BrightView Holdings, Inc. (BV) Q1 2022 Earnings Call Transcript

Hello and welcome to BrightView Holdings Incorporated's First Quarter Fiscal 2022 Results Conference Call. My name is Daly and I will be the moderator for today’s call. I would 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. It is snowing heavily in many parts of the country. The snowmobile continues in the Northeast following the storm last weekend. Our results during the winter are meaningfully impacted by snowfall. So the current weather can't help us with our first fiscal quarter. Overall, it's a great start to Q2 with almost twice as much snow in January of 2022 versus the prior two Januarys, and we're very happy to have it. At any strength in Q2, we're built with very positive trends that we've seen over the last several quarters, 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 due to recent development M&A transactions, which were not a focal point of those development businesses. We are optimistic this will improve in the second half of fiscal 2022. These trends result from 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. I am incredibly proud of the BrightView team. Let me begin by reviewing the highlights from the quarter. First, I am pleased to report another solid quarter revenue growth led by 7.3% Maintenance Land organic growth. Continued expansion of our contract business, as well as a rebound in ancillary services penetration is a result of the investments we are making in our expanded sales team and sales enablement technologies. This follows Q4 fiscal year 2021 in which we grew organically 9% plus and fiscal Q3 in which we grew organically 11% plus. In short, we have grown from fiscal 2019 organic revenue levels, despite operating in an environment presented with continued challenges. Second, adjusted EBITDA for the quarter was $42.6 million, down 18.7% or $9.8 million compared to the prior year. The decline was driven principally by significantly lower snowfall across BrightView’s branch footprints, with fresher top line and profitability in the quarter. Assuming an average snowfall during the quarter, our adjusted EBITDA performance would have been towards the higher end of the guidance range provided during our fourth quarter call. The lower end of our adjusted EBITDA guidance range contemplated low snowfall. In our primary snow market, we did not see any measurable snowfall. Given that we are largely able to provide snow services with our existing fixed cost structure, the impact of low snow revenue, particularly given the geographies impacted, we estimate was a $7.5 million reduction to adjusted EBITDA in the quarter. We will discuss this in more detail later. Third, our total consolidated adjusted EBITDA margin of 7.2% was impacted by lower snowfall totals, higher materials cost in our development segment, and fuel expenses across the organization. Within these results is outstanding labor and material management by our maintenance team, minimizing margin impact. To offset forecast inflationary pressure, we have implemented a price increase initiative that should benefit the second half of the year. Fourth, the results of our strong-on-strong acquisition strategy benefited our revenue growth by $39.7 million during the first quarter. Unlike other quarters, acquired revenue was heavily weighted to our development segment. We also completed a key strategic acquisition that strengthens our presence in the high growth market. And finally, we announced the $250 million share repurchase program, which ended in January, completing the repurchase of 5.9 million shares from MSD Partners at a purchase price of $13.98. The repurchase represented half of MSD's investment in BrightView. The share repurchase authorization does not affect their previously stated ongoing mergers and acquisition strategy and allows us to continue repurchases on an ongoing basis for the foreseeable future. Before we turn to the details of our first quarter, let me provide you with our outlook for our second quarter of fiscal year 2021. Our Maintenance Land contract-based business is growing, and demand for ancillary services is improving. We are encouraged by what we see happening in the market and believe this will result in another quarter of Maintenance Land organic growth of 4% or more. The positive momentum in Q1 Maintenance Land should continue into Q2, and we will deliver incremental EBITDA from both organic and M&A revenue. Snow removal services are the largest variable in our second fiscal quarter, and we are optimistic about our ability to deliver solid results. In our development segment, we are encouraged by the backlog trends we have previously discussed. Therefore, we are forecasting approximately 5% organic revenue growth in Q2, as well as more than 5% revenue growth from M&A. The market pressure we have seen from material inflation will continue, but at a lessening rate. Looking forward in development, one external tracker we monitor is the Architecture Billings Index. The ABI is an economic indicator for non-residential construction activity with a lead time of approximately 9 to 12 months. The ABI ended 2021 on a high note as billings increased almost every month of 2021. This architectural activity drives our pipeline of work and is tracking across all markets, evidenced by increasing backlogs across the enterprise. As a result, we remain optimistic that modest organic growth trends in the development segment should continue throughout fiscal 2022 and into fiscal 2023. As such, for the second quarter fiscal 2022, we anticipate total revenues between $620 million and $680 million and adjusted EBITDA between $50 million and $60 million. The low end of the guidance assumes light snowfall and the high end assumes average snowfall. Moving now to slide six, as you can see here, we have delivered a consistent level of significant M&A and fiscal 2022 is off to a promising start. During the quarter, we welcomed performance landscapes to the BrightView family. Performance was founded in 2002 and operates on the islands of Oahu, Maui, and Hawaii from the main office in Honolulu. Hawaii landscapes are renowned for their beauty and cultural significance, and performance provides a full suite of landscape maintenance and enhancements, tree care, and irrigation services. The organization has 110 plus trained and verified personnel and an established culture of safety. Performance is the service leader in the Honolulu Oahu market and provides BrightView with a strong foothold in Hawaii. The company has an attractive operating and performance track record and serves clients across the homeowner association, high-end residential, commercial, and private military housing market segments. BrightView development services have been a licensed landscape and irrigation contractor in Hawaii since 2008. In addition to renovating the Four Seasons in Kona following a tsunami in 2011, Development Services restored the irrigation system for the Hilton Waikoloa Village and resort and performed landscape and architecture work at the Four Seasons Resort Valley. BrightView is excited to add maintenance services to its existing development capabilities on the island. In addition to organic growth, we have grown and expect to continue to grow our business through acquisitions to better service our existing customers and to attract new customers. M&A is a critical aspect of our strategy and organic growth. Moving now to slide seven, our strong-on-strong acquisition strategy has focused on increasing our density and leadership positions in existing local markets and turning attractive new geographic markets and expanding our portfolio of landscaping enhancement services while improving our technical capabilities and specialized services. We believe we are the acquirer of choice in the highly fragmented commercial landscaping industry because we improve great businesses after we acquire them. BrightView offers the ability to leverage our significant size and scale. First, centralized procurement and buying power for trucks, trailers, mowers, handheld equipment, which is indisputable. Second, customer experience and productivity tools. Starting with our CRM and existing platforms, to our customer portals, BrightView Connect and HOA Connect, to our Mobile Quality Site Assessment application. Our field associates have the tools to maximize the customer experience with improved ancillary penetration leading to margin enhancement. Third, digital marketing tools, strategies, and channels lead to greater awareness and more impactful messaging, resulting in more valuable leads and higher opportunity pipeline dollars. And fourth, safety and training throughout the employee lifecycle. BrightView provides stable and potentially expanding career opportunities, and we take pride in our industry-leading safety programs. In 2021, over half of our branches went without a single injury. Since 2017, we have completed dozens of acquisitions that position us as market leaders in several key MSAs. We have a dedicated team and a disciplined, repeatable framework. Our acquisitions are accretive and a value-creating use of free cash flow. Our strong-on-strong M&A strategy leverages our scalable infrastructure while building on best-in-class platforms, processes, and people. Our M&A success is core to our top-line growth, and we will continue to deliver as we execute our transactions and the strategy we have developed and deployed over the last five years. Turning now to slide eight. The largest variable to our first quarter and second quarter financial performance is snow removal services. Notably, the United States saw its fourth warmest year in 2021, fueled by the warmest December on record, and this impacts snowfall totals in key markets. According to NOAA, snowfall totals in inches specific to BrightView’s geographic footprint were down 59% versus the prior year at 56% of the historical 30-year average. Our snow removal services revenue of $36 million was down 43% or $24 million on an organic basis, offset by $4.2 million of acquired spell revenue during the quarter. WeatherWorks, the industry standard for our customer contracts for billing and invoicing purposes, reported snowfall totals in inches mapped to our specific branch footprints were down almost 73% versus the prior year. Let me share a few year-to-year WeatherWorks specifics on our largest snow markets and regions. Denver, a historically strong and consistent snow removal market, saw approximately 2.3 inches of snow during the quarter versus approximately 19.6 inches in the prior year. Chicago recorded approximately 2.7 inches of snow, down 39% versus the prior year, and in our Northeast Region, snowfall was less than one inch, down 91% versus the prior year. We did not realize any snow in the mid-Atlantic region during the first fiscal quarter of 2022. Keep in mind, snow margin is driven by many factors, including when, where, how, how much and how often it snows, which will change every year. Despite significantly less snowfall in our first fiscal quarter versus last year, snowfall totals in January of 2022 were at historical averages and twice that of 2020-2021. This drives our optimism that snowfall totals specific to branches' footprint during our second fiscal quarter will be near 10 and 30-year historical averages, assuming February and March continue this trend. Turning to slide nine, 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. As a company that designs, creates, maintains, and enhances commercial landscapes across the country, sustainability is central to BrightView's branch and corporate purpose. In fact, environmental and social responsibility and corporate governance has been integral to our company since our founding. We will publish an inaugural ESG report next week and are committed to regular transparent communication and intend to continue providing updates on our progress. Since this will be our inaugural report, let me take a few minutes to review our ESG strategy. Our commitment to environmental, social, and governance practices and progress starts at the top with our Board of Directors and executive team, and it's a source of pride for every member of our team who brings our commitment to life each day. At BrightView, we are committed to embracing environmentally responsible practices and making progress towards carbon neutrality, striving to take care of all team members by providing a safe, inclusive, diverse, and engaging work environment, dedicating time and resources to improve the communities where we live, work, and play, and maintaining the highest standards of ethics and values. Turning to slide 10, let me provide you with some insight regarding our environmentally responsible practices. To reduce our energy and emissions, we are expanding our fleet of energy-efficient vehicles, adopting the next generation of fuel tracking technology, and offering the use of alternative fertilizers. We're also adopting strategies and next-generation equipment to help our clients reduce their carbon footprint and meet LEED certification standards. Our commitment to carbon neutrality by eliminating carbon from our operations represents our biggest opportunity to reduce corporate risk, contribute to a healthy environment, and be the leader in our industry. Our goal is to reduce our carbon consumption by 90% and become carbon neutral by 2035. We have a five-pronged approach to achieving our carbon neutrality goal. First, stewardship. We're actively engaging with the industry and suppliers to lead a transformation towards our environmental goals. Sustainability, we're helping to sequester carbon by planting trees and through sustainable design and maintenance of landscapes. We are converting our fleet of 11,000 vehicles to electric and hybrid alternatives. Greener equipment, we plan to convert approximately 35,000 pieces of two-cycle power equipment to rechargeable energy sources by 2025, resulting in a greater than 50% reduction in BrightView’s total carbon footprint. Efficient buildings: in the 300 properties we currently own or lease, we plan to place outdated equipment and appliances with energy-efficient alternatives. Where possible, we intend to convert electrical power to our buildings using alternative energy sources, and we are planning to pilot these measures at one of our branches in 2022. Not only will this be significant for our company and for the environment, but by integrating green energy into operations, we anticipate decreasing our equipment maintenance costs by upwards of 50% annually. Turning now to slide 11, let me provide you with insight regarding our efforts to create a socially responsible and great place to work. At BrightView, we provide a safe, inclusive, and engaging workplace where talented people come to work and advance their careers. Guided by our people strategy, we are working to attract, engage, develop, reward, and retain top talent. With an emphasis on ongoing improvement, we continue to assess our programs and meet the evolving needs of our teams and the organization. As a growing company, a key area of focus for us is fostering a positive, inclusive company culture, where everyone's voice is heard. BrightView is committed to attracting, developing, and retaining the best-in-class leaders and professionals in the industry. In 2020, we launched BrightView University, our employee development program, which offers courses tailored to different positions within our company, from landscapers to business development professionals. Through this program, all team members will receive relevant and accessible training to build their skills. In 2021, we began providing additional management, technical, and leadership development courses to our employees with a big library online learning program. A key to social responsibility is building a diverse and inclusive culture that makes all team members feel welcomed and valued. We are working to increase the diversity of our workforce and investing in initiatives that provide equal opportunities to employees and candidates of all backgrounds. While we continue to strengthen our diversity and inclusion strategy, we recognize the most important thing we can do is listen and learn. Turning to slide 12, as it relates to corporate governance, we are dedicated to maintaining the highest standards of business integrity and ethical conduct. Adherence to sound principles of corporate governance for a system of checks, balances, and personal accountability is vital to protecting BrightView's reputation, assets, investor confidence, and customer loyalty. Starting at the top, our board of directors has an average tenure of less than four years, which reflects our commitment to diversity. Three of our seven independent directors are considered to be diverse, up from zero three years ago. Another example of our strong governance is our commitment to compliance. Because BrightView relies on many seasonal workers, ensuring that our employees can work in the United States legally is important to both us and our customers. E-Verify is a web-based system that allows BrightView to confirm the eligibility of our employees to work in the United States. As an E-Verify employer, we can verify the identity and employment eligibility of newly hired employees by electronically matching information provided by employees against records available to the Department of Homeland Security. While E-Verify is a voluntary program, BrightView is proud to be the only landscaping company that utilizes the program in every state in which we operate. BrightView recognizes that prioritizing ESG is an essential component of meeting the needs of all our stakeholders. Our board, in collaboration with the leadership teams, directs and oversees ESG strategies, establishes relevant policies and practices, and monitors progress and performance. I'll now turn it over to John, who will discuss our financial performance in greater detail.

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 ahead 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 led 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%, or $9.8 million compared to the prior year. In the maintenance segment, adjusted EBITDA of $45.3 million was down 8.7%, or $4.3 million from the prior year. Solid contract growth and a continued rebound in our ancillary services drove a $3.2 million improvement, which was offset by significantly lower snowfall across our branch footprint based on the dynamics just discussed. Adjusted EBITDA margin of 10.3% was down from 11.9% in the prior year. In the development segment, adjusted EBITDA decreased $2.6 million to $14.5 million, compared to $17.1 million in fiscal Q1 of 2021. The decline was principally driven by higher material costs as a percentage of revenue. Adjusted EBITDA margin of 9.4% was a reduction compared to the prior year levels of 12.4%. For fiscal Q1, corporate expenses represented 2.9% of revenue. Let me dive a bit deeper into our snow business and provide additional snow data and metrics that highlight what we feel is a valuable part of the BrightView story. On slide 17, we show the build-up of our pro forma results assuming historical 10 and 30 year average snow results. This is further refined, as we base this NOAA data over that time, specific to our branch footprint. We estimate the result would have been adjusted EBITDA of $50.1 million for Q1, which was at the higher end of our guidance range. Let's move now to a balance sheet and capital allocation on slide 18. Net capital expenditures totaled $27.5 million for the quarter ended December 31, up from $9.1 million in the first quarter of fiscal 2021. Expressed as a percentage of revenue, net capital expenditures were 4.6% in the first fiscal quarter of 2022 and 1.6% in fiscal year 2021. Like many companies, we continue to face supply chain constraints pertaining to our equipment orders. Combined with multiple years of below-historical average capital spending, continued growth in the maintenance segment, we continue to anticipate capital expenditures will be approximately 3.5% of revenue for fiscal 2022, which is within our historical guidance range. In the first fiscal quarter of 2022, we invested $6 million on acquisitions. Net debt on December 31, 2021, was approximately $1.1 billion, flat versus the end of the first fiscal quarter in the prior year. Our leverage ratio was 3.8 times at the end of the first quarter of fiscal 2022, down from four times at the end of the first fiscal quarter of 2021. For the first quarter of fiscal year 2022, free cash flow usage was $49.9 million. This was driven by a $33 million year-to-year swing from the CARES Act repayment as well as a strategic increase in capital to support our continued organic growth. An update on liquidity is on slide 19. At the end of the first quarter of fiscal 2022, we had approximately $207.7 million of availability under our revolver, and $132.8 million of cash on hand. Total liquidity as of December 31, 2021, was approximately $340.5 million. This compares to $324.2 million as of December 31, 2020, and provides us with ample flexibility and optionality. Before I turn the call over to Andrew for closing remarks, on slide 20, I would like to address margin erosion in our development segment, a topic that I suspect continues to be on the minds of many of you on this call. We are in a difficult inflationary environment. But let me share with you how we are actively mitigating these headwinds. The main contributors to margin erosion in the segment were organic revenue declines due to macroeconomic slowdowns in the construction market and increased material costs as a percentage of revenue due to supply chain pressures. Other costs, primarily labor, have been effectively managed. Historically, material cost estimates and development bids were honored from the time a bid was submitted until it was accepted to the completion of the project. Many current development projects were bid on 12 to 24 months ago, and we have little flexibility to renegotiate bids after the fact without potentially damaging long-term client relationships. As we move forward, as we mentioned in our last call, the development team is shortening the expiration date for the bid price window to 15 days, including more specific cost escalation language in bids to provide protection against potential continued inflationary dynamics, shifting from a just-in-time buyer to an advanced purchaser of materials within 15 days of the contract award to reduce the risks associated with future procurement by increasing collaboration with vendors to better anticipate material costs, trends, and expectations. During the first fiscal quarter of 2022, we witnessed some early indications that we are trending in a positive direction. Our adjusted EBITDA margin contraction in Q1 2022 was 300 basis points, compared to a 480 basis points contraction in Q4 of 2021. We are confident that the material input inflation that has put short-term pressure on the business is transitional and importantly that our efforts will help offset these headwinds. With that, let me turn the call back over to Andrew.

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 rates significantly above the industry. The landscape development market is showing architectural and bidding activity at levels that 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 we believe we will sustain above-industry average growth rates for the foreseeable future. Investments in our salesforce, combined with increasing use of multi-channel and digital marketing, continue 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 long-term success. Fifth, in M&A, the results of our acquisition strategy continue to benefit our revenue growth, and with an attractive $600 million plus pipeline, acquisitions will continue to be a reliable and sustainable source of growth. We have added strategic locations and 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. We have our first question from George Tong of Goldman Sachs. George, please go ahead.

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

Great. You talked about shortening the expiration date for bid prices in the development business to better adapt to 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, on both material and labor, we are facing inflationary positions on material with maintenance operations. Our bids are done within a much shorter window, usually within four to six weeks of installation, so they reflect the current costs involved. So we believe we are actually addressing the inflationary pressures.

Yes, and George, this is John. We're doing a really good job managing labor costs across both segments. We're also focusing heavily on using more in-house labor versus subcontractors, which tends to be more efficient for us.

Addressing your last issue on pricing, George, we are going on a very deliberate and focused approach to engage with all of our customers, and showing that the cost inflation that we've seen in labor and materials are things we need to address. We're currently in the negotiations that are often tied to contract renewals, confirming that our cost inflation is being covered and we expect to see it offset during 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, could you comment a little bit about how the ancillary services as a percentage of total maintenance compares to what we saw pre-COVID levels? Are we back to the kind of two-thirds, one-third in terms of contract versus ancillary? Are we still trailing that?

Yes, in general, the structure of the business has returned to pre-COVID levels across all segments. We saw impacts in the hospitality and retail verticals during the peak of the COVID pandemic. Those segments, especially in resort areas, have seen a rebound, and we've been able to work with those customers on identifying areas in their properties to continue differentiating their services.

Great. How much longer do you expect to cycle through the contracts bid at pre-inflation? When can we expect to relieve the pressure on those?

We expect to see improvements throughout the next several quarters, with an expectation that it’ll be late in the second half of this year before we fully get out of that. We do expect the impact to lessen over time.

Okay, and regarding development projects, are we seeing any delays now? How should we think about that in terms of our visibility into your project time tables?

The delays we're seeing now in the development segment are not primarily COVID-related; they're due to labor availability from subcontractors. However, we anticipate an improvement as we see a lessening of this impact relative to where we were six months ago. We are optimistic about achieving 5% organic growth in our development segment moving forward.

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

Good morning, Andrew, John. I apologize if this has been asked already, but could you walk us through how organic growth in your maintenance green business trended through the quarter? What color can you provide on January?

Sure, absolutely, Tim. If you break it down to three months, October is our busiest month, and our seasonal markets clearly slow down while evergreen markets continue. Overall, we saw 7.3% growth over the whole business, with improving trends in November and December, giving us optimism as we move into January and February.

I understand; that makes sense. And your guidance was 3% to 4%, and you came in at 7%. So that's helpful, and I assume there’s some upside in February.

Yes, the guidance range includes seasonal variation. We expect volatility in the snow and how it comes in as seasons change, allowing for potential acceleration in growth.

That’s helpful. Your deal pipeline has grown to $600 million, up from $400 million in the past couple of years. Is this due to enhanced internal M&A capabilities, or is the market more agreeable to selling?

It comes down to our maturity in M&A, as we’ve enhanced our dedicated team and established a positive reputation. We've completed almost 30 acquisitions over the past five years.

We're getting more direct outreach for potential acquisitions as our positive reputation strengthens our position.

So is this more internal to BrightView than specific to market changes? How have valuations trended?

Valuations remain within the range of five to seven times historically. We've been disciplined in our approach and have not wavered from this. For larger deals, we may go higher, but we remain socially and financially responsible.

The marketplace is seeing changing expectations, but we are steadfast in maintaining our strategy and reputation, allowing us to attract the best opportunities.

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

Two questions. Thank you for all the color so far. Looking at Q2, your guidance of 4% organic for land and 5% for development suggests flat revenue. Can you provide commentary on inorganic revenue contributions expected for Q2 and how much total revenue contribution you assume from M&A for 2022?

In terms of guidance, snow is a variable factor that can affect total revenues. In terms of assumptions going forward, it's going to be around $30 million, depending on performance and how well those entities perform moving forward.

That’s helpful. On labor inflation, last quarter, you noted it was running about 7% in the second half of 2021. Are you experiencing similar levels of wage increases this year?

It depends on the region, but we assume wage inflation will be at least 5% moving forward. We may experience higher rates in certain quarters but overall, we see wage pressures continuing.

We are engaging customers in negotiations regarding price increases to not only cover wage inflation but enhance our business model overall.

Thank you, Justin. Our next question comes from Hamza Mazari of Jefferies. Hamza, please go ahead.

Hi, this is Hans Hoffman filling in for Hamza Mazari. Can you speak about your technology journey and how you've seen benefits from tech spend in terms of margins and operating leverage?

Absolutely. We've invested significantly in new platforms and tech that improve operating efficiencies and customer-facing interactions. We’re excited about the developments like BrightView Connect 2.0, which will greatly enhance customer experience, along with our Quality Site Assessment 2.0 software, which improves our property assessments.

Margins on ancillary services have been slightly better than those of our contract services. We are beginning to see improvements and expect this trend to continue as we further enhance our operational capabilities.

Thank you for that information. We have reached our allotted time for questions today. I will now turn the call back over to Andrew Masterman for closing remarks.

Thank you once again 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.