Prospectus Summary
PROSPECTUS SUMMARY This summary highlights certain significant aspects of our business and this offering. This is a summary of information contained elsewhere in this prospectus, is not complete and does not contain all of the information that you should consider before making your investment decision. You should carefully read the entire prospectus, including the information presented under the sections entitled “Risk Factors” and “Special Note Regarding Forward-Looking Statements” and the consolidated financial statements and the notes thereto, before making an investment decision. This summary contains forward-looking statements that involve risks and uncertainties.Our Company
We are the largest provider of commercial landscaping services in the United States, with revenues more than 10 times those of our next largest commercial landscaping competitor. We provide commercial landscaping services, ranging from landscape maintenance and enhancements to tree care and landscape development. We operate through a differentiated and integrated national service model which systematically delivers services at the local level by combining our network of over 200 branches with a qualified service partner network. Our branch delivery model underpins our position as a single-source end-to-end landscaping solution provider to our diverse customer base at the national, regional and local levels, which we believe represents a significant competitive advantage. We believe our commercial customer base understands the financial and reputational risk associated with inadequate landscape maintenance and considers our services to be essential and non-discretionary. This creates recurring revenue and enhances the predictability of our business model, as demonstrated by our landscape maintenance contract renewal rate of approximately 85% for each of calendar year 2016 and 2017.
We operate through two segments: Maintenance Services and Development Services. Our maintenance services (74% of fiscal year 2017 revenues) are primarily self-performed through our national branch network and are route-based in nature. Our development services (26% of fiscal year 2017 revenues) are comprised of sophisticated design, coordination and installation of landscapes at some of the most recognizable corporate, athletic and university complexes and showcase highly visible work that is paramount to our customers’ perception of our brand as a market leader.
As the number one player in the highly attractive and growing $62 billion commercial landscape maintenance and snow removal market, we believe our size and scale present several compelling value propositions for our customers, and allow us to offer a single-source landscaping services solution to a diverse group of commercial customers across all 50 U.S. states and Puerto Rico. We serve a broad range of end market verticals, including corporate and commercial properties, homeowners’ associations, or HOAs, public parks, hotels and resorts, hospitals and other healthcare facilities, educational institutions, restaurants and retail, and golf courses, among others. We believe that due to our unmatched geographic scale and breadth of service offerings, we are the only commercial landscaping services provider able to service clients whose geographically disperse locations require a broad range of landscaping services delivered consistently and with high quality. Our top ten customers accounted for approximately 12% of our fiscal year 2017 revenues, with no single customer accounting for more than 3% of our fiscal year 2017 revenues. The diversity of our client base and end-markets are evidenced by the following:
Our business model is characterized by stable, recurring revenues, a scalable operating model, strong and improving operating margins, limited capital expenditures and low working capital requirements, which together, generate significant Free Cash Flow. For the twelve months ended December 31, 2017, we generated net service revenues of $2,264.7 million, net income of $5.3 million and Adjusted EBITDA of $283.6 million, with a net income margin of 0.2% and an Adjusted EBITDA margin of 12.5%.
Our Operating Segments
We deliver our broad range of services through two operating segments: Maintenance Services and Development Services. We serve a geographically diverse set of customers through our strategically located network of branches in 30 U.S. states and, through our qualified service partner network, we are able to efficiently provide nationwide coverage in all 50 U.S. states and Puerto Rico. Our broad range of services include:
Maintenance Services Overview
Our Maintenance Services segment delivers a full suite of recurring commercial landscaping services in both evergreen and seasonal markets, ranging from mowing, gardening, mulching and snow removal, to more horticulturally advanced services, such as water management, irrigation maintenance, tree care, golf course maintenance and specialty turf maintenance. Our maintenance services customers include Fortune 500 corporate campuses and commercial properties, HOAs, public parks, leading international hotels and resorts, airport authorities, municipalities, hospitals and other healthcare facilities, educational institutions, restaurants and retail, and golf courses, among others. Owing to the non-discretionary nature of landscape maintenance services for commercial customers and our long history with many of our customers, we have achieved a landscape maintenance contract renewal rate of approximately 85% for each of calendar year 2016 and 2017.
For the twelve months ended December 31, 2017, in Maintenance Services, we generated net service revenues of $1,685.0 million and Segment Adjusted EBITDA of $270.9 million, with a Segment Adjusted EBITDA Margin of 16.1%.
Development Services Overview
Through our Development Services segment, we provide landscape architecture and development services for new facilities and significant redesign projects. Specific services include project design and management services, landscape architecture, landscape installation, irrigation installation, tree nursery and installation, pool and water features and sports field services, among others. These complex and specialized offerings showcase our technical expertise across a broad range of end market verticals.
For the twelve months ended December 31, 2017, in Development Services, we generated net service revenues of $582.9 million and Segment Adjusted EBITDA of $73.4 million, with a Segment Adjusted EBITDA Margin of 12.6%.
Market Opportunity
Commercial Landscaping Services Industry
The landscape services industry consists of landscape maintenance and development services, as well as a number of related ancillary services such as tree care and snow removal, for both commercial and residential customers. BrightView operates only within the commercial segments of each of the landscape maintenance, landscape development and snow removal industries. Commercial landscape maintenance, including snow removal, represents a $62 billion industry that is characterized by a number of attractive market drivers. Due to the essential and non-discretionary need of these recurring services, the commercial landscape maintenance services and snow removal services industries have, and are expected to continue to, exhibit stable and predictable growth. Highlighting the consistency of this growth, from 2012 through 2022 the combined industry is expected to grow at a 3% CAGR.
In addition to its stable characteristics, the industry is also highly fragmented. Despite being the largest provider of commercial landscaping services, we currently hold only a 2.7% market share, representing a significant opportunity for future consolidation. According to the October 2017 IBISWorld – Landscaping Services in the U.S. report, which we refer to as the 2017 IBISWorld Report, there are over 500,000 enterprises providing landscape maintenance services in the United States. Approximately three quarters of the industry participants are classified as sole proprietors, with a limited set of companies having the capabilities to operate on a regional or national scale.
Key Trends and Industry Drivers
We believe we are well-positioned to capitalize on the following key industry trends that are expected to drive stable and growing demand for our landscaping services: (i) outsourcing by customers of non-core processes, such as landscape maintenance; (ii) sole-sourcing by customers to full-service vendors; (iii) customers’ enhanced quality demands; (iv) increased focus on corporate campus environments; and (v) growth of private non-residential construction.
Value Proposition
Our ability to systematically deliver high quality landscaping services is the foundation of our value proposition to our customers. We leverage our national footprint of over 200 branches and the significant breadth of our offerings to service all of our customers’ landscaping needs. We believe our long tenured and experienced employee base has resulted in the development of significant institutional horticultural and technical expertise that we systematically deliver to our customers. In addition, we have dedicated resources to enhance employee training, safety and compliance and through investments in our business systems, we are able to deliver a seamless, professionally managed service experience. Finally, our branch-led business model, supported by a process-driven management approach and strategically centralized corporate functions, supports our focus on quality of service and repeatable execution.
Together, our branch-led business model, national footprint and experienced employee base enable us to deliver high quality services with a scope and on a scale that we believe is not matched by our competitors. We believe our customers value the consistency and professionalism of our execution and, as a result, trust us to maintain facilities that have a meaningful impact on their reputation and brand image.
Our Competitive Strengths
#1 Position in a Large, Highly Fragmented and Growing Industry
We are the largest provider of commercial landscaping services in the United States, with revenues more than 10 times the size of our next largest commercial landscaping competitor. In addition to our #1 position in commercial landscaping services, we are also the #1 provider of snow removal services, as well as a leading tree nursery, water irrigation and golf course maintenance services provider. Our market leadership is anchored across a wide range of services in a large, fragmented and growing industry primarily characterized by smaller local players, with no other industry participant commanding more than 1% market share.
Commercial landscape maintenance is an essential service to our customers, who generally utilize such services throughout the economic cycle. Customers are increasingly raising their expectations regarding the quality of the work performed by their landscape maintenance providers and on the variety of services offered. With our position as the #1 provider of commercial landscaping services and our nationwide branch network, we are well-positioned to take advantage of positive growth trends in the industry.
Single-Source Landscape Solutions Provider with an Unparalleled Suite of Capabilities and Scale
We provide a full spectrum of landscape maintenance and development services on a national scale, positioning our company as a trusted, “one-stop shop” for sophisticated customers that demand high quality execution. We also provide a full suite of offerings that covers every stage of a customer’s landscaping needs, regardless of complexity or scale, from design and development to maintenance and enhancement. Our snow removal business acts as a natural complement to landscape maintenance services provided to customers in regions impacted by seasonal weather and leverages our existing capital equipment already in place. Our reputation for technical excellence and industry know-how also makes us the developer and servicer of choice for high-profile, bespoke assignments, showcasing the breadth and depth of what we are able to deliver. Our ability to deliver consistent local performance across a national footprint is differentiating in a highly fragmented market. We believe no other industry participant is able to deliver the same value proposition across U.S. regional markets.
Our Services are Systematically and Consistently Delivered at the Local Level
One of the fundamental pillars of our differentiated business model is our ability to systematically and comprehensively deliver the full spectrum of capabilities and industry expertise at the local level through our branch network. The route-based nature of our Maintenance Services business and high network density compound incremental revenue opportunities as account managers and crew leaders interact more frequently with a range of customers on a daily basis.
At its core, our success is driven by optimized, branch-level execution and customer management. We conduct branch-by-branch reviews and track key operating statistics at a local level to ensure consistency of customer service and operational performance. In addition, regional leadership, branch managers and account managers are properly incentivized to consider performance targets from both a growth and profitability standpoint.
Maintenance Services branch managers are supported by a best-in-class network of 700+ dedicated branch-level account managers, responsible for the day-to-day support, attention and customized service delivered to customers. The fact that local customers entrust our account managers to interact directly with their businesses each day is a testament to the capabilities of our account managers and the service they provide.
Scalable Business Model Built for Future Growth
We have made significant investments in our operating platform to position us for future growth. We have invested in centralizing core management functions and systems, while also establishing purpose-built processes to enable our branch-level teams to provide consistent, repeatable services for our customers. For example, we have continued to invest in our business model, focusing on route optimization, fleet and asset management programs, our human capital management and our technology capabilities. Our highly standardized operating structure enables our branch managers to focus on efficiently delivering high quality services in a consistent and profitable manner. When a branch reaches a critical size, we are able to efficiently split the branch to support continued growth and high quality of execution. The potential to amplify the already meaningful operating leverage inherent to our business model creates a significant opportunity going forward.
Recurring and Predictable Revenue Base
Our business model is inherently stable, predictable, and insulated from economic volatility due to several factors. The majority of our revenues are generated from maintenance services, which provide a highly predictable, recurring revenue stream with clear visibility into future performance. Many of the commercial landscape maintenance services which we provide are non-discretionary for our customers, who are focused on maintaining a perceived level of quality or desired environment at a given location. In addition, our services often represent a low percentage of the overall expense associated with the upkeep of properties we serve. The predictability of our platform is further enhanced by compelling contract renewal rates. Our focus on systematically delivering our services locally has resulted in a landscape maintenance contract renewal rate of approximately 85% for each of calendar year 2016 and 2017.
Differentiated Quality and Expertise of Employee Base
Our size, scale and organizational structure enable us to attract and retain an employee base that we believe is superior to those of our smaller competitors, which drives substantial competitive advantages in an industry highly focused on reputation, track record of execution and applicable industry expertise. Given our sophisticated customer base, and the complex, holistic solutions our customers often demand, our human capital is critical to our success. We believe our long tenured and experienced employee base has resulted in the development of significant institutional horticultural and technical expertise that we systematically deliver to our customers. Our scale supports meaningful training and development resources, which bolsters our ability to attract, develop and retain the best talent.
We are highly focused on employee engagement, development, wage dynamics, career progression opportunities and personal ownership and accountability across all levels of tenure and seniority. We also maintain a best-in-class safety track record, with OSHA recordable incidents at approximately half of the industry average. Finally, our commitment to federal employment practices is evident in our self-imposed requirement that 100% of new employees be verified through the U.S. Department of Homeland Security’s E-Verify® system.
Our Operational Discipline Provides for Strong Cash Flow Generation
Our scaled operating platform and variable cost structure results in attractive operating margins and significant Free Cash Flow generation. We have successfully reduced our indirect and overhead costs through our focus on driving operational enhancements and efficiencies. For example, we have standardized a substantial amount of our procurement process, leveraged our scale to reduce materials and equipment costs, meaningfully reduced corporate expenses, consolidated our multiple corporate headquarters locations and introduced an electronic time capture and payroll system. Additionally, our business model is characterized by strong Adjusted EBITDA margins, low and improving working capital and limited capital expenditure requirements, which have allowed us to deliver consistent and strong Free Cash Flow generation. As a result, this has allowed us to retain a significant portion of our operational cash flows, resulting in cash conversion (defined as Adjusted EBITDA less net capital expenditures, adjusted for the acquisition of legacy ValleyCrest land and buildings, as a percentage of Adjusted EBITDA) of over 80% for the twelve months ended December 31, 2017. We intend to use a meaningful portion of our future Free Cash Flow to pursue our acquisition strategy, as well as to reduce our debt, which was $1,603.7 million as of March 31, 2018 and would have been $ million as of March 31, 2018 after giving effect to this offering and the use of proceeds therefrom.
Demonstrated M&A Capabilities
We have developed significant capabilities and have a proven track record of identifying, acquiring and integrating strategic acquisitions. We will selectively continue to pursue our “strong-on-strong” acquisition strategy in which we focus on increasing our density and leadership positions in existing local markets, entering into attractive new geographic markets and expanding our portfolio of landscape enhancement services and improving technical capabilities in specialized services. We believe we are the acquirer of choice in the highly fragmented commercial landscaping industry because we offer the ability to leverage our significant size and scale, as well as providing stable and potentially expanding career opportunities for employees of acquired businesses. Since January 1, 2017, we have acquired eight businesses with more than $188.2 million of aggregate annualized revenue (of which $73.2 million of annualized revenue relates to transactions completed after March 31, 2018 and not yet reflected in our historical financial statements) adding over 4,200 additional customer sites. We anticipate incurring integration related costs in respect of these acquisitions of $3.8 million, of which $1.3 million had been incurred as of March 31, 2018, with the remainder to be incurred by the second quarter of fiscal year 2019.
We maintain a dedicated M&A team that not only targets and executes strategic transactions, but also maintains an on-site presence at newly acquired businesses to ensure efficient integration into the broader BrightView platform. Our stringent and proven target identification framework delivers an actionable pipeline of acquisition opportunities at attractive valuation levels. Our typical target opportunity is an established landscape maintenance business with a strong commercial customer base.
Proven Management Team
Our management team combines extensive business services experience with robust local landscaping leadership. Our management team also draws on significant prior expertise in managing distributed workforces and has a history of success empowering branch managers and fostering leadership teams at the local level. Our senior leadership team consists of a combination of long-term internal leaders and strategic hires from well-respected external platforms with an average of 14 years of executive leadership experience. Our senior leadership team is supported by a deep bench of operating senior vice presidents and vice presidents with an average tenure of 17 years with BrightView or acquired companies.
Our Strategy
Grow Wallet Share with Existing Customers
We have developed and implemented a set of standard operating practices to increase both the existing customer wallet size and share of wallet. Our 700+ branch-level account managers have a mandate to proactively promote additional services that we can provide to our existing customers and to leverage our mobile technology to design and generate enhancement proposals with customers while on site. We have also aligned branch-level compensation to be focused on growing our wallet share with existing customers.
Gain New Customers
We recently created an experienced 125-member business development team that is focused on winning new customers at a local level. Our approach is to leverage our existing branch footprint and qualified service partner network to gain new customers in the attractive markets where we already have a presence. Through detailed assessments of local market conditions and demographics, we expect to focus on selected high-growth geographies which exhibit positive weather and economic characteristics. Our decentralized branch structure allows us to efficiently gain market share while at the same time providing the support of centralized back office operations and a network of experienced operators, ensuring BrightView’s best-in-class standards are met at every site.