Investors in BrightView Holdings (NYSE:BV) probably haven't been too impressed with the young company's post-IPO performance. The stock dropped more than 60% at the end of 2018 after being public for only a few short months. Fortunately, the stock has been slowly recovering since then as management has reported improving results. In fact, the landscaping company posted better-than-expected results this past quarter. 

Let's look at the numbers for BrightView this past quarter and what investors should expect after the rather dismal start as a public company. 

A landscaped yard in BrightView's portfolio

One "asset" in BrightView's portfolio. Image source: BrightView Holdings.

BrightView Holdings results: The raw numbers

Metric FQ2 2019 FQ1 2019 FQ2 2018
Revenue $596.6 million $526.0 million $590.4 million
Adjusted EBITDA $61.1 million $50.1 million $51.6 million
Net income (loss) ($3.6 million) ($8.8 million) ($22.1 million)
Diluted EPS  ($0.04) ($0.09) ($0.29)

Data source: BrightView Holdings. 

Even though BrightView's revenue increased modestly, it was able to generate better margins and earnings from that revenue thanks to the combination of exiting contracts that were unprofitable, signing up new customers at better terms, and making some bolt-on acquisitions over the past year. Two of those acquisitions closed this most recent quarter and contributed to these results. 

When looking at BrightView's results, keep in mind that its development segment revenue tends to be lumpy because it comes from larger one-time jobs rather than regular maintenance contracts. 

BV adjusted EBITDA by business segment for FQ 2 2018, FQ1 2019, and FQ2 2019. Shows improvement in maintenance services offsetting decline in development services.

Data source: BrightView Holdings. 

What happened with BrightView Holdings this quarter?

  • After making several acquisitions over the past six months, this quarter was rather quiet in mergers and acquisitions (M&A). Management did note on its conference call that it is assessing a few acquisition candidates, but didn't want to go so far as to include the impact of M&A on its guidance for the year.
  • Total debt at the end of the quarter was $1.18 billion, and cash and equivalents were $11.2 million. Thanks to the slight uptick in adjusted EBITDA, its ratio of net debt to adjusted EBITDA declined to 4.0 for the quarter. Management is targeting a ratio of 3.5 at the end of fiscal 2019.
  • The company added two new independent members to the board of directors. 
  • Guidance for 2019 revenue, adjusted EBITDA, and capital spending remained unchanged. 

What management had to say

When CEO Andrew Masterman took the reins at BrightView, one of his initiatives was to get the company out of unprofitable contracts. This managed-exit strategy has been one of the reasons that revenue has remained rather flat despite all the recent acquisitions. On the company's conference call, Masterman noted that the impact from this managed-exit plan will now start to subside: 

Included in our maintenance segment second-quarter revenue is a $9.4 million headwind from our strategic managed-exit initiative. This brings the total revenue impact for managed exits to $20.2 million for the first six months of fiscal 2019. And as we have 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 have now concluded all of the customer negotiations associated with this targeted management-exit initiative. And with that we can confirm that the third-quarter fiscal revenue will include an impact from managed exits of less than $9 million. Beyond the third quarter, where there is a tail to the program, the managed-exit revenue impact will decline compared to the prior four quarters. That tail, which runs into early fiscal 2020, will be less than a total of $8 million.

You can check out a full transcript of BrightView's conference call here.

BV Chart

BV data by YCharts.

Looking forward

It's probably presumptuous to say that BrightView is now on a road to recovery after such a tough start as a public company. Its business is certainly looking better with improving margins, and it appears that Masterman's managed-exit plan is having the desired effect on the bottom line. The company is still not profitable, but management remains optimistic about its chances of improving the balance sheet and delivering profitable growth from here on out. If the company can fulfill that promise, then perhaps the stock can put this tough start behind it.