. In the Maintenance segment, total adjusted EBITDA of $81,700,000 was up slightly year over year. This resulted in margin expansion of 30 basis points and marks the 4th consecutive quarter of margin expansion in our core land business. As I mentioned, our focus on higher quality contracts led to a modest near term impact on land revenue.

Operator

But as evidenced throughout this year, this strategy led to continued profitability growth and margin expansion. In the Development segment, adjusted EBITDA for the 4th quarter was $29,100,000 an increase of approximately 14% compared to the prior year. Adjusted EBITDA margin expanded 10 basis points, which marks our 5th consecutive quarter of development margin expansion and we expect this trend to continue as we head into fiscal 24. As part of our ongoing initiatives, we executed a strategic sale of our corporate airplane that generated both cash and future cost savings. This sale benefited profitability and cash flow, which allowed us to immediately reinvest back into the business by replacing some of our oldest construction vehicles.

Operator

Important to note in our previous guidance, We assume an approximate $4,000,000 EBITDA benefit from selling the airplane in our corporate segment. Through favorable negotiations, We were able to secure an approximate $7,000,000 benefit to EBITDA on the sale of this asset. Lastly, The sale had both a positive impact on our corporate and environmental initiatives. Turning to Slide 12, I'll provide review our full fiscal year 'twenty three results. Total revenue for the year was $2,820,000,000 which represented a 1.5% increase compared to the prior year.

Operator

Total land services increased 1.7% to $1,860,000,000 reflecting healthy growth despite the contraction in our non core business. Additionally, snow represented a year over year headwind of $47,000,000 due to the absence of material snowfall. Revenue in the Development segment increased a meaningful 8.5% with a robust 6.8% organic growth for the full year. As you can see on Slide 13, we delivered EBITDA growth and margin expansion throughout the year. We committed to growing profitability and expanding margins in fiscal 'twenty three, and we are proud to report that we delivered on these commitments.

Operator

I am extremely delighted with the team's ability to execute this growth and margin expansion despite the challenging operating environment. Let's now turn to Slide 14 to review our free cash flow, debt and capital expenditures for the year. We committed to improving our cash flow in fiscal 'twenty three and delivered upon this commitment. This improvement was a result of higher profitability, A strategic reduction to capital expenditures, favorable working capital and benefit from our tax planning, which more than offset the higher cash interest expense in the year. The reduction in capital expenditures reflects the resiliency and flexibility of our balance sheet in the year with low snowfall.

Operator

For the full year, we generated $80,000,000 in free cash flow compared to $7,000,000 last year. These levels of cash generation reflect the improvement in our business and lay the foundation for continued momentum going into fiscal 2024. In addition to the improved cash levels in the business, we announced a strategic investment from OneRock Capital That contributed to a significant reduction of our leverage profile. This investment resulted in leverage coming down by approximately two turns and reaching a historical low of 2.9x compared to the 4.8x in the prior year. This strengthens our balance sheet and provides us with flexibility and the opportunity to reinvest in the business, specifically towards customer and employee satisfaction, Which as Dale mentioned will lead to profitable growth and operational improvement.

Operator

Let's now turn to Slide 15 To provide an update on Project Liberty, as a refresher on our Q3 earnings call, we announced an expanded strategic review of our business beyond just cost initiatives. These initiatives include areas such as branch performance, customer growth and retention, Procurement and capital allocation was a collective goal of expanding profitable growth and generating higher returns. We have seen the early successes of these initiatives reflected in our EBITDA margin and cash flow performance in the back half of the year. Under Dow's leadership, Project Liberty continues to take shape across the business and has aligned with our goal of becoming a collaborative and unified One BrightView. Brands performance will be driven by investing in our employees, while also aligning sales and operations to better service our customers.

Operator

Profitable growth led by new sales and improved customer retention will be driven by prioritizing the customer and aligning incentives for our employees. We will continue to focus on high quality business, strategic pricing efforts and deliberate capital allocation underscoring our prioritization of profitable growth. Taken together, continuous execution of these initiatives will create higher returns and lead to shareholder value. Let's now turn to Slide 16 to review our outlook for fiscal 2024. Profitable growth will continue to be our guiding factor and key focus.

Operator

We are now providing full year guidance for fiscal 2024 with expected total revenue of $2,825,000,000 to $2,975,000,000 reflecting a range of relatively flat continue to have a near term impact, but we remain encouraged by the underlying health of the market and recent trends within our business. For snow, our fiscal 'twenty four guidance range assumes flat at the low end and a return to 5 year historical averages at the high end. And for development, the conversion of our strong backlog of projects will continue to benefit revenue and margin growth. Moving to adjusted EBITDA, one bright view will be the key driver to growing profit and expanding our margins. In fiscal 'twenty four, we expect margin expansion in both Maintenance and Development segments benefiting from One BrandView key initiatives and disciplined management of the business.

Operator

We expect these improvements to generate margin expansion of 40 to 80 basis points and adjusted EBITDA of $310,000,000 to $340,000,000 In fiscal 2024, we expect a continuation of healthy cash flow generation driven by profitable growth and improved operating performance. Our outlook on Slide 17 reflects the commitment to growth as we expect an increase in capital intensity to support our strategy. These higher levels are consistent with historical requirements to support the business and reflect a more normal snowfall this year. Contributions from reduced interest expense will be managed alongside the ongoing requirements to optimize the business. Altogether, we expect to generate free cash flow of $45,000,000 to $75,000,000 supporting the financial flexibility we maintain today, while enhancing our ability to generate future profitable growth.

Operator

With that, let me now turn the call back to Dale to wrap up on Slide 18. Thank you, Brett. Before we open the call for questions, I'd like to provide a few final thoughts. It's an exciting time at BrightView and I'm honored to be leading such a talented team. There are tremendous opportunities ahead of us.

Operator

We are moving this business forward with a clear strategy and vision for 1 BrightView. We are strategically positioned to accelerate profitable growth and to create meaningful values for our shareholders. We will now open the call for questions.

Speaker 1

We do have our first question comes from Bob Labick from CJS Securities. Bob, your line is now open. Please go ahead.

Speaker 2

Thank you. Good morning and Dale congratulations on your new role and your new position.

Operator

Thanks. Thanks. Thank you very much, Bob.

Speaker 2

Yes. I want To start oh, absolutely. No, very excited for you, for sure. I wanted to start and I think you began the call this way, Reiterate it, your employee first focus will drive customer satisfaction and improve retention and all that kind of good stuff. So that all makes a lot of sense.

Speaker 2

Can you like take it one level further and talk about what you've seen so far? I know it's 45 days, But thoughts on how to improve branch operations and change things, tweak things, what are your intentions operationally to do to grow organically from here?

Operator

First, I think you're right, 45 days, I've had a chance to, as I said, visit many of our associates, some of our customers In different parts of the country. And what I've seen to start with is, we have a very talented group of people that service our customers every day. We have a development group. We have a tree care business. We have a turf business.

Operator

We have an irrigation business. We have a golf course maintenance business and course, our primary business, the maintenance group. All these groups service customers at extremely high levels. Our biggest opportunity, like I said in my statement, is going to be to get everybody operating as 1 BrightView. Getting all these people to leverage their skills together to service our customers.

Operator

And when we do that, Bob, We will accelerate our organic growth internally because we have talented people with the right focus of customers. We just haven't leveraged the ability for them to really act as one team when they go to market to the customer. So that upside is there within our own control of working as 1 BrightView, 1 Group to drive profitable growth. So I would tell you, I am more optimistic than ever by talking to the people in the field because the closer I get to the customer, The more our team is engaged to service the customers. So that's a great way to start when you're going to focus on how can we grow the business And that starts and ends with those people that touch our customer every day.

Operator

And we, as a leadership team, have to find a way to provide them all the tools they need to be able to do it efficiently and make our customers feel the choice they made to choose BrightView It's the obvious choice.

Speaker 2

Okay, great. I appreciate that. And it sounds Obviously, with the employee and therefore customer focus, that's the direction you're going to start with. How does this align with investing in the employees, align with margin enhancements? And is there Low period where you invest more in the employees, you get your improved retention and then later margins start improving.

Speaker 2

Is it How do those connect if you're going to continue to really invest in employees first because obviously the goal being lower churn, higher retention and therefore better growth, The investment comes before the improved retention, right? It can't be simultaneous. So how do you think about that as it relates to margins over the year or next 1, 2, 3 years?

Operator

Yes. I would just say in our business, We have obviously a lot of seasonality, but even the number of employees that we're tasked with hiring to service our customers, training and onboarding every year It's a significant number. And the more we put those employees as our primary focus to give them the tools, the safety equipment, the systems, The vehicles to operate their jobs the right way, the more their job satisfaction will go up and the more we'll see That valuable resource of our employees turnover come down. So that will, Bob, drive margin expansion just by being able to reduce the cost we pay to recruit and onboard employees. So that is our first step.

Operator

And by doing that, that translates to them being able to serve the customer better And help us in that retention, as you said, to drive additional organic growth in the business. But our efforts to onboard and train customers Right now are too high. That's why we have to prioritize our employees, so we can make sure those employees Our embracing its customer centric focused business and they know the importance they play in that journey.

Speaker 1

Our next question comes from Tim Mulrooney from William Blair. Tim, your line is now open.

Operator

Hi, this is good morning, Tim. Good morning, Tim.

Speaker 3

Thanks for taking our questions today. Hey, good morning.

Operator

You're welcome. So So

Speaker 3

it looks like land organic growth was down about 2.5% in the 4th quarter. I think you had previously expected it to be flat. Could you share what drove that decline? Was it primarily attributable to lower contract renewals or lower enhancement revenue or maybe something else?

Operator

Yes. So I'll start off and then I'll kick it over to Brett. I'd just remind everybody, are the customers that fit that profile. And the businesses that we're focused on growing are businesses that are focused in that area, more of our core business as you heard Brett mentioned on the call. So let me let Brett kind of decompose it for you.

Operator

But just remember, our focus It's not just chasing revenue. It's going to be make sure the revenue we bring is accretive to our base business As we bring in new customers. So Brett, why don't you give them a little more detail on the financial side? Yes. Hey, Luke.

Operator

How are you doing this morning? I appreciate the question. Yes. As Dale mentioned, profitable growth is going to be our guiding factor moving forward. And I think as you heard in previous calls, previous quarters, we were growing, but margin was not.

Operator

And I think as you look at this year and you normalize for snow, which we've talked about quite a bit in the margin profile has improved significantly, not only in development business and our maintenance business and corporate segment as well. If you think about organic growth for the quarter, look, I think that drive towards profitable growth and high quality business will continue In the near term as we move forward, we're still getting favorable benefits from pricing. We're still being strategic in those efforts of about 50 basis points with our pricing efforts. We did last year with heightened fuel have fuel surcharges that were in our top line of about 50 basis points as well. So those two things sort of offset From a jump off point Q4 over Q4.

Operator

And then as Dale mentioned, there's a heightened focus on one BrightView bringing all of our businesses together whether it be golf or aggregator business etcetera. And I think if you look at our core underlying land business, we saw very stable demand and growth in that business, offset by maybe some contraction in our non core businesses. But as we move forward under Dow's leadership and really towards 1 BrightView, you'll see that alignment of the businesses, especially over the medium to long term.

Speaker 3

Great. Thanks so much for that color there. And then maybe switching gears here, Just on your guidance for 2024, it looks like you're assuming maintenance land organic growth somewhere between down 2% to up 2%. Can you share what you're assuming in both those situations? And maybe if you could give us a sense breakdown just between pricing and volume expectations as we head into next year.

Speaker 3

Yes.

Operator

I think, obviously, it's a good question. I think If you look at what we've done for guidance is we gave a full annual guide on revenue. And really in that annual revenue guide of $2,825,000 to $2,975,000 We've also given a range for where we believe our snow revenue will come out, which It's 210 to 270. Our Development business, which had an outstanding year last year, we think will continue to grow slightly. So we give a range because we don't want to really break down exactly each component.

Operator

We think potentially as we go through Q1 here, We'll see a similar trend to what we saw in Q4 as we focus our employees so that we can look to enhance our employees So they can make sure they drive retention with our customers. So I know that the change to give annual guide is a little different. So One way I think everybody should think about those numbers is our Q1 would normally be roughly about 22.5% of our total revenue. And then that snow business, you could consider roughly about 25% of it coming in Q1, 75 coming in Q2. And that probably would allow you to kind of back into your assumptions looking at last year's development by quarter Where we think revenue will grow over the next couple of months on maintenance.

Operator

I hope that gives you enough on the pieces, but Brett, do you got anything you want to add or? No, I'm just looking to change in guidance. We're going from prior years where we would only provide Q1 guidance at this point in time. We would not provide Q2 or full year. So, we're now we're going out and providing a full year guide.

Operator

And I think in that land guide, as you can see it on Slide 16 in the presentation, It's minus 2 to positive 2. And because Dale mentioned, we are working through our guiding factor of profitable growth And through that profitable growth mantra and bringing together as one BrightView, what we experienced in Q4 of a revenue impact, we'll Probably experienced in land in Q1 and in the early half of twenty twenty four, but as one BrightView gains traction as we take care of our employees And in turn, they take care of our customers. We're going to get back to that profitable growth over the medium and longer term in this business. Just important to note too, just one last factor, Q1 of last year, Luke, we did have a hurricane impact in the business Of about $7,000,000 we don't see any type of unusual events like that happening right now for this quarter.

Speaker 3

Great. Thanks so much.

Speaker 1

Our next question comes from Phil Ng from Jefferies. Phil, your line is now open. Please go ahead.

Speaker 4

Hey guys, this is Maggie on for Phil.

Operator

Good morning Maggie.

Speaker 4

Yes. I wanted to start out on free cash flow. You had a really impressive step up this year. Can you talk about the nonrecurring benefit from this year and any of the other moving pieces that kind of get you to that fiscal 2024 guidance. And then on the CapEx side, the guide implies a pretty big increase next year.

Speaker 4

Is that more of a catch up for the business or is this a reasonable level to assume Going forward.

Operator

Yes, Maggie, let me start. I'll take the back half of your question with the capital and then I'll kick it over to Brett on the free cash flow. I think as Brett had commented, the business did the right things In 2023, when we made strategic decisions to manage the capital down when we saw the snow business with the record level of reduced snow that we saw last year and the business reacted very well, thus demonstrating our ability to flex the business up or down And drive it by our CapEx and produce the free cash flow that we did. As far as the future guide on that free cash flow, I think a healthy range is probably closer, maybe 3.5% that Brent mentioned is a little elevated. But I do think there's a plan for us To drive maybe a little shorter term use of our vehicles and get a little more residual value as we go through the process, We're going to have a little catch up on that because don't forget these vehicles that our employees operated in, they are our billboard that goes out and visits our customers.

Operator

So The appearance of those that our employees work in every day is critical for our brand that we represent the customers. But Let me kick it over to Brett and he can give you some on the non reoccurring. Yes, Maggie, great question. Look, first off, I'll say we are extremely pleased with our cash flow performance this year. Coming off the year in FY 2022 where we generated $7,000,000 of free cash flow, and then we went and bought acquisitions after that and essentially took out debt Excited to report we delivered great cash flow performance of $80,000,000 in the year, and we actually put money into the bank to keep on the sidelines for future strategic investments in the business.

Operator

So extremely pleased about that. As you think about last year to this year, the $7,000,000 to the 80,000,000 Yes, we saw as it wasn't snowing in Q2, we made a strategic decision to pull back on CapEx. That benefited our cash flow year over year, roughly $50,000,000 for the CapEx year over year down. But look, I think that was very strategic and shows the flexibility of our balance sheet as Dow mentioned. In the year with low snow, we're able to flex Capital down a bit and years as we're guiding in 2024, we're expecting a more call it historical snowfall, we would flex that CapEx guide up a little bit.

Operator

And you think about 'twenty four guidance, a range of cash flow of $45,000,000 to $75,000,000 That's coming off the year where we did have about $25,000,000 of one time favorable impacts in our cash flow, whether it was related to tax benefits we got from our tax planning or partial sale of our interest rate hedge we had on our collar. But regardless of that, as you think about 'twenty four guide, we're looking at guiding to a point of $60,000,000 to even at the high end $75,000,000 $80,000,000 of free cash, which Put us back to where this year was and that's through improved operating results and some of the savings on our interest expense, Which as you can see we're redeploying capital back into the business. So dollars we're saving on capital, dollars we're saving I'm sorry dollars we're saving on interest and dollars we're saving In other areas of the balance sheet, we'll redeploy back in the capital. As Dale mentioned, we'll refresh our fleet and be able to put our employees in a Much more favorable working environment every day.

Speaker 4

Okay, great. That's super helpful. And then Dale, you kind of touched on this in your prepared remarks, but the guide for next year assumes minimal contribution from incremental M and A, which has previously been a bigger focus for the company. On deals in fiscal 2024?

Operator

Yes. Great question, Maggie. First of all, I am an Absolute firm believer in M and A. I am a supportive person that when we can make an investment, When we can be a better owner of the asset, we should take advantage of that. And as being the nation's largest landscape provider, we should be able to do that.

Operator

Unfortunately, I think historically, the way we've done M and A at BrightView needs to be revamped. We have to get our operators involved earlier. We have to evaluate M and A, not just on the short term financial benefits. We have to look at Culturally and strategically as important as just the initial math. And then the day that we buy a company, we must integrate it into our business.

Operator

We are going to put our precious capital to work deploying it for M and A. So, we have to find a way to make sure our foundation is ready that When that capital gets deployed, we grow that business and we grow it very profitably because as the owner of that business, we can leverage our size and scale to provide our processes, to provide our systems and corporate overhead that they shouldn't need on their own. So, I am a firm believer in M and A. Maybe for the next couple of quarters, we don't plan on doing much, but we have already started to revamp our process to get everybody working together, Starting with our field leaders to make sure the deals we do are the right deals. And then as we bring them in, We find a way to make sure we're a much better owner of that asset as part of BrightView.

Operator

So make note, we didn't put a lot into our guide, But make no bones about it. I am a firm believer in M and A. We just need to pause here to make sure we get ready. So once we do M and A, it creates shareholder value for all of our shareholders.

Speaker 4

All right. Thanks, guys, and good luck on the next quarter.

Operator

Thanks, Maggie. Thanks, Maggie.

Speaker 1

Our next question comes from George Tong from Goldman Sachs. George, your line is now open.

Speaker 5

Hi, thanks. Good morning.

Operator

Good morning, George.

Speaker 5

You talked about engaging in contract optimization in your maintenance business. Hi. In order to drive profitable growth, can you elaborate on some of the initiatives there? In other words, are you pruning existing contracts? Are you turning down new business with unfavorable terms?

Speaker 5

And then when would you expect this initiative to be largely complete?

Operator

Yes. So it's a good question, George. What I would say is, as Brett talked about, through our price realization, Our focus on every account is to make sure as we feel some of those inflationary impacts, we find a way to work with our customers To make sure that the service we're providing reflects the value they see. Sometimes that creates price Increases, sometimes it's service reductions because they don't want to spend more money and we partner with our customers to find a way to make sure it's a win win situation. So what I can tell you is we continue to evaluate all of our businesses to make sure they're working together well And every part of our business is accretive to our customer value that we put out there.

Operator

So after 45 days, I think the team is doing the right thing. And I also think there's a better way for us to go to market to look at new accounts that could fill out our existing route. And our partners at One Rock have really helped us start to look at ways that we can enhance the profitability of existing routes just by adding strategic customers. So, I don't think that's an onoff point. I think it's going to be an evolution for us to continue to go through and continue to focus on because that is the essence of this business, route optimization, enhancing making sure that our people service the customers and finding customers that can fill in those routes.

Operator

And I was looking at what it costs us to service the business that we're providing. So, I think short term, we made some decisions. But long term, George, it's a much bigger discussion About how are we going to manage the business long term. And as One BrightView, that's where we really see the benefit for our customers.

Speaker 5

Got it. That's helpful. And then in Development, you had strong 7% organic revenue growth on a full year basis and this followed Pretty strong growth of 10% organic in fiscal 2022. Can you unpack the strong growth in development you've been seeing and the extent to which The development business has structurally stepped up in growth potential to something north of 5% organically?

Operator

Yes. It's a great question. First, we have a very strong backlog in our development group. And I think as many people know, the economy has been on a roll and some of that backlog is at the end of those jobs that have occurred over the last couple of years in the construction industry. So that team has done a very good job securing a backlog of business, well north of what we would typically see at this time.

Operator

But Let me let Brett unpack it a little bit for you, if that would help. Yes, George. Look, I would echo Dow's comments. The backlog is strong. We see No signs of any type of weakening in the economy.

Operator

We see no signs of any type of recession looming. Our backlog and development is as high as it's ever been to the historical high levels. In 2022, we reported revenues of $700,000,000 23 is close to $760,000,000 and we're guiding at the midpoint of 3.5% growth on 2023 results. So, We see no slowing down of that business. We see quite the contrary.

Operator

We're selling as of this point, we're selling really into Q3 and Q4 of 24. And then as we get through this quarter, the next quarter, we'll be selling into 25 at that point. So just really, really robust growth in that business. We're very bullish on their ability to grow their backlog and to put the projects in the ground. And by the way, they just posted their 5th Consecutive quarter of margin improvement in that business.

Operator

We're extremely excited about and we expect that margin improvement to continue as you can see in our guidance for 2024.

Speaker 5

Got it. And just to follow-up on the second half of the question, to what extent do you think structurally the growth has That's up to maybe something north of 5%. At the midpoint, you got into 3.5%. In other words, is there upside potential given the strength that you just talked about in the Development business?

Operator

Yes. George, I would say there's always potential for upside and this business is very dependent on cycle somewhat dependent on weather as you get into the winter months. But as you think about the business in general, it's been pretty consistent growth year over year on full year basis. I think as you look at our full year guide and you think about last year, Q2 saw a small revenue decline in Q2 of 2020 3, but you can see for the full year basis the business growing north of 7% organically. We feel very bullish that over a course of a full year that business will grow.

Operator

Could it grow more than 5%? That's a possibility. But I think as we stand here today and really look at margin improvement in that business as well, which has been a focus And being more selective in projects that we sell, we still expect to grow the business revenue, but margin has to come along with it, which we showed in 2023, And we expect margin to come along within in 24%. And that may mean not growing at 10% to 15%, that may be growing at 5% with higher margin. Yes.

Operator

And George, let me jump on it. I think Development has been I mean, I would just add, George, I think the Development business for us has been a key area of growth. Where we need to get better as a team is finding a way to convert that development business that we generate 2 new maintenance business and that's where that one bright view will come into play. We have one of the top 50 specialty companies in construction in North America and they do some of the biggest development on landscaping projects in the country. We need to find a way to make sure we have a successful handoff from that development to our maintenance team as 1 BrightView.

Operator

So this is the lead in to help that organic growth on maintenance. So I like that it keeps growing and our team in the field continues to enhance And Beautify our communities, now we just need to convert that over to future maintenance revenue, so we can get the maintenance group growing just as fast as the development group.

Speaker 5

Very helpful. Thank you.

Speaker 1

Our next question comes from Andy Wittmann from Baird. Andy, your line is now open.

Speaker 6

Great. Thanks and good morning and thank you for taking my questions. I have several questions, but I think maybe the one I'll start with Has to do with, I guess, Project Liberty and other business transformation costs. The question being, obviously Project Liberty has been in flight for some time now and many of the actions have already been taken and some of the cost benefits realized in 2023. I was just wondering how much cost benefit from actions already taken so far on Project Liberty are going to be benefiting your profit margins in 2024.

Speaker 6

So in other words, what hasn't been recognized in the annual run rate of those cost reductions so far? Maybe, Brett, if you could talk about related item to that, what do you expect for the business transformation costs here in 2024?

Operator

Yes. So that's a great question. Andy, I would just say at a high level, Project Liberty was focused on some initial benefits from cost saves. And if you go back, it started out as project accelerate. So I think we've seen a lot of that.

Operator

We still have an area to go when it comes to the procurement initiative that we'll work through in 2024. But as you've heard, we're going to try to transition from primarily those cost save initiatives to more of that one BrightView approach Where we can focus on customer retention and on new account conversion to make sure we're growing the business at the same time, so we can leverage That's size and scale. But Brent could probably give you the numbers. Obviously, the benefit we said that would come in 2020 $4,000,000 of $20,000,000 is embedded in our guidance that you see coming out with a midpoint EBITDA at $325,000,000 But I'll let Brett talk to what he feels came in During 'twenty three and where we're at towards our run rate for 'twenty four. Yes.

Operator

Andy, look, as you think about 2023, we said on our last Call, we saw about $2,000,000 or so realization from Project Accelerate, which was just a cost cutting initiative essentially. And then as we morphed into Project Liberty on our Q3 call, we mentioned that we would see $20,000,000 plus of savings related to the entire project. We saw roughly another $2,000,000 to $3,000,000 savings come through in Q4 related to the original Accelerate and some early signs of Liberty. But As you think about our guidance for 2024 and Liberty now morphs into 1 BrightView, 1 BrightView is just going to be the way we operate the business. We're going to take care of our customers who in turn take care of our employees who in turn take care of our customers.

Operator

And if you think about our guide For 2024, we're guiding at a midpoint of 60 basis points of margin expansion. We're guiding at a midpoint of $26,000,000 of EBITDA growth. That's inclusive of 1 BraveView or as previously talked about as Project Liberty. And to able to get to that transformational cost able to get to that to get to Project Liberty AKA 1 BrightView and move that needle forward. We don't expect any significant increase in transformational costs above what we had this year, right?

Operator

This year we went through a CEO change. We had some Business transformation cost that was related to that and some transition to the new CEO. We don't expect the transformation of getting from Liberty to 1 BrightView and the way we operate the business to have any type of significant impact on our cash flow that hasn't been already included in our guidance.

Speaker 6

Okay. That's really clear on the transformation costs. So I heard a couple of $1,000,000 in 3Q saves, Maybe $3,000,000 in 4Q save. So the implication being that if you're going for 20, you've got about 15 coming, benefiting the 24 EBITDA. Is that the quick summary?

Operator

Yes, that's a quick summary, but just as we think about moving forward and we get on our next calls and we talk about 1 BrightView, this is the way we're going to operate the So, we are morphing a project that had a sticker tag on it of $20,000,000 to the way we operate the business And the way we operate their business will be included in our future guides. And we did our best to include that in our full year guide this go around $310,000,000 to $340,000,000 So yes, I would say that includes somewhere around $15,000,000 of call it legacy Project Accelerate, Project Liberty, But the remainder of the improvement in that guide is going to just be the way we run the business.

Speaker 6

Yes. Okay. That's helpful. And I guess stepping way back, I guess just philosophically, Dale, being the new leader of this company, it's Always such an opportune time when things can use a change to kind of step back and take As it comes to guidance philosophy, I guess, it seems like this would be a time where you guys put out a guidance, which Has very little expectations or low bar, knowing that you've got the opportunity to kind of clear the decks and reset things. Is that the way we should kind of think about this guidance from here?

Speaker 6

Or is this, is there a different approach in terms of how you Formulated the approach in putting this guidance together?

Operator

No. I definitely think our guidance is a guidance that we feel comfortable with, with an EBITDA range that's well above the $2.99 we delivered this year. So I don't see by any means it being a conservative range. Going from 310 to 345 is 340 is very realistic or 345 is very realistic. So I think somewhere around that 325 is a good starting point for us.

Operator

Now to be fair, we don't know how much it's going to snow and we don't know when it's going to snow and we gave you a guide on that range. If it snows at the high end Of that expected $210,000,000 to $270,000,000 we can come in at the high end of that range. If it doesn't snow like it didn't snow last year, There's a chance we'll come in towards the low end, but I wouldn't look at the guide as a complete we're trying to be conservative as we come out. We feel that where our plan is this year with what we felt in Q4, we're realistic to get into this range where we come up where we came out with to start the year. And shifting from giving quarterly guidance to giving an annual guidance, that's a big shift.

Operator

I think we are going to start Helping people see what we plan on doing for the full year versus just running the business tactically quarter by quarter.

Speaker 6

Okay. That's helpful context. Thank you very much.

Speaker 1

Thanks, Andy. Currently, we have no further questions. So I'd like to hand the call back to Dale Asplund for closing remarks. Please go ahead.

Operator

Thank you, operator. And thank you to everyone for your interest in BrightView. As you can tell by our tone, we are very excited about the opportunity ahead for BrightView And I'm thrilled to be leading this great company through this improvement period. Our objectives are clear. We are committed to becoming 1 BrightView, Growing profitably and creating meaningful shareholder value.

Operator

I look forward to getting to know many of you in the weeks months to come. There's a lot of work ahead of us, but for the future is bright for BrightView. Thank you. Operator, you can now end the call.

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Earnings Conference Call
BrightView Q4 2023
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