bv-10q_20180630.htm

Large accelerated filer

Accelerated filer

Non-accelerated filer

☒ (Do not check if a smaller reporting company)

Smaller reporting company

Emerging growth company

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☐ No ☒

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of July 31, 2018, the registrant had 102,425,209 shares of common stock, $0.01 par value per share, outstanding.

This Quarterly Report on Form 10-Q (this “Form 10-Q”) contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which are subject to the “safe harbor” created by those sections. All statements, other than statements of historical facts included in this Form 10-Q, including statements concerning our plans, objectives, goals, beliefs, business strategies, future events, business conditions, results of operations, financial position, business outlook, business trends and other information, may be forward-looking statements.

Words such as “believes,” “expects,” “may,” “will,” “should,” “seeks,” “intends,” “plans,” “estimates,” or “anticipates,” and variations of such words or similar expressions are intended to identify forward-looking statements. The forward-looking statements are not historical facts, or guarantees of future performance and are based upon our current expectations, beliefs, estimates and projections, and various assumptions, many of which, by their nature, are inherently uncertain and beyond our control. Our expectations, beliefs, and projections are expressed in good faith and we believe there is a reasonable basis for them. However, there can be no assurance that management’s expectations, beliefs and projections will result or be achieved and actual results may vary materially from what is expressed in or indicated by the forward-looking statements.

There are a number of risks, uncertainties and other important factors, many of which are beyond our control, that could cause our actual results to differ materially from the forward-looking statements contained in this Form 10-Q. Such risks, uncertainties and other important factors that could cause actual results to differ include, among others, the risks, uncertainties and factors set forth under the heading “Risk Factors” in the Company’s final prospectus dated June 27, 2018 (the “Prospectus”), as filed with the Securities and Exchange Commission (the “SEC”) on June 29, 2018 pursuant to Rule 424(b)(4) under the Securities Act, and in this Form 10-Q, as such risk factors may be updated from time to time in our periodic filings with the SEC, and are accessible on the SEC’s website at www.sec.gov, and also include the following:

We caution you that the risks, uncertainties, and other factors referenced above may not contain all of the risks, uncertainties and other factors that are important to you. In addition, we cannot assure you that we will realize the results, benefits, or developments that we expect or anticipate or, even if substantially realized, that they will result in the consequences or affect us or our business in the way expected. All forward-looking statements in this prospectus apply only as of the date made and are expressly qualified in their entirety by the cautionary statements included in this prospectus. We undertake no obligation to publicly update or revise any forward-looking statements to reflect subsequent events or circumstances.

We use our website www.brightview.com as a channel of distribution of Company information. Financial and other important information regarding the Company is routinely accessible through and posted on our website. Accordingly, investors should monitor our website, in addition to following our press releases, SEC filings and public conference calls and webcasts. In addition, you may automatically receive e-mail alerts and other information about BrightView Holdings, Inc. when you enroll your e-mail address by visiting the “Email Alerts” page of the Investor Resources section of our website at https://investor.brightview.com. The contents of our website are not, however, a part of this Form 10-Q.

	June 30, 2018			September 30, 2017
	(unaudited)
Assets
Current assets:
Cash and cash equivalents	$	16,429		$	12,779
Restricted cash		150			213
Accounts receivable, net		343,565			330,173
Unbilled revenue		102,305			88,907
Inventories		21,031			24,954
Other current assets		55,868			45,495
Total current assets		539,348			502,521
Property and equipment, net		260,536			245,534
Intangible assets, net		305,287			371,271
Goodwill		1,772,222			1,703,773
Other assets		41,839			35,521
Total assets	$	2,919,232		$	2,858,620
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	84,001		$	76,133
Current portion of long-term debt		14,600			14,600
Deferred revenue		76,665			58,221
Current portion of self-insurance reserves		38,019			56,079
Accrued expenses and other current liabilities		154,568			137,116
Total current liabilities		367,853			342,149
Long-term debt, net		1,643,142			1,574,882
Deferred tax liabilities		72,513			125,139
Self-insurance reserves		80,791			66,519
Other liabilities		33,564			53,670
Total liabilities		2,197,863			2,162,359
Stockholders’ equity:
Common stock, $0.01 par value; 185,000 shares authorized; 77,895 and 77,083 shares issued and outstanding as of June 30, 2018 and September 30, 2017, respectively		769			771
Additional paid-in-capital		912,027			894,089
Accumulated deficit		(178,688	)		(178,015	)
Accumulated other comprehensive loss		(12,739	)		(20,584	)
Total stockholders’ equity		721,369			696,261
Total liabilities and stockholders’ equity	$	2,919,232		$	2,858,620

The accompanying notes are an integral part of these consolidated financial statements.

	Three Months Ended June 30,						Nine Months Ended June 30,
	2018			2017			2018			2017
Net service revenues	$	630,330		$	627,490		$	1,771,800		$	1,658,864
Cost of services provided		454,753			451,064			1,311,441			1,220,945
Gross profit		175,577			176,426			460,359			437,919
Selling, general and administrative expense		119,246			104,093			356,840			330,977
Amortization expense		29,247			31,250			89,611			94,800
Income from operations		27,084			41,083			13,908			12,142
Other income		265			343			1,284			1,320
Interest expense		27,499			24,922			77,481			73,372
(Loss) income before income taxes		(150	)		16,504			(62,289	)		(59,910	)
Income tax (expense) benefit		(1,247	)		(1,102	)		58,150			22,037
Net (loss) income	$	(1,397	)	$	15,402		$	(4,139	)	$	(37,873	)
(Loss) earnings per share:
Basic and Diluted	$	(0.02	)	$	0.20		$	(0.05	)	$	(0.49	)

The accompanying notes are an integral part of these consolidated financial statements.

	Three Months Ended June 30,						Nine Months Ended June 30,
	2018			2017			2018			2017
Net (loss) income	$	(1,397	)	$	15,402		$	(4,139	)	$	(37,873	)
Net derivative gains (losses) arising during the period, net of tax of $(559), $1,193, $(2,881), and $(1,894), respectively		1,488			(1,802	)		6,303			2,536
Reclassification of losses into net loss, net of tax of $688, $1,209, $2,330, and $3,450, respectively		1,827			1,828			5,008			5,180
Other comprehensive income		3,315			26			11,311			7,716
Comprehensive income (loss)	$	1,918		$	15,428		$	7,172		$	(30,157	)

The accompanying notes are an integral part of these consolidated financial statements.

	Common Stock						Additional Paid-In Capital			Accumulated Deficit			Accumulated Other Comprehensive Loss			Total Stockholders’ Equity
	Shares			Amount
Balance, September 30, 2016		77,127		$	772		$	892,211		$	(140,566	)	$	(29,828	)	$	722,589
Net loss		—			—			—			(37,873	)		—			(37,873	)
Other comprehensive income, net of tax		—			—			—			—			7,716			7,716
Capital contributions and issuance of common stock		(14	)		—			—			—			—			—
Equity-based compensation		—			—			2,637			—			—			2,637
Repurchase of common stock		(58	)		(1	)		(557	)		—			—			(558	)
Balance, June 30, 2017		77,055		$	771		$	894,291		$	(178,439	)	$	(22,112	)	$	694,511
Balance, September 30, 2017		77,083		$	771		$	894,089		$	(178,015	)	$	(20,584	)	$	696,261
Net loss		—			—			—			(4,139	)		—			(4,139	)
Other comprehensive income, net of tax		—			—			—			—			11,311			11,311
Capital contributions and issuance of common stock		922			—			99			—			—			99
Equity-based compensation		—			—			20,753			—			—			20,753
Repurchase of common stock		(110	)		(2	)		(2,914	)		—			—			(2,916	)
Reclassification of effects of tax reform enactment		—			—			—			3,466			(3,466	)		—
Balance, June 30, 2018		77,895		$	769		$	912,027		$	(178,688	)	$	(12,739	)	$	721,369

The accompanying notes are an integral part of these consolidated financial statements.

	Nine Months Ended June 30,
	2018			2017
Cash flows from operating activities:
Net loss	$	(4,139	)	$	(37,873	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation		56,642			60,740
Amortization of intangible assets		89,611			94,800
Amortization of financing costs and original issue discount		8,080			7,512
Deferred taxes		(57,837	)		(36,551	)
Equity-based compensation		20,753			2,637
Hedge ineffectiveness and realized loss		7,338			12,468
Provision for doubtful accounts		1,137			2,752
Other non-cash activities, net		2,281			(1,812	)
Change in operating assets and liabilities:
Accounts receivable		(1,597	)		(15,671	)
Unbilled and deferred revenue		4,219			(17,370	)
Inventories		4,290			8,096
Other operating assets		(11,073	)		(29,131	)
Accounts payable and other operating liabilities		3,945			18,355
Net cash provided by operating activities		123,650			68,952
Cash flows from investing activities:
Purchase of property and equipment		(71,743	)		(51,022	)
Proceeds from sale of property and equipment		3,946			5,327
Business acquisitions, net of cash acquired		(104,377	)		(22,682	)
Other investing activities, net		(403	)		2,498
Net cash used in investing activities		(172,577	)		(65,879	)
Cash flows from financing activities:
Repayments of capital lease obligations		(4,786	)		(2,572	)
Repayments of debt		(64,820	)		(164,222	)
Proceeds from receivables financing agreement		70,000			150,000
Proceeds from revolving credit facility		55,000			—
Repurchase of common stock		(2,916	)		(2,419	)
Proceeds from issuance of common stock		99			—
Net cash provided by (used in) financing activities		52,577			(19,213	)
Net change in cash and cash equivalents		3,650			(16,140	)
Cash and cash equivalents, beginning of period		12,779			35,697
Cash and cash equivalents, end of period	$	16,429		$	19,557

The accompanying notes are an integral part of these consolidated financial statements.

BrightView Holdings, Inc. (“BrightView” or the “Company”) provides landscape maintenance and enhancements, landscape development, snow removal and other landscape related services for commercial customers throughout the United States. BrightView is aligned into two reportable segments: Maintenance Services and Development Services. As of June 30, 2018, the Company was a wholly-owned subsidiary of BrightView Parent L.P. (“Parent”), an affiliate of KKR & Co. Inc., (formerly KKR & Co. L.P., “KKR”). The Parent and Company were formed through a series of transactions entered into by KKR to acquire the Company on December 18, 2013 (“the Acquisition”).

On March 15, 2018, the Company changed its name from BrightView Acquisition Holdings, Inc. to BrightView Holdings, Inc.

On July 2, 2018, the Company completed an initial public offering of its common stock (the “IPO”). See “Initial Public Offering” below.

These consolidated financial statements have been prepared by the Company in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim reporting and are unaudited.

In the opinion of management, the accompanying unaudited consolidated financial statements include all adjustments, including normal, recurring accruals that are necessary for a fair presentation of the Company’s operations for the periods presented in conformity with GAAP. All intercompany activity and balances have been eliminated from the consolidated financial statements. The consolidated results of operations for the interim periods presented are not necessarily indicative of results for the full year.

The consolidated balance sheet as of September 30, 2017, presented herein, has been derived from the Company’s audited consolidated financial statements as of and for the nine months ended September 30, 2017, but does not include all disclosures required by GAAP. For a more complete discussion of the Company’s accounting policies and certain other information refer to the consolidated financial statements included in the Company’s 2017 audited consolidated financial statements and the notes thereto included in the Company’s final prospectus dated June 27, 2018 (the “Prospectus”), as filed with the Securities and Exchange Commission (the “SEC”) on June 29, 2018 pursuant to Rule 424(b)(4) under the Securities Act of 1933, as amended (the “Securities Act”).

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the period. On an ongoing basis, management reviews its estimates, including those related to allowances for doubtful accounts, revenue recognition, self-insurance reserves, estimates related to the Company’s assessment of goodwill for impairment, useful lives for depreciation and amortization, realizability of deferred tax assets, and litigation based on currently available information. Changes in facts and circumstances may result in revised estimates and actual results may differ from estimates.

On July 2, 2018, the Company completed the IPO in which the Company issued and sold 24,495 shares of common stock. The shares sold in the offering were registered under the Securities Act pursuant to the Company’s Registration Statement on Form S-1 (File No. 333-225277) (the “Registration Statement”), which was declared effective by the SEC on June 27, 2018. The shares of the Company’s common stock were sold at an initial offering price of $22.00 per share, which generated net proceeds of approximately $501,172 to the Company, after deducting underwriting discounts and estimated offering expenses of approximately $37,717 which included $5,497 paid to KKR Capital Markets LLC (“KCM”), an affiliate of KKR, for underwriting services in connection with the IPO. The Company used the net proceeds from the IPO to repay all $110,000 of the Company’s second lien term loans, all $55,000 outstanding under the Company’s Revolving Credit Facility (as defined below) and approximately $336,100 of the Company’s first lien term loans and accrued and unpaid interest thereon. These repayments resulted in an extinguishment of debt in the amount of approximately $501,100, which will be recognized in the fourth quarter of 2018. The Company incurred $6,808 of transaction related expenses

during the nine months ended June 30, 2018, which are included in Selling, general and administrative expense in the accompanying Consolidated Statements of Operations, of which $5,370 was paid from the net proceeds generated by the IPO.

BrightView was party to a Monitoring Agreement, dated as of December 18, 2013 (the “Monitoring Agreement”), with KKR and MSD Partners (“MSD” and together with KKR, the “Sponsors”), which was terminated on July 2, 2018 in accordance with its terms upon the completion of the IPO. In connection with such termination, the Company paid termination fees of approximately $7,598 and $3,438 to KKR and MSD, respectively. Affiliates of KKR and MSD retained 55.9% and 13.0% ownership interest, respectively, in the Company after the IPO.

The Company’s Third Amended and Restated Certificate of Incorporation (the “Charter”) became effective in connection with the completion of the IPO on July 2, 2018. The Charter, among other things, provides that the Company’s authorized capital stock consists of 500,000 shares of common stock, and 50,000 shares of preferred stock, par value $0.01 per share. The Company’s bylaws were also amended and restated as of July 2, 2018.

In connection with preparing for the IPO, the Company’s Board of Directors approved a 2.33839-for-one reverse stock split of the Company’s common stock. The reverse stock split became effective June 8, 2018. The par value per share of common stock and authorized shares of common stock remain unchanged at $0.01 per share and 185 million shares, respectively. The accompanying consolidated financial statements and notes thereto give retroactive effect to the reverse stock split for all periods presented. All common share and per share amounts in the consolidated financial statements and notes have been retrospectively adjusted to give effect to the reverse stock split, including reclassifying an amount equal to the reduction in aggregate par value of ‘‘Common stock’’ to ‘‘Additional paid-in-capital’’ on the consolidated balance sheets.

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers, which was further updated in March and April 2016. The updated accounting guidance clarifies the principles for recognizing revenue and provides a single, contract-based revenue recognition model in order to create greater comparability for financial statement users across industries and jurisdictions. The core principle of the revenue model is that an entity recognizes revenue to depict the transfer of promised goods or services to clients in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The updated accounting guidance is effective for the Company as of October 1, 2018 and may be adopted using either a full retrospective or modified retrospective approach. The Company has completed its comprehensive contract review project and has developed an understanding of the potential adoption impact to the consolidated financial statements on a qualitative basis. The Company is in the process of finalizing its accounting policies, drafting the new disclosures, quantifying the potential financial adjustment and completing its evaluation of the impact of the accounting and disclosure requirements on its business processes, controls and systems. The Company has also made progress on evaluating the impact the ASU may have related to the timing and presentation of various financial aspects of its contractual arrangements, including performance obligations, application of the series guidance, costs to fulfill and commissions. The Company plans to adopt using the modified retrospective approach. The Company does not expect the adoption of ASU 2014-09 to have a material impact on its consolidated results of operations, financial positions and cash flows, but expects the adoption of this standard will increase the amount of required disclosures provided by the Company.

In February 2016, the FASB issued ASU No. 2016-02, Leases. The updated accounting guidance requires lessees to recognize all leases on their balance sheet as a right-of-use asset and a lease liability with the exception of short-term leases. For income statement purposes, the criteria for recognition, measurement and presentation of expense is largely similar to previous guidance, but without the requirement to use bright-line tests in the determination of lease classification. The updated accounting guidance for a lessor is largely unchanged from previous guidance but has been updated to align with certain changes to the lessee model and the new revenue recognition standard. The updated accounting guidance is effective for the Company as of October 1, 2019 and early adoption is permitted. The updated accounting guidance must be adopted using a modified retrospective approach for leases that exist or are entered into after the beginning of the earliest comparative period in the financial statements. The Company is currently evaluating the impact the updated accounting guidance will have on its consolidated financial statements.

In October 2016, the FASB issued ASU No. 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory. This guidance requires that an entity recognizes the income tax consequences of an intra-entity transfer of an asset other

than inventory when the transfer occurs. The guidance is effective for the Company as of October 1, 2018 and early adoption is permitted. The Company does not currently expect the adoption of ASU 2016-16 to have a material impact on its consolidated financial statements.

In February 2018, the FASB issued ASU No. 2018-02, Income Statement — Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. This guidance provides the option to reclassify the stranded tax effects caused by the newly enacted US Tax Cuts and Jobs Act (“Tax Act”) from accumulated other comprehensive income to retained earnings. The Company early adopted this guidance as of December 31, 2017, which impacted the Company’s consolidated statements of changes in stockholders’ equity only.

Accounts receivable of $343,565 and $330,173, is net of an allowance for doubtful accounts of $7,278 and $8,350 and includes amounts of retention on incomplete projects to be completed within one year of $37,432 and $39,678 at June 30, 2018 and September 30, 2017, respectively.

	Useful Life	June 30, 2018		September 30, 2017
Land	—	$	51,310	$	37,225
Buildings and leasehold improvements	2-40 yrs.		35,577		27,652
Operating equipment	3-7 yrs.		184,102		182,720
Transportation vehicles	3-7 yrs.		197,687		174,434
Office equipment and software	3-7 yrs.		60,554		47,042
Construction in progress	—		5,414		4,639
Property and equipment			534,644		473,712
Less: Accumulated depreciation			274,108		228,178
Property and equipment, net		$	260,536	$	245,534

Construction in progress includes costs incurred for software and other assets that have not yet been placed in service. Depreciation expense related to property and equipment was $17,839, $19,919, $56,642 and $60,740 for the three months ended June 30, 2018 and 2017 and the nine months ended June 30, 2018 and 2017, respectively.

Identifiable intangible assets consist of acquired customer contracts and relationships, trademarks and internally developed software. Amortization expense related to intangible assets was $89,611 and $94,800 for the nine months ended June 30, 2018 and 2017, respectively. These assets are amortized over their estimated useful lives which range from 6 to 21 years for customer relationships, and 4 to 12 years for trademarks. The Company continually evaluates the reasonableness of the useful lives of these assets.

Intangible assets as of June 30, 2018 and September 30, 2017 consisted of the following:

The following is a summary of the activity for the periods ended September 30, 2017 and June 30, 2018 for goodwill:

	June 30, 2018			September 30, 2017
First Lien term loans, net of original issue discount of $1,376 and $1,777 at June 30, 2018 and September 30, 2017, respectively (excluding the effect of the hedges)	$	1,371,549		$	1,382,098
Second Lien term loan, net of original issue discount of $597 and $706 at June 30, 2018 and September 30, 2017, respectively (excluding the effect of the hedges)		109,403			109,294
Revolving credit facility		55,000			—
Receivables financing agreement		150,000			133,750
Financing costs, net		(28,210	)		(35,660	)
Total debt, net		1,657,742			1,589,482
Less: Current portion of long-term debt		14,600			14,600
Long-term debt, net	$	1,643,142		$	1,574,882

See Note 1 “Business and Basis of Presentation” for further details regarding the completion of the Company’s IPO in July 2018. The Company used the net proceeds from the IPO to repay all $110,000 of the Company’s second lien term loans, all $55,000 outstanding under the Company’s Revolving Credit Facility and approximately $336,100 of the Company’s first lien term loans and accrued and unpaid interest thereon. The repayment resulted in an extinguishment of debt in the amount of approximately $501,100, which will be recognized in the fourth quarter of 2018.

In connection with the Acquisition, the Company and a group of financial institutions entered into a credit agreement (the “First Lien Credit Agreement”) dated December 18, 2013. The First Lien Credit Agreement consists of seven-year $1,460,000 term loans (“First Lien Term Loans”) and a five-year $210,000 revolving credit facility (the “Revolving Credit Facility”). An original discount of $3,675 was incurred when the notes were issued and is being amortized using the effective interest method over the life of the debt resulting in an effective yield of 4.0%. All amounts outstanding under the First Lien Credit Agreement are collateralized by substantially all of the assets of the Company. The First Lien Term Loans contractual debt repayments totaled $10,950 through the nine months ended June 30, 2018.

In December 2017, the Company amended the First Lien Credit Agreement. The amendment reduced the capacity of the Revolving Credit Facility to $200,357. The amendment also extended the term on $192,857 of the capacity to September 18, 2020. The term on the remaining $7,500 of the capacity remains December 18, 2018.

In May 2018, the Company borrowed $55,000 against the revolving credit facility and used the proceeds to acquire a business.

In June 2018, the Company amended the First Lien Credit Agreement. The amendment increased the capacity of the Revolving Credit Facility by $35,000 to $235,357.

In connection with the Acquisition, the Company and a group of financial institutions entered into a credit agreement (the “Second Lien Credit Agreement”) dated December 18, 2013. The Second Lien Credit Agreement consists of an eight-year $235,000 term loan (“Second Lien Term Loan”). An original discount of $1,175 was incurred when the notes were issued and is being amortized using the effective interest method over the life of the debt resulting in an effective yield of 7.5%. All amounts outstanding under the Second Lien Credit Agreement are collateralized by substantially all of the assets of the Company.

On April 28, 2017, the Company, through a wholly-owned subsidiary, entered into a receivables financing agreement (the “Receivables Financing Agreement”). The Receivables Financing Agreement provides a borrowing capacity of $175,000 through April 27, 2020. During May 2017, the Company borrowed $150,000 against the capacity and used the proceeds to partially pay down its First Lien Term Loans and Second Lien Term Loan. All amounts outstanding under the Receivables Financing Agreement are collateralized by substantially all of the accounts receivables and unbilled revenue of the Company. During the nine months ended June 30, 2018, the Company voluntarily repaid $53,750 and borrowed $70,000 against the capacity.

The following are the scheduled maturities of long-term debt, which do not include any estimated excess cash flow payments during the year ended:

The Company has estimated the fair value of its long-term debt to be approximately $1,690,159 and $1,633,802 as of June 30, 2018 and September 30, 2017, respectively. Fair value is based on market bid prices around period-end (Level 2 inputs).

Fair value is defined as the price at which an orderly transaction to sell an asset or to transfer a liability would take place between market participants at the measurement date under current market conditions (that is, an exit price at the measurement date from the perspective of a market participant that holds the asset or owes the liability).

The following hierarchy for inputs used in measuring fair value should maximize the use of observable inputs and minimize the use of unobservable inputs by requiring that the most observable inputs be used when available:

The carrying amounts shown for the Company’s cash and cash equivalents, restricted cash, accounts receivable and accounts payable approximate fair value due to the short-term maturity of those instruments. The valuation is based on settlements of similar financial instruments all of which are short-term in nature and are generally settled at or near cost.

The fair value of the investments held in the Rabbi Trust is based on the quoted market prices of the underlying mutual fund investments. These investments are based on the participants’ selected investments, which represent the underlying liabilities to the participants in the non-qualified deferred compensation plan.

The Company’s objective in entering into derivative transactions is to manage its exposure to interest rate movements associated with its variable rate debt and changes in fuel prices. The Company recognizes derivatives as either assets or liabilities on the balance sheet and measures those instruments at fair value. The fair values of the derivative financial instruments are determined using widely accepted valuation techniques including discounted cash flow analysis based on the expected cash flows of each derivative. The Company has determined that the significant inputs to the overall valuation of its derivatives, such as interest yield curve and discount rate, fall within Level 2 of the fair value hierarchy.

The following table summarizes the financial assets and liabilities measured at fair value on a recurring basis as of June 30, 2018 and September 30, 2017:

	June 30, 2018
	Carrying Value		Level 1		Level 2		Level 3
Other assets:
Investments held by Rabbi Trust	$	12,015	$	12,015	$	—	$	—
Total assets	$	12,015	$	12,015	$	—	$	—
Accrued expenses and other current liabilities:
Interest rate swap contracts	$	5,706	$	—	$	5,706	$	—
Other liabilities:
Interest rate swap contracts		12,868		—		12,868		—
Obligation to Rabbi Trust		12,015		12,015		—		—
Total liabilities	$	30,589	$	12,015	$	18,574	$	—

	September 30, 2017
	Carrying Value		Level 1		Level 2		Level 3
Other assets:
Investments held by Rabbi Trust	$	11,004	$	11,004	$	—	$	—
Total assets	$	11,004	$	11,004	$	—	$	—
Accrued expenses and other current liabilities:
Interest rate swap contracts	$	4,621	$	—	$	4,621	$	—
Fuel hedge contracts		50		—		50		—
Other liabilities:
Interest rate swap contracts		30,518		—		30,518		—
Obligation to Rabbi Trust		11,004		11,004		—		—
Total liabilities	$	46,193	$	11,004	$	35,189	$	—

As of June 30, 2018 and September 30, 2017, the Company’s outstanding derivatives qualify as cash flow hedges. The Company assesses whether derivatives used in hedging transactions are “highly effective” in offsetting changes in the cash flow of the hedged forecasted transactions. Regression analysis is used for the hedge relationships and high effectiveness is achieved when a statistically valid relationship reflects a high degree of offset and correlation between the fair values of the derivative and the hedged forecasted transaction. The effective portion of the changes in the fair value of the derivative is initially reported in Other comprehensive income and subsequently reclassified to Interest expense (interest rate contracts) and Cost of services provided (fuel hedge contracts) in the Consolidated Statements of Operations when the hedged item affects earnings. The ineffective portion of changes in the fair value of the derivative is recognized directly to Interest expense and Cost of services provided in the period incurred. If it is determined that a

derivative is not highly effective as a hedge, or if the hedged forecasted transaction is no longer probable of occurring, then the amount recognized in Accumulated other comprehensive loss is released to earnings. Cash flows from the derivatives are classified in the same category as the cash flows from the underlying hedged transaction.

The Company has exposures to variability in interest rates associated with both its First Lien Credit Agreement and Second Lien Credit Agreement. As such, the Company has entered into interest rate swaps to help manage interest rate exposure by economically converting a portion of its variable-rate debt to fixed-rate debt effective for the periods March 18, 2016 through December 31, 2020. The notional amount of interest rate contracts was $1,560,000 at June 30, 2018 and $2,180,000 at September 30, 2017. The net deferred losses on the interest rate swaps as of June 30, 2018 of $5,689, net of taxes, are expected to be recognized in interest expense over the next 12 months.

Subsequent to the nine months ended June 30, 2018, the Company used proceeds in connection with the IPO to reduce outstanding debt. This event did not have a material impact on the hedge position for the nine months ended June 30, 2018 and is not expected to have an impact on the hedge position for the remainder of fiscal 2018. See Note 1 “Business and Basis of Presentation” for additional details on transactions in connection with the IPO.

The effects on the consolidated financial statements of the interest rate swaps which were designated as cash flow hedges were as follows:

Delaware	46-4190788
( State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
401 Plymouth Road Suite 500 Plymouth Meeting, Pennsylvania	19462
(Address of principal executive offices)	(Zip Code)

		Page
PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)	1
	Consolidated Balance Sheets	1
	Consolidated Statements of Operations	2
	Consolidated Statements of Comprehensive Income (Loss)	3
	Consolidated Statements of Stockholders’ Equity	4
	Consolidated Statements of Cash Flows	5
	Notes to Unaudited Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	17
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	31
Item 4.	Controls and Procedures	31
PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings	32
Item 1A.	Risk Factors	32
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	32
Item 3.	Defaults Upon Senior Securities	32
Item 4.	Mine Safety Disclosures	32
Item 5.	Other Information	32
Item 6.	Exhibits	33
Signatures		34

	June 30, 2018		September 30, 2017
Finished products	$	5,025	$	8,121
Semi-finished products		7,690		7,171
Raw materials and supplies		8,316		9,662
Inventories	$	21,031	$	24,954

	June 30, 2018					September 30, 2017
	Gross Carrying Amount		Accumulated Amortization			Gross Carrying Amount		Accumulated Amortization
Customer relationships	$	624,530	$	(322,702	)	$	600,515	$	(275,993	)
Trademarks		230,900		(227,441	)		230,900		(184,151	)
Total intangible assets	$	855,430	$	(550,143	)	$	831,415	$	(460,144	)

	Maintenance Services		Development Services		Total
Balance, January 1, 2017	$	1,486,640	$	180,474	$	1,667,114
Acquisitions		36,659		—		36,659
Balance, September 30, 2017		1,523,299		180,474		1,703,773
Acquisitions		54,525		13,924		68,449
Balance, June 30, 2018	$	1,577,824	$	194,398	$	1,772,222

	June 30,
2019	$	58,650
2020		14,600
2021		164,600
2022		1,450,075
2023		—
Total long-term debt		1,687,925
Less: Current maturities		14,600
Less: Original issue discount		1,973
Less: Financing costs		28,210
Total long-term debt, net	$	1,643,142