Earnings Call Transcript - BV Q1 2024

Operator, Operator

Hello, and welcome to the BrightView Holdings' Q1 2024 Earnings Call. My name is Elliot, and I will be coordinating the call today. I would now like to turn it over to Chris Stoczko, Vice President of Finance. Please proceed.

Chris Stoczko, Vice President of Finance

Good morning and thank you for joining BrightView's First Quarter Fiscal 2024 Earnings Call. Dale Asplund, BrightView's President and Chief Executive Officer, and Brett Urban, Chief Financial Officer, are on the call. I will now refer you to Slide 2 of the presentation, which can also be found on our Investor Relation website and which contains our safe harbor disclaimer. This call may include forward-looking statements subject to certain risks and uncertainties. In addition, during this call we will refer to certain non-GAAP financial measures. Please see our 8-K issued yesterday for the reconciliation of these non-GAAP financial measures. I will now turn the call over to Dale.

Dale Asplund, CEO

Thank you, Chris, and good morning, everyone. I will start today's call on Slide 4 with some highlights for the first quarter and then provide an update on our strategic initiatives. I'm pleased to report that we are off to a solid start in fiscal 2024 as we achieved meaningful progress on our objectives outlined under One BrightView. On our last earnings call, we set a clear and refreshed strategy, prioritize our employees, align our core businesses while ensuring our customers come first, focus on profitable growth and unify the company under One BrightView. During the quarter, we began to successfully execute on this strategy by aligning our sales force to our local operating branches, reintegrating core self-perform businesses back into our branches, deemphasizing non-core portions of our business and continuing to focus on pursuing higher quality, profitable business. While these actions led to a modest impact on our land maintenance revenue for the quarter, I am confident we are taking the necessary steps to ensure growth in the medium and long term. I'm also pleased to report that for the 6th quarter in a row, our development business once again showed significant growth and margin expansion. Additionally, we are proving our commitment to becoming more efficient and removing cost with improvement in our corporate segment. I'm encouraged by the underlying momentum in our business as we execute our renewed strategy. And as a result, we are reiterating our financial guidance for the full year. Additional evidence of our strategy in action was the sale of our U.S. Lawns franchise business in January for roughly $52 million. This was a non-core business that did not align with our strategy around self-performance and capital allocation. This move underscores our focus on the core business, but also highlights the value of achieving profitable and recurring growth. We have attained a substantial valuation in the private markets, well above our current trading multiple, providing proceeds that we intend to reinvest in our core business. The enhancements we have made in our business align with our overarching initiatives to operate as a unified BrightView. Throughout the quarter, we made progress implementing our strategy across the entire organization. We believe successful execution of our One BrightView strategy will unlock significant long-term shareholder value. This starts by focusing on becoming the employer of choice, and we are doing this by reinvesting in our core businesses and our employees. We are making investments in our fleet and investing in the health, safety, and development of our team. We are also streamlining and optimizing organizational structures at the branch level, resulting in a revitalized go-to-market strategy. And we renewed our focus on improving how we service our customers with the goal of increasing retention and growing profitably. Alongside these efforts, we took measures to better align our capital allocation priorities with our branch-level needs and our broader initiatives throughout the organization. On Slide 5, we show One BrightView in action and provide a few specific examples of the improvements we have made in the early stages of this value creation journey. Under this, we realigned our sales efforts and implemented an incentive plan to ensure the entire organization, from the branch to our corporate office, is focused on driving profitable growth. Furthering the collaboration throughout the organization, we put in place a cohesive customer-first go-to-market strategy. We also enhanced our customer survey, which resulted in improved response rates and is helping us to gain an even deeper understanding of our customers and their needs. We are leveraging these findings to further refine and strengthen our go-to-market approach. An example of this go-to-market strategy was the reintegration of our tree and golf services into our core maintenance branches. This streamlines operations internally, but also helps us deliver more efficient, collaborative, and unified services for the customer. We are focused on becoming the partner of choice and taking actions to enhance our positioning, which will allow for opportunities to grow our business with existing customers and win new customers. As the nation's largest provider in our industry, there is tremendous opportunity to leverage our size and scale to drive efficiencies across the business while improving essential functions such as safety, training, and the centralization of operations to better align and support our core business. Moving to Slide 6. And before turning the call over to Brett to discuss our financial results for the quarter, I want to remind everyone that the focus of One BrightView begins with becoming the employer of choice. We do that by putting our employees first and by developing a culture where people seek to achieve individual and group success. We prioritize our employees so they have the capabilities, training, and equipment required to do their jobs at a high level. Doing this materially impacts the level of service provided to customers and leads to an exceptional customer experience. By making these investments in our employees, and in turn employees taking care of our customers, we will become the partner of choice in our industry. We are focused on improving customer retention and accelerating profitable growth by bringing on new customers and expanding relationships with existing customers. Once we have established a strong foundation for profitable growth in a unified BrightView, we will be in a position to expand strategically. M&A can be a powerful lever for growth and generate meaningful returns on capital, but only when it fits strategically, culturally, and financially. As One BrightView, we have the best at what we do, and I'm confident that we can continue to deliver on these goals. With that, I'll turn it over to Brett, who will discuss our financial performance and outlook in more detail.

Brett Urban, CFO

Thank you, Dale, and good morning, everyone. I'll start on Slide 8. I'm pleased to report that fiscal '24 is off to a good start with our strategy towards One BrightView showing positive signs in the first quarter. A continued focus on profitable growth and land maintenance, another quarter of strong performance and development, and execution of our cost efficiency plan led to quality revenue and EBITDA margin expansion for the business. Important to note, during the quarter, our performance was impacted by the year-over-year decline in snowfall. When normalizing for snowfall consistent with the prior year, our overall profitability and margins would have shown significant improvement. More to come on that later in the presentation. Our enhanced net working capital, coupled with the timing of capital intensity and reduced interest expense resulted in a meaningful increase of free cash flow compared to the prior year. This resulted in a net leverage ratio of 2.9x, allowing for financial flexibility for ongoing execution of our profitable growth strategy and investments in the business. Moving to Slide 9. Total revenue during the quarter decreased 4.5% year-over-year to $627 million. Maintenance was impacted by snow that decreased $22 million due to lower snowfall, a decline in ancillary services, and the continued focus on core self-perform business. Partially offsetting these headwinds was the solid demand in our development business, which grew by an impressive 6.3% compared to the prior year due to our ability to convert our strong backlog into higher project volume. Development's performance in recent quarters reflects the appealing nature of the business model, while also creating momentum and opportunities for future growth. Turning now to profitability and the details on Slide 10. Total adjusted EBITDA for the first quarter was $46.7 million, a decrease of roughly $2 million, reflecting early benefits from our One BrightView initiatives and improved profitability, offset by the impact of lower snowfall. As I mentioned before, on a similar snowfall to the prior year, Q1 EBITDA would have exceeded the prior year results. In the maintenance segment, total adjusted EBITDA of $42 million was down $8 million compared to the prior year, driven by the previously mentioned revenue shortfalls, which were primarily related to snow. In the development segment, adjusted EBITDA for the first quarter was $19.6 million, an increase of approximately 19% compared to the prior year. Adjusted EBITDA margin expanded 110 basis points, which marks our 6th consecutive quarter of development margin expansion. This is a result of the quality backlog conversion while simultaneously reducing our costs, ultimately resulting in accretive growth. In our corporate segment, expenses for the first quarter decreased year-over-year as we made significant progress with our One BrightView strategy to increase efficiencies across our core functions and reduce overhead. Turning now to Slide 11 to discuss the timing impact of snow. As I alluded to earlier, and in an effort to enhance transparency in evaluating our quarter's performance, we have normalized Q1 results for snowfall, assuming comparable levels with the previous year. The comparison highlights the increase in EBITDA and additional margin expansion, underscoring the effectiveness of our initiatives and commitment to achieving more profitable growth. Also, this emphasizes the importance of evaluating our business on a full year basis as the timing and magnitude of snowfall changes year-to-year. For example, this year we didn't see snowfall in late December, but we did see meaningful snowfall in January. Let's now turn to Slide 12 to review our free cash flow, capital expenditures, and debt. For the quarter, we are extremely pleased with our free cash flow generation of $17 million compared to a usage of $55 million in the prior year period. As we communicated on our prior call, we are committed to reinvesting back into the core business and executing our renewed capital allocation strategy. With this said, we are maintaining our cash flow and CapEx guidance for the full year. Net leverage for the quarter came in at 2.9x compared to 4.9x in the prior year period. The lower leverage reflects a significant reduction in our debt as a result of One Rock's investment, improved liquidity, and profitability growth in the business. Our leverage profile allows for financial flexibility for ongoing execution of our profitable growth strategy and investment in the business. Moving to Slide 13. And as Dale mentioned earlier in the call, we are executing on our strategy by focusing on our core business. A positive example of this action is the divestiture of our non-core U.S. Lawns franchise business. We sold this business for roughly $52 million in proceeds, reflecting a double-digit EBITDA multiple. This opportunistic transaction generated meaningful returns and allows us to better focus on our core business and reinvest proceeds into driving further efficiencies and profitable growth. We plan to use these cash proceeds to accelerate the execution of our capital investment plan by replacing aging fleet, buying new lawn mowers, and continuing to make significant investments in the health and safety of our employees. Let's now turn to Slide 14 to review our outlook for fiscal '24. Profitable growth will continue to be our guiding factor and key focus. I am pleased to reiterate that we are reaffirming our full year revenue, EBITDA, and free cash flow guidance. We expect total revenue of $2.825 billion to $2.975 billion, reflecting a range of flat to 5% revenue growth. We continue to assume the following underlying assumptions. In maintenance, we expect our focus on profitable growth to continue to have a near-term impact to remain encouraged by the underlying health of the market and recent trends within our business. For snow, our fiscal '24 guidance range assumes flat at the low end and a 5-year historical average at the high end. While Q1 started slow, we saw a meaningful pickup in snowfall events in January as we moved into the second quarter. And for development, the growth and conversion of our strong backlog of projects will continue to benefit revenue. Moving to adjusted EBITDA. One BrightView will be the key driver of the growing profit and expanding margins. In fiscal '24, we continue to expect margin expansion in both maintenance and development segments benefiting from key initiatives and disciplined management of the business. We expect these improvements to generate total margin expansion of 40 to 80 basis points and adjusted EBITDA of $310 million to $340 million. In fiscal '24, we expect a continuation of healthy cash flow generation driven by profitable growth and improved operating performance. Our outlook reflects our commitment to growth and investment in our core business. Contributions from reduced interest expense will be managed alongside the ongoing requirements to optimize the business. Altogether, we continue to expect to generate free cash flow of $45 million to $75 million, supporting the financial flexibility we maintain today, while enhancing our ability to generate future profitable growth.

Dale Asplund, CEO

Thank you, Brett. Before opening the call for questions, I would like to provide a few final thoughts. We are making significant progress on our goals, and we are seeing the returns on these efforts begin to materialize in our results and gaining traction across the company. As we transform this business, I continue to believe there are tremendous opportunities ahead of us. We are moving this business forward, and we are strategically positioned to accelerate profitable growth and to create meaningful value for our shareholders. We will now open the call for questions.

Operator, Operator

Our first question comes from Bob Labick with CJS Securities.

Bob Labick, Analyst

We're very excited for the transformation you're driving at BrightView.

Dale Asplund, CEO

Thanks, Bob.

Bob Labick, Analyst

I wanted to start, you gave us some great details in the introduction for sure. Maybe you could start with some of the key metrics, key operating metrics, you're focused on improving this year, fiscal '24, and how you'll share that progress with investors throughout the year?

Dale Asplund, CEO

Yes. That's great. I would just say it's the number one message that we're monitoring is profitable growth. I think that's the recurring theme that we keep talking about. But we want to make sure, as we grow this business, we'll grow in the bottom line. So expanding margins, making sure we see growth in our EBITDA is critical in our path forward. We have a lot of internal metrics, Bob, that we're monitoring. And some of the work that we did over the summer, during the transition, as Jim stepped in to help the business and we transformed the Project Liberty, really got us going on a lot of internal work, such as customer retention and conversion rates. We're monitoring that on a daily basis, but we won't be sharing that externally. I think from the external view, profitable growth should be that north star that you guys stay on top of. But, Brett, do you want to add anything?

Brett Urban, CFO

Yes, Bob, I would just say absolutely profitable growth, moving towards One BrightView as you see in the strip, aligning the business, aligning our sales force, aligning incentive plans and making sure everyone is marching towards the same profile growth goal. Absolutely part of our drive. I'd say the other thing is core business focus. And a huge highlight in the quarter or a subsequent event to the quarter was us divesting our non-core U.S. Lawns franchise business. And as we move forward, I think if we were to share any more data or information publicly, it'd probably be on our non-core businesses and some of the impact they have on the total. But really, really excited as you think about the quarter, and you think about that subsequent event for U.S. Lawns. I think if we're going to share more, it's going to be more things like U.S. Lawns type non-core businesses that we're focused on evaluating and figuring out they fit long-term in the portfolio.

Bob Labick, Analyst

And then you touched on this in one of your bullets as well, but maybe expand a little on, how do you get the benefit of scale as the largest operator in the U.S., but it's a decentralized business? So it's kind of like opposite ends there. So how can you improve operations and get the benefit of your scale based on where you stand today?

Brett Urban, CFO

Yes. So I think obviously, leveraging our size and scale and the more we can look to centralize, the more we can leverage and create consistency across our business and allow all of our frontline operators to really focus on the customer. So we have so many things that today we might still have out in the field with our branches focused on that we've got to rethink and centralize and leverage the size and scale. So we not only do them more consistently, we can do them more efficiently. So I think a good one that we're working on right now, Bob, as an example, we just started the process of taking our field finance partners and centralizing them to drive that efficient and more consistent support of our field operators. You can see this and even the way we're doing it, Bob, if you look at our numbers that we just reported, our corporate cost structure came down by $3.5 million year-over-year in Q1. So there's a huge opportunity to centralize and do it more efficiently. So it's a double benefit when we do it right. So I hope that gives you a little more detail.

Bob Labick, Analyst

I have one last question. I think I know the answer, but I’d like to hear your thoughts again. Looking ahead 3 to 5 years at the growth or profitable growth of BrightView, will the key drivers be more account growth and retention, or will it be higher margins per account? What is your focus on pricing and margin per account? Should we expect more accounts and better retention, or do you see it differently? How would you differentiate between those two factors driving your growth?

Dale Asplund, CEO

Yes. I think it's all of the above, we can start with. I think the first and foremost focus we have and our partners have One Rock are helping us as we try to set focus on this. And we actually saw a modest little improvement in Q4 year-over-year is the retention of existing customers. And we have to make sure that the customers that are our customers today, see the value we provide and continue to be our customers long-term. And if perhaps the service they're getting doesn't match the level of price they're paying, we've got to work with them and figure out how we can provide the service that matches the price or figure out a way to make sure that the price gets adjusted to the right level. But obviously, keeping our existing customer base is key to driving growth in this business. But it's also making sure, Bob, we're going after the target customer segment we have. The franchise business we sold was more focused on a little bit of the residential business, which is not our focused end market. We want to go after the commercial business that's our target customer that the size and scale of BrightView, we can add value across the nation. So it's going to be both. Make sure we retain every account we can, make sure our customers see the value we provide and then grow as many new accounts that fit our target audience at the right price that we can. And when we do that, you'll see that organic growth start coming back into the business.

Operator, Operator

We now turn to Andy Wittmann with Baird.

Andy Wittmann, Analyst

The strategy focuses on concentrating on core areas and exiting non-core activities. The recent franchise transaction following the quarter is a clear illustration of this approach. Additionally, there has been discussion about evaluating some of your national account business. It's worth noting that there are certain customers being served that may not be very profitable. With that in mind, Dale, could you further elaborate on why the franchise business was deemed non-core and explain the reasoning regarding the national account business? Specifically, I'm referring to the externally serviced national account business, which I believe you refer to as BES. Can you clarify what that entails and the evaluations it is undergoing? Furthermore, where do you currently stand in your review of the portfolio customer base and the process of exiting those customers that do not yield the returns or profit margins your services warrant? That was a lengthy question, but I believe these points are interconnected.

Dale Asplund, CEO

I think I've got them all weaved in my head, so let's try to get through them, Andy. So first of all, why is the U.S. Lawns non-core to us? We are transforming this business and we are trying to develop better ways to support our branches and our sales force out in the field. Our U.S. Lawns' non-core franchise business was getting all the benefits that we're providing our branch managers by being part of our franchise network. Yet they really were not targeted at going after the same customer base. But over time, unfortunately, as they transitioned from some of the residential customers to more of the commercial, we began to see those direct franchisees competing against our local branches using the similar playbook and tool book, leveraging our estimating skills, leveraging our purchasing power to run their businesses. That's not what we want to do. We want to make sure that the investments we make to improve this business goes to the benefit of our branch managers and the branches out in the field. And the added value was, we were able to get a significant multiple above our trading level today to divest this business. So it was a great choice for us to divest an $11 million of revenue business and get $52 million roughly for it. Now, the other area that you talked about; you classified it correctly. Not really national accounts. We still believe we can add huge value to our national account group, but more of the non-core business that we outsource, and we really act as a broker on. And we are an aggregator for customers to come to and then we work with local providers to provide that service. There again, that business is going to fall into 1 or 2 buckets, and we're evaluating this right now. It's going to be a business that we want to self-perform, and we can add value and we can be the service provider and control the quality the customer gets. And the other part is going to be customers that we don't target on a daily basis, and we're 100% dependent upon those local providers to service the customer. That is too much of a risk for us, and we don't want to jeopardize our relationship with big accounts that we don't control the end service. So we are going to evaluate that aggregator business, and we're going to decide how that will make sense for us on a go-forward basis. And we'll give you guys everybody on the call an update at the end of Q2. And that business today is broken into both snow and land. And we're working with all those partners on snow this year, and then we're making determinations on land, which will be coming up for the summer in most markets. So I think that hits 2 of them. Did you have another piece of it?

Andy Wittmann, Analyst

Well, this whole idea of just portfolio review of your underlying customers and customer access, the whole idea of addition by subtraction. And anything you could do just to maybe clarify this one and make a little finer point. Is there a revenue number that like seems like a minimum that like just needs to not happen next year, and we should be thinking about in our models since we look at them?

Dale Asplund, CEO

Yes, that's a good question. Overall, it can be roughly estimated as 50-50 or 60-40, depending on snowfall. Our brokerage business is approximately $100 million. We will provide an update in Q2 detailing how much we expect to perform in-house and how much we might consider transitioning out. Regarding our larger accounts, our team has effectively managed the impact of inflation on the business, as some were not priced correctly. The team is making progress in addressing this. There are also several large contracts established when profitability wasn't the primary goal, which focused more on business growth. We need to navigate through adjustments on a few significant multi-year municipal contracts we still have. But I would tell you, Andy, we should be able to outrun that business just with our sales efforts that we're doing. If we're going to give you any headwinds from our revenue, it's going to come really from that aggregator BES business that you mentioned. And we promise we'll get through the snow season with our customers, and we'll give a full update once our branches decide where and where they can best self-perform the work that we have. But great question.

Andy Wittmann, Analyst

And then just my follow-up here. It has to do with snow. So you guys, obviously, December is what it was. To get to the low end of your guide, you need $170 million effectively here in the March quarter. And so I guess, as you sit here with a big snowstorm that hit through January, how much more do you need in these last 2 months to get to that low end?

Dale Asplund, CEO

Yes. So we don't want to obviously give inter-quarter numbers. But what we can indicate to everybody, we have confidence in our range, and we feel like Brett had said in his opening comments, Andy, where we are as we work through Q1 and January, we feel we're pretty close to where we were last year, which makes us feel very comfortable that we will land in that range. And I just remind everybody, last year, February and March were relatively low snowfall. And that still got us to $210 million of revenue. So we actually think there could be more of that upside. That's why we kept that range with a midpoint somewhere around 240. But we're very, very comfortable, Andy. We're going to get in the low end minimum and probably more towards the midpoint of that range when we think about it if it snows like what we've seen in the past in February and March.

Operator, Operator

Our next question comes from Tim Mulrooney with William Blair.

Tim Mulrooney, Analyst

Yes. So Brett, if I'm doing the math right, it looks like the maintenance land business was down about 5% organically if you exclude that 3.2 million acquisitions. Am I doing the math right there?

Brett Urban, CFO

Yes. On the total, you're doing the math, right, Tim, it's about $19 million for land.

Tim Mulrooney, Analyst

For maintenance land. Yes, yes. Excluding snow. So my question is, did that hit your expectations? Or was it a little softer than you expected? And I'm asking because based on the midpoint of your guidance for this segment for about flat organic for the full year, starting the first quarter down 5%, flat for the full year at the midpoint, it looks like you'd be expecting a pretty strong second half of the year. Am I thinking about that the right way?

Brett Urban, CFO

You are considering this correctly, Tim. Regarding our first quarter, we are not providing quarterly guidance. At the end of Q4, we offered annual guidance and mentioned that the first couple of quarters might show some fluctuations, potentially leading to a decline of around 2% or slightly more, while expecting the latter half of the year to be flat or showing positive results. In Q1, we are aligning with our expectations. A significant factor that we haven't emphasized much since the end of Q4 is Hurricane Ian, which impacted the southeastern U.S. and accounted for about half of our land year-over-year comparisons. The remaining portion aligns with our expectations by concentrating on our core business, reducing emphasis on non-core activities, and striving for profitable growth. Tim, as we enter the last nine months of the year, you can expect that there won't be a comparison to hurricane impacts in Q2. However, some related work will still be ongoing as we concentrate on our core business and reduce emphasis on our non-core business, particularly the aggregator business known as BES. We are currently addressing snow, and regarding land, we will provide a comprehensive update at the end of Q2 because we are actively negotiating with clients now. We anticipate that these negotiations will mostly be completed by the end of Q2, and we will discuss the expected impacts on our performance for Q2, Q3, and Q4.

Tim Mulrooney, Analyst

Thank you for explaining that clearly. I wanted to shift focus to the ancillary work, where you've noted some weaknesses in the business this quarter, which may have also been mentioned last quarter. I have a couple of questions regarding the ancillary side. First, I'm interested in your thoughts on what might be causing the decrease in demand. I'm also aware that out-of-scope work can be beneficial for margins, and I assume that could have been more prevalent. Second, could you estimate what percentage of your maintenance land business is derived from player revenue compared to base contract revenue? If I recall correctly, the split was around 75-25 during the IPO, but I'm unsure if that figure still holds true. Sorry for interrupting you there, Brett.

Brett Urban, CFO

Yes, no problem, Tim. I’ll address the second question first. The ratio of ancillary to total land revenue is around 75-25, possibly even 70-30 for contract work versus other specialty services as it relates to pure ancillaries. That’s generally how the total land revenue breaks down. Regarding your initial question, we did see declines in Q1, mainly due to Hurricane Ian. The entire ancillary revenue for Q1 was significantly influenced by the hurricane that affected the southeastern United States last year. Currently, we haven't encountered any ancillary issues in Q4 from last year, and we don’t anticipate any challenges in the latter part of this year or in the next three quarters. Our ancillary backlogs are at an all-time high. Some of this is influenced by seasonal factors and weather conditions when we install. If we experience more snowfall in Q2, we might see a slight reduction in ancillary work during that quarter, but overall, the backlogs remain strong. The data we keep track of, which we don’t fully disclose, indicates an increase of about 10% year-over-year in what we’re bidding and what customers are purchasing, particularly in the land business.

Tim Mulrooney, Analyst

It's great to be here because I see this as a positive indicator of demand in general. If people are willing to spend a bit more throughout the year, it shows there are no signs of declining demand.

Brett Urban, CFO

Yes, Tim, I think that's an important point.

Tim Mulrooney, Analyst

Kind of a hurricane comp issue.

Brett Urban, CFO

Yes, Q1 is the hurricane comp issue for ancillary, that's why we called it out in the Q. But as you think about the health of the business, the market, we see no signs of any type of weakness in the market. We see ancillary backlogs in our land business, up about 10% year-over-year. We see our new sales pipeline in the land business up year-over-year. And if you look at our development business, we are seeing extreme positivity in that business, not only on the margin side, but from a revenue growth side, it's been 6 quarters in a row. We're really growing that business at mid-single-digit growth rates. And our backlog for development is essentially sold through this year, and we're selling into the first half of 2025 at this point. So we see really positive signs of momentum, not only on the upselling on the land side of the business but also on the development side of the business.

Operator, Operator

Our next question comes from Andrew Steinerman with JP Morgan.

Andrew Steinerman, Analyst

This is Alex Hess on for Andrew Steinerman. I just wanted to dive into sort of the tension between centralizing and decentralizing here in the business. I know this isn't the first time that BrightView has made structural changes and what roles become centralized, what roles become decentralized. Dale, it may be helpful to hear your thoughts on that. And then I have a follow-up question on capital allocation.

Dale Asplund, CEO

Yes. The primary way we can enhance value for our field operations staff is by relieving them of non-customer-facing tasks and centralizing those functions. This enables them to dedicate more time to customer interactions, ultimately making us a better partner. There are certain tasks, Alex, that we want our branches to focus on when it comes to customer interaction, and those should take priority. Meanwhile, there are essential but non-value-added tasks, such as accounts payable and receivable or financial support functions, that should not distract our operators. We want them to concentrate solely on customer-facing activities. While the company has fluctuated between centralization and decentralization, past decentralization often simply shifted responsibilities to different markets rather than returning them completely to the branches. If we proceed with centralization, we will do it correctly and ensure that we maximize the overall value.

Andrew Steinerman, Analyst

And then thinking about capital allocation at BrightView. Obviously, there have been some priorities here that maybe got you into some non-core businesses and led to some acquisitions that didn't scale the way that they were desired. Just from like a metric standpoint, how are you sort of thinking about measuring success in capital allocation to return on invested capital framework? Is there anything sort of you're thinking of how to measure success that maybe moves beyond these consolidated measures that you guys discussed?

Dale Asplund, CEO

Yes. I think one of the challenges we've faced is that we've deployed capital without being great stewards of it. The first thing I did with the team, and I am pleased with our progress, is to pause our M&A activities. M&A isn't just a financial decision; it must align with the company's strategic and cultural goals as much as it must make sense numerically. Additionally, when we acquire a company, we need to take ownership and manage that asset effectively right away. We can't rely on earn-outs or allow the asset to remain separate for an extended period before it integrates into the BrightView team. Our M&A process is going to undergo significant changes. Our field operators are currently reviewing over $700 million in potential M&A opportunities. Our team is assessing which targets would be the best fit for us, aiming to enhance their revenue growth, improve efficiency, and generate bottom line returns. This approach marks a significant shift for us, as we haven't pursued M&A this way in the past. I strongly believe in M&A, but it must be executed correctly. It cannot just be a financial decision made without understanding the business and the people involved. We are focused on ensuring that post-acquisition, we actively monitor and implement improvements to increase EBITDA and revenue for the businesses we acquire.

Andrew Steinerman, Analyst

And then maybe to wrap up, can you highlight any sort of tangible or intangible strategic assets that when you look at BrightView now from your sort of outsider becoming an insider vantage, you say, oh, these are true strategic and competitive assets that are distinct from our competitors and distinct in the market.

Dale Asplund, CEO

It's a great question. What excites me most about this is the closer I get to the field. I've visited nearly one-third of our branches and have been spending most of my first 120 days interacting with our frontline team. The closer you get to the customer, the more dedicated our team is to delivering the right service. As a company, we need to provide them with the necessary tools and resources. We need to upgrade some of our fleet, supply better mowers, and offer improved tools, training, and safety equipment. This way, when they're servicing our customers every day, those customers will understand why we are the best provider in this industry. That's why you heard from Brett; we're going to take those proceeds that we got from U.S. Lawns. We're going to reinvest that back in the business to make sure those frontline employees get the benefits that they deserve, and they can service the customers. And that's the most positive part of this business. And yes, we had some different segments of our business that might have been a little siloed with as we announced, we're integrating Golf and Tree. But even those businesses have dedicated people that are experts in what they do. But when we bring all the resources we have together and they all work seamlessly going in the market to our customers, nobody can compete with BrightView. We have experts from turf to development, to tree care to irrigation, to general land maintenance. We have the best people in the industry, and I see that every day when I visit the branches. So that is our secret sauce. We just have to support those people so they can spend more time doing what they do best every day.

Operator, Operator

We now turn to Stefan Moore with Jefferies.

Harold, Analyst

Hello. This is Harold on for Stephanie Moore. Yes. So developments are some particular strength in the business. I just wanted to get an idea of what are some of the drivers of the strength in the development business this year? And do you expect the strength to be carried over throughout the rest of the year?

Dale Asplund, CEO

Yes. So Harold, I think it was, Harold, you broke up a little bit, but our development business obviously has been the benefactor of what the country has seen on the construction cycle over the last couple of years. And some of those mega projects that you heard a lot of people talk about as they come towards the end, and will continue to come towards the end for the next 1.5 years. We offer one of the top 50 specialized construction companies in North America that can actually support the final stages of those projects. So that team is very hitting the stride right now. They have a great backlog. We're winning new jobs every day, and we'll continue to see that demand, as Brett said, well into 2025 as we continue to bid work. So that business has been a huge benefactor of all the construction that's gone on over the last 24 months. So we are very optimistic about development.

Harold, Analyst

And then just on EBITDA margin. How should we think about the cadence of EBITDA margin throughout the rest of the year for you to hit that 40 to 80 basis points in it? Just any insight on that, on the cadence of it for the rest of the – for the year will be helpful.

Brett Urban, CFO

Yes, that’s a great question. Looking at Q1, if it weren't for the timing of the snowfall, our margin would have been within our guided range for the year of 40 to 80 basis points, likely hitting the higher end of 60 to 80 basis points. The snowfall timing in Q1 affected this, and our full-year guide suggests that the shortfall from Q1 is expected to recover in Q2, leading to a margin rebound. While we aren't providing specific quarterly guidance, we feel confident about the full year based on the actions we've taken towards One BrightView, the alignment of our business, the momentum in our core land business, our development business, and the adjustments to our corporate cost structure. For the full year, we are confident in the margin expansion target of 40 to 80 basis points.

Operator, Operator

Our next question comes from George Tong with Goldman Sachs.

George Tong, Analyst

You've reiterated your full year guide despite the sale of U.S. Lawns and the shortfall in snow revenue in fiscal 1Q. Can you elaborate on some of the assumptions around snow in the land business for the rest of the year that you're incorporating into your full year guide?

Brett Urban, CFO

Great question, George. As we confirm our full year guidance, we feel the same way we did after assessing January's snow results, estimating between $210 million and $270 million in snow revenue. We will provide an update once the snow season concludes. Despite the shortfall in Q1, we believe our initial guidance remains achievable based on the activity in January. We're optimistic about snow and, regarding U.S. Lawns, we strategically sold that business for $52 million with $11 million in revenue at a double-digit multiple. Quick calculations suggest we can still achieve an additional three-quarters of the EBITDA that business would have generated, which we consider minimal given the multiple we received. Overall, we are confident in our momentum moving forward and do not foresee any negative impact on our revenue or EBITDA for the full year guidance.

George Tong, Analyst

And then development revenue growth of 6% came above your full year guide range of 2% to 5% for the segment. Can you discuss your growth expectations for development for the rest of the year? Any timing considerations or comp issues to be mindful of?

Dale Asplund, CEO

I'll start by saying that we didn't see much snow until January, which means the construction season might extend further into the year. This has benefited our development group, resulting in an excellent quarter for them. However, in Q2, depending on the snowfall, we might see a year-over-year decline, particularly considering that snowfall in February and March was relatively light last year. Brett, do you have anything to add?

Brett Urban, CFO

Yes, George. Typically, development's lowest quarter is Q2, same with our land business. So as you think about seasonality and snow, et cetera, Q2 is a bit lower. If you think about last Q2, we were essentially flat in the business just given timing of projects and seasonality. So we do still expect that full year revenue guide of 2% to 5% for the year, Q2 being a little bit less than Q1. And then as you look back to the back half of the year being right kind of in the middle of that guide. So again, we feel bullish on that business. We are essentially sold through 2024 in our backlogs. We're selling into 2025. There could be some quarterly noise just getting projects in the ground. But at the end of the day, we feel great about that business and really the momentum in the overall company. And if you think about us reaffirming guidance, we sit here today excited by the fact that this will be a breakthrough year for BrightView, especially with EBITDA and EBITDA margin expansion. And despite what happened in Q1 timing of snow or despite what happened with stepping over a tough comp with the hurricane, we really feel confident that getting EBITDA at a breakthrough year this year for the company is where we're reaffirming, and we feel optimistic about that.

Operator, Operator

This concludes our Q&A. I will now hand back to Dale Asplund, CEO, for closing remarks.

Dale Asplund, CEO

Thank you, operator. As everyone can tell, we are very excited about the opportunities ahead, and I'm thrilled to be leading this great company through this important period. Our objectives are clear. We are committed to becoming One BrightView, growing profitably and creating meaningful shareholder value. With that, thank you. And operator, you may end the call.

Operator, Operator

Ladies and gentlemen, today's call has now concluded. We'd like to thank you for your participation. You may now disconnect your lines.