BrightView Holdings (NYSE:BV) exhibited decent momentum as it closed out the fiscal 2019 year, generating fourth-quarter year-over-year revenue growth of more than 7%. The small-cap company is the dominant provider of commercial landscaping services in the U.S., and both of its segments benefited from benign economic conditions during the quarter. However, a tepid outlook for next year caused investors to trim stakes following Thursday morning's earnings release: Shares were trading lower by more than 11% at midday.
As we review results of the last three months below, note that all comparative numbers refer to those of the prior-year quarter.
BrightView metrics in a nutshell
|Metric||Q4 2019||Q4 2018||Change|
|Revenue||$624.8 million||$581.8 million||7.4%|
|Net income (loss)||$25.1 million||($10.9 million)||N/A|
|Diluted earnings per share (loss)||$0.24||($0.11)||N/A|
Significant details from the fourth-quarter report
- Maintenance services revenue improved by 5.1% to $455 million. Acquisitions of landscape maintenance companies contributed 4.6 percentage points of growth, while commercial landscaping managed organic growth of 0.5 percentage points, despite the planned exits of unprofitable accounts. Adjusting for these exits, commercial landscaping revenue would have increased by 1.9%.
- Development services revenue jumped 14% to $171 million. Management attributed the strength to higher project revenue in key markets, as well as a robust development pipeline.
- Gross margin dipped by 100 basis points to 27.5%, as the prior year benefited from higher-margin hurricane cleanup services. This effect was partially offset by the exit of unprofitable landscape accounts, and a higher percentage of profitable contract maintenance revenue.
- The slimmer gross margin was partially responsible for a decrease of 2% in adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA), to $77.2 million.
- Net income in the prior-year quarter was impacted by a one-time, $25.1 million loss on debt extinguishment, resulting in the disparity between earnings periods as shown in the table above.
- The company announced separately on Thursday that it has acquired Heaviland Enterprises, a San Diego, California-headquartered commercial landscaping company, and landscaping firm Clean Cut Lawns, LLC, which is based in Meza, Arizona. BrightView did not disclose terms of either deal.
Management's comments on performance
In the company's earnings press release, CEO Andrew Masterman identified three major factors behind the company's successful year, while looking forward to fiscal 2020:
We will build on our 2019 successes, including (a) the sequential revenue improvement in underlying commercial landscaping, (b) the excellent results that our Development Segment generated in the second half of 2019 with strong bookings going into 2020, and (c) the reliable revenue growth that our M&A pipeline, once again, delivered. We will also maintain our targeted plans to invest in technology to support our sales and account manager teams, enhancing our customer relationships and driving both revenue growth and cash generation, which we believe are the cornerstones of stockholder value.
A lackluster 2020 outlook
BrightView provided investors with a few overarching revenue and earnings targets for the coming year alongside fourth-quarter earnings. Management has chalked in full-year revenue of $2.465 billion to $2.525 billion for fiscal 2020. At the midpoint of this range, the figure implies an organic top-line advance of just 2% in 2020, after factoring in roughly $60 million in newly acquired revenue.
As for earnings, the landscaping enterprise anticipates generating adjusted EBITDA of $312 million to $320 million next year. This represents an improvement of less than 4% versus adjusted EBITDA of $305 million in fiscal 2019.
While the revenue and adjusted EBITDA targets certainly leave management room for earnings surprises during the year, the modest scope of expected 2020 performance caused some shareholders to take money off the table. It's difficult to blame investors for booking profits, however: Even after the market took a hedge trimmer to BrightView's stock on Thursday, shares are still up a cool 68% on the year.