bv-10q_20181231.htm

Large accelerated filer

Accelerated filer

Non-accelerated filer

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 every Interactive Data File required to be submitted 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 such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a 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 January 31, 2019, the registrant had 104,961,720 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 “Item 1A. Risk Factors” in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2018, 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 Form 10-Q apply only as of the date made and are expressly qualified in their entirety by the cautionary statements included in this Form 10-Q. 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.

	December 31, 2018			September 30, 2018
Assets
Current assets:
Cash and cash equivalents	$	17,713		$	35,224
Accounts receivable, net		298,139			317,056
Unbilled revenue		93,222			99,876
Inventories		25,161			23,830
Other current assets		58,218			55,179
Total current assets		492,453			531,165
Property and equipment, net		255,430			256,806
Intangible assets, net		275,285			290,455
Goodwill		1,769,212			1,766,761
Other assets		44,518			46,711
Total assets	$	2,836,898		$	2,891,898
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	81,143		$	93,603
Current portion of long-term debt		10,370			12,963
Deferred revenue		77,363			72,476
Current portion of self-insurance reserves		43,948			34,537
Accrued expenses and other current liabilities		85,404			117,891
Total current liabilities		298,228			331,470
Long-term debt, net		1,139,636			1,141,279
Deferred tax liabilities		62,631			67,219
Self-insurance reserves		82,444			93,400
Other liabilities		33,133			31,203
Total liabilities		1,616,072			1,664,571
Stockholders’ equity:
Preferred stock, $0.01 par value; 50,000 shares authorized; no shares issued or outstanding as of December 31, 2018 and September 30, 2018		—			—
Common stock, $0.01 par value; 500,000 shares authorized; 104,962 and 104,470 shares issued and outstanding as of December 31, 2018 and September 30, 2018, respectively		1,050			1,045
Additional paid-in-capital		1,432,247			1,426,344
Accumulated deficit		(199,555	)		(189,636	)
Accumulated other comprehensive loss		(12,916	)		(10,426	)
Total stockholders’ equity		1,220,826			1,227,327
Total liabilities and stockholders’ equity	$	2,836,898		$	2,891,898

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

	Three Months Ended December 31,
	2018			2017
Net service revenues	$	526,013		$	551,089
Cost of services provided		394,125			408,539
Gross profit		131,888			142,550
Selling, general and administrative expense		110,143			119,775
Amortization expense		15,130			31,046
Income (loss) from operations		6,615			(8,271	)
Other (expense) income		(1,453	)		969
Interest expense		17,124			24,913
Loss before income taxes		(11,962	)		(32,215	)
Income tax benefit		3,135			51,539
Net (loss) income	$	(8,827	)	$	19,324
(Loss) earnings per share:
Basic and diluted	$	(0.09	)	$	0.25

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

	Common Stock						Additional Paid-In Capital			Accumulated Deficit			Accumulated Other Comprehensive Loss			Total Stockholders’ Equity
	Shares			Amount
Balance, September 30, 2017		77,083		$	771		$	894,089		$	(178,015	)	$	(20,584	)	$	696,261
Net loss		—			—			—			(15,087	)		—			(15,087	)
Other comprehensive income, net of tax		—			—			—			—			13,624			13,624
Capital contributions and issuance of common stock		27,497			276			506,380			—			—			506,656
Equity-based compensation		—			—			28,795			—			—			28,795
Repurchase of common stock and distributions		(110	)		(2	)		(2,920	)		—			—			(2,922	)
Reclassification of effects of tax reform enactment		—			—			—			3,466			(3,466	)		—
Balance, September 30, 2018		104,470		$	1,045		$	1,426,344		$	(189,636	)	$	(10,426	)	$	1,227,327
Net loss		—			—			—			(8,827	)		—			(8,827	)
Other comprehensive loss, net of tax		—			—			—			—			(2,490	)		(2,490	)
Capital contributions and issuance of common stock		492			5			(5	)		—						—
Equity-based compensation		—			—			5,908			—			—			5,908
Adoption of ASU No. 2014-09 (refer to Note 2)		—			—			—			(1,092	)		—			(1,092	)
Balance, December 31, 2018		104,962		$	1,050		$	1,432,247		$	(199,555	)	$	(12,916	)	$	1,220,826

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

	Three Months Ended December 31,
	2018			2017
Cash flows from operating activities:
Net (loss) income	$	(8,827	)	$	19,324
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depreciation		19,281			21,072
Amortization of intangible assets		15,130			31,046
Amortization of financing costs and original issue discount		949			2,653
Deferred taxes		(3,757	)		(52,632	)
Equity-based compensation		5,908			1,526
Hedge ineffectiveness and realized (loss) gain		(31	)		1,495
Provision for doubtful accounts		910			230
Other non-cash activities, net		(724	)		3,067
Change in operating assets and liabilities:
Accounts receivable		18,310			31,024
Unbilled and deferred revenue		9,642			9,573
Inventories		(1,193	)		1,532
Other operating assets		(491	)		(16,016	)
Accounts payable and other operating liabilities		(48,663	)		28,624
Net cash provided by operating activities		6,444			82,518
Cash flows from investing activities:
Purchase of property and equipment		(17,328	)		(29,788	)
Proceeds from sale of property and equipment		1,790			654
Business acquisitions, net of cash acquired		(1,894	)		(3,236	)
Other investing activities, net		143			(332	)
Net cash used in investing activities		(17,289	)		(32,702	)
Cash flows from financing activities:
Repayments of capital lease obligations		(1,481	)		(1,212	)
Repayments of debt		(5,185	)		(7,543	)
Proceeds from receivables financing agreement		—			20,000
Repurchase of common stock and distributions		—			(472	)
Proceeds from issuance of common stock		—			99
Net cash (used in) provided by financing activities		(6,666	)		10,872
Net change in cash and cash equivalents		(17,511	)		60,688
Cash and cash equivalents, beginning of period		35,224			12,779
Cash and cash equivalents, end of period	$	17,713		$	73,467

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

BrightView Holdings, Inc. (the “Company” and, collectively with its consolidated subsidiaries, “BrightView”) 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. Prior to its initial public offering completed in July 2018 (the “IPO”), 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 KKR Acquisition”). The Parent was dissolved in August 2018 following the IPO.

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, 2018, presented herein, has been derived from the Company’s audited consolidated financial statements as of and for the fiscal year ended September 30, 2018, but does not include all disclosures required by GAAP for annual financial statements. For a more complete discussion of the Company’s accounting policies and certain other information refer to the audited consolidated financial statements and the notes thereto included in the Company’s annual report on Form 10-K for the fiscal year ended September 30, 2018, filed with the Securities and Exchange Commission (“SEC”).

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 was recognized in the fourth quarter of fiscal 2018.

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, during the fourth quarter of fiscal 2018, 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 immediately 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. The accompanying consolidated financial statements and notes thereto give retroactive effect to the reverse stock split for all periods presented.

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard 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 Company adopted the guidance in the first quarter of fiscal 2019 using the modified retrospective approach transition method.

The Company concluded that is has substantially similar performance obligations under the amended guidance as compared with deliverables previously recognized. Additionally, the Company made policy elections within the amended standards that are consistent with current accounting policies. The adoption of ASU 2014-09 has an immaterial impact on the timing of revenue recognition and did not have a significant impact on the Company’s consolidated financial statements. The Company recognized the cumulative effect of adopting the new standard as an adjustment to the opening balance of retained earnings resulting in an increase in the Accumulated deficit of $1,092. The additional revenue recognition disclosures required by the amended standard are presented in Note 3 “Revenue”. The comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods.

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 Company adopted the guidance in the first quarter of fiscal 2019. The adoption of ASU No. 2016-16 did not have a material impact on the Company’s consolidated financial statements.

In August 2017, the FASB issued ASU No. 2017-12, Targeted Improvements to Accounting for Hedging Activities which amends and simplifies existing guidance to allow companies to more accurately present the economic effects of risk management activities in the financial statements. The amendments in this ASU are effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted. For cash flow and net investment hedges as of the adoption date, the guidance requires a modified retrospective approach. The amended presentation and disclosure guidance is required only prospectively. The Company adopted the guidance in the first quarter of fiscal 2019. The adoption of ASU 2017-12 did not have a material impact on the Company’s consolidated financial statements.

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. In July 2018, the FASB issued ASU No. 2018-11, Leases: Targeted Improvements, which

allows entities the option to adopt this standard prospectively with a cumulative-effect adjustment to opening equity and include required disclosures for prior period. The Company is currently evaluating the impact the updated accounting guidance will have on its consolidated financial statements and anticipates adopting the standard prospectively, in accordance with ASU No. 2018-11.

In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement which modifies the disclosures on fair value measurements by removing the requirement to disclose the amount and reason for transfers between Level 1 and Level 2 of the fair value hierarchy and the policy for timing of such transfers. The ASU expands the disclosure requirements for Level 3 fair value measurements, primarily focused on changes in unrealized gains and losses included in other comprehensive income. For public entities, the standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted for any removed or modified disclosures and adoption of the additional disclosures can be delayed until the effective date. The Company does not currently expect the adoption of ASU 2018-13 to have a material impact on its consolidated financial statements.

The Company’s revenue is generated from Maintenance Services and Development Services. The Company generally recognizes revenue from the sale of services as the services are performed, typically ratably over the term of the contract(s), which the Company believes to be the best measure of progress. The Company recognizes revenues as it transfers control of products and services to its customers. The Company recognizes revenue in an amount reflecting the total consideration it expects to receive from the customer. Revenue is recognized according to the following five step model: (1) identify the contract with a customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract, and (5) recognize revenues when a performance obligation is satisfied. The Company determined that for contracts containing multiple performance obligations, stand-alone selling price is readily determinable for each performance obligation and therefore allocation of the transaction price to multiple performance obligations is not necessary. The transaction price will include estimates of variable consideration, such as returns and provisions for doubtful accounts and sales incentives, to the extent it is probable that a significant reversal of revenue recognized will not occur. In all cases, when a sale is recorded by the Company, no significant uncertainty exists surrounding the purchaser’s obligation to pay.

The Company’s Maintenance Services revenues are generated primarily through landscape maintenance services and snow removal services. Landscape maintenance services that are primarily viewed as non-discretionary, such as lawn care, mowing, gardening, mulching, leaf removal, irrigation and tree care, are provided under recurring annual contracts, which typically range from one to three years in duration and are generally cancellable by the customer with 30 days’ notice. Snow removal services are provided on either fixed fee based contracts or per occurrence contracts. Both landscape maintenance services and snow removal services can also include enhancement services that represent supplemental maintenance or improvement services generally provided under contracts of short duration related to specific services. Revenue for landscape maintenance and snow removal services under fixed fee models is recognized over time using an output based method. Additionally, a portion of the Company’s recurring fixed fee landscape maintenance and snow removal services are recorded under the series guidance. The right to invoice practical expedient, defined below, is generally applied to revenue related to landscape maintenance and snow removal services performed in relation to per occurrence contracts as well as enhancement services. When use of the practical expedient is not appropriate for these contracts, revenue is recognized using a cost-to-cost input method. Fees for contracted landscape maintenance services are typically billed on an equal monthly basis. Fees for fixed fee snow removal services are typically billed on an equal monthly basis during snow season, while fees for time and material or other activity-based snow removal services are typically billed as the services are performed. Fees for enhancement services are typically billed as the services are performed.

For Development Services, revenue is primarily recognized over time using the cost-to-cost method, measured by the percentage of cost incurred to date to the estimated total cost for each contract, which we believe to be the best measure of progress. The full amount of anticipated losses on contracts is recorded as soon as such losses can be estimated. These losses have been immaterial in prior periods. Changes in job performance, job conditions, and estimated profitability, including final contract settlements, may result in revisions to costs and revenue and are recognized in the period in which the revisions are determined.

The following table presents the Company’s reportable segment revenues, disaggregated by revenue type. The Company disaggregates revenue from contracts with customers into major services lines. The Company has determined that disaggregating revenue into these categories achieves the disclosure objective to depict how the nature, amount, timing, and uncertainty of revenue and cash flows are affected by economic factors. As noted in the business segment reporting information in Note 13 “Segments”, the Company’s reportable segments are Maintenance Services and Development Services. Revenues shown for fiscal 2018 are in accordance with ASC 605, Revenue Recognition.

Remaining performance obligations represent the estimated revenue expected to be recognized in the future related to performance obligations which are fully or partially unsatisfied at the end of the period.

As of December 31, 2018, the estimated future revenues for remaining performance obligations that are part of a contract that has an original expected duration of greater than one year was approximately $248,766. The Company expects to recognize revenue on 76% of the remaining performance obligations over the next 12 months and an additional 24% over the 12 months thereafter.

In accordance with the disclosure provisions of ASU 2014-09, the paragraph above excludes the following, i) estimated future revenues for performance obligations that are part of a contract that has an original expected duration of one year or less, ii) contracts with variable consideration that is allocated entirely to unsatisfied performance obligations or to a wholly unsatisfied promise accounted for under the series guidance, iii) contracts for which we recognize revenue at the amount to which we have the right to invoice for services performed.

When a contract results in revenue being recognized in excess of the amount the Company has invoiced or has the right to invoice to the customer, a contract asset is recognized. Contract assets are transferred to accounts receivable, net when the rights to the consideration become unconditional. Contract assets are presented as Unbilled revenue on the consolidated balance sheets.

Contract liabilities consist of payments received from customers, or such consideration that is contractually due, in advance of providing the product or performing services such that control has not passed to the customer. Contract liabilities are presented as Deferred revenue on the consolidated balance sheets.

The following table provides information about unbilled revenue and deferred revenue from contracts with customers:

Changes in deferred revenue for the three months ended December 31, 2018 were as follows:

There were $44,213 of amounts billed during the period and $37,559 of additions to our unbilled revenue balance during the three month period from October 1, 2018 to December 31, 2018.

The Company offers certain interest-free contracts to customers where payments are received over a period not exceeding one year. Additionally, certain Maintenance Services and Development Services customers may pay in advance for services. The Company does not adjust the promised amount of consideration for the effects of these financing components. At contract inception, the period of time between the performance of services and the customer payment is one year or less.

As permitted under the practical expedient available under ASU No. 2014-09, the Company does not disclose the value of unsatisfied performance obligations for (i) contracts with an original expected length of one year or less, (ii) contracts with variable consideration that is allocated entirely to unsatisfied performance obligations or to a wholly unsatisfied promise accounted for under the series guidance, and (iii) contracts for which the Company recognizes revenue at the amount which we have the right to invoice for services performed.

The Company utilizes the right to invoice practical expedient for services performed on a per occurrence basis for land maintenance and snow removal services. This simplifies the recognition of revenue for entities when the amount invoiced to a customer directly corresponds with the value transferred to the customer.

The Company elected to apply the revenue standard only to contracts that are not completed as of the date of initial application.

Accounts receivable of $298,139 and $317,056, is net of an allowance for doubtful accounts of $6,373 and $5,629 and includes amounts of retention on incomplete projects to be completed within one year of $39,028 and $40,215 at December 31, 2018 and September 30, 2018, respectively.

	Useful Life	December 31, 2018		September 30, 2018
Land	—	$	52,696	$	51,490
Buildings and leasehold improvements	2-40 yrs.		37,403		36,275
Operating equipment	2-7 yrs.		189,897		186,499
Transportation vehicles	3-7 yrs.		216,136		208,371
Office equipment and software	3-10 yrs.		55,433		57,976
Construction in progress	—		5,377		4,202
Property and equipment			556,942		544,813
Less: Accumulated depreciation			301,512		288,007
Property and equipment, net		$	255,430	$	256,806

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 $19,281 and $21,072 for the three months ended December 31, 2018 and 2017, respectively.

Identifiable intangible assets consist of acquired customer contracts and relationships, trademarks and non-compete agreements. Amortization expense related to intangible assets was $15,130 and $31,046 for the three months ended December 31, 2018 and 2017, respectively. These assets are amortized over their estimated useful lives of which the reasonableness is continually evaluated by the Company.

Intangible assets as of December 31, 2018 and September 30, 2018 consisted of the following:

		December 31, 2018					September 30, 2018
	Estimated Useful Life	Gross Carrying Amount		Accumulated Amortization			Gross Carrying Amount		Accumulated Amortization
Customer relationships	6-21 yrs.	$	622,670	$	(352,743	)	$	622,710	$	(337,800	)
Trademarks	12 yrs.		4,800		(1,499	)		230,900		(227,520	)
Non-compete agreements	5 yrs.		2,320		(263	)		2,320		(155	)
Total intangible assets		$	629,790	$	(354,505	)	$	855,930	$	(565,475	)

The following is a summary of the activity for the periods ended September 30, 2018 and December 31, 2018 for goodwill:

In connection with the KKR Acquisition, the Company and a group of financial institutions entered into a credit agreement (the “Credit Agreement”) dated December 18, 2013. The Credit Agreement consisted of seven-year $1,460,000 term loans (“First Lien Term Loans”) and a five-year $210,000 revolving credit facility. All amounts outstanding under the Credit Agreement were collateralized by substantially all of the assets of the Company. Debt repayments for the First Lien Term Loans totaled $347,050 for the year ended September 30, 2018 and consisted of $10,950 in contractual repayments per the Credit Agreement and $336,100 in voluntary repayments in connection with the IPO.

On August 15, 2018, the Company entered into Amendment No. 5 to the Credit Agreement (the “Amended Credit Agreement”). Under the terms of the Amended Credit Agreement, the Credit Agreement was amended to provide for: (i) a $1,037,000 seven-year term loan (the “Series B Term Loan”) and (ii) a $260,000 five-year revolving credit facility. The Company used the net proceeds from the Series B Term Loan to repay all amounts outstanding under the Company’s First Lien Term Loans. An original discount of $2,775 was incurred when the Series B Term Loan was issued and is being amortized using the effective interest method over the life of the debt, resulting in an effective yield of 2.5%. Debt repayments for the Series B Term Loan consisted of contractual payments per the Credit Agreement and totaled $5,185 for the three months ended December 31, 2018.

The Company has a five-year $260,000 revolving credit facility (the “Revolving Credit Facility”) that matures on August 15, 2023 and bears interest at a rate per annum of LIBOR plus a margin ranging from 2.00% to 2.50%, with the margin determined based on the Company’s first lien net leverage ratio. The Revolving Credit Facility replaces the previous $210,000 revolving credit facility under the Credit Agreement. The Company had no outstanding balance under the Revolving Credit Facility as of December 31, 2018 and September 30, 2018. There were no borrowings under the facility for the three months ended December 31, 2018.

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. 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 three months ended December 31, 2018, there was no activity under the Receivables Financing Agreement. During the three months ended December 31, 2017, the Company borrowed $20,000 against the capacity and voluntarily repaid $3,750.

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

The Company has estimated the fair value of its long-term debt to be approximately $1,122,803 and $1,182,152 as of December 31, 2018 and September 30, 2018, 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.

A non-qualified deferred compensation plan is available to certain executives. Under this plan, participants may elect to defer up to 70% of their compensation. The Company invests the deferrals in participant-selected diversified investments that are held in a Rabbi Trust and which are classified within Other assets on the consolidated balance sheets. 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. Although the Company has determined that the significant inputs, such as interest yield curve and discount rate, used to value its derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with the Company’s counterparties and its own credit risk utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of

default by itself and its counterparties. However, as of December 31, 2018 and September 30, 2018, the Company has assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions and has determined that the credit valuation adjustments were not significant to the overall valuation of its derivatives. As a result, the Company has determined that its derivative valuations in their entirety are classified in Level 2 of the fair value hierarchy.

The following tables summarize the financial assets and liabilities measured at fair value on a recurring basis as of December 31, 2018 and September 30, 2018:

	December 31, 2018
	Carrying Value		Level 1		Level 2		Level 3
Other assets:
Investments held by Rabbi Trust	$	10,935	$	10,935	$	—	$	—
Total assets	$	10,935	$	10,935	$	—	$	—
Accrued expenses and other current liabilities:
Interest rate swap contracts	$	1,780	$	—	$	1,780	$	—
Other liabilities:
Interest rate swap contracts		16,199		—		16,199		—
Obligation to Rabbi Trust		10,935		10,935		—		—
Total liabilities	$	28,914	$	10,935	$	17,979	$	—

	September 30, 2018
	Carrying Value		Level 1		Level 2		Level 3
Other assets:
Investments held by Rabbi Trust	$	12,517	$	12,517	$	—	$	—
Total assets	$	12,517	$	12,517	$	—	$	—
Accrued expenses and other current liabilities:
Interest rate swap contracts	$	3,441	$	—	$	3,441	$	—
Other liabilities:
Interest rate swap contracts		12,098		—		12,098		—
Obligation to Rabbi Trust		12,517		12,517		—		—
Total liabilities	$	28,056	$	12,517	$	15,539	$	—

As of December 31, 2018 and September 30, 2018, 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. 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 its variable interest rate debt. 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 December 31, 2018 and September 30, 2018. The net deferred losses on the interest rate swaps as of December 31, 2018 of $6,310, net of taxes, are expected to be recognized in interest expense over the next 12 months.

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

The Company operates a large fleet of vehicles and mowers and has entered into gasoline and diesel hedge contracts in an effort to reduce its exposure to volatility in the fuel markets. As of December 31, 2018, the Company has one outstanding fuel contract covering the period January 1, 2019 to December 31, 2019 with a notional amount of 5,000 gallons. The impact of this contract was immaterial to the consolidated financial statements for the period.

The following table summarizes the Company’s income tax benefit and effective income tax rate for the three month periods ended December 31, 2018 and 2017.

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 (Loss) Income	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	19
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

	Three Months Ended December 31,
	2018			2017
Net (loss) income	$	(8,827	)	$	19,324
Net derivative (losses) gains arising during the period, net of tax of $(1,135) and $1,164, respectively		(3,022	)		1,760
Reclassification of gains into net (loss) income, net of tax of $304 and $1,035, respectively		532			1,565
Other comprehensive (loss) income		(2,490	)		3,325
Comprehensive (loss) income	$	(11,317	)	$	22,649

	Three Months Ended December 31,
	2018			2017
Landscape Maintenance	$	344,562		$	353,104
Snow Removal		47,971			53,586
Maintenance Services		392,533			406,690
Development Services		134,396			145,223
Eliminations		(916	)		(824	)
Net service revenues	$	526,013		$	551,089

	Deferred Revenue
Balance, October 1, 2018	$	72,476
Deferral of revenue		(224,128	)
Recognition of revenue		229,015
Balance, December 31, 2018	$	77,363

	December 31, 2018		September 30, 2018
Finished products	$	7,334	$	6,913
Semi-finished products		8,504		8,580
Raw materials and supplies		9,323		8,337
Inventories	$	25,161	$	23,830

	Maintenance Services		Development Services		Total
Balance, September 30, 2017	$	1,523,299	$	180,474	$	1,703,773
Acquisitions		49,064		13,924		62,988
Balance, September 30, 2018		1,572,363		194,398		1,766,761
Acquisitions		2,451		—		2,451
Balance, December 31, 2018	$	1,574,814	$	194,398	$	1,769,212

	December 31, 2018			September 30, 2018
Series B term loan, net of original issue discount of $2,618 and $2,712 at December 31, 2018 and September 30, 2018, respectively (excluding the effect of the hedges)	$	1,029,196		$	1,034,288
Receivables financing agreement		140,000			140,000
Financing costs, net		(19,190	)		(20,046	)
Total debt, net		1,150,006			1,154,242
Less: Current portion of long-term debt		10,370			12,963
Long-term debt, net	$	1,139,636			1,141,279

	December 31,
2019	$	10,370
2020		10,370
2021		10,370
2022		150,370
2023 and thereafter		990,334
Total long-term debt		1,171,814
Less: Current maturities		10,370
Less: Original issue discount		2,618
Less: Financing costs		19,190
Total long-term debt, net	$	1,139,636