Good day, and thank you for standing by. Welcome to the BrightView Third Quarter Fiscal Year 2021 Results Conference Call. I would now like to hand the conference over to your speaker today, Mr. John Shave, Vice President of Investor Relations. Please go ahead.

Thank you, Rein, and good morning. Before we begin, I would like to remind listeners that some of the comments made today, including responses to questions and information reflected 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 details on the risks and uncertainties that could impact the company's future operating results and financial condition. Comments made today will also include a discussion of certain non-GAAP financial measures. Reconciliations to comparable GAAP financial measures are provided in today's press release. Disclaimers on forward-looking statements and non-GAAP financial measures apply both to today's prepared remarks as well as the Q&A. For context, BrightView is the leading and largest provider of commercial landscaping services in the United States with projected annual revenues of approximately $2.5 billion and 7x our next largest competitor. Together with our legacy companies, BrightView has been in operation for more than 80 years, and our field leadership team has an average tenure of 14 years. We provide commercial landscaping services ranging from landscape maintenance and enhancements to tree care and landscape development. We operate through an integrated national service model, which delivers services at the local level by combining our network of more than 240 maintenance and development branches with a qualified service partner network. Our branch delivery model underpins our position as a single source end-to-end provider for a diverse customer base at the national, regional and local levels, which we believe represents a significant competitive advantage. We also believe our customers understand the financial and reputational risks associated with inadequate landscape maintenance and consider our services to be essential and nondiscretionary. I will now turn the call over to BrightView's CEO, Andrew Masterman.

Thank you, John, and thanks to all of you for joining us this morning. I am pleased to report that our 11.7% maintenance land organic growth, underpinned by our 7% organic contract growth has returned us to 2019 revenue levels. Furthermore, this maintenance-driven growth has fueled our EBITDA improvement for the quarter. We continue to deliver earnings and acquisition growth, and overall, it was an excellent quarter despite operating in an environment presented with a whole host of new experiences and challenges such as labor headwinds and materials inflation. Our team of more than 20,000 employees continued to go above and beyond. Their perseverance made it possible for us to deliver the strongest maintenance land organic revenue growth since our IPO, combined with continued robust free cash flow generation while maintaining our focus on health and safety. While we always have more work to do and more progress to make and we know that COVID outbreaks are continuing to affect many facets of our economy, I am extremely proud of these results and the effort and tireless commitment of our team. We believe that this is the underpinning of our guidance going forward. Starting on Slide 4, let me first provide an overview of our third quarter results. First, our third quarter was fueled by maintenance land organic revenue growth of 11.7%, which was the strongest since our 2018 IPO. This expansion was driven by continued growth in our contract business as well as a rebound in ancillary services. Second, as a result of the strategic investments we have been making in our sales force, maintenance land organic growth trends improved for the fourth consecutive quarter. Our net new sales in fiscal Q3 were the highest Q3 ever for BrightView. We are confident in our ability to continue to drive positive net new business, resulting in sustainable organic growth. Third, Free cash flow generation continues to be robust. During the third quarter, we generated $37.3 million of free cash flow. Sustainable, strong free cash flow will allow us to further execute upon our M&A strategy while simultaneously reducing our leverage ratio. Fourth, driven by maintenance land growth, total adjusted EBITDA of $93.6 million grew by 2.9% and our adjusted EBITDA margin was 13.9%. Over the trailing 12 months, we have produced $303 million of total adjusted EBITDA. And finally, the results of our Strong-on-Strong acquisition strategy benefited our revenue by $33 million during the third quarter. As we commented before, our acquisition pipeline is attractive, and we expect that M&A will continue to be a reliable and sustainable source of revenue growth. Before we turn to the details of our third quarter, let me provide you with our outlook for our fourth quarter and fiscal year 2021 on Slide 5. Our total revenue of $673.6 million exceeded the third quarter guidance provided on our last call and total adjusted EBITDA was in line with our projections. As expected, we continue to see COVID-19 impacts, specifically labor availability, but we are optimistic about our ability to deliver fourth quarter and full year results. Our maintenance land contract based business and demand for ancillary services is growing. Our primary end markets, homeowners associations and commercial properties remain viable. 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 land organic growth of 5% or more. In our Development segment, we experienced pandemic-related obstacles regarding job delays, cost pressures and supply chain issues, all of which collectively put pressure on revenue and our margins. In development, one external tracker we monitor is the Architecture Billings Index. The ABI is an economic indicator for nonresidential construction activity with a lead time of approximately 9 to 12 months. In February, the index returned to an expansionary mode for the first time since the start of the pandemic. During the second quarter, the ABI continued to rebound and accelerate. And in June, the index was near the highest levels ever, and we are optimistic that modest organic growth trends should return towards the second half of fiscal 2022 and into fiscal 2023. As a result, for our fourth quarter, we anticipate total revenues between $640 million and $660 million versus $608 million in the prior year and adjusted EBITDA between $89 million and $93 million versus $90 million in the prior year. And for our fiscal 2021, we anticipate total revenues between $2.52 billion and $2.54 billion versus $2.35 billion in the prior year and adjusted EBITDA between $302 million and $306 million versus $272 million in the prior year. We forecast the $170 million to $190 million increase in revenue and $30 million to $34 million increase in adjusted EBITDA will be driven by maintenance land organic growth, improved M&A execution and higher levels of sample. Moving now to Slide 6. Since the beginning of fiscal 2021, we have announced 7 acquisitions that position us as market leaders in several key MSAs. We are pleased to welcome Bay Tree Landscape and West Bay Landscape to the BrightView family. These acquisitions complement our existing presence in these markets. Bay Tree Landscape is a full-service landscaping company founded in 2014 by industry reference with over 80 years of combined experience in the green industry. With 6 primary locations and a skilled labor force of approximately 370 team members, Bay Tree is recognized as a leader in the Atlanta and Charleston, South Carolina markets. With an attractive mix of work and track record for growth, and success, Bay Tree is listed as #49 on the most current release of the Lawn & Landscape Top 100. WestBay Landscape, a service leader in the desirable Southwest Florida market is one of the region's premier landscape maintenance companies. The company with 125 trained personnel provides a mix of revenue with both maintenance and enhancement. This acquisition strengthens our presence in a desirable market. We expect these 7 acquisitions to add approximately $150 million in incremental annualized revenue, offset by the disposal of our tree growing company last year. 2021 has been a record year for M&A, and we have achieved our fiscal 2021 M&A revenue target and still have attractive opportunities in our pipeline, which continues to develop. As we progress, we will continue to update you on this core strategy. Turning to Slide 7. We remain focused on driving maintenance land growth. Our maintenance land business represents the core component of maintenance, including mowing, edging, pruning, trimming, blowing and other core landscaping services and in 2020 represented approximately two-thirds of our maintenance business. Maintenance land organic growth of 11.7% during the third quarter of fiscal 2021 represented sequential organic improvement for the fourth consecutive quarter. Inclusive of acquisitions, maintenance land revenue was up 16% versus prior year. Additionally, we realized strong organic growth across all three of our maintenance divisions, Evergreen East, Evergreen West and Seasonal, further proof that our strategy is working. Net new sales in fiscal Q3 was the highest Q3 ever for BrightView and significantly ahead of 2020, a bullish indicator for 2022. This is a direct result of our expanded sales team, sales enablement technologies, continued focus on improving retention and positive net new sales. We are confident in our ability to deliver at least 2% to 3% sustainable annual organic growth going forward, approximately twice the industry average. Turning to Slide 8. We continue to be leaders in environmental, social and corporate governance, or ESG. We truly embrace our ESG strategy and it is embedded into our corporate foundation and culture. The E element of ESG is the assessment of how BrightView interacts with the environment and how we perform as a steward of the physical environment. The E takes into consideration our utilization of natural resources and the effect of our operations on the environment, both in direct operations and across our supply chains. BrightView is actively engaged in looking for ways to practically address environmental responsibility and achieve carbon neutrality, a few of these are highlighted on this 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 100 electric vehicles over the next 12 months. Furthermore, we plan to convert 20% of our management vehicle fleet for the next 24 months. Second, in greener equipment, we are transforming mowers to electric and all other equipment through sustainable power while deploying electric utility vehicles. Third, efficient buildings. BrightView strives to improve energy efficiency and convert to green energy. We will meet alternative and solar energy solutions and replace outdated energy equipment and appliances. Where possible, we will convert all electrical service to our buildings to sources of alternative energy. Fourth, sustainability. BrightView is committed to sustainability. We continue to proactively and purposefully plant trees, reduce pollution and implement green energy as a way of reducing, sequestering and minimizing our carbon footprint. Although capital investments will be required to build our electrical infrastructure, fuel and other savings will result in an attractive return on investment. We are in the early innings of our journey. During calendar 2022, we plan on issuing a formal sustainability report. This will allow BrightView to report our environmental and social performance as well as having publicized ESG goals. Moving now to Slide 9. Our scale drives technology advantages that automate and enable more efficient processes from a few perspectives. First, technology allows us to further engage our existing customers and prospective customers. BrightView has invested in industry-leading technology to support our customers while enabling our field-based account and branch management, HOA Connect, quality site assessments, and Salesforce CRM software have all been recently implemented as digital tools to improve retention, support property enhancement and increased ancillary penetration. Second, our Technology Solutions extend business and operational analytics for improved decision-making and process efficiencies. Unified dashboards and combining data from multiple sources allows field teams to efficiently support labor and material plans. And third, technology allows us to improve crew and vehicle safety tools that optimize fleet utilization — in-cab cameras with artificial intelligence will help identify and correct potential safety issues. Telematics will provide safety and efficiency data to help improve fuel utilization, route efficiency and safety. Furthermore, an updated fleet management system will further enhance our equipment ordering transfers, dispositions and maintenance. Our investment in technology drives safety compliance and greater effectiveness in all aspects of our business. We are excited about the progress we are making because we believe customer engagement and satisfaction ultimately drives financial performance. I'll now turn it over to John, who will give some further color on these initiatives and discuss our financial performance in greater detail.

Thank you, Andrew, and good morning to everyone. I'm very pleased with the results we delivered in our third quarter. The organic growth of our maintenance land business drove EBITDA improvement, strong free cash flow and overall excellent results. Efficiencies gained from our investments in technology and our ongoing focus on productivity and cost management have been meaningful in driving improved performance and collectively underscores the strength of our business. Turning to Slide 11. Third quarter revenue increased 10.8% versus the prior year to $673.6 million. Maintenance revenues increased 15% versus the prior year to $524.6 million. The results are a combination of solid growth in our contract business as well as a rebound in our ancillary services, which led to 11.7% organic growth. Additionally, we realized $18 million of incremental revenue from acquired businesses, investments in technology to support our sales and account manager teams, our enhancing customer relationships and driving both organic growth and strong cash generation. For the three months ended June 30, development revenues of $150.3 million declined 1.6%. Excluding the impact of the BrightView Tree Company divestiture, development total revenue would have grown 2.2%. While we expected COVID-related softness to be more pronounced in the third quarter versus last year, we are also encouraged by increases in our development bidding pipeline. And we anticipate increased stability during fiscal 2022. Turning to Slide 12. Total adjusted EBITDA for the quarter was $93.6 million — an increase of 2.9% or $2.6 million increase versus the prior year. Higher labor driven by overtime, the Juneteenth holiday and material costs resulted in a 110 basis point contraction and EBITDA margins of 13.9%. In maintenance, adjusted EBITDA of $90.6 million represented an increase of $7.3 million or 8.8% from $83.8 million in the prior year. The increase was driven principally by organic growth in our contract business as well as a rebound in ancillary services. Adjusted EBITDA margin of 17.3% reflected a 100 basis point reduction from the prior year level. The decline was driven by higher labor, the impact of newly acquired businesses and the Juneteenth holiday. In development, adjusted EBITDA decreased $3.1 million to $18.7 million compared to $21.8 million in fiscal Q3 of 2020. The decline was driven by lower revenue and higher material costs. Operationally, we continue to face pandemic-related obstacles, including cost creep, supply chain issues and labor-related issues affecting the trades in our production cycle. Development adjusted EBITDA margin of 12.4% reflected a 190 basis point decline driven by the aforementioned issues. Corporate expenses for the fiscal third quarter were $15.7 million, representing 2.3% of revenue, consistent with the same quarter last year. Now let me provide you with a snapshot of our revenue results for the nine months ended June 30, beginning on Slide 13. Total revenue for the company increased 8.2% to $1.88 billion. In maintenance, for the nine months, revenues were $1.48 billion, a $189.7 million increase or 14.7% versus 2020. In development, revenues decreased 10.4% to $404.7 million. As we reported in May, COVID-related softness was more pronounced in Q2 versus last year. Relative to Q2, we have witnessed improving trends in Q3 and expect continued improvement in Q4. Turning now to Slide 14. Total adjusted EBITDA for the first nine months of the fiscal year increased 17.2% to $212.8 million compared to $181.6 million in the prior year. Adjusted EBITDA for maintenance increased to 23.8% to $212.5 million compared to $171.7 million in the prior year. This $40.8 million improvement was driven by maintenance land organic growth, acquisitions and snow removal revenues driven by organic growth and increased snowfall. Adjusted EBITDA for development decreased $8.5 million. This year-to-date performance shortfall was impacted by lower revenues and higher material costs. Corporate expenses for the first nine months were 2.5% of revenue, a 10 basis point improvement compared to the prior year. In the fourth quarter of fiscal 2021, we expect modest expense headwinds as a result of reinitiating our 401(k) matching contribution and increased year-over-year incentive compensation driven by our improved results. As we discussed during our last call, the impact of these items will be approximately $4 million to $6 million in Q4. We expect continued higher labor and material costs to impact margins in both segments, but have implemented corrective actions to aggressively address these headwinds. Let's move now to our balance sheet and capital allocation on Slide 15. Net capital expenditures totaled $37.2 million for the first nine months of fiscal 2021, down from $42.1 million in the first nine months of fiscal 2020. Expressed as a percentage of revenue, net capital expenditures were 2% of revenue in the first nine months, and we expect fiscal 2021 capital expenditures to be approximately 2.5% of revenue. As a result of supply chain constraints at our vehicle and equipment suppliers, advanced purchases initiated to support growth will result in increased levels of capital expenditures in 2022 to circa 3% to 3.5% of revenue. In the first nine months of fiscal 2021, we funded approximately $106.2 million of acquisitions versus $86.5 million in the first nine months of fiscal 2020. Our net debt decreased to $1.05 billion at the end of fiscal Q3 2021 versus $1.1 billion at the end of fiscal Q3 2020. Our leverage ratio was 3.5x at the end of the third fiscal quarter of fiscal 2021 versus 4.1x in the prior year quarter. Based on our full year fiscal 2021 midpoint of guidance and coupled with initiatives that we have ongoing, we are on a solid trajectory to further improve this key metric. Our free cash flow performance in Q3 continued to be solid despite higher accounts receivable during our snow season. This was driven by our solid EBITDA results, timing of capital expenditures, lower interest expense and strong net working capital performance. On a year-to-date basis, we have generated $96 million of free cash flow and expect another year of consistent and predictable cash flow. An update on liquidity is on Slide 16. At the end of the third quarter of fiscal '21, we had approximately $207.7 million of availability under our revolver, approximately $70.5 million of availability under our receivables financing agreement and $125 million of cash on hand. Total liquidity as of June 30, 2021, was approximately $403.2 million. This compares to $301.5 million as of June 30, 2020. This gives us ample flexibility to further implement our strategy. Overall, we are pleased with our year-to-date performance. We are confident in our full year guidance and the momentum we plan to carry into fiscal 2022. With that, let me turn the call back over to Andrew.

Thank you, John. Our third fiscal quarter results were excellent. The operating and financial performance we delivered is sustainable, and we know we can deliver. And most exciting is that we see so much more opportunity and potential. In summary, here are the key takeaways on Slide 18. First, the market. We are seeing signs in all maintenance verticals of the impact of the pandemic is subsiding and business is recovering. The fundamentals of our business and our industry remain strong, and we are optimistic about our ability to drive sustainable organic growth. Second, growth. Our investment in our sales team is driving sustainable organic growth. Our maintenance land organic growth of 11.7% was the strongest since our 2018 IPO. Net new sales in fiscal Q3 was the highest Q3 ever for BrightView. We will deliver 5% plus maintenance land organic growth in Q4. Third, technology. We continue to remain focused on deploying technology to enhance productivity, profitability and client engagement. We are expanding adoption of HOA Connect, facilitating direct customer communication with our teams — our expanded usage of the Salesforce customer relationship management tool and quality site assessment software continues our focus on customer retention and supporting property enhancements. 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. Digital marketing initiatives in new markets and verticals with a more effective omnichannel approach continues to support the success of these expanded sales teams. Our sales and marketing strategies and structure are our formula for long-term success and our investments in field-based sales and operations leadership will drive stronger new sales and result in improved client retention, while further streamlining our service delivery. Fifth, M&A. The results of our acquisition strategy continue to benefit our revenue growth and with an attractive pipeline, acquisitions will continue to be a reliable and sustainable source of growth. Our business is cash generative with low capital intensity, allowing us to consolidate the marketplace in an efficient and disciplined manner that we have shown to be repeatable. Combined with our horticultural knowledge and excellence and our ability to operate multiple service lines under one banner, we believe we are well positioned to drive solid performance in Q4 and beyond. And sixth, cash. At the end of the third fiscal quarter, our leverage ratio continues to be at a historic low for BrightView. We are on a trajectory to further improve this metric and expect to drive closer to a leverage ratio of 3x. Most importantly, I would like to personally thank our dedicated employees, families, clients and partners for their resiliency and commitment during a challenging time. Our focus on taking care of each other and our customers and taking pride in how we engage with our clients and the beauty of their properties, we design, develop and maintain has sustained our organization. We will continue this focus on our people and our culture to deliver confidence in the future that lies ahead. In closing, please join us in a virtual format on September 21 for our BrightView Investor Day 2021. Presentation and question-and-answer sessions will be presented live from BrightView headquarters in Blue Bell, Pennsylvania. I'm excited to showcase our high-quality operating officers and division heads, and we will also share BrightView's plans for growth, profitability and long-term capital allocation. Our formal advisory and Investor Day agenda will be released shortly. Thank you for your attention this morning. We will now open the call to your questions.

The first question comes from George Tong from Goldman Sachs.

On Slide 7, you're forecasting for fiscal Q4 this year, a step back in organic and reported maintenance land revenue from fiscal Q3 levels. Just wanted to clarify whether that's seasonality or if there are other factors driving that performance?

Yes. The overall organic growth and growth we're seeing overall is really the result of the sales force investments we made, George. The overall seasonality — the fourth quarter continues to be a good green season for us. We have no question about that. And it is across the board, whether it's evergreen markets or seasonal markets. But the overall contract growth really is the result of increased sales levels coming through the company. And we believe this is going to be something that's growth not only on 2020, but also over 2019.

Okay. Got it. And then if we look at the margin side of things. You mentioned higher labor and material costs and the fact that you're taking corrective actions to address these higher input costs. Can you perhaps elaborate on that? What are some of the initiatives that you have to work through those higher costs? And what are the implications for margin flow through?

Yes. First and foremost, we certainly have seen some of the inflationary pressures that we've seen throughout the country. Fortunately, something that has happened here in the fourth quarter is — and it's just happening right now — is that we've been able to take some H-2B labor coming into the marketplace, which is allowing us to actually fill those slots that haven't been filled but we have to cover with overtime. Those folks are arriving as we speak. They're a little later than we initially expected through some of the government processes that we've had to go through to get them. But here in August, they're arriving, and we expect as we get towards the end of Q4 and into Q1, that should have a very strong impact for us.

Your next question comes from Andy Wittmann from Baird.

Great. I do have a couple. I guess, just talking about labor, I guess, to start out with either one of you, I guess. Could you talk about the mechanism for which labor is inflating? Is it because you're paying overtime, because of lack of availability? Is it average rates? Just some detail about — is it inefficiency because there's new people. There's a lot of ways that can hit you. And so I was just wondering what it is. And if you could quantify what the impact of labor was on your profit margins year-over-year, I think that would be helpful. Last quarter, you guys said it was running a couple of hundred basis points higher inflation than normal levels. Is that still the rate? Or is it more than that now three months later? Just kind of curious.

Yes, Andy. A lot of questions in this. Let me go back and layer those and give you some color. Starting with you first, the labor is definitely more expensive. It's less efficient, caused us to have more overtime due to the labor shortage. Historically, I think we've been very clear that we've seen inflation around 4% to 5%. We're seeing it closer to 5% this year. Historically, we've been able to offset that or mitigate that with price increases. That's been more challenging through COVID. We definitely plan to reinitiate that towards the end of this year and into 2022. And we have been able to adjust some of that through scope. At the end of the day, we are taking several actions to be creative in attracting labor. Andrew mentioned one of them. We were lucky to get H-2B labor, but we did get it a little bit later than we expected. So that was a challenge, but we've also done things to expand our hourly workforce recruiting pool around flexible work schedules, flexible start times, doing things on the weekend, things of that nature. So a lot of attention on labor, as you can imagine.

Got it. And then I guess just for a follow-up, it's always helpful for us to understand what your ongoing M&A program that you guys are still committed to, the delta every quarter. So I guess you said there was $150 million of annualized revenue that's been added this year. I was wondering how much of that $150 million is going to hit this year. Just looking compared versus how much was supposed to be added last quarter. So just basically trying to figure out the delta of revenue and guidance from incremental last quarter.

Yes, Andy. We certainly have had a high level this year at $150 million. In addition, though, that has not all been in the maintenance area. We've had a split between development — that's the nature of some of the deals that have come through. In addition, we've had a divestiture last year, which has impacted this complete year of our tree company. So you need to take down that $150 million by somewhere, I would say, around $30 million due to the tree divestiture. So that nets to about $120 million, and that all hit us here in — as far as the divestiture was completely reflected within fiscal '21. So if you look at the net of it all, we're going to achieve all in somewhere between $80 million to $90 million. Probably as we factor in some of the recent acquisitions, perhaps as high as $100 million in this fiscal year, with wrapping about $20 million to $30 million in the next year. So somewhere, let's call it, $90 million to $100 million this year and $20 million to $30 million next year of what we have already done.

Your next question comes from Judah Sokel from JPMorgan.

The organic revenue growth is really encouraging in the third quarter. That's definitely an area that's been a focus by investors. So it was great to see that pop, especially landscaping, maintenance. And it seems like the fourth quarter should persist in terms of that positive momentum against a tougher comp. I just wanted to, therefore, maybe focus a little bit on EBITDA. Just trying to understand what's going on in the fourth quarter and the implied fourth quarter EBITDA came when you gave guidance for the third quarter versus the actual guidance that you're now giving just seems a little bit lower. So maybe you could just help us walk through what's going on the profit side, so we could better understand just the dynamics between that better organic than was expected versus what's happening on the EBITDA line?

Yes, Judah. When you look at our guide for the fourth quarter, previously, we said $91 million to $95 million. So around, call it, 14.3%. Our guide now, $89 million to $93 million, around 14%. So about a 30 basis point headwind on the margin. We still feel good about the revenue. And there's really two things driving that. On the maintenance side, it's the labor pressures and the late arrival of the H-2Bs, but mainly the continued labor pressures and challenge there. And then the biggest driver without a doubt is the development softness. We saw that in Q3 was very clear in our financials. But without a doubt, the biggest challenge in that guide was the challenge we're seeing in the organic softness within the development. That's the big drag.

Okay. So then, I guess, maybe just as a follow-up, as we start to think about the next fiscal year, we're now in the fourth quarter, and I know you haven't given guidance yet, but maybe you can just tease out a little bit of a sneak peak if the company can continue to maintain the positive momentum on the top line in terms of organic revenue growth, how should we start thinking about the EBITDA contribution given some labor headwinds and given the sales force investments, but at the same time, some operating leverage from the top line? How do you think about just overall margin directionally for next year?

Yes. Judah, we are optimistic given what we're seeing in the sales force investment, the returns on maintenance organic growth. And combining maintenance organic growth with M&A, we believe in the maintenance side of the business, we're going to have the strongest growth profile in 2022 when we've had just with all. So we're very optimistic about that. Certainly, margin pressure is out there. We do, fortunately, most — many of our contracts have annual ability really to renew during seasons in our contract base. So clearly, any kind of labor headwinds that we see in the business, we're going to be able to address that December to March period when we price for the 2022 season.

Your next question comes from Tim Mulrooney from William Blair.

This is Sam on for Tim. Maybe we'll start with pricing. Despite slowing off of the price increases last year, I know you guys typically got 1% to 2% in any given year here. But with continued inflationary pressures, I guess I'm curious: 1% to 2% is really enough to offset what I assume is the higher liability energy and equipment costs. Can you maybe talk a little bit about each of these buckets? And if you think the 1% to 2% pricing is enough to really offset this or if you need to raise prices further? Or should we expect maybe a couple of quarters of margin compression until pricing can kind of ramp back out here?

Yes, Sam. If you look at pricing right now, we will see continued softness. We will see continued softness in Q4 a bit because that contract is an annual contract many times. Unfortunately, in ancillary, that's tighter correlated to current activity. So we unfortunately see that positive correlation and being able to work with material on the maintenance side of the business. At the same time, on the development side of the business, typically in development, you see contract commitments that go out three months, four months when you commit. You lock in. So the development business that we have today is our contracts that we lapped in back in January and February, which we anticipated some inflation, but not the degree we're experiencing. We adjusted our development approach now to allow us to reflect more current costing and shorter time frames for being able to reflect on pricing. So as we look into Q1, and at the end of Q4, we're really optimistic about being able to match both development margin and labor margins, especially as we get to the new contract period. So perhaps we do feel some pressure. You see that in our guide in Q4, some pressure there. But as we get into Q1, Q2, Q3, we think that's going to be unwound. And when I say unwinding, I mean getting into a more regular pattern that we've seen in the past.

Got you. That's very helpful color there. Maybe on the residential side for the maintenance land business, if you break apart your exposure between residential and everything else there, could you talk a little bit about how that residential component performed during the quarter? And I guess, correct me if I'm wrong, but I think residential represents something like 35% of your land revenue just from your HOA exposure. Am I right about that? And do you see this exposure...

When you say residential, you mean homeowners associations, right? We do not do residential business to speak of. We only deal with the master association. So there are homes in the homeowners associations, but we deal with the master association. Yes, HOA stayed positive. We haven't seen really any impact in our HOA vertical. Perhaps as we go forward, we see that as a stable part of the business and we believe there's actually more growth going to happen in HOA with more stay-at-home work and working from home trends.

Great. So maybe we should expect that to just expand as a percent of your sales going forward?

We believe that's exactly right. We believe HOA is a great part of the market to be in. We have a strong presence there. Our sales folks know how to work with homeowners association boards and our account managers are best-in-class in being able to deal with homeowners boards and property managers, and that is a place where we believe we excel.

Your next question comes from Shlomo Rosenbaum from Stifel.

Anthony, maybe you could talk a little bit about the ancillary revenue performance. What you're seeing now versus what you were seeing before COVID-19. In other words, for the ancillary revenue — are you up to 90% of what you used to be? Just some way we can gauge it to see how much tailwind we have as things kind of fully open up, hopefully, notwithstanding the Delta variant. And then maybe you could also talk about specifically the hospitality and retail verticals. I know you said they're coming back. How far away are they from pre-COVID levels?

Let me divide that question into both our ancillary and contract answers as it relates to the overall mix. Contract levels are back to 2019 already. So we believe contract will show positive growth not only off of 2020, but also versus 2019 in our contract base. And because we are not all the way back to 2019 with ancillary, we believe there is some continued tailwind as we get into 2022 with a return to normalized levels of ancillary. If you look at 2019 to 2020, we're up 20% plus in ancillary year-over-year compared to 2020. Compared to 2019, we're within 5%. It's really closing in quite tightly. So we believe that will be about the same level in Q4. But as we get into 2022, we expect additional tailwind, especially as we get into the summer months next year.

And then hospitality and retail, what you're seeing over there?

Yes, they're bouncing back, and hospitality in particular is strong. The hotel and travel industry is seeing increased rates. Our customers are seeing that. So some of these ancillary improvements are happening as we expected. Hotels are coming back in and are investing to differentiate their properties. We're seeing not only current refreshing projects but also inquiries for future projects into 2022 to enhance properties. There are properties around the country, from Four Seasons to Ritz-Carlton to Marriott, that are increasing ancillary and development projects to attract better customers.

Got it. And then maybe you could just focus back on the labor inflation. I'm just trying to understand it in light of the H-2B visa timing. It seems like you guys got a decent amount more than you were expecting. Is it just so much more pronounced that it's harder to offset? Or is it really the margin for Q4 is because you guys bid stuff a quarter or two ago on the development side and things have just run against you against the commitments that you have? You can just kind of unpack that for us a little bit. I was expecting a little bit more benefit from H-2B visas.

Yes. The H-2B workers we hoped would be coming in June and July actually are arriving now. We received indications from government processing that were delayed, and that's the reality of the program. We're optimistic now they're here. As they arrive through August and beyond, we expect normalization of our overall labor profile. What happened is labor availability was low across the country, so our existing crews worked more overtime to service customers and that overtime expense was a material headwind — about a 50 basis point headwind in Q3 on the maintenance side. That headwind hit us and will have some residual effect into Q4, but we expect it to unwind as H-2B workers arrive and labor availability improves into Q1 and Q2.

Your next question comes from Bob Labick from CJS Securities.

The net new wins at an all-time high is obviously a terrific stat and it's been — you've been building it. Can you talk a bit about the primary reasons you're winning when you do win these new accounts? Is it price? Is it services? What are you doing to win and to drive net new installation timelines?

Number one, it's the period investment in our sales force and the tools and training we've implemented over the last 18 months. That investment is a driving force behind these results. It's the training and expanded number of dedicated sales people, account managers and branch managers focused on showcasing our capabilities. We also have a strong marketing backbone — omnichannel digital marketing that allows us to develop opportunities and convert more efficiently in the field. Those investments are paying off and allowing us to grow net new. That underpinning will support our Q4 growth and future years. The investment in tools and the expanded sales force are working and resonating with customers.

There is no further question at this time. I would now like to turn the call over back to Andrew Masterman for closing remarks.

Thank you, Rein. Once again, I would like to thank everyone for participating in the call today and for your interest in BrightView. We look forward to speaking with you at BrightView Investor Day 2021. Please be safe and be well.

This concludes today's conference call. Thank you all for joining. You may now disconnect.