Brightview Holdings Inc (BV) 2019 Q2 法說會逐字稿

Good morning, and welcome to BrightView's Second Quarter Fiscal 2019 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 referred to 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 Vice President of Investor Relations.

Please go ahead.

Thank you, operator.

Just a quick question.

We hear a phone ringing on our side.

Do you hear it?

Just want to make sure it's not going out to the room.

Yes, we do hear it.

Okay.

Let's wait maybe for that to stop.

Apologies for this.

Let's just give it a second.

Hello, Michelle?

Yes.

Here we are.

Did that ringing stop after we dropped off?

It stopped now, yes.

Okay.

Great.

Okay.

So apologies for that.

I guess we'll -- can we get started?

Sure.

Do you want to go ahead and read the intro again or you just want to go ahead?

I assume everybody's heard it, so I'll just say good morning to everyone.

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

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.

Our comments today will 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 today's prepared remarks as well as the Q&A.

Finally, unless otherwise stated, all references to quarterly, year-to-date or annual results or periods refer to our fiscal years ending September 30 in each respective year.

Today, we're presenting the results for the 3- and 6-month periods ended March 31, 2019.

So with that, I'll turn the call over to BrightView's CEO, Andrew Masterman, who'll provide you an overview of our recent results, business strategy and future outlook.

Thanks, Dan.

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

Please turn to Slide 4. Today, we are going to take you through our strong results for the second quarter of fiscal 2019 as well as provide you with an outlook for our green season in the second half of the year.

Before John and I take you through some of the details, there are a couple of business dynamics that I'd like to highlight this morning.

First, with respect to our business, our strong operating performance in the second quarter speaks to the strategic decisions we've made over the last couple of years.

We've streamlined our costs and refocused the company on generating long-term profitable growth by leveraging our national scale while localizing other important business drivers.

We believe that these decisions are just beginning to bear fruit.

One of the clear benefits of having a nationwide presence is the balanced effect that it provides when we experience unusual swings in weather patterns.

Since we do substantially all of our work outside, weather can impact our results from quarter-to-quarter.

With that said, our second quarter performance demonstrates that these patterns tend to normalize over longer periods and across larger geographies.

That's an important point for me to make.

We operate across a national footprint.

Despite a 33% year-over-year decline in the usually very strong snowfall in the Northeast region, our snow removal revenue was modestly positive versus prior year.

This was aided by snowfall increases in the Mid-Atlantic, Colorado and Pacific Northwest markets, which illustrates the balanced effect I just alluded to.

With our snow season largely behind us and as we enter the green period of our third and fourth quarters, we are seeing positive returns on the investments we made over the last couple of years to redesign and revitalize our sales team.

Net new sales momentum remained solid through the selling season for our Maintenance Services segment, which also saw positive trends in the underlying business that I'll touch on in a few minutes.

And the Development Services segment's bookings will ensure strong spring and summer activity for the business, which supports our plan to deliver positive revenue growth in this segment for the full year.

In other words, we remain confident in our full year plan and are maintaining our full year fiscal 2019 guidance.

To help guide our future strategy and further support our stockholders, a few weeks ago, we mentioned that our Board of Directors expanded to 8 members with the appointment of 2 new independent members.

I would like to take a moment to welcome Jane Okun Bomba and Mara Swan to our Board.

Both Jane and Mara bring a wealth of executive-level leadership, experience and expertise from across a broad spectrum of industries.

Half of our Board now consists of independent directors, and I believe I speak for the rest of the members in saying that I'm excited to work with Jane and Mara for the benefit of all BrightView stockholders.

Turning now to the second quarter on Slide 5. Total revenue grew 1.1% in the quarter, with revenue growth in Maintenance partially offset by a decline in the Development segment's revenue.

The Maintenance segment delivered revenue growth of 2.9% versus last year, including a 4.4% increase in our Landscaping Maintenance revenue.

Importantly, the underlying growth in the Commercial Landscaping revenue improved over the course of the quarter, turning net positive in March.

In fact, Maintenance contract revenue grew versus last year, but some markets, particularly Southern California, experienced delays in the installation of enhancements due to the continued wet weather in that part of the country.

Included in our Maintenance segment second quarter revenue is a $9.4 million headwind from our strategic Managed Exits initiative.

This brings the total revenue impact for Managed Exits to $20.2 million for the first 6 months of fiscal 2019.

And as we've consistently mentioned, we implemented this initiative to optimize our customer portfolio, focus our account managers on delivering extraordinary customer service and ultimately to enhance our profitability.

We've now concluded all of the customer negotiations associated with this targeted Managed Exits initiative.

And with that, we can confirm that third quarter fiscal revenue will include an impact for Managed Exits of less than $9 million.

Beyond the third quarter, while there is a tail to the program, the Managed Exit revenue impact will decline compared to the prior 4 quarters.

That tail which runs into early fiscal 2020 will be less than a total of, say, $8 million.

As I mentioned earlier, our snow removal revenue benefited from our nationwide presence and was relatively flat in our existing footprint versus the prior year.

Total snow removal revenue was modestly positive, thanks to a small contribution from acquisitions.

Speaking of acquisitions, the quarter included $24.2 million of acquired revenue with more than half of that figure coming from the wraparound contribution of 2018 M&A activity.

As we reported on our first quarter call, we completed 2 acquisitions during the second quarter of 2019.

Our acquisition of Emerald Landscape in January, combined with the earlier acquisitions of Cleary and Marina, gives us more than 20 branches in Northern California alone.

And we've doubled our branch network in Texas over the last couple of years, thanks to our acquisition of Benchmark Landscapes in February, in addition to our earlier Groundskeeper and Precision transactions.

We are focused on supporting the integration of both companies and are pleased with the organic growth trends we are seeing in some of those markets.

Our realized revenue target for 2019 from acquisitions is in good shape as a result of these early transactions.

And we will continue to be selective by following our Strong-on-Strong M&A strategy working through a robust pipeline to potentially enhance this year's result and also build next year's wraparound contributions.

In the Development segment, new projects early in the calendar year partly offset comparisons with certain large projects from the prior year period.

We also faced particularly wet weather in January and February, with nearly half of the working days in the quarter suffering at least a partial impact from weather in some important markets.

As a result, the Development segment's revenue in the second quarter declined 5.4% versus the prior year.

However, as I just mentioned, based on our bookings for the second half of 2019, we expect to deliver full year positive revenue growth in the segment.

In terms of profitability, on Slide 6, we generated some of our best ever adjusted EBITDA results in both absolute dollars as well as margin for the March quarter.

Adjusted EBITDA in the quarter was $61.1 million, up 18.4% versus last year.

Adjusted EBITDA margin expanded by 150 basis points to 10.2%, supported by the strong performance of our Maintenance segment, the benefit of existing low profitability -- of exiting low-profitability accounts and managing lower corporate expenses.

So I'll say it again, this result is a testament to our deliberate approach to profitable growth.

By localizing our sales teams and focusing our account managers on the right customer relationships, we are optimizing our resources and capturing efficiencies while delivering unmatched service to our customers.

On Slide 7, I'd like to highlight some of the steps we're taking to drive future top line growth, support customer retention and enhance our operational efficiency.

As the leader in the industry, we're continuing to implement digital tools to support our teams.

Last month, we began the rollout of the Salesforce software to enhance our field teams' CRM capabilities.

We're also about halfway through the deployment of electronic time capture in our Development segment after completing the deployment in the Maintenance segment last year.

Although we are still in the early stages of the digitization of our business, we're confident that these tools will help our branches strengthen customer relationships and further build on their industry-standard operational efficiency.

Additionally, you may have noticed that this morning's earnings release was issued from Blue Bell, Pennsylvania.

As of last week, we moved into a new office space, less than 3 miles up the road from our previous headquarters in Plymouth Meeting, Pennsylvania.

Not only is this a cost-efficient solution for consolidating various corporate work groups from across the country, but the new facility also allows us to establish the BrightView National Training Center.

In this new location, we'll now be able to offer an expanded curriculum taught by both internal and external experts to continue developing our future leaders.

Each year, we expect to provide training and education to over 400 of our field personnel, leadership teams and other high-potential employees.

Our National Training Center will offer courses across a number of topics designed to drive incremental sales, engage our customers and develop leadership skills.

BrightView is not just a benchmark within the commercial landscaping industry, but across the services sector in general.

Finally, I'd like to mention a couple of important developments for our company on Slide 8. Next week, BrightView and the National Park Service will unveil the new landscape created by our Maintenance segment team at Philadelphia's Independence National Historic Park.

And this Independence Park is home to Independence Hall and the Liberty Bell, which makes it one of the country's most popular tourist attractions.

As the nation's landscaper, we're honored that BrightView was able to contribute to the restoration of this beautiful and historically important site for future visitors to explore.

I'm also proud to report that we've formalized another important and long-standing relationship for BrightView.

Our Sports Turf Division has been named Major League Baseball's official field consultant.

I'd like to congratulate Murray Cook, President of the Sports Turf Division, and his team for this important recognition that speaks to the quality and breadth of services that BrightView delivers to all of its customers.

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

Thanks, Andrew.

Good morning to everyone.

As you can see on Slide 10, we are maintaining our guidance for fiscal 2019.

I should reiterate that we provide annual guidance and we manage BrightView with a long-term view with respect to both growth and profitability.

Just as it was when we first shared our guidance ranges with you in November of last year, our confidence level in our full year fiscal 2019 outlook remains high.

With the recent start of the green season, I'm encouraged by the trends we are seeing in our business.

Net new sales in Maintenance remained strong through the bulk of the selling season.

Our base contract business grew in the quarter, and our underlying Commercial Landscaping revenue turned positive in the month of March.

And despite the current tight labor markets, over the last couple of months, we've hired more than 5,000 people as part of the seasonal flexing of our workforce to prepare for the busy third and fourth quarters of our fiscal year.

Our Development team's book of business for the second half of the year should deliver strong top line growth to offset the seasonal decline experienced in the first half of the year.

We expect full year revenue in the Development segment to grow versus last year.

With that, we're keeping our revenue and EBITDA guidance ranges unchanged.

In terms of the other elements of our guidance, our net capital expenditures should be around 2.5% of total revenue for the year.

The percentage was higher at the beginning of the year as we wanted to make sure our teams had the equipment they needed for the green season.

The acquisitions we made so far this year, added to the wraparound from last year's M&A activity, should deliver at least $75 million in additional revenue to our 2019 results.

Adjusted EBITDA margin expansion of 10 to 30 basis points versus fiscal 2018 may be on the low end of the range as we are expecting a larger contribution from the Development segment in the second half of 2019.

And we expect the bulk of our cash generation for the balance of the year to go to debt reduction.

That, combined with our higher targeted adjusted EBITDA, should reduce our leverage ratio below the year-end level with a clear path to move below 3x within the next couple of years.

Let's move now to our financial results on Slide 11.

For the second quarter of fiscal 2019, BrightView's total revenue was $596.6 million, up 1.1% versus the prior year quarter.

Revenue increased in our Maintenance segment, with a partial offset from the decline in revenue in our Development segment.

Adjusted EBITDA grew 18.4% to $61.1 million, including margin expansion of 150 basis points versus the prior year quarter.

This strong performance was underpinned by very good results in our Maintenance segment.

During the quarter, the Maintenance segment benefited from relatively steady year-over-year results in the snow removal business and, perhaps counterintuitively, from lower labor usage in our contracted landscape business due to the adverse weather conditions in some geographies.

Profitability in the Maintenance segment also improved, partly due to our Managed Exit initiative, demonstrating that this was the appropriate strategy to pursue.

By driving profitable growth and delivering higher-quality earnings, we believe we are taking the right approach to generating long-term stockholder value.

Corporate expenses were also lower versus the prior year due to the timing of certain payments, the change in our fiscal year-end from December to September and a continued focus on efficiency initiatives.

These improvements were partly offset by a decline in profitability in the Development segment, largely due to a challenging comparison with certain large projects during the prior year.

This led to lower top line and some margin compression, which we expect to offset with stronger performance in the second half of the year given our current book of business.

As you can see on Slide 12, our first half results reflect the impact of our challenging first quarter, partly offset by a solid second quarter performance.

Based on our visibility into the key drivers of our business, we see a stronger second half performance in both of our operating segments.

Moving now to our balance sheet and capital allocation on Slide 13.

Capital expenditures totaled $42.6 million in the first half of fiscal 2019, down from $44.1 million in the prior year period.

Excluding the legacy asset acquisitions from the first quarter of fiscal 2018 and adding back the proceeds from the sale of property and equipment in each period, total net capital expenditures as a percentage of revenue was 3.5% in the first half of fiscal '19, up from 1.8% in the prior year period, due to the timing of some equipment purchases versus last year.

As I mentioned earlier, we continue to expect net capital expenditures for the full fiscal year to be around 2.5% of revenue.

Our leverage ratio was 4x at the end of the second quarter of fiscal 2019 versus 4.1x at the end of the first quarter of the year.

Moving to Slide 14.

We're running BrightView to deliver long-term, stable and predictable growth.

But it's important to understand that our business is subject to short-term seasonal effects that can impact our results from quarter-to-quarter.

The underlying trends in our Maintenance segment point to a solid second half performance.

And as I mentioned earlier, we expect to see a greater contribution from our Development segment in the second half.

We're now in the part of the year where we have greater visibility into the core success factors of our business.

I'm confident that we will deliver consolidated results within our guidance ranges for the full fiscal year.

Most importantly, we are well positioned to continue generating significant free cash flows to support our M&A strategy and reduce our debt.

And we remain focused on creating value for BrightView stockholders by pursuing strategies that will benefit our business in the long term.

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

Thank you, John.

Turning now to Slide 16.

The operating results that we just presented were among BrightView's best ever for a March quarter.

More importantly, our top line and cash generation indicators going into the second half of the fiscal year are supportive of our full year outlook.

Net new sales in our Maintenance segment remained strong through the selling season, and we grew our base contract business during the second quarter.

In our Development segment, the team produced a book of business that will keep them very busy through the spring and summer months.

Our recently acquired companies are in the process of being integrated into BrightView and are contributing solid results so far.

Moving forward, the M&A pipeline remains attractive, with some compelling opportunities to continue making Strong-on-Strong acquisitions for years to come.

We have a largely predictable and cyclically resilient business over the long term, with significant opportunities to continue growing both through our existing footprint as well as through further consolidation of the top-quartile operators in the nation's commercial landscaping industry.

When we look back at our first 4 reported quarters as a public company, we are pleased with the underlying results of our business.

More importantly, we see a favorable operating environment moving forward and expect to continue demonstrating the benefits of our scale and strategic approach to generating consistent long-term growth.

Our ultimate goal is to generate stockholder value by having our existing and potential new customers view BrightView as the choice for maintaining and developing their most important living assets.

To achieve our goal, we will continue to be the most professional, reliable, sophisticated and highest-quality landscaping company in the world.

Thank you for your attention this morning, and we'll now open the call for your questions.

(Operator Instructions) Your first question comes from Judah Sokel from JPMorgan.

It was obviously encouraging to see the full year guidance reiterated.

I was wondering if you could help us bridge from last quarter to this quarter, if any of the components of that guidance, especially on the revenue side, changed.

In particular, we're focused on M&A, if your embedded guidance -- embedded assumption for M&A changed at all.

And obviously, the corollary would be on the organic side as well.

Yes.

Judah, as we look at the rest of the year, obviously, we've not made any further acquisitions since we posted the acquisition of Benchmark and Emerald in Q2.

We are in continuing discussions with potential acquisition candidates.

It's not a science.

It's something that has to do with when those actually stage and come in.

It's potential that some of those might close before now here in Q3 or potentially in Q4.

But I can't tell you exactly right now.

There's nothing that we're going to be announcing today on additional M&A revenue.

That being said, when it comes to the organic side, there's no changes.

There's really no changes to what we said before.

We believe that the organic underlying growth of the business will be somewhere between 1% and 4%.

Got it.

Okay.

Great.

And then just one other question.

Free cash flow came in a little bit lighter than I expected in the quarter.

I was hoping you could just elaborate a little bit more on what happened in the quarter, and what you're expecting for the full year.

Yes.

Judah, good morning.

This is John.

It did come in a tad lighter than we expected, although our cash from operations was good.

It was mainly timing around our receivables that was both from the Development segment as well as the Maintenance segment, which we will address in the second half of the year.

Just to give you the walk on our free cash flow and the confidence level we had, if I assume -- and I'll do it with the low end of the range at $310 million.

We still expect our interest expense to be $75 million, thereabout; cash taxes, somewhere around $25 million.

Look, we're going to try to get a source on our working capital, but let's assume a $10 million use and CapEx at 2.5% of revenue on a net basis, which is about $60 million.

That would get us to our free cash flow of approximately $140 million.

So we feel really good about that with our M&A and our ability to pay down debt.

Your next question will come from Andrew Wittmann from Baird.

I kind of wanted to see whose voicemail was going to answer, but that's okay.

I was kind of curious, you had this comment here on kind of corporate expense timing, and I don't know, it sounds like maybe there was like kind of consulting cost or onetime items.

Is that what you're referring to here?

I guess the other thing about the fiscal year-end is probably audit fees timing.

Is -- I just want to understand, I mean, corporate expense was lighter than expected and I'm trying to understand why, and what's the kind of normalized rate.

If you can help us on kind of that corporate expense segment, it would be helpful.

Yes.

You're spot on, Andrew.

The first part of it was the timing of audit fees because of the change in the fiscal year-end from December to September.

So that shifted by a quarter.

And then we continue to manage all of the corporate groups relatively aggressively.

We had some timing of legal fees that were also a slight benefit in the quarter.

But when I look at the balance of the year, I would expect our corporate expenses to be right in that $17 million, $18 million range per quarter, which is basically flat with year -- with prior year.

So that's the story on corporate.

That's helpful.

And then there was another kind of confusing comment.

You said somewhat surprisingly we had lower labor because of bad weather.

I was just hoping you could expand on that, John.

Yes.

What we meant is, look, we were impacted by weather, especially in the first couple of months of the quarter, which impacted our business to do some work, mainly on the ancillary.

And because we weren't able to work in both the Maintenance segment and the Development segment, we had less absolute labor dollars in the quarter, which was a slight benefit for us from a margin standpoint.

We don't expect that in the balance of the year.

It was just a quirk of the wetness that we saw in part of the quarter.

Next question comes from George Tong from Goldman Sachs.

You highlighted EBITDA margins as a particular source of strength in the quarter.

How do you expect EBITDA margins to perform over the rest of the year?

And do you now feel more comfortable with the higher end of your EBITDA guidance range?

Well, this is Andrew talking.

As you look at margins, again, we had a good quarter here in the second quarter.

As we go into the back half of the year, we do feel that with some of the catch-up that we see happening in Development coming in, which there will be a very strong H2 Development number, that tends to come in at slightly lower margins.

So while we do think that we're very confident about the ranges we have, really, the additional -- some of the additional revenue coming in will be at a different drop-through than you would expect from Maintenance.

Got it.

That's helpful.

And your Maintenance green business in the quarter benefited from strong net new sales.

Do you see normalized organic revenue growth accelerating in the Maintenance green business based on what you're currently seeing in the pipeline?

Yes.

That's exactly right.

As we look at what we see as our net new, which is our new sales coming into the business with our retention losses, we continued the positive trend in the second quarter.

When that usually then layers in, those contracts start May, June time frame usually, beginning of May, beginning of June.

And thus, we'll see the full year annualized impact of a significant leap up in organic growth in Q4.

Your next question will come from Phil Ng from Jefferies.

Now that you guys have had some time to take a hard look at your book of business, are the bulk of your customer base generating the type of margins you're comfortable with?

And how should we handicap Managed Exits going forward since that forecasted number seems to have continued to tick up the last few quarters?

Yes.

If you look at especially the Managed Exits, it really was a focused strategic initiative that really focused us on larger kind of high-potential customers and focused our attention over there in order -- how to shift the profile, right?

Now that we concluded that, we do believe that in the normal course of business, obviously, we'll be analyzing our portfolio and looking at the right mix of customers we have, and making sure that those match kind of with the profile that we have, which is really focused on high-end, high-touch, high degrees of sophistication in landscaping.

We feel we benefited from the recent strong initiative that we took on that.

We're also planning, going forward, it normalizing now.

Okay.

That's helpful.

And I guess can you kind of help size up this year's contracts you guys kind of locked up in that February, April time frame for the back half where things do pick-up perhaps anyway?

How that stacks up versus years past, your backlog?

And then when we think of organic growth in the second half, you kind of strip out some of the noise.

How are you thinking about that?

Is that going to be squarely in that 1% to 4% range when you kind of take out some of the noise?

Yes.

When you look at the underlying contract revenue that we've grown over the course of the last -- in the bookings, there's a net new kind of book, we believe very firmly that's going to be growing as we go into the third quarter and into the fourth quarter, into those normalized ranges.

Really, as we end up, the only uncertainty comes with the enhancement fall-through that we have in the business.

That being normalized at a regular level, as long as that occurs, we will absolutely be seeing that kind of organic growth rate come through again kind of definitely in that kind of Q4 time frame.

Your next question will come from Shlomo Rosenbaum from Stifel.

Andrew, I'm just trying to square the bookings and the trends that you guys have had with just organic growth.

I mean if you -- organically in the quarter, the business shrunk 1.5%, and even in the regular Maintenance business.

Can you just talk about like what's going on?

And I'm just talking about excluding the businesses that -- the Managed Exits and stuff.

And I was just trying to understand why that has been happening.

Suppliers to the industry like SiteOne are not seeing stuff like that.

Can you just give us kind of a background as to what led to this?

And what's changing that's accelerating it for the second half of the year?

Well, if you look at the overall landscaping business, you tend not to start new contractors, okay, in either our fiscal Q1 or fiscal Q2, in the kind of October through March time frame.

So when you see the contracts layering in and organic growth occurring towards the summer periods, usually that will have that residual impact into the back half or into that -- kind of our Q1, Q2 time period.

So as you look at what has happened, is we've finished a pretty stable -- a little, slight shrinkage.

And the reason that it happened this quarter, in particular, with that 1% you're referring to, it really happened down to the ancillary [book].

The wet weather that we had really impacted our ability to get ancillary product enhancements in the ground.

We had the orders, but just an unseasonable level of wet weather in our evergreen markets really impacted that ability to deliver a year-over-year comparison versus last year.

But didn't we have -- last year, have the unseasonably late snow have -- make it a particularly easy comp on the pull-through of extra work that usually comes through in the spring?

There was some snow at the very end.

There was some of that, but it was not -- it was only in the Northeastern markets.

It was not in the evergreen markets.

And really, when you see enhancements coming through, those are primarily -- a bigger impact in this quarter were enhancements, the larger impact actually is in evergreen markets.

Your next question will come from Tim Mulrooney, William Blair.

So the Maintenance snow revenue came in a little bit stronger than I expected.

Were there certain regions that surprised you guys to the upside since your prior conference call?

Yes.

I mean if you look at what happened in snow, this outsized weather pattern we had in Colorado and the Midwest and Pacific Northwest had a pretty big impact on us.

Northeast was particularly weak as you look year-over-year.

It was a 33% decline.

So yes, the shape of snow wasn't as we expected it to occur at the beginning of the year or even at the beginning of the second quarter.

But at the end of the day, that balanced effect delivered the overall profile for the company.

Okay.

I thought that came in stronger than you had expected.

I just wanted to make sure.

So that's helpful.

Moving to Development, I get that your backlog gives you confidence into the back half of this year.

But Andrew, if you're looking out a little bit further, I know you book out further in advance than that sometimes.

How does your backlog, how do bookings look beyond the back half of 2019?

Yes.

That's a good question.

We really don't -- we're not guiding yet to 2020 about what we see out there, specifically on any numbers.

That being said, I can say that, in general, when you look at the second half, we are almost 100% booked on the Development side of the business.

And the inquiries and the level of booking negotiations that are continuing now and as we look out into 2020, there's nothing giving us any kind of pause on the Development business as we look into the future.

Your next question will come from Kevin McVeigh from Crédit Suisse.

Was there -- in terms of the weather delays on the project side, did any of that kind of flow through to the Maintenance?

And was there some kind of offset on the Maintenance that would have kind of offset some of those project delays?

Well, I'd say, no they didn't correlate between Maintenance and Development specifically.

However, there was certainly, especially in Southern California, there were delays in Development, which impacted the ability to put landscaping in the ground.

And less so -- some of it [is on us], but also remember in Development, it's sequential.

So we have to have the subcontractors before us finish before we can get in.

So it was kind of a cascading effect.

And by the way, right now, the Development groups are fully on the field executing that activity with that residual lag coming in from Q2 into Q3.

On the Maintenance side, it did -- the weather did have an impact and impacted the ability to get enhancements in the ground.

I mean we're not talking a huge impact, but it did have a slight impact on our ability to get ancillary pull-through in those same markets that impacted Development.

That's helpful.

And then the 5,000 seasonal workers you hired, is that pretty consistent with historical trends?

And just any thoughts on labor in terms of bringing them onboard?

Any thoughts around that would be helpful.

Yes.

Absolutely.

One thing that has occurred in the business is the groups out in the branches have been quite resilient.

And over the course of the last several months in any -- in our business as it is very seasonal in some markets, we've added over 5,000 workers.

We hired over 5,000 people over the last couple -- several months.

And we basically have done that, and that's outside of any H-2B.

H-2B has been a very minimal result this year.

In fact, if you look at over the last 3 years, it's the lowest amount we've had.

And so we really have focused more on really engaging local teams and making sure we're staffed locally with people there to execute on the contracts we have.

Your next question will come from Seth Weber from RBC Capital Markets.

Just wanted to go back again to the Development side discussion.

Is there any more color on what you think is a driving the strength there for the order book?

More feet on the ground?

Are there any verticals you'd call out specifically?

And then as a follow-up, is there -- do you think that the margins will be up, the EBITDA margins will be up year-over-year for the second half for that business versus prior year?

If I can give you some color on Development, I'd have to say it's broad-based in the sectors where we have -- typically have a lot of engagement, hotels, you look at corporate campuses, look at class A offices, you see those kind of areas where we typically have had a lot of Development success.

Those continue to be just robust in the Development areas, and that's really across the country.

So as I say, those where we typically have performed in the past is where we typically see going forward in the future.

I'll let John speak a bit on the margins on the Development side.

Yes.

When you look -- remember, we had a challenging first quarter in this business.

But when you look at the margins in the second half of the year on the Development business, we expect them to be pretty much right in line, maybe a little bit better from where they were in the second half of last year, very consistent with what we expect there.

But if you then look at it over the full year, we'll be slightly down in fiscal '19 versus '18, driven mainly by that first quarter that's already in the books.

But we still -- we feel good about the second quarter -- excuse me, second half.

Next question will come from Dan Dolev from Nomura.

Nice results on the Maintenance uptick in organic growth.

Good job.

Looking at sort of the M&A contribution for the year and the pruning, I think you're running about 63% of the M&A that you guided to and 80% of the pruning.

Is that sort of how we should think about it?

Or is there going to be kind of maybe more unanticipated M&A in the second half or basically in line with that $75 million?

Then I have a follow-up.

Sure.

The M&A side, we've already executed on the M&A to deliver the $75 million.

So kind of is -- our forecast right now says that's about where we should come in at.

We have several companies that we're currently under discussion with in the M&A pipeline that could close sometime in the next quarter or 2. So I'm not saying there isn't any.

There could be some sort of additional activity from M&A that layers in.

I just don't -- haven't actually closed any of the deals yet.

So possible, but I'm not going to be betting on it right now.

Got it.

And just a quick housekeeping, I don't know if it was asked before, but what was the contribution from Development M&A in the quarter?

I know it was small.

It was very small, yes.

And when we think Development M&A, those are basically projects.

As you can imagine, landscaping companies aren't 100% pure maintenance all the time.

So these are projects and small development groups that come along with our primary focus.

Yes, Dan, it was a couple million bucks of revenue.

So it's really de minimis to our bottom line impact.

Your next question will come from Sam England from Berenberg.

First one.

Could you just give a bit more color on the efficiency initiatives that you mentioned in Maintenance Services?

And how much more do you think there is to do both in H2 and 2020 and beyond?

Yes.

There are multiple efficiency things going on, maybe I'll go into the electronic time capture initiative primarily.

There are several things that were utilizing that tool.

You can imagine, we went from a state where there were basically paper capture of time with no specific linkage to a property or a drive pattern or from the ability to dispatch our folks at the different yards.

So those kinds of initiatives are now, with electronic time capture, we're capturing actually the time it takes to travel, the time it takes to get our crews out into the field.

Ultimately, what that does is it's going to free up time to allow us to put more effort into the property or do potentially over the course of a week an extra property in the cycle that we have.

Those kinds of initiatives, that is a primary focus we're having.

And Sam, this is John.

I'll add a little bit to what Andrew said on the efficiencies.

In addition to electronic time capture, that's giving our managers great visibility into labor, which is our largest cost component in our structure.

And so that's how we're able to manage the hours more efficiently, by having that daily information.

And then there's the whole slew of other things around what we're doing in the branches on a daily, weekly, monthly basis.

Small things like repairs and maintenance on our equipment, how we're managing the fleet, how we're purchasing our materials, all of those things, coupled with our pricing, which we've talked about historically, is really leading to some of the margin expansion that we saw in the second quarter and that we continue to drive in this business.

Great.

And then just a follow-up on the acquisitions.

I wondered how multiples are shaping up this year, whether there has been any change in competition [prices] or any inflation in the multiples you're seeing getting demanded?

Yes.

We still see -- look, we keep some rigor around our acquisition multiple and what we pay for companies.

We -- as we've historically been in the market, those multiples we talked about in the past, those are really squarely where we continue to be at.

We're not going to be going into specifically what multiples we're paying, but I can say that we walk away from deals which have inflated expectations, and if they go find a buyer, they can.

But we feel that we pay very fair and market-based prices for the acquisitions we do.

Your next question will come from Andrew Wittmann from Baird.

Okay.

This is -- you kind of touched on it a little bit.

I'm going to ask a little bit different way.

Just, John, you made a comment of 10 to 30 basis points for margin this year.

You said probably, maybe a little closer to the low end.

I guess inside of that, what are some of the benefits?

What are some of the negatives?

And maybe, specifically in your answer, if you could just talk about how the price/cost dynamic is shaping up for you today and if there's any change, or what you're seeing there.

Now you got couple of different questions in there, Andy, so I'll address the first one.

I mean the reason we said the potential lower end is because of the challenge that we had in the second quarter on the Development side.

We expect that business to be more pronounced than it may have been historically in the second half of the year.

Because it's lower margin in nature, that will have more of a downward effect, for lack of better word, on our full margins for the year.

As you know, last year, we generated 80 basis points.

This year, we said 10 to 30.

We're still working very hard to get there, don't get me wrong.

We just want to be very clear that it could be a little bit on the lower end because of that influx on the Development side.

And then your question on managing the price versus the labor, we continue to be real proactive on our pricing.

I think we mentioned we've instituted some additional, call it, tightness in our metrics on how we're measuring it as far as absolute dollars versus pure percentages.

That has worked out very well across the entire business, so people know exactly what their absolute dollar amount is.

And that traction on prices really allowed us to offset, for the most part, like we've been able to do historically, any inflation we're seeing on the labor side.

Your next question will come from Shlomo Rosenbaum from Stifel.

I just wanted to ask a little bit more on the Managed Exits expectation.

Last quarter, you said $25 million was the expectation for the year.

I don't see anything -- a number for this quarter and want to know if that's the same.

And also if you can kind of discuss how that has enhanced the EBITDA by getting out of those either -- is there some way we can get a good understanding of how that's been kind of addition by subtraction?

Sure.

I think I can handle that Shlomo.

When it comes down to really the whole Managed Exits initiative, the numbers you asked, we said $9.4 million in this quarter, which then results in a $20.2 million total through the first half.

As we talked about in the past, we're going to -- this concludes in the middle of the summer, and we'll continue to disclose this particular initiative through third quarter.

It will be somewhere less than $9 million or so in 3Q.

So it's going to actually have a little lift.

We said last quarter, it would slightly be higher than $25 million, and that would put it slightly around $29 million-ish or so.

And then, of course, there's [pay-ups], right?

These things can cascade and they'll be going on for another 6 months or so after that.

The rest of the tail will be basically kind of our normal retention rates that you would see and be basically overcome through organic growth that really -- and we're quite positive about that on the organic growth.

So the tail, it does exist out there through Q4 into Q1 of 2020.

We're not going to necessarily be talking about it too much specifically because it's really just going to be overshadowed by the growth that we have in the business and in the normal course of business.

And Shlomo, this is John.

I'll jump in and answer your question on the enhancement in the EBITDA margins.

In the quarter, we showed the results being up 100 basis points from 12.7% to 13.7% in the Maintenance business.

Managed Exits was about 20% of that, 20 bps out of that 100 bps, so it's meaningful.

Other things that we've been working on that we disclosed around efficiencies and productivity, so it's not just Managed Exits, that was about, I think, 20 bps out of 100.

(Operator Instructions) Your next question comes from Sam Hoffman from Lincoln Square.

I just had a few clarifications.

On the ancillary projects which did not come through this quarter in both Maintenance and possibly in Development, are those projects that you actually won but were postponed until the next quarter or the summer?

Or are they just projects that could not happen because of the weather?

Yes, and both of those situations in the Development world.

Yes, those are projects and then contracts we won.

And we're just -- they just kind of cascade now into the third quarter and fourth quarter.

So absolutely, those are still there.

And same side on the enhancements, it's projects that are -- that we won and were intended to be completed within the March time period.

It rained or had some weather circumstances which didn't allow you to get in, and those basically rolled into the April time period to get those in the ground.

Okay.

Second clarification is, when you said that the Development unit is 100% booked heading into the back half of the calendar year, what type of organic growth does that imply?

What are your objectives in terms of -- you hire a certain number of people and then you're booking 100% towards what type of organic growth?

We haven't disclosed specifically segment-level growth targets that we have, or at least we haven't guided.

We've got targets out there.

We said Development is going to grow 1% to 2% per year.

We believe that this underpins that and squarely lands us in that 1% to 4% that we have for the entire company's organic growth guidance we've given.

At this time, I have no further questions.

Thank you.

I turn the call back over to Mr. Masterman for closing remarks.

Thank you, Michelle.

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 third quarter fiscal 2019 results in early August.

Thank you very much.

Thank you, everyone.

This will conclude today's conference call.

You may now disconnect.