Brightview Holdings Inc (BV) 2018 Q4 法說會逐字稿

Good morning, and welcome to BrightView's Fourth Quarter Fiscal Year 2018 Earnings Conference Call.

As a reminder, this call is being recorded.

(Operator Instructions)

The earnings press release is available on the company's website, investor.brightview.com.

Additionally, the online webcast includes the presentation slides that will be referenced as part of today's discussion and a downloadable copy is also available online.

I will now turn the call over to Dan Schleiniger, BrightView's President -- Vice President of Investor Relations.

Please go ahead.

Thank you, operator, and good morning, everyone.

I'm joined on today's call by Andrew Masterman, our Chief Executive Officer; and John Feenan, our Chief Financial Officer.

I'm excited to have joined BrightView a little over month ago, and look forward to speaking with each of you over the months and years to come.

Before we begin, I want to remind listeners that some of the comments made today, including responses to questions and information reflected in the presentation slides, will be forward-looking and actual results may differ materially from those projected.

Please refer to the company's recent SEC filings for more detail on the risks and uncertainties that could impact the company's future operating results and financial condition.

Comments may also include a discussion of certain non-GAAP financial measures.

Reconciliations to the most directly comparable GAAP financial measures and other associated disclosures are contained in the earnings release on the company's website.

Disclaimers on forward-looking statements and non-GAAP financial measures apply both to the prepared remarks as well as the Q&A.

Finally, unless otherwise stated, all references to quarterly or annual results or periods refer to our fiscal years ended September 30 of each calendar year.

As an example, fiscal fourth quarter and fiscal year 2018 both ended on September 30, 2018.

And fiscal first quarter 2019 will end on December 31, 2018.

With that, I will turn the call over to our CEO, Andrew Masterman, who will provide you an overview of our recent results, business strategy and future outlook.

Andrew?

Thanks, Dan.

Welcome aboard, and we're excited to have you on the team.

Good morning, everyone, and thank you for joining us on today's call.

BrightView is off to a strong start as we report our first fiscal year results since becoming a public company in July.

And on a personal note, I couldn't be more excited about the opportunities that lie ahead for our company.

Since launching our IPO on the New York Stock Exchange, we have continued on our path to deliver on our key strategic comparatives: growing the underlying commercial landscaping business; executing and integrating our Strong-on-Strong acquisitions; driving safely to new levels of industry-leading performance; and building and increasing suite of leadership development learning and training opportunities for our associates across the company.

As we'll discuss on today's call, and beginning on Slide 4, fiscal 2018 was a record year for the company, record revenue, record adjusted EBITDA, record adjusted EBITDA margin, record cash flow generation.

We achieved the total company financial targets established during our IPO process earlier in 2018, and more importantly, we are gaining momentum in the key drivers of revenue growth and operating profitability for our business.

Fiscal 2018's total revenue of $2.35 billion was the highest in BrightView's history, up 5.7% versus the prior fiscal year.

Maintenance Services segment revenue, which comprised 75% of total revenue in fiscal 2018, grew 7.4% for the fiscal year.

This strong performance was boosted by the strategic acquisition of 5 excellent operators that are helping us expand our footprint and further our penetration into some of our key evergreen markets.

We also captured higher revenue in our counterseasonal snow removal services, thanks to the snow season in 2018 that was much closer to the 30-year average in 2017.

As a team, we are proud to be delivering these strong top line results in our largest operating segment.

Our strategic decision to managed exits from our -- some of our less profitable accounts has increased the efficiency of our operations, focused our account managers on more accretive customer relationships and improved the quality of our earnings.

We expect the temporary impact on our revenue growth to continue throughout fiscal 2019.

In addition, early in 2018, we experienced some turnover on our national accounts portfolio affecting annual growth, but I'm happy to report that we've actually earned back some of that business, which further improves the quality of our base account business going forward.

Development Services revenue, which make up the other 25% of our total revenue, posted a 1.1% increase for fiscal 2018, despite a very challenging comparison with work on, on large projects in the prior fiscal year.

Moving to our fiscal fourth quarter results on Slide 5. Total revenue finished up 2.6%, with solid growth in Maintenance Services and flat Development Services revenue in the period.

Looking across the Maintenance Services segment, I mentioned a minute ago that we are gaining momentum in our key revenue growth drivers.

At first glance, you see a decline of $5.8 million in our Commercial Landscaping services revenue.

But it's important to keep in mind that this result includes a difficult comparison with an episodic part of our business.

I'm talking about the $12 million of Hurricane Irma revenue that we received in fiscal 2017's fourth quarter.

Excluding this event, our underlying Commercial Landscaping revenues were actually up $6.2 million in the quarter.

This was also the second fiscal quarter with a more material revenue shortfall due to managed exits, in this case an $11 million decline versus the prior fiscal year quarter.

I cannot stress enough that this was a strategic decision to focus our company on generating and servicing long-term profitable accounts to become more efficient operationally, focus our account managers on more accretive customer relationships and thus improve the quality of our earnings.

I am confident this is the right long-term decision for our business.

And as you'll see over the course of today's presentation, we are already capturing some of these benefits.

Finally, the fiscal fourth quarter also included $32.1 million of added revenue to the Maintenance segment from our other strategic growth driver acquisitions.

Later on today's call, I will provide you with an overview of how we are benefiting from one of our more recent deals.

Turning now to profitability on Slide 6. We are very pleased to be reporting a record $300 million in adjusted EBITDA for fiscal 2018, up 12.6% versus the prior 12-month period and just ahead of our total company IPO target.

We achieved this historical milestone through revenue growth and a strong 80 basis point margin expansion.

In a few minutes, John will take you through our adjusted EBITDA performance at the total company and segment levels as well as how that translated into significant improvement in cash flow generation for BrightView in fiscal 2018.

Our strategic approach for BrightView is summarized on Slide 7. And our results in fiscal 2018 are directly related to this disciplined approach we take to our growth levers: Driving top line growth by expanding share of wallet with our existing customers; expanding our customer base across multiple channels, while exiting less profitable accounts; capturing operational efficiencies across the company; and executing our Strong-on-Strong acquisition strategy.

Now I'd like to spend a couple of minutes revisiting some of the key aspects of our business.

First, on Slide 8, let's briefly review our 2 segments, Maintenance Services and Development Services.

Maintenance Services are locally executed route-based businesses made up of 2 key service lines, Commercial Landscaping and Snow Removal.

Commercial Landscaping is a nondiscretionary service with predictable recurring revenue that includes broad ancillary service offerings, like tree care, irrigation and fertilization.

There are a couple of other elements of our Maintenance Services segment that we have discussed previously and are important to revisit.

They are the disaster recovery and snow removal.

Disaster recovery is an episodic revenue generator that leverages our fixed cost structure usually related to hurricanes.

With that said, specific hurricane events are difficult to predict in advance, and while some events have provided strong top line contributors, like Irma and Maria, others such as Hurricane Florence and Michael have had very limited impacts on our business.

The other important element of our Maintenance segment is our Snow Removal service.

This part of our business provides a counterseasonal revenue stream that allows us to use and retain our base of employees leveraging our assets year-round.

Our Development Services segment provides landscape architecture and development services for new landscapes and large-scale redesign projects.

This expands BrightView's customer base, and because of our recognized leadership position in the industry, we have worked on a multitude of high-profile and complex projects, a portion of the projects we complete -- convert into maintenance contracts providing consistent recurring revenue.

Looking at our market opportunity on Slide 9, we are uniquely positioned to be the consolidator of choice in a fragmented U.S. landscaping industry.

In line with our Strong-on-Strong acquisition strategy to support the growth of our business, we deployed $104 million to bring 5 great landscape service companies into the BrightView brand in 2018, further strengthening our footprint and contributing to the year-over-year increase and acquisition revenue in fiscal 2018.

We estimate the annualized revenue contribution to our Maintenance Services segment from these acquisitions will be approximately $118 million.

One of the more notable acquisitions in fiscal 2018 was The Groundskeeper.

By adding this important player in the southwest of the United States, we established a foothold in New Mexico and for the first time, and consolidated our leadership position in both the Phoenix and Tucson, Arizona markets.

We added around 800 new associates, many of them are skilled landscapers, servicing a highly accretive customer portfolio.

We couldn't be happier with how the integration process has gone so far.

In addition, I'm pleased to announce that yesterday afternoon, we closed on our most recent acquisition Russell Landscaping in Hartford, Connecticut.

In line with our Strong-on-Strong approach, this transaction enhances our top -- our presence in a top 50 metropolitan area, positioning BrightView as the undisputed leader in the region.

In the short term, it'll add a modest amount of revenue around $5 million.

And in the long term, we expect to benefit from being the go-to commercial landscaper in that market.

Our acquisition pipeline remains robust, and we are focused on executing our Strong-on-Strong strategy being selective to ensure that we are integrated -- integrating accretive customer relationships, top-tier operators and talented landscapers into the BrightView brand.

We will seek opportunities mainly in our evergreen markets, where year-round maintenance and ancillary demand are the greatest.

Of course, it does not preclude us from any acquisitions in our seasonal markets as well.

For Development Services on Slide 10, it's worth repeating that we see consistent growth that tracks with the overall U.S. economy.

Working relationships with general contractors continue to be critically important, and customers are looking for solutions not just a specific service from us.

Again, these trends bode well for BrightView as we have proactively established strong and long-term working relationships with leading general contractors, and are best position within the industry to provide integrated solutions across all landscaping services.

I'll now turn the call over to John, who will discuss our financial performance in greater detail.

Thanks, Andrew, and good morning to everyone.

Please turn to Slide 12 of the presentation.

Fiscal 2018 was a very solid year for BrightView.

We hit record total revenue and adjusted EBITDA levels; successfully completed our IPO in July of 2018; refinanced and extended our debt; and completed 5 acquisitions in our Maintenance segment.

Let's move now to our financial results on Slide 13.

For the full fiscal year 2018, BrightView's total revenue was up a solid 5.7% versus the prior fiscal year.

Revenue was up in both operating segments, allowing us to capture additional efficiencies in our operations and further leverage our fixed cost structure.

As a result, we generated $300 million in adjusted EBITDA or a 12.6% increase for the full fiscal year.

Let's look at the details of the fiscal full year and fourth quarter.

Adjusted EBITDA in the Maintenance Services segment expanded 12.3% in fiscal 2018.

This growth against the 7.4% increase in revenue for the fiscal year meant that we were able to expand segment adjusted EBITDA margin by 70 basis points.

This is an important proof point for the effectiveness of our Managed Exit initiative.

While revenue growth faces a temporary reduction, the quality of our earnings is improving.

We'll provide you with more color on Managed Exits toward the end of today's call.

In the Development Services segment, revenue grew 1.1% and adjusted EBITDA was up 1.7% for the fiscal year.

As you can see on Slide 14, for the fourth quarter of fiscal 2018, total adjusted EBITDA rose 5.6%, resulting in a 40 basis point margin expansion versus the prior year fiscal quarter.

Both Maintenance Services revenue as well as adjusted EBITDA grew 3.5% in the fiscal quarter with contributions from acquisitions and core commercial landscaping profits, partially offset by the comparison with the higher profit Hurricane Irma cleanup in the year ago fiscal quarter.

In the Development Services segment, adjusted EBITDA was up 30% in the fourth quarter of fiscal '18 on a flat revenue comparison.

Essentially, the new business that the development team generated in the fourth quarter of fiscal 2018 was more profitable than the large project work it performed in the same quarter last fiscal year.

As you have heard us say before, Slide 15 shows that our business is highly cash generative.

Capital expenditures totaled $86.4 million for the full fiscal year, up $25.5 million.

The increase was mostly from the acquisition of legacy ValleyCrest facilities for $21.6 million in the first quarter of fiscal 2018.

Excluding the legacy asset acquisitions and adding back the proceeds from the sale of property equipment, total net capital expenditures, as a percentage of revenue, was 2.2% in fiscal 2018 compared with 2.4% in fiscal 2017.

For fiscal '18, BrightView generated $127.6 million of adjusted free cash flow, up $57.2 million versus the prior fiscal year.

Not only did we deliver our highest-ever adjusted EBITDA in both absolute and margin terms, but we also focused on improving our working capital management throughout the organization and made good progress in managing our accounts receivable.

These efforts are constant in our company.

And as we push forward with enhancements to our branch level systems, we will continue to guiding our teams to capture more efficiencies and further improve our cash flow generation.

Finally, as you know, we used all of the proceeds from our recent IPO to pay down debt at the beginning of the fourth quarter fiscal of 2018.

Our reduced debt structure and higher adjusted EBITDA lowered our leverage ratio to 3.8x at the end of fiscal 2018 versus 6.1x at the end of fiscal 2017.

Additionally, in August of 2018, we refinanced our long-term debt, extending the term and increasing our available lending capacity.

Let me give you some color on Slide 16 related to the operational progress we made on a number of fronts in fiscal 2018.

We completed the rebranding of our fleet, giving the BrightView brand greater visibility across the country.

We expanded our branch leadership training platform, Account Manager 101, which is designed to focus on the voice of the customer to drive retention, improve our service delivery model and further distinguish BrightView as a solutions provider.

We continue to streamline key productivity tools, such as Electronic Time Capture, which provide us with important data in order to make better productivity decisions.

We are also very proud of our industry-leading safety record, and I'm happy to report that not only did we reduce our already low incident index by 20% versus the prior fiscal year, but more than half of our branches reported 0 safety incidents in fiscal 2018.

In terms of 2019 fiscal year guidance, on Slide 17, you see that we have a favorable operating outlook to continue our strategic approach to pricing, service enhancements, customer retention and new business development.

We are also managing a robust acquisition pipeline that meets our Strong-on-Strong criteria.

With that, for fiscal 2019, we expect to deliver total revenue of between $2.4 billion and $2.47 billion, generate adjusted EBITDA of between $310 million and $318 million with margin expansion likely around 10 to 30 basis points versus fiscal 2018, and maintain net capital expenditures at approximately 2.5% of revenue.

We also expect that the material revenue impact from our Managed Exit initiative will continue into fiscal 2019, with declining amounts over the course of the fiscal year.

The total impact of the initiative in 2019 will be between $15 million and $25 million.

There are a couple of other challenging comparisons that we want to give you some visibility into for the next fiscal year.

While we do not plan to provide quarterly guidance moving forward, we feel it's important to call out a few items for the coming quarter.

Specifically, in addition to the revenue impact from Managed Exits, first quarter of fiscal 2019 comparisons will include revenue of $17.5 million from the additional revenue received from the cleanup following hurricanes Irma and Maria in the first quarter of 2018.

This includes: $4 million that was done in our acquired businesses; a challenging adjusted EBITDA comparison, given that Hurricane cleanup provides a higher-margin compared with standard Maintenance Services; the final quarterly comparison to the large Development Service projects that generated about $3 million of adjusted EBITDA in the first fiscal quarter of '18; and higher corporate overhead expenses related to becoming a public company as well as the timing of certain other corporate expenses between the first and second quarters of fiscal '19.

These will flow through and reduce adjusted EBITDA in the first fiscal quarter by about $3 million, with offsetting impact in subsequent quarters.

Hopefully, this helps you understand where we expect our results to be at 2019 fiscal year-end.

To be clear, all of the factors that I just mentioned are captured in our full fiscal year guidance, but we also wanted to provide you with a framework to think about the path of our full year fiscal 2019 outlook.

With that, let me turn the call back over to Andrew.

Thank you, John.

More than 20,000 people worked every day to deliver the best landscaping service in the industry last fiscal year, which generated the highest revenue and adjusted EBITDA results in BrightView's history.

It was truly a team effort.

Over the past 2 years, I've had a chance to visit nearly all of our 220 nationwide branches.

I continue to be energized with each visit after meeting so many talented people, learning about all the great work they're doing for our customers and seeing how much more growth potential lies ahead for BrightView's business.

So I'll say it one more time, we are running a great business with the unique opportunity for continued growth, and we just delivered record full year results.

Our revenue, adjusted EBITDA, adjusted EBITDA margin and cash flow generation were all the highest in our history and 2019 is looking strong.

We expanded our footprint into new geographies and consolidated our leadership position in others, and we are working with a robust pipeline to continuing adding accretive operators in fiscal 2019.

We delivered strong top line growth, and within the last several months, we have added to that, a major U.S. university, an important international airport, a regional U.S. bank's retail network, expanded wallet share at a significant corporate headquarters and multiple fulfillment centers of a large U.S. retailer, all of which are helping to fuel our growth in fiscal 2019.

In addition, we captured efficiencies through targeted productivity initiatives that drove margin expansion throughout our branch network.

We continued fueling our leadership engine and expanded training and leadership development programs, and we took care of each other by promoting a culture of safety across our operations, which improved our industry-leading safety practices and track record.

We made quite a bit of progress in a fairly short period of time.

More importantly, we have positioned the organization to generate long-term stockholder value by focusing our teams on winning profitable business at the local level, delivering the service that keeps our customers coming back and identifying accretive growth opportunities for our company.

With that, we'll now open the call for your questions.

(Operator Instructions) Our first question comes from Hamzah Mazari from Macquarie.

Mario Cortellacci, filling in for Hamzah.

Could you walk us through the current M&A pipeline and the level of confidence in closing those deals?

I know you guys baked in your acquisitions into your financial guidance.

And I don't think you closed anything in Q4, but it sounds like you closed one in the current quarter.

So just trying to get a sense of the pipeline that will help you hit your revenue target and kind of the cadence of those deals going throughout 2019?

Absolutely, Mario, and thanks for the question.

Look, our pipeline remains robust.

I think in the past, we talked about a pipeline about $300 million of revenue or so, it remains about that level.

And we went down several paths with several different acquisition candidates in Q4 that we didn't -- we decided to move away from just as we peaked under into -- more into their details.

Look, our guidance of about $60 million of top line revenue we feel real strong about executing to that.

If you look at last year, we executed acquisitions in fiscal '18 in December, January, February and May.

It doesn't come in a consistent nice drumbeat of every single month, and we feel confident with what we see coming through the pipeline to execute to that level of model that's in the model.

Got you.

And maybe you can comment on what pricing is currently running?

And whether or not that could be a larger opportunity going forward?

And maybe you can give us a sense of how much price you think can be added to new acquisitions?

And I'm not too sure if you've already told us this, but could you remind us of the time line that we could expect before those pricing increases to be realized?

Mario, this is John.

Good morning.

Look, on our pricing, we're -- I know we talked about this in the past, but we're not going to get into the gory details of our specific pricing initiatives.

I think we're very comfortable sticking with our guns to the 10 to 30 basis point bottom line improvement.

Pricing is one of the many initiatives that we talked about in the past, of improving the performance and the quality of earnings.

And as far as your other question, around the time line, we're very comfortable as far as getting the efficiencies and the productivities and starting on our pipeline within about, call it, 18 months, somewhere between 12 to 24 months, so I would use the midpoint of 18.

And going back on your pricing comment, we talked about this before.

It came back to us that it actually was a competitive disadvantage for us in some of the discussions that we had post our disclosing the gory detail.

So we're still confident with the 10 to 30 bps.

It's one of many tools that we use and that's kind of where we are.

(Operator Instructions) Our next question comes from Judah Sokel from JPMorgan.

When you make adjustments for the impact of hurricanes and for the Managed Exit, the full year fiscal '18 underlying commercial landscaping business was down organically.

At the same time, in fiscal -- in the fourth quarter, we saw that flip to growth and fiscal '19 guidance implies closer to 2% organic revenue growth after maybe 1% in the fourth quarter.

So can you just explain what went wrong during the first 3 quarters of the fiscal '18 where organically that business was declining?

And what changed to lead us to growth and with that growth accelerating going into the next year?

Yes, Judah, this is Andrew.

What we saw early in 2018 was a couple of several national accounts that had a dip, and that affected us in cash going forward, especially as we got into the green season, into the busy season, should I say in Q3 and Q4.

What happened as those tail off and the year-over-year comps come in is it actually we're seeing growth across our service lines.

And in fact, one of those national accounts is already boomerang back and has come back to us.

It's somewhat the dynamic of the industry.

And so you look at that, that comp year-over-year, that kind of hit us a little -- again, with that little amount of decline we had annually, and we see that specifically as we look at Q4, the rebound we see.

And now we're seeing performance better across-the-board.

When it looks at our retention rates, not only within our existing branches and the existing position we're in, but also the fact that our business developers have gotten the year into their belts.

And we're seeing less turnover in the field, and we're seeing tangible results coming in from these people who gain their experience in the field.

Okay.

And then just one other question.

What are your expectations for snow removal revenue that are embedded in your fiscal '19 guidance following the $250 million revenues in fiscal '18?

Yes.

If you look at fiscal '18, $250 million, that's kind of more from a dollar perspective or an average amount of about what we've seen in the past.

In fiscal 2018, we were lucky in some ways of seeing ice in the mid-Atlantic, which didn't reflect itself until snowfall, but it did require us to go out and service properties with a particular amount of ice events.

So that revenue, if you take the pure math on contracts versus seasonal averages, what we'll see is a very slight decline in the overall top line revenue in snow and that's just due because we plan specifically at 30-year inch averages.

And last year, just to give you a number, was 88% was -- what snowfall was, just public data, it's out there what the snowfall was relative to last year -- relative to the average.

So 2018 is not relative to the average.

We plan it at 100%, and we look at every region where we have snow.

Okay.

So just to sum it up, fiscal '19, you're expecting to be similar to fiscal '18 from a revenue dollar standpoint as of now?

Fiscal -- just a slight dip, $5 million-or-so dip.

Our next question comes from George Tong from Goldman Sachs.

You've guided to managed contract exits of $15 million to $25 million in revenue in fiscal 2019, declining over the course of the year.

Can you elaborate on what gives you confidence that the revenue impact will be limited to that range?

And what do you expect any further impact beyond fiscal 2019?

George, look, Managed Exits are somewhat of a craft that we can't say specifically what each account is going to leave or not leave because of the process of negotiation.

What we can say is, is that we do know today when those contracts that are underwater are coming due, so when they expire.

These tend to be 3-year contracts.

They were forged in '15 and '16 that have dates that come due and then we'll negotiate with these folks on being able to say that we don't want the business to come -- to repeat unless we get the price increases.

So as we look at that, we have pretty some visibility to when those negotiations take place and that strategic approach that we're taking to taking those accounts out, we see that tail ending in a significant manner towards the end of fiscal '19.

That being said, it's going to be -- we're going to be confident looking at our business and kind of the layout as it is at all given times, but we see a magnitude of Managed Exits to be something, which comes out; It should have no -- just to let everyone know, this is not an EBITDA impact.

This is actually -- these are -- we have no plan, EBITDA dilution due to these accounts, we're getting out of them because they don't add to our sending money.

Got it.

Very helpful.

And then as a follow-up, can you discuss how much input cost inflation you're currently seeing as it relates to labor and materials?

And what proportion of that you believe you can pass on to customers?

George, this is John.

Look, we're seeing a modest amount of nonlabor-related inflation in typical items that we would purchase.

The bigger challenge for us has been on the labor.

We've been very clear that we've seen an average of roughly 5% increase in our wage rate.

We model that accordingly.

In 2019, we don't see that going away.

Having said that, it's higher than 5% in some parts of the country where there is significant shortages, and less in others where there's not as many competing opportunities for our workforce.

But in the main, we have a handful of things that we're using to upset these headwinds around productivities and efficiencies, pricing being one of them, which we talked about a little bit earlier as well as things like Electronic Time Capture that's been a fruitful area for us and that's directly related to the labor.

But I think, in summary, we're still quite confident in our ability to deliver 10 to 30 bps of margin improvement on a consolidated basis per annum.

Our next question comes from Tim Mulrooney from William Blair.

So I think working capital was a slight source of cash actually in 2018.

How should we think about working capital requirements for 2019, John?

Yes.

Good morning, Tim.

Look, we've done a really good job, I would say, in managing our working capital.

We've had some ramp up because of the acquisitions as we get them onto our metrics and our methodology.

Our percentage on a consolidated basis the way we define it, which is really simple, so I can drive it down into the business, which is inventory plus AR less AP.

If I go back a year ago, it was about 12%, this year it was about 10%.

So we made some good improvement there.

The bulk of that improvement came around our AR.

I would expect it to stay in that range.

And we have a real heightened emphasis on improving that whole cash conversion cycle and that really resonates for us because we don't have a lot of inventory, because we have our payables essentially automated.

It really resonates around continuing to make traction on the AR side.

We've made good traction.

We still have work to do.

Okay.

That's good color.

Any other major items to consider, as I'm forecasting your free cash flow here for 2019?

Or do you expect a similar conversion rate to what we have seen over the last few years in that 120% range?

No, I expect the same conversion, Tim.

Look, we're very clear in our guidance on our capital.

So I don't see any noise there.

Our cash -- our interest expense is going to be somewhere around $75 million versus $100 million this year.

So how we've gotten there is basically $0.5 billion of savings, roughly figure 5% weighted rate, and then I believe assumed, so that would be $25 million, and put a $5 million headwind in there for the increase we're seeing in interest rates.

Our cash taxes are relatively stable.

So I don't see any major headwinds in there.

We have generally a strong EBITDA and that will translate to the results you saw this year.

Our next question comes from Susan Maklari from Crédit Suisse.

I wanted to talk a little bit more about some of the efficiencies that you're looking to gain going forward.

Can you just perhaps talk a little bit more about some of the sources of that?

And how we should think about it actually flowing through in terms of your results?

Absolutely.

Well, one of the key efficiencies, I mean, something we've launched at the beginning of 2018 was Electronic Time Capture.

And if you look at what we've moved from, which was a relatively manual process across the whole company, into a detailed process, where we're actually using phones to track the times that we leave -- check-in to the yards, leave the yards, arrive at sites and then actually shut down at the end of the day.

And what this does is, it allows us to be able to service more properties more efficiently, just making sure we're being efficient in the routes that we travel to the sites, and that we actually dispatch out the yards in a timely manner and don't linger.

And so by just taking a tight approach to that, what we're going to be able to do is really, again, get to more properties or service those properties better over time.

In addition, we really push those out through Account Manager 101 and really a dedicated approach to account manager training as well as branch manager training with our lead program on top of that, which is the leadership development program.

This focuses on a high degree of retention that we get into our customers and really a commitment to execution around that.

So all those things kind of coming together, we believe, and we are seeing tangible and real results in the productivity of at the branch level.

Okay.

That's helpful.

And then my next question is in Development Services, recognizing that there has been kind of a focus there on profitability.

Can you give us some sense of maybe the workflow that is coming through some of the -- the nature of some of the projects that are upcoming as we think about your next fiscal year?

Sure.

Absolutely.

And as you look at where we're at with development, you see a continued robust pipeline that right now we're kind of looking into the second half of the year right now.

We've got the projects lined up for the first half as we're driving into that business.

They tend to be -- we had some very large projects in the past couple of years, they tend to be smaller than that.

But if you look across-the-board, places that we're doing, it's across Florida, it's in Nevada, it's in California, really it's across the country, it's in Boston.

There are many -- where there are new casinos that are being developed, new hotels that are being installed, whether it's enhancements to existing properties that are showing significant improvements.

We're focused on our projects that can showcase the talents we have within the organization, tend to be towards the more complex and higher ends and those driving higher profit margins.

So we're seeing a real strong continued pipeline across most all regions were involved with.

Our next question comes from Philip Ng from Jefferies.

Encouraging to hear the Managed Exits are starting to level off a bit here.

Can you provide some color on how to think about the margins of this business you walked away from versus your wins?

And can you size up some of the -- some of those wins that you've actually highlighted in your prepared remarks?

Yes.

Sure.

If you look at the Managed Exits, look, how you should look at that is, they have no margin.

We're getting out of the business because they don't deliver to the bottom line, so -- otherwise, we wouldn't be getting out of them.

And so that kind of gives you straight forward on the Managed Exits.

It's a easy way to do the math.

When you then go into what's coming in, those come in at kind of are stringent targets.

It's a great platform to basically take labor that's adding nothing to the bottom line for the company and then redirecting it into projects, which actually recognize the value of the services we deliver.

So overall, I think that gives you a general scope.

When you look at the efforts that's coming on board, they followed in that scope.

And those projects coming on board are across the country in both seasonal and evergreen markets.

In addition, they have strong cash-generative profiles, which -- looks, it's -- yes, there's unquestionable, Managed Exits are related to the profitability, but they also have a impact on your payment terms because they tend to be the ones that don't pay.

Got it.

That's really helpful.

And then M&A has been actually quite strong, it's tracking well better than we would have expected.

Can you just provide some color on some of the acquisitions you've done recently?

How that integration process is coming along?

Is the margin profile kind of bettered -- better or worse than you expected in that progression as it moves more closer to your long-term targets?

Yes.

I think, we talked about the -- some of the -- most recently, look at The Groundskeeper, which was a big acquisition, had about 9 branches and integrating toward the group.

Due diligence, we understand what their margins are.

As we said before, it's slightly lower than what we have in our own portfolio.

And over 18 to 24 months, we migrate them over.

We take a relatively slow approach to integrating acquisitions, and why we do that is because you got to preserve the customer relationships and you got to retain the group.

Those are our 2 primary things as we are -- we do acquisitions, we're buying great customer relationships and buying talented crew members and leaders will help us drive it.

Will we see that over time migrating towards our higher than industry average margins?

Yes, we see that across the business, but it takes some time.

Phil, I just want to add one thing to Andrew's comments.

Andrew is spot on in the time frame.

And if we go back and look, for instance, at the transactions that we did in '17 and how they were able to impact us in '18, we're quite pleased for the most part with those acquisitions.

Well, we've been able to get the synergies and start to get the results.

It doesn't happen immediately.

And I think it's a 12- to 24-month process in order to get those ones up on our systems and get all the way we -- all the processes behind the scenes that we do, so that the companies are very efficient and then we can make sure that they're accretive to the bottom line.

Next question comes from Deane Dray with RBC Capital Markets.

I know we talked about hurricanes and natural disasters, and I was curious to know if you have gauged any impact from the California fires and how might that affect the quarter?

Yes.

Good question, thanks for asking it, because it certainly -- it did affect our employees for a few days in our Calabasas, California corporate offices.

However, across-the-board, with our customers, that was only a temporary effect of people coming to work at our offices.

Our officers were not affected, and really our customers were not dramatically affected or affected in any significant way due to the fires thankfully.

We really -- we took a very serious approach, first, contacted everybody, most importantly, number one, our own crew members and how their homes and lives may be affect -- might have been affected, but then also to our customers, obviously, in those properties.

And by and large, relative to BrightView, this has been a somewhat muted effect.

That's good to hear.

And just you probably wouldn't expect this comment, but since you brought it up in the prepared remarks and your comment here about checking on employees during the fires, the safety record, because it -- our understanding is some of the most dangerous professions are forestry, mining and landscaping, and for you to turn around and say that you've got 20% improvement and some of the branches have 0 instances of accidents.

So what are you doing special there?

It's a disciplined approach across all the organizations.

We take a great deal of pride in the fact that this is a record, which goes deep into the branches.

It is a discipline, whether it's in Florida, whether it's in California, whether it's in Texas, you go to any of our branches, and you're going to see a cultural underlying approach that takes discipline every single day, it takes discipline to dispatching, to checking the trucks, checking the people, making sure everyone has the appropriate PPE, the water and the thing is it on goes.

It not just starts at the dispatch, it goes on to site.

We have a disciplined structured approach that allows us to train all individuals on a real culture of taking care of each other.

And I guess, I invite anybody on the call, who wants to come visit a branch in the morning, come see or watch it is, by the way, at 6 a.m., so you got to get up a little early, but come in and see it because it's something we're very proud of and continue to work on as we take that cultural approach to the entire organization.

Next question comes from Justin Hauke with Robert W. Baird.

I wanted to ask, I guess, 2 questions on the guidance, just to clarify couple more points, but I guess, the first part is I'm trying to understand what the embedded organic revenue growth rate is for the Maintenance segment?

And maybe the easiest way to ask that is, you talked about $118 million of annualized revenue contribution from the deals you did in '18, but obviously those were phased throughout the year.

So maybe just numerically, what is the acquired revenue that you are expecting in '19?

Yes.

Justin, this is John.

I mean, we have, as Andrew stated, I think, earlier, we've assumed approximately $60 million of annual revenue from transactions that we'll do in fiscal '19.

If we consume roughly half of that, it'll be, what we call, realized revenue, so that's $30 million.

And then another $45 million to $50 million of carryover from M&A transactions that we've done in fiscal 2018.

That's about, call it, $75 million.

If we then look at some of the things that we talked about as far as Managed Exits and hurricanes, those are obviously headwinds.

We talked about snow being down a little bit, not a lot.

If you add all those up, that would get us to the -- of about $2.354 billion base of where we ended this year.

That would get you to the low-end of our organic -- low end of our range of roughly $2.4 billion.

So that would assume approximately 1% organic growth when you do all of that math, added that 1% organic will get to the low end of our range.

And obviously, then as you go up, the range -- it layers on from organic growth.

Got it.

That is very helpful.

The second part of the question, I guess, is also on the guidance, but the implied margin expansion is 12.9%, so 20 basis points.

It seems like if we do the math based on your commentary that the Managed Exits are no EBITDA contribution, just taking the midpoint of that $20 million, that would give you 20 basis points of a margin expansion right there.

So is the way to think about the other efficiency actions that you guys are taking is mostly just offsetting the underlying inflation rates and so those are kind of neutral to each other because that's just how the math would shake out?

Yes, I think that's one way to look at it.

I mean, there's productivities and efficiencies around things like ETC that we talked about.

There is also benefits we're getting on SG&A because we're managing it very lean.

We have M&A transactions that are getting more mature.

So they're getting more profitable offsetting the ones that are coming on stream, which are new, which aren't as profitable.

And then you have things like pricing and all the other stuff, but in the inflation that we're seeing on labor, when you add up all of those items, Justin, we're very confident in the 10 to 30 bps.

We haven't wavered on that.

We've been saying that since day 1. We've done it over the last 2 years and that's how you should think about it in the fiscal '19.

(Operator Instructions) And we have a question from Anurag Kapur with Wells Fargo.

Just following up on one of the questions earlier.

I was just wondering if you could comment, at all, on the recent fires in the area.

I noticed your commentary on the office in Calabasas, gratified to hear that.

If you see that as a potential opportunity in terms of cleanup and work going forward and then potentially as a risk to the business going forward as well given clearance of forest, et cetera?

We really don't expect wildfires to have any material impact on either our branches or assets or revenue.

I'm sure in some residents -- it's going to be a book boost to potentially some residential landscapers out there.

But in the commercial world, the reality is our hotels, our commercial complexes, universities, these were havens and well protected.

So the relative impact that we're seeing relative to the properties we manage are going to be de minimis.

And the development projects that we have across-the-board have not been impacted as well in those areas.

So it was a devastating fire, no question.

And good question because these things will impact us at times positively or neutrally.

And this year it just happens to be that Michael and Florence and then the campfire and then the fires that occurred down in Los Angeles, just happened to miss the properties that we serviced.

(Operator Instructions) And we have a question from Richard Fullerton from RBF Capital.

Did you disclose what the maintenance contract renewal rates were for the last fiscal year?

We did not disclose specifically what those renewal rates were.

I think during the roadshow, we had said the mid-85-ish or so as the retention rates.

And all I can say right now is -- and we're not going to be disclosing it on an ongoing basis.

What I can say is that ex Managed Exits, we're trending up.

And so we're seeing a stronger result from our Account Manager 101 training and some of the focuses we're putting on the customers.

So it's trending upwards, meaning higher retention rates, but again, it's not something that we're going to necessarily disclose on a quarterly basis.

Okay.

Great.

And then the Electronic Time Capture, the ETC, is that fully rolled out at this point?

Or what sort of inning of improvement related to branch level are we in on that initiative?

Absolutely, across the Maintenance Services Segment, we're fully rolled out.

We've do taken over 4,000 iPhones and put them into the field in the hands of all of our crew supervisors and which graded -- you think it's easy, but actually getting everybody and all the different exceptions that you can see in the field, it took a long time.

It took about a year, frankly, from when we started to actually get things done and usable.

Now what we have is, we have a proprietary process with the business intelligence software delivering daily information to every account manager and branch manager on how their crews are performing and making sure we're getting every single hour of the day dedicated to our clients.

And we expect as we get that data and look at it and analyze it and form it, we're going to be better and better every single day.

Okay.

And was this something that you led for the industry?

Or are there some strong regional competitors also implementing this or is this...

Yes, this is, we -- look, we've seen it -- it's a great question, because we've seen it in acquisitions that we looked at.

People taking off-the-shelf type programs and trying to apply it to landscaping.

I have not seen it in a broad-based, strong roll out across the entire industry.

Again, there are 20,000-plus landscapers going to work every single day with this.

I haven't seen it to that degree, and the type of business intelligence we get out of it is compelling.

Thank you, and that concludes the questions in the queue.

I'll turn the call back to the presenters.

Thank you, operator.

Once again, I want to thank everyone participating in the call today and for your interest in BrightView.

If you have any follow-up questions, please don't hesitate to reach out to us.

We look forward to speaking with you when we report our first quarter of fiscal 2019 results in February, and please enjoy the holiday season.

Thank you very much, ladies and gentlemen, for participating in today's call.

The call has now concluded, and you may disconnect.