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BrightView Holdings Inc (BV -1.65%)
Q3Â 2019 Earnings Call
Aug 7, 2019, 10:00 a.m. ET
Contents:
- Prepared Remarks
- Questions and Answers
- Call Participants
Prepared Remarks:
Operator
Good morning and welcome to BrightView's Third Quarter Fiscal 2019 Earnings Conference Call.
[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 Vice President of Investor Relations. Please go ahead.
Daniel Schleiniger -- Vice President of Investor Relations
Thank you, Denise, and good morning, everyone. 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 nonGAAP financial measures. Reconciliation 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 nonGAAP 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 unaudited results for the 3- and 9-month periods ended June 30, 2019.
With that, I'll turn the call over to BrightView's CEO, Andrew Masterman, who'll provide an overview of our recent results, business strategy and future outlook.
Andrew V. Masterman -- Chief Executive Officer and Director
Thanks, Dan. Good morning, everyone, and thank you for joining us on today's call. Before we get into the details, I'll take you through some of the key takeaways from our third quarter results and future outlook on Slide 4. We generated strong total revenue and adjusted EBITDA growth in the third quarter fiscal 2019. In fact, this is the first quarter in BrightView's history with adjusted EBITDA above $100 million for the period. Importantly, we generated this result despite a challenging operating environment due to very wet weather conditions across many of our key regions around the country. The foundation for growth in our business model is made up of contract revenue on our Maintenance Services segment and project bookings on our Development Services segment.
Both of these key elements of our business performed well in the quarter. Contract revenue in the Maintenance Service segment grew reflecting the net new sales we began telling you about on our first quarter earnings call. This is a direct and still early reflection of our strategic decision to reorganize and decentralize our sales team. In addition, we have concluded our Managed Exit program. Our revenue over the next 2 quarters will include the remaining impact of this initiative. With that, our account managers are now squarely focused on delivering the kind of intense customer focus that differentiate the BrightView from our competitors, and that should support future long-term organic growth of our business.
As we look forward, we believe that our land maintenance contract revenue growth will provide the base off of which our account managers will be able to help drive additional revenue growth by focusing on retention rates and ancillary or enhancement service sales. In line with our comments on our last call, we expect to see a additional momentum from these initiatives reflected in our fourth quarter revenue growth and profitability improvements. On our last call, we also told you about how our Development segment team had built a large book of business for the second half of fiscal 2019. The results speak for themselves. Both top line and profitability growth in the segment were very strong despite significant weather disruptions.
The momentum in the Development segment continues to build both in the fourth quarter of fiscal 2019 as well as for the bookings already in place for fiscal 2020. It has been more than 2.5 years since we've restarted our acquisition strategy to drive revenue growth, expand our national footprint and consolidate the top quartile of the commercial landscaping industry. During the third quarter, we acquired FirstService Residential's commercial landscaping business expanding our presence in 2 of our existing geographies. Finally, we made significant progress in the digitization of BrightView during the third quarter by deploying technology to support every aspect of our operations, from internal tools to improve efficiency, to best-in-class CRM software to improve our account management, to a new customer facing digital portal to streamline customer service interactions. We are driving changes in commercial landscaping that will serve as the industry benchmark for many years to come.
Turning now to our third quarter results on Slide 5. Total revenues were 4.3% in the quarter with both the Maintenance and Development segments delivering strong results in the face of very wet weather during the quarter. As we've mentioned on our previous calls, severe weather events can be beneficial to our business depending on where they occur in relation to our branch footprint. And snow removal, which was light in the third quarter after an unusually high result last year, is also an important part of our seasonal market business. However, a high level of rainfall by itself tends to be disruptive to both of our operating segments. The Maintenance segment deploys more of its resources to ensure that customer properties are being serviced whenever there was a break in the weather.
And both ancillary services in our Maintenance segment which are important drivers of top line and margins, as well as private ancillary Development segment are more difficult to complete the work that's interrupted by excessive rainfall. To put the quarter's wet weather in the context, you take a look at data from the National Oceanic and Atmospheric Administration. During the June quarter of 2019, more than 22% of the country's climate divisions were classified as very wet compared with only 8% last year. The worst month was May with more than 40% of the country's climate division classified as very wet with a similar overlay on our geographic footprint. Despite these adverse conditions, our multipronged approach to generating top line growth delivered solid revenue gains in the quarter. Revenue in the Maintenance segment grew at 3.7% versus last year.
This result included the contract revenue growth that I mentioned earlier, offsetting softness in the ancillary revenue during the quarter due to the wet weather conditions. With that, we generated a 1% increase in our underlying commercial landscaping revenue. We are pleased with the trends we are seeing in our contract revenue, which generate opportunities to both ancillary sales on top of this base of new customers. And if we look at the performance of our underlying commercial landscape revenue, we see the upward sequential trend of the first 3 quarters of fiscal 2019 continuing through the end of the year and into 2020. Additionally, we realized $25 million in acquired revenue on the Maintenance segment during the quarter, which more than offset an $8.7 million impact to revenue from our strategic Managed Exit initiative, and a $3.4 million decline in snow removal revenue from last year's unusually high levels.
The total revenue from Managed Exits for the first 9 months of fiscal 2019 was $29 million. The remaining sale from this program will be around $6 million in the fourth quarter of fiscal 2019 with a final piece of less than $2 million in the first quarter of fiscal 2020. In the Development segment, revenue was up 5.7% versus the prior year period. Projects from the strong bookings that we mentioned on our call -- on our last call more than offset some tough comparisons with last year's larger projects as well as the challenging weather conditions in the quarter, and the work has not slowed down in the fourth quarter.
Before I turn the call over to John, on Slide 6, I'd like to highlight some of the steps we're talking to leverage technology and drive growth in our business. The process that we call the digitization of BrightView started with the implementation of our internal and proprietary electronic time capture or ETC labor management tool. We began by rolling ETC out to our Maintenance segment last year, and had only just begun to capture the benefits of this industry leading technology in that operation. We're also nearing the completion of the first phase of the rollout of ETC toward Development segment.
Although labor cost dynamics are different between the 2 segments, we believe that ETC is a valuable labor management tool that will help our development teams find efficiencies in their business as well. In April of this year, we began the rollout of the Salesforce software to enhance our field team's CRM capabilities which should improve the depth and quality of our customer relationships. Once we complete the initial phase of the implementation, we expect to have trained about 1,000 team members, including over 750 account managers. Our training sessions and workshops are designed to provide the future users of Salesforce with an understanding of how to use the technology as well as to reinforce some of the best practices in account management that are only possible with this powerful tool. But we are not limiting our investments in technology to our internal users. We have also introduced customer facing digital solutions.
In June, we launched BV Connect, a new property maintenance portal with interactive features that are an extension of our HOA Connect service portal. Like many people, property managers across our customer portfolio are accustomed to accessing services through digital platforms. BV Connect, which is available to our customers nationwide, responds to their feedback, providing an online channel for them to reach our service teams and efficiently manage their service requests. Customer reaction so far had been very positive. There are a couple of other topics that I'd like to highlight or recognize on Slide 7. A few minutes ago, I mentioned that we realized $25 million in additional revenue from M&A during the third quarter. That figure includes contributions from earlier acquisitions such as Russell, Emerald, and Benchmark, as well as the transactions that I referenced in my opening comments.
In May, we acquired Luke's Landscaping and Desert Classic in the South Florida and Phoenix markets respectively. We are excited to welcome about 500 new associates and their customers to the BrightView family. Having visited with all of the team since completing the transactions, I'm excited with the progress each one has made so far and look forward to reaping the benefits of optimizing our footprints in each of those key markets. Speaking of new team members, we've also received an allocation of more than 1,600 guest workers through the H-2B temporary visa program this year, including more than 1,300 who arrived in June and July. This compares with last year's relatively late allocation of 829 guest workers. While we were able to deploy the work without them, these talented returning guest workers tend to be much more productive and efficient versus new or inexperienced team members. So they only need a refresher on the training they received in prior years working with us.
For that reason, we were pleased to welcome back so many familiar faces. In fact, more than 75% of our guest workers this year have worked with us in the past. Most of these workers will support our maintenance operations in the fourth quarter of fiscal 2019 and the beginning of the first quarter of fiscal 2020. Finally, on our last call, I told you that our Sports Turf Division have been named Major League Baseball's official field consultant. Our work was once again showcased during MLB's London Series. In just 23 days, the team built a major league baseball field with all of its supporting infrastructure in London's Queen Elizabeth Olympic Park. And on June 29 and 30, the Boston Red Sox played the New York Yankees in front of 2 sold-out crowds. We look forward to next year's series when we'll do it all over again.
I'll now turn it over to John who will discuss our financial performance in greater detail.
John Feenan -- Executive Vice President, Chief Financial Officer
Thanks, Andrew. Good morning to everyone. Let's take a quick look at our full year guidance for fiscal 2019 on Slide 9. The guidance ranges that we first shared with you in November of last year were based on our assumption that we would experience normal weather patterns during the year. So far, fiscal 2019 has seen anything but normal weather patterns. As we'll discuss when I take you through our revenue drivers, snow removal revenue for the year came in below last year's level due to reduced snowfall in many of our key markets, especially the Northeast. More importantly, we experienced a disproportionate impact on profitability due to the timing and nature of the snowfall, notably in the first quarter of the year.
And as Andrew already highlighted, the third quarter of fiscal 2019 brought very wet conditions that dampened our ability to generate revenue from ancillary services in the Maintenance segment and to capture the full benefit of our substantial project bookings in the Development segment. With that said, the underlying business results are improving sequentially in our Maintenance segment as a result of the strategic decisions we made over the last few years. Meanwhile, the Development segment delivered a very strong third quarter result and should be able to repeat that performance in the fourth quarter. Additionally, the M&A pipeline remains quite robust, supporting our strong-on-strong approach to revenue growth through acquisitions.
In fact, we are now expected to realize around $90 million in acquired revenue in fiscal 2019 from the prior year wraparound, plus the benefits of this year's transactions. Putting it all together, we believe that the underlying improvements in the fundamentals of our business will deliver the growth necessary to offset the weather headwinds and challenging comparisons with last year's episodic events. As a result and assuming a normalization of fourth quarter precipitation levels, we still expect to deliver full year results near the low end of our 2019 guidance for total revenue and adjusted EBITDA of $2.4 billion and $310 million respectively. More importantly, our strategic direction is leading to a tangible strengthening of the foundational elements of our business. I'll come back to that in a minute. Let's move to our financial results on Slide 10.
For the third quarter of fiscal 2019, BrightView's total revenue was $657.2 million, up 4.3% versus the prior year quarter, with increases in both operating segments. Adjusted EBITDA grew in line with revenue were 4.2%, meaning that the total adjusted EBITDA margin was flat year-over-year. The $101.9 million of adjusted EBITDA was the first time this figure exceeded $100 million in a single quarter, reflecting the continued growth of our business. Turning to the details of our adjusted EBITDA performance on the quarter on Slide 11, it's important to point out that the growth in our total adjusted EBITDA was supported by a higher gross profit, with gross margin expanding 80 basis points versus the prior year. Lower material costs and to a lesser degree fuel savings grow the result, especially in the Development segment.
The SG&A expenses included in our adjusted EBITDA increased versus the prior year quarter, offsetting the higher gross profit. The incorporation of acquired companies in an unfavorable year-over-year comparison of professional fees and variable compensation expenses were the drivers of this temporary increase in SG&A versus the prior year. Earlier I mentioned the foundational elements of our business. This starts with the performance of our contract revenue, off of which we grow the rest of the Maintenance business. That's why we highlighted the performance of net new sales on our previous 2 calls, which was a leading indicator for the contract revenue growth that drove this quarter's 1% increase in underlying commercial landscaping business. Saying it another way, we delivered organic growth that combined with realized acquisition revenue, more than offset the impact of our Managed Exit initiative and lower snow removal revenue.
We expect this to continue through the end of the year. Maintenance segment profitability reflects the impact of the quarter's unstable weather. The base maintenance business based operating inefficiencies having to dedicate more resources than normal to service customers whenever the weather allowed. Additionally, ancillary services typically deliver higher margins than base maintenance, so these softness and enhancement work had a corresponding impact on profitability. In the past, you've heard us mentioned the various ballast effects provided by our significant scale, national footprint and diversity of services. During the third quarter, we benefited from another one. The robust book of business that we talked about for the second half of fiscal 2019 in our Development segment delivered a very strong quarter, driving total company results in the period. Revenue was up 5.7% and adjusted EBITDA grew 22.8% on the back of 220 basis points of margin expansion.
Our pipeline and execution grow with the top line, while a more profitable book of business delivered the improved adjusted EBITDA performance. We expect this trend to continue at least through the fourth quarter of fiscal 2019. Corporate expenses rose approximately in line with total revenue, remaining flat as a percentage of revenue versus the prior year quarter. As you can see on Slide 12, our results for the first 9 months of 2019 reflect the impact of challenging operating conditions as well as our strategic initiative to optimize our customer portfolio. However, we are encouraged by the positive underlying trends that we generated during the selling season and that we delivered in the third quarter. As we've already mentioned, our other important revenue driver continues to perform well, with $71.8 million in realized acquisition revenue through the first 9 months of the year.
Moving now to our balance sheet and capital allocation on Slide 13. Capital expenditures totaled $77.2 million in the first 9 months of fiscal 2019, up from $71.7 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 4% in the first 9 months of fiscal 2019, up from 2.6% in the prior year period. As you recall, our net capital expenditures were 2.2% of revenue for the full year of fiscal 2018, which compares to our long-term guide of 2.5% of revenue. Whereas last year came in below the long-term average, this year we expect the full-year figure to be a few ticks above average.
In addition to our new office space, we made some opportunistic investments in real estate to support our expanding branch network in the Maintenance segment, as well as equipment purchases that will be repaid through lower lease expenses in the Development segment. So we expect full year fiscal 2019 net capital expenditures to be between 2.5% and 3% with the average of the 2018 and 2019 at the long-term guidance level. Our leverage ratio was 3.9x at the end of the third quarter of fiscal 2019 versus 4x at the end of the second quarter of the year. We expect substantially all of our cash generation during the fourth quarter to reduce our net debt with our leverage ratio approaching 3.5x by the end of the fiscal year.
In conclusion on Slide 14, by focusing on the factors that we can control, we have been able to deliver strong financial results despite challenging comparisons such as high margin hurricane and snow removal revenue as well as difficult operating conditions compared with the prior year. Moving forward, we will remain focused on disciplined and efficient execution in our operation, which will drive the results of our highly cash generative business model. And our capital allocation priorities have not changed. We will pursue our strong-on-strong acquisition strategy to complement the organic growth of the business, and we will reduce our financial leverage. I have no doubt that this approach will generate significant long-term value for our shareholders.
And with that, let me turn the call back over to Andrew.
Andrew V. Masterman -- Chief Executive Officer and Director
Thank you, John. Turning now to Slide 16. As John just alluded to, we have a clear strategy to generate long-term profitable growth for BrightView. First, we will drive top line growth through improved customer relationships at the local level, some of which are already evident in our third quarter results. Second, we will continue to consolidate the top quartile of the $68 billion commercial landscaping and snow removal industry with a focused M&A strategy. And third, we will capture efficiencies in our business to improve profitability through process enhancements and by leveraging technology.
This is a cyclically resilient business and we have delivered solid results in the face of difficult operating conditions so far this year. I am confident that BrightView's underlying fundamentals are as strong as they have ever been, which means we are well positioned to leverage our significant scale and industry leading expertise in every aspect of commercial landscaping. Our teams are energized and we continue to attract only the best landscaping professionals in the country. By creating a culture of accountability and focusing on our strategic imperatives, we have positioned BrightView to generate sustainable long-term growth and stockholder value.
Thank you for your interest in BrightView and for your attention this morning. We will now open the call for your questions.
Questions and Answers:
Operator
[Operator Instructions] Your first question comes from Shlomo Rosenbaum with Stifel. It's open
Shlomo H. Rosenbaum -- Stifel -- Analyst
Hi. Thank you very much for taking my questions. I just want to ask a little bit about -- I understand that it's a very wet season. I seem to remember in last year, there was a similar type of issue that there was the primary issue last year restarting the Managed Exits, but there was also a wet season that was impacting the June quarter, and I thought it would be kind of an easier comp because of that. Like on a historical basis, is this like something that's significantly different from what you've seen years -- for over years or can you just give us some context in that because obviously we don't control the weather, but it's one of those things that we want to be able to pay more attention to?
Andrew V. Masterman -- Chief Executive Officer and Director
Yes. This is Andrew speaking. When you look at last year the -- it was certainly wet, wetter than average, but was it an extraordinary wet year. If you look at 2018, the same quarter we're talking about now is only 8% as I said in my earlier comments versus a 22% very wet environment, so actually it was a pretty big difference between last year and this year. And how that had impacted us combined with the fact that we had a very early season of snowfall last year that gave us a really nice top line growth and snow, and delivered snow returns margins does have that double impact of good snow with margin generation combined with a significantly wetter quarter this quarter than last year really impacted us.
Shlomo H. Rosenbaum -- Stifel -- Analyst
Okay. And then could you talk a little bit about the Capex in the quarter? And just it was significantly higher than what we had expected in terms of focusing on free cash flow. Could you talk about what the goal is for this year? I mean, if you could just kind of walk through that, I think that one of the focusses of the business is to generate cash flow and be able to -- or fund the business totally internally, and if you can review the free cash flow target, that would be helpful.
John Feenan -- Executive Vice President, Chief Financial Officer
Sure. This is John. Let me start with that and I'll delve into the AR, the first part of your question, in a little bit more detail. In prior calls, we've talked about being able to generate free cash flow of approximately $140 million. We still feel confident of getting to $140 million this year. The walk is slightly different, so let me just walk you through the mechanics of it. Assuming we hit the low end of our target at $310 million from a starting point of EBITDA, that would be a start. We're going to do a little bit better in interest. Previously, I've said about $75 million. We think we'll be in the low 70s due to a slightly lower effective rate. We're going to get some benefit in taxes as well, previously, I said about $25 million in taxes, and we think it will be closer to $10 million. And that's driven by some timing elements as well as tax planning that we've been able to institute this year.
The other 2 components are our working capital and Capex. I'll get to the Capex last. Working capital, we said would be about a $10 million use historically. We think that's going to be about $20 million. The 2 incremental drivers for that are we made a conscious decision to invest in some of the development business and mainly the tree, which we had -- which is very profitable sub-segment for us. And also we're seeing the impact in working capital around some of the acquisitions that we're bringing in where it takes time to integrate them on the AR side. The last piece, the Capex, we said that net Capex would be about $60 million. We're probably going to be about $10 million higher. We've essentially cut it off for the fourth quarter. We still have some dispositions to go, but we've done some opportunistic real estate purchases.
As you can imagine, sometimes it's really hard to get quality real estate to fund our branch network from a zoning standpoint. So we did that opportunistically. We also did a project in the Gulf that is about a 10-year contract. And then we did the last piece was the development piece that I talked about in my prepared comments where we wanted to purchase some capital to offset lease expenses. So when you do that math, 3x less 70 of interest less 10 of taxes, working capital use, call it 20, and Capex, net of 70, that will gets us to the same area of around 140.
Operator
Your next question comes from George Tong with Goldman Sachs. Your line is open
George Tong -- Goldman Sachs -- Analyst
Thanks. Good morning, you talked about weather is having an adverse impact on your Maintenance and Development revenues. Can you quantify this impact between the 2 segments and discuss whether you expect to recapture any of the revenues next quarter?
Andrew V. Masterman -- Chief Executive Officer and Director
Well, if you look at -- when you look at -- and I'll take them both separately, George. You take the Development business first. That business, we had actually a very strong bookings profile and that business is still there. So what we expect in Development, is as long as the subcontractors that are ahead of us also get done with their work, we're poised to go, capture a significantly better fourth quarter in Development than we did last year. So we expect to be able to absolutely capture what we had in Development which we'll accelerate them into the fourth quarter.
On the Maintenance side, if you look at overall, the whole business, it's really going to be much dependent on how the quarter comes through, if you can think about the businesses there to get. But when the weather comes in as it did, if you take 1 example, we go out and we'd have to trench and put an irrigation systems throughout the enterprise. When it rains in the trench you just built yesterday, you have to rebuild to get the fields back there. Mulch washes away. After you mulch, so it's another ancillary situation for example that happen to the -- you put that mulch and it washes away.
You sort of have to replant the trees or bushes that come in and then collapse because of the soft soil that comes in. So things like that that occur. As long as we have normalized weather levels, we believe that we'll be able to recapture some of that revenue and margin. Those reasons are some of the reasons why that 70 bps margin shortfall happened in the quarter was because that relative replanting, reperforming of services that we had in place that didn't then contribute to additional revenue, but did introduce some additional costs.
George Tong -- Goldman Sachs -- Analyst
Got it. That's helpful. And I guess following up on the topic of margins, we did see margins contract in the quarter year-over-year in the Maintenance business. Can you talk about how you expect benefits from your efficiency initiatives going forward to flow through to margins and how those might be offset by the investment requirements?
John Feenan -- Executive Vice President, Chief Financial Officer
This is John. Let me just give you the walk on the third quarter margin degradation in the Maintenance business. Last year, we did about 19.2%. We're going to benefit from the Managed Exits that Andrew alluded to in his comments of around 30 basis points. The other $100 million -- excuse me, the other 100 basis point headwind was really driven by ancillary softness, driven around the rain and driven by the margin compression. I mean, we fully expect as I said in my comments, if we have the normalized weather patterns than we expect and we've gotten off to a good start in July, that way we see our margins revert to our historicals for the year. And if we execute on our low end of the range, we'll be right at that 12.9 bps, the 10 bps low end that we talked about for the full year.
Andrew V. Masterman -- Chief Executive Officer and Director
And George, let me just ride on that one a little bit on the technology side, is what we saw -- John is absolutely right on the ancillary pressures that we saw. On the contracts side of the business, we saw efficiencies being driven into the organization by utilizing electronic time capture. That really has basically given us positive on our contract basis. So the efficiencies were driving in the contract, and it shows through in the basic base maintenance performance on the efficiencies that's seen unfortunately this quarter were offset by that really -- that extraordinary position we see -- we saw whether that almost 3x wetness, 8% versus 22% in this quarter that look as we go into fourth quarter. As long as we perform at normal levels of precipitation, we expect that to normalize.
Operator
Your next question comes from Dan Dolev with Nomura. Your line is open
Dan Dolev -- Nomura -- Analyst
Hey guys thanks for taking my question So really quickly on the revenue guide, I mean you have about $15 million of extra M&A. And if my calculation is right, you're basically to get the low end of the guidance range, get to about 7% growth year-over-year. And even if I take out that about a point of growth, it's 6%, and it's a big ramp in my view from like the 4% that you did in the third quarter. I think you're facing about 300 basis points tougher compared. So how should we get confident that you're not going to miss this target, God forbid, given the ramp that's required?
Andrew V. Masterman -- Chief Executive Officer and Director
This is Andrew. If you look at overall, the increase in M&A that we have, we've been guiding all year that M&A would contribute about $75 million to the quarter. What we're seeing now is we're forecasting that to be more be around $90 million. Okay. And why that is is a couple of reasons: number one, obviously, the additional acquisition which is part of it that we had this May with Luke's and Desert Classic. But frankly also because we're seeing improved organic growth within the acquisitions that we had already executed earlier at the fiscal. So we're seeing some more momentum happening there. That's already coming.
So we see that coming there. And then you come back to the other elements of growth we see out there is going to be in the Development segment because of that pent up demand. That still is there. It's -- we have the bookings, and actually we're executing getting those into the ground. So that's a big portion, it's not just the Maintenance segment. Maintenance, we expect to grow modestly. This is not going to be -- in this business, we are not going to see these massive pops, but if you look at the sequential growth quarter-over-quarter-over-quarter, we see an increasing trend of base contract growth, and what we saw realized within this quarter was a 1% organic growth. We expect that to continue and build a little bit plus the Development growth, plus a little bit stronger in M&A, just a little, should deliver higher than right around the low end.
Dan Dolev -- Nomura -- Analyst
Thank you. I appreciate it. And then one quick follow up on the M&A. So I understand this correctly, the M&A is coming in at a lower margin than the actual business. And I know you've been pruning lower margin businesses. So how can we get confidence that this new M&A margin would improve over time, so that you're not faced with kind of margin dilutive M&A that you might need to prune down the road?
Andrew V. Masterman -- Chief Executive Officer and Director
Yes. Well, in any acquisition that we bring onboard, we analyze the portfolio and make sure that we quickly act on those cash which might not fit that profile. And as we go to the whole year M&A, we exit the year after year as a strong profile, and almost every acquisition we have shows that margin of improvement that we have overall. In this particular quarter, we've bought some businesses which had a slightly dilutive effect. And now as we look at the business is going forward and these businesses, we're building off of a strong base. We want to be real clear about that. These acquisitions we buy are stronger. Some are going to be a little stronger than others, but they are upper quartile, strong performing acquisitions which add value to the Company. And we saw that -- we see that in the entire profile of acquisitions that we have purchased and acquired here in 2019.
Operator
Your next question comes from Justin Hauke with Robert W. Baird. Your line is open.
Justin Hauke -- Robert W. Baird -- Analyst
Yes good morning. Thanks guys, I guess I was hoping to the extent that you can quantify the weather maybe a little bit more concretely. I mean it sounded like on the margins, you said in the Maintenance segment is about 100 basis points from the lower ancillary revenues. So maybe just defining what's the difference on the margins you get on ancillary versus base business, and how much revenue impact was lost there?
Andrew V. Masterman -- Chief Executive Officer and Director
Well, first of all, we didn't break out ancillary versus contract. And so as you look at the total balance of the business, we saw that the total balance of the business was that 100 bps number that John referred to. We believe with normalized weather patterns is that that would go away. I mean that would come back. And so you can do the basic math on the 100 bps shows you the dollar. But we do believe also on the ancillary side of business. There are several million dollars that we would have been able to put in play, which we were not able to do because of those extraordinary wet conditions.
Justin Hauke -- Robert W. Baird -- Analyst
Okay, that's helpful. And then I guess my second question is just, on the $15 million of extra M&A, you said it's about the 2 deals you did in May as well as just maybe better organic within the acquired businesses you previously acquired. Is that -- can we extrapolate from that for the contribution of those 2 deals that if maybe it's $10 million or so for the fourth quarter? I mean is that a good number to use to kind of annualize the contribution that they'll have as we think about 2020?
Andrew V. Masterman -- Chief Executive Officer and Director
If you look at 2020, when we give our guidance for 2020, we'll be very clear about what the wraparound is and what the experienced acquisition level is. So as we give the guidance for 2020 just like we did in '19, there will be a certain portion which will be explicit about was associated with '19 acquisitions that was realized in '19, and what we already have in place at that time and what we expect to deliver out of '20. So we'll be very clear just as we were in '19.
Operator
Your next question comes from Kevin McVeigh with Credit Suisse. Your line is open.
Kevin Mc Veigh -- Credit Suisse -- Analyst
Great thanks. Hey Not to kind of belabor the weather point, but how does that impact the profitability? I guess if folks aren't working, do they get the same pay rate that they would if they were working? And then you have this pent up demand. There's only so many hours in a day somebody's going to be able to work. Do you have -- is it the same profitability as you're looking to recover that revenue to the extent there's gaps in the -- that allow you to kind of make up some of the revenue that missed? And then, how does that kind of circle back to -- the guidance, when you say near the low end, is that the low end of the range or it could have possibly fall below that depending upon where the makeup is on the weather
Andrew V. Masterman -- Chief Executive Officer and Director
?Well, let's -- impact your question, more so on kind of performance. And you hit the nail on the head. What happens is when you -- yes, you get the revenue done, but you do it very inefficiently. So it rains for 4 days or 3 days. A day opens up, it has to dry out. And all of a sudden, now you have to dispatch people in overtime situations on the weekends to go in and get that one window because that's the rare time that it actually stopped raining, OK, in an unusual situation. And so you're deploying a very inefficient use of labor, kind of dealing with the surges of good weather and bad weather. But that being -- I mean, yes, this is just -- we are clear. We have a great book of business out there. This just impacted us. It did impact us in the quarter, but we believe as we get back to more normalized levels that we're going to be able to perform at a regular rate.
As the overtime costs came in, perhaps dealing with, as I said before, redigging ditches, reputting in mulch, having to replant trees out there and do things also in that -- the manner that you would like to do it on a Monday through Friday even basis, but having to really shuffle labor and sometimes put in 12 hours of labor on a certain day only because if it was really good and then having to go back down the next day.
Kevin Mc Veigh -- Credit Suisse -- Analyst
Got it. Is there any way to -- now just any way to maybe frame what the EBITDA impact would have been from kind of the profitability? And maybe hard question, which is, what the profitability would be within a normal course and then what it's going to be? Like just to try to gauge how that could impact the EBITDA for '19.
John Feenan -- Executive Vice President, Chief Financial Officer
This is John. The walk I gave earlier I think was the impact that we experienced in the third quarter around weather, when we had the 70 basis point degradation in the contract maintenance. And I think in our guidance that we talked about, I want to be very clear on 1 point you mentioned. You just asking your question, where we're saying we were going to be below guidance. No, we were saying the low end of our range of guidance that we provided heading into this year.
We want to be very clear on that. But we expect -- outside of that, that one-off that we experienced in the third quarter, which was mainly pronounced around the ancillary side, I will disclose to you. And we have said this before, historically, the ancillary business has better profit wise than our contract work. So obviously, that was an impact that we couldn't get it in through that degradation of 70 bps. We expect things to revert back to where they historically would be in the fourth quarter in order to get to our low end.
Operator
Your next question comes from Sam England with Berenberg. Your line is open.
Sam England -- Berenberg -- Analyst
Hi guys, Could you talk a little bit about the rollout and uptake freight you connect so far? And whether you view that as just a customer retention tool or whether you think it could drive some ancillary services revenues going forward as well?
Andrew V. Masterman -- Chief Executive Officer and Director
It's something -- it's a great question. We just rolled it out. So it's being introduced in several large customers that we had, but it is a nationwide rollout. So similar to as we see continued acceleration and adoption of HOA Connect, which is the same portal utilized for homeowners' association, we expect that over the next several quarters to gain greater and greater adoption. And what it does is it allows an easy and quick connection between the property manager direct back into the account manager, which allows and then a quick response.
All being done frankly via the being portable phones, and being able to -- that gives alerts and follow ups in an automated way -- automatic way. So we have a really strong optimism about how this is going to continue to gain traction as HOA Connect has, OK. And what ultimately is going to drive then is customer feedback, the customer retention with the business. We think it's more of a customer retention tool, but should have some knock-on ancillary benefits as well.
Sam England -- Berenberg -- Analyst
Great. Thanks. And then just a follow up. Given the investment in technology you said putting in, is that included in the sort of guidance for 10 to 30 basis points EBITDA margin expansion a year or could some of the efficiency improvements you've been actually drive EBITDA margin expansion ahead of that?
John Feenan -- Executive Vice President, Chief Financial Officer
This is John. It's included in the guidance. Yes. Well, that means it's included in the guidance, the 10 to 30 bps. Not incremental above that.
Operator
[Operator Instructions] Your next question comes from Seth Weber with RBC. Your line is open.
Gunnery Antinop -- RBC -- Analyst
Hey, guys, good morning, This is Gunnery Antinop [Phonetic] on for Seth. I guess just one more on the Development segment. The profits obviously were strong and you guys seem to be starting the strong pipeline I guess. How sustainable are -- is the profitability there? Is it really dependent on the book of business that you guys have in the pipeline? And I guess, longer term with regards to the pipeline, how much visibility do you have? Is this a 2-quarter kind of book of business or is this tends to be longer than that?
Andrew V. Masterman -- Chief Executive Officer and Director
Yes. No, it is actually that the team in development has done a great job and has a tool, really a continuous improvement tool and process which creates that just more margin performance ongoing. It's just been something embedded in the business and something that's been delivering a consistent view. Now quarter-to-quarter, you will see ups and downs because of the actual mix coming through. But overtime, you're going to -- you can see assistant drumbeat or steady improvement within Development within that 10 to 30 bps range that we talked about overall for guidance.
Now as you look at the backlogs, kind of your second point, this is not just a one or two-quarter work. We are seeing book rates coming in. We had one of the strongest booking quarters last quarter in our company's history in the Development business. And we actually believe, as we look into 2020 forward, that this momentum that we see in Development is sustainable for the foreseeable future.
Gunnery Antinop -- RBC -- Analyst
Okay. Thanks. And I guess that's just, we're a little bit past kind of the 1 year anniversary since the IPO. At the time of the IPO, you guys talked about having the newly created 125-person kind of business development team that was mostly focused on targeting new business and new customers. I wonder if you can provide a quick update on kind of that -- the success of that team and also kind of staffing levels there, if you guys have expanded upon that, etc?
Andrew V. Masterman -- Chief Executive Officer and Director
Absolutely. We have seen that grow. So we built that team. We had 125. We're about in a position now where our retention rates have stayed about where they have historically. In order to sustain the organic growth we're seeing, we're seeing better sales results than we've ever had. And that group what was 125 has now grown up toward 160 or so over the course of the last 12 to 15 months since we first talked about it. And that then leads to net new, which we talked about a couple quarters ago. And that organic contract revenue growth with its underpinning the business right now.
Operator
Your next question comes from Shlomo Rosenbaum with Stifel.
Shlomo H. Rosenbaum -- Stifel -- Analyst
Hey, Could you just talk a little bit about how important it is that you doubled those H-2B visas? How much of a help is that for your -- for the margins of the business, the efficiency? Was that something that you guys were expecting before you got into the quarter? If you could just talk about that?
Andrew V. Masterman -- Chief Executive Officer and Director
Sure. Yes. If you look at the overall H-2B environment, these folks have just arrived. So they arrived in late June, early July. Basically, it was freed up, a second wave of H-2B visas were released. We were able to reach out mostly to folks -- all folks -- well actually it's all folks who've been with us before, and we're able to then deliver a real, real injection of labor into the organization. That being said, we still have -- we're able to perform a landscaping without these folks. That's not -- what these guys do is -- just to your point -- they come in and they help stem the turnover, allow us to stabilize the operations, and we would expect us to be able to get out there and really, really shine at the high end as we do with their presence.
Shlomo H. Rosenbaum -- Stifel -- Analyst
So were you expecting that level beforehand, or this is something that's a recent development?
Andrew V. Masterman -- Chief Executive Officer and Director
We applied for a 1,000s of visas throughout the entire enterprise. That's very typical. We do it every year, apply to them. And the reality is the system is a lottery system run by the government. And so we really can't -- we don't know. We don't know how many visas we actually will receive in any given year because it's a random selection process by the government. We plan to do the business without H-2Bs, OK. We make sure we can execute and deliver all of our contracts regardless of whether we get the books or not is when they come to the add-on stabilizing factors for business.
Shlomo H. Rosenbaum -- Stifel -- Analyst
Got it.
Operator
Thank you very much, There are no further questions queued up at this time. I'll turn the call back over to Mr. Masterman for closing remarks.
Andrew V. Masterman -- Chief Executive Officer and Director
Great. Thank you, Denise. Once again, I want to thank everyone for participating in the call today and for your interest in BrightView. We were encouraged by the fundamental trends that have underpinned the results so far this year, especially given the difficult operating environment we have had to manage through. And we are confident in BrightView's ability to generate long-term sustainable stockholder value for many years to come. If you have any follow-up questions, please don't hesitate to reach out to us. We look forward to speaking you when we report our fourth quarter and full year fiscal 2019 results in November. Thanks a lot.
Operator
[Operator Closing Remarks]
Duration: 51 minutes
Call participants:
Daniel Schleiniger -- Vice President of Investor Relations
Andrew V. Masterman -- Chief Executive Officer and Director
John Feenan -- Executive Vice President, Chief Financial Officer
Shlomo H. Rosenbaum -- Stifel -- Analyst
George Tong -- Goldman Sachs -- Analyst
Dan Dolev -- Nomura -- Analyst
Justin Hauke -- Robert W. Baird -- Analyst
Kevin Mc Veigh -- Credit Suisse -- Analyst
Sam England -- Berenberg -- Analyst
Gunnery Antinop -- RBC -- Analyst
