bv-10q_20190331.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 April 30, 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.

	March 31, 2019			September 30, 2018
Assets
Current assets:
Cash and cash equivalents	$	11,241		$	35,224
Accounts receivable, net		353,090			317,056
Unbilled revenue		93,766			99,876
Inventories		24,473			23,830
Other current assets		52,502			55,179
Total current assets		535,072			531,165
Property and equipment, net		266,668			256,806
Intangible assets, net		274,621			290,455
Goodwill		1,799,209			1,766,761
Other assets		43,040			46,711
Total assets	$	2,918,610		$	2,891,898
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	94,607		$	93,603
Current portion of long-term debt		10,370			12,963
Deferred revenue		100,120			72,476
Current portion of self-insurance reserves		42,855			34,537
Accrued expenses and other current liabilities		130,207			117,891
Total current liabilities		378,159			331,470
Long-term debt, net		1,147,469			1,141,279
Deferred tax liabilities		59,226			67,219
Self-insurance reserves		84,010			93,400
Other liabilities		25,782			31,203
Total liabilities		1,694,646			1,664,571
Stockholders’ equity:
Preferred stock, $0.01 par value; 50,000 shares authorized; no shares issued or outstanding as of March 31, 2019 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 March 31, 2019 and September 30, 2018, respectively		1,050			1,045
Additional paid-in-capital		1,437,859			1,426,344
Accumulated deficit		(203,161	)		(189,636	)
Accumulated other comprehensive loss		(11,784	)		(10,426	)
Total stockholders’ equity		1,223,964			1,227,327
Total liabilities and stockholders’ equity	$	2,918,610		$	2,891,898

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

	Three Months Ended March 31,						Six Months Ended March 31,
	2019			2018			2019			2018
Net service revenues	$	596,637		$	590,382		$	1,122,650		$	1,141,471
Cost of services provided		450,569			448,149			844,694			856,688
Gross profit		146,068			142,233			277,956			284,783
Selling, general and administrative expense		119,413			117,817			229,555			237,592
Amortization expense		13,807			29,318			28,938			60,364
Income (loss) from operations		12,848			(4,902	)		19,463			(13,173	)
Other income (expense)		1,176			49			(278	)		1,018
Interest expense		18,945			25,069			36,069			49,982
Loss before income taxes		(4,921	)		(29,922	)		(16,884	)		(62,137	)
Income tax benefit		1,315			7,858			4,451			59,397
Net loss	$	(3,606	)	$	(22,064	)	$	(12,433	)	$	(2,740	)
Loss per share:
Basic and diluted	$	(0.04	)	$	(0.29	)	$	(0.12	)	$	(0.04	)

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, December 31, 2018		104,962		$	1,050		$	1,432,247		$	(199,555	)	$	(12,916	)	$	1,220,826
Net loss		—			—			—			(3,606	)		—			(3,606	)
Other comprehensive income, net of tax		—			—			—			—			1,132			1,132
Equity-based compensation		—			—			5,612			—			—			5,612
Balance, March 31, 2019		104,962		$	1,050		$	1,437,859		$	(203,161	)	$	(11,784	)	$	1,223,964

Balance, September 30, 2018		104,470		$	1,045		$	1,426,344		$	(189,636	)	$	(10,426	)	$	1,227,327
Net loss		—			—			—			(12,433	)		—			(12,433	)
Other comprehensive loss, net of tax		—			—			—			—			(1,358	)		(1,358	)
Capital contributions and issuance of common stock		492			5			(4	)		—			—			1
Equity-based compensation		—			—			11,519			—			—			11,519
Adoption of ASU No. 2014-09 (Refer to Note 2)		—			—			—			(1,092	)		—			(1,092	)
Balance, March 31, 2019		104,962		$	1,050		$	1,437,859		$	(203,161	)	$	(11,784	)	$	1,223,964

	Common Stock						Additional Paid-In Capital			Accumulated Deficit			Accumulated Other Comprehensive Loss			Total Stockholders’ Equity
	Shares			Amount
Balance, December 31, 2017		77,065		$	771		$	895,242		$	(155,225	)	$	(20,725	)	$	720,063
Net loss		—			—			—			(22,064	)		—			(22,064	)
Other comprehensive income, net of tax		—			—			—			—			4,671			4,671
Capital contributions and issuance of common stock		6			—			—			—			—			—
Equity-based compensation		—			—			4,276			—			—			4,276
Repurchase of common stock and distributions		(86	)		(1	)		(2,331	)		—			—			(2,332	)
Balance, March 31, 2018		76,985		$	770		$	897,187		$	(177,289	)	$	(16,054	)	$	704,614

Balance, September 30, 2017		77,083		$	771		$	894,089		$	(178,015	)	$	(20,584	)	$	696,261
Net loss		—			—			—			(2,740	)		—			(2,740	)
Other comprehensive income, net of tax		—			—			—			—			7,996			7,996
Capital contributions and issuance of common stock		12			—			99			—			—			99
Equity-based compensation		—			—			5,802			—			—			5,802
Repurchase of common stock and distributions		(110	)		(1	)		(2,803	)		—			—			(2,804	)
Reclassification of effects of tax reform enactment		—			—			—			3,466			(3,466	)		—
Balance, March 31, 2018		76,985		$	770		$	897,187		$	(177,289	)	$	(16,054	)	$	704,614

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

	Six Months Ended March 31,
	2019			2018
Cash flows from operating activities:
Net loss	$	(12,433	)	$	(2,740	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation		40,968			38,803
Amortization of intangible assets		28,938			60,364
Amortization of financing costs and original issue discount		1,876			5,338
Deferred taxes		(7,567	)		(59,900	)
Equity-based compensation		11,519			5,802
Hedge ineffectiveness and realized gain		678			4,823
Provision for doubtful accounts		991			684
Other non-cash activities, net		(920	)		3,734
Change in operating assets and liabilities:
Accounts receivable		(33,546	)		(300	)
Unbilled and deferred revenue		31,855			18,635
Inventories		(768	)		2,904
Other operating assets		3,962			(4,472	)
Accounts payable and other operating liabilities		(837	)		5,546
Net cash provided by operating activities		64,716			79,221
Cash flows from investing activities:
Purchase of property and equipment		(42,610	)		(44,095	)
Proceeds from sale of property and equipment		2,995			1,477
Business acquisitions, net of cash acquired		(49,333	)		(44,743	)
Other investing activities, net		1,270			(366	)
Net cash used in investing activities		(87,678	)		(87,727	)
Cash flows from financing activities:
Repayments of capital lease obligations		(2,800	)		(3,182	)
Repayments of debt		(92,778	)		(46,167	)
Proceeds from receivables financing agreement, net of financing costs		84,557			55,000
Proceeds from revolving credit facility		10,000			—
Repurchase of common stock and distributions		—			(475	)
Proceeds from issuance of common stock		—			99
Net cash (used in) provided by financing activities		(1,021	)		5,275
Net change in cash and cash equivalents		(23,983	)		(3,231	)
Cash and cash equivalents, beginning of period		35,224			12,779
Cash and cash equivalents, end of period	$	11,241		$	9,548

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. 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 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 using the modified retrospective transition method and include required disclosures for prior period.

The Company is in the process of reviewing its leasing arrangements in order to determine the impact the new guidance will have on its accounting, financial statement presentation and disclosure and to compare its accounting policies and practices to the requirements of the new standard. The Company is also evaluating any system, control and process changes to capture lease data necessary to apply the new standard. The Company anticipates an increase in lease-related assets and liabilities on its consolidated balance sheets as a result of recognition of most operating leases, and anticipates adopting the standard using the modified retrospective transition method, 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 and disclosures due to the nature and materiality of the Company’s financial assets and liabilities.

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 March 31, 2019, 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 $292,034. The Company expects to recognize revenue on 65% of the remaining performance obligations over the next 12 months and an additional 35% 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 and 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.

Changes in deferred revenue for the six month period ended March 31, 2019 were as follows:

There were $79,716 of amounts billed during the period and $73,606 of additions to our unbilled revenue balance during the six month period from October 1, 2018 to March 31, 2019.

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 $353,090 and $317,056, is net of an allowance for doubtful accounts of $6,566 and $5,629 and includes amounts of retention on incomplete projects to be completed within one year of $39,322 and $40,215 at March 31, 2019 and September 30, 2018, respectively.

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 $21,687 and $17,731 for the three months ended March 31, 2019 and 2018, respectively. Depreciation expense related to property and equipment was $40,968 and $38,803 for the six months ended March 31, 2019 and 2018, respectively.

Identifiable intangible assets consist of acquired customer contracts and relationships, trademarks and non-compete agreements. Amortization expense related to intangible assets was $13,807 and $29,318 for the three months ended March 31, 2019 and 2018, respectively. Amortization expense related to intangible assets was $28,938 and $60,364 for the six months ended March 31, 2019 and 2018, respectively. These assets are amortized over their estimated useful lives of which the reasonableness is continually evaluated by the Company.

Intangible assets as of March 31, 2019 and September 30, 2018 consisted of the following:

The following is a summary of the activity for the periods ended September 30, 2018 and March 31, 2019 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 $7,778 for the six month period ended March 31, 2019.

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 March 31, 2019 and September 30, 2018. During the six months ended March 31, 2019, the Company borrowed and fully repaid $10,000 against the revolving credit facility.

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 provided a borrowing capacity of $175,000 through April 27, 2020. On February 21, 2019, the Company entered into the First Amendment to the Receivables Financing Agreement (the "Amendment Agreement") which increased the borrowing capacity to $200,000 and extended the term through February 20, 2022. 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 six months ended March 31, 2019, the Company borrowed $85,000 against the capacity and voluntarily repaid $75,000.

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 $1,172,789 and $1,182,152 as of March 31, 2019 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 March 31, 2019 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 March 31, 2019 and September 30, 2018:

	March 31, 2019
	Carrying Value		Level 1		Level 2		Level 3
Other assets:
Investments held by Rabbi Trust	$	10,940	$	10,940	$	—	$	—
Total assets	$	10,940	$	10,940	$	—	$	—
Accrued expenses and other current liabilities:
Interest rate swap contracts	$	9,635	$	—	$	9,635	$	—
Other liabilities:
Interest rate swap contracts		8,437		—		8,437		—
Obligation to Rabbi Trust		10,940		10,940		—		—
Total liabilities	$	29,012	$	10,940	$	18,072	$	—

	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 March 31, 2019 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 $1,000,000 and $1,560,000, respectively, at March 31, 2019 and September 30, 2018. The net deferred losses on the interest rate swaps as of March 31, 2019 of $6,594, 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:

On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the 2017 Tax Act. The 2017 Tax Act makes broad and complex changes to the U.S. tax code that affected the Company’s fiscal year ended September 30, 2018, by measures including but not limited to, i) reducing the U.S. federal corporate tax rate and ii) bonus depreciation that allows for full expensing of qualified property. The 2017 Tax Act reduced the Company’s federal tax rate to 21% in the fiscal year ended September 30, 2018. Section 15 of the Internal Revenue Code stipulated that the Company’s fiscal year ended September 30, 2018 had blended corporate tax rate of 24.5%, which is based on the applicable tax rates before and after the 2017 Tax Act and the number of days in the year.

As a result of the reduction in the U.S. corporate income tax rate from 35% to 21% under the 2017 Tax Act, the Company revaluated its ending next deferred tax liabilities at December 31, 2017 and recognized a $41,367 tax benefit in the Company’s consolidated statement of operations for the six months ended March 31, 2018.

The following table summarizes the Company’s income tax benefit and effective income tax rate for the three and six months ended March 31, 2019 and 2018.

The increase in the effective tax rate for the three months ended March 31, 2019 when compared to the three months ended March 31, 2018, is primarily related to the decrease in the loss before income tax as well as the reduction in the statutory rate in 2019 as a result of the 2017 Tax Act.

The lower effective tax rate for the six months ended March 31, 2019, when compared to the six months ended March 31, 2018, was primarily due to the one-time favorable impact of the deferred tax liability revaluation in the 2018 period as a result of the 2017 Tax Act. The effective tax rate excluding the revaluation of deferred taxes was 29.0% for the six months ended March 31, 2018.

On November 28, 2018, the Company issued 492 shares at a weighted average grant date fair value of $13.49, all of which are restricted stock subject to vesting. The majority of these shares will vest ratably over a four-year period commencing on the first anniversary of the grant date. Non-cash equity-based compensation expense associated with the grant will be approximately $6,156 over the requisite service period.

On November 28, 2018, the Company issued 1,123 stock options at a weighted average exercise price of $13.49 and a weighted average grant date fair value of $5.85, the majority of which will vest and become exercisable ratably over a four-year period commencing on the first anniversary of the grant date. Non-cash equity-based compensation expense associated with the grant will be approximately $6,091 over the requisite service period.

Information regarding the total equity-based compensation expense, for the periods indicated is as follows:

At March 31, 2019 the aggregate unamortized value of outstanding stock-based compensation awards was approximately $52,740, with a weighted average remaining life of 2.1 years.

The Company’s stockholders approved in 2018 the Company’s 2018 Employee Stock Purchase Plan (the “ESPP”). A total of 1,100 shares of the Company’s common stock were made available for sale on October 22, 2018 and will be issued on November 14, 2019.

The Company carries general liability, auto liability, workers’ compensation, professional liability, directors’ and officers’ liability, and employee health care insurance policies. In addition, the Company carries umbrella liability insurance policies to cover claims over the liability limits contained in the primary policies. The Company’s insurance programs for workers’ compensation, general liability, auto liability and employee health care for certain employees contain self-insured retention amounts, deductibles and other coverage limits (“self-insured liability”). Claims that are not self-insured as well as claims in excess of the self-insured liability amounts are insured. The Company uses estimates in the determination of the required reserves. These estimates are based upon calculations performed by third-party actuaries, as well as examination of historical trends, and industry claims experience. The Company’s reserve for unpaid and incurred but not reported claims under these programs at March 31, 2019 was $126,865, of which $42,855 was classified in current liabilities and $84,010 was classified in non-current liabilities in the accompanying unaudited consolidated balance sheet. The Company’s reserve for unpaid and incurred but not reported claims under these programs at September 30, 2018 was $127,937, of which $34,537 was classified in current liabilities and $93,400 was classified in non-current liabilities in the accompanying consolidated balance sheet. While the ultimate amount of these claims is dependent on future developments, in management’s opinion, recorded reserves are adequate to cover these claims. The Company’s reserve for unpaid and incurred but not reported claims at March 31, 2019 includes $35,697 related to claims recoverable from third party insurance carriers. Corresponding assets of $9,107 and $26,590 are recorded as Other current assets and Other assets, respectively.

From time to time, the Company is subject to legal proceedings and claims in the ordinary course of its business, principally claims made alleging injuries (including vehicle and general liability matters as well as workers compensation and property casualty claims). Such claims, even if lacking merit, can result in expenditures of significant financial and managerial resources. In the ordinary course of its business, the Company is also subject to claims involving current and/or former employees and disputes involving commercial and regulatory matters. Regulatory matters include, among other things, audits and reviews of local and federal tax compliance, safety and employment practices. Although the process of resolving regulatory matters and claims through litigation and other means is inherently uncertain, the Company is not aware of any such matter, legal proceeding or claim that it believes will have, individually or in the aggregate, a material effect on the Company, its financial condition, and results of operations or cash flows. For all legal matters, an estimated liability is established in accordance with the loss contingencies accounting guidance. This estimated liability is included in Accrued expenses and other current liabilities in the accompanying consolidated balance sheets.

On April 11, 2019, a purported class action complaint, captioned Speiser v. BrightView Holdings, Inc., was filed in federal court in the Eastern District of Pennsylvania against the Company and two of the Company’s officers. On April 16, 2019, a second purported class action complaint, captioned McComas v. BrightView Holdings, Inc., was filed in the Court of Common Pleas in Montgomery County, Pennsylvania against the Company, certain current and former officers and directors of the Company, the underwriters in the Company’s IPO, and the Company’s alleged controlling stockholders. The complaints allege violations of Section 11 of the Securities Act of 1933 against all defendants and controlling person claims under Section 15 of the Act against certain defendants. The plaintiffs purport to represent similar classes of persons who purchased BrightView stock in its IPO in July 2018 or purchased BrightView stock in the market that was traceable to the shares issued in the IPO. One or both of the complaints allege that the IPO prospectus was misleading because it allegedly failed to disclose that a portion of BrightView’s contracts were underperforming and/or represented undesirable costs to the Company and that, as a result, BrightView would implement a managed exit strategy from low margin or non-profitable contracts that would negatively impact its future revenues; and that BrightView failed to disclose an alleged labor shortage caused by the Company’s inability to hire sufficient workers through the H-2B visa program would adversely affect earnings. The Company intends to defend itself vigorously against the allegations. The Company is unable at this time to determine the amount of the possible loss or range of loss, if any, that it may incur as a result of these matters.

The operations of the Company are conducted through two operating segments: Maintenance Services and Development Services, which are also its reportable segments.

Maintenance Services primarily consists of recurring landscape maintenance services and snow removal services as well as supplemental landscape enhancement services.

Development Services primarily consists of landscape architecture and development services for new construction and large scale redesign projects. Development Services also includes our tree and nursery division, which grows and sells trees as well as manages removal and installation of specimen trees as part of many development projects.

The operating segments identified above are determined based on the services provided, and they reflect the manner in which operating results are regularly reviewed by the Chief Operating Decision Maker (“CODM”) to allocate resources and assess performance. The CODM is the Company’s Chief Executive Officer. The CODM evaluates the performance of the Company’s operating segments based upon Net Service Revenues, Adjusted EBITDA and Capital Expenditures. Management uses Adjusted EBITDA to evaluate performance and profitability of each operating segment.

The accounting policies of the segments are the same as those described in Note 2 “Summary of Significant Accounting Policies” in the notes to our consolidated financial statements in the Annual Report on Form 10-K for the fiscal year ended September 30, 2018. Corporate includes corporate executive compensation, finance, legal and information technology which are not allocated to the segments. Eliminations represent eliminations of intersegment revenues. The Company does not currently provide asset information by segment, as this information is not used by management when allocating resources or evaluating performance. The following is a summary of certain financial data for each of the segments:

	Three Months Ended March 31,						Six Months Ended March 31,
	2019			2018			2019			2018
Maintenance Services	$	473,314		$	460,105		$	865,847		$	866,795
Development Services		123,977			131,018			258,373			276,241
Eliminations		(654	)		(741	)		(1,570	)		(1,565	)
Net service revenues	$	596,637		$	590,382		$	1,122,650		$	1,141,471
Maintenance Services	$	64,957		$	58,282		$	113,663		$	118,892
Development Services		11,033			12,881			28,051			33,331
Corporate		(14,888	)		(19,542	)		(30,491	)		(34,180	)
Adjusted EBITDA⁽¹⁾	$	61,102		$	51,621		$	111,223		$	118,043
Maintenance Services	$	18,932		$	12,805		$	30,014		$	19,467
Development Services		3,466			862			6,660			1,773
Corporate		2,883			640			5,936			22,855
Capital expenditures	$	25,281		$	14,307		$	42,610		$	44,095

	Three Months Ended						Six Months Ended
	March 31, 2019			March 31, 2018			March 31, 2019			March 31, 2018
Net loss	$	(3,606	)	$	(22,064	)	$	(12,433	)	$	(2,740	)
Interest expense		18,945			25,069			36,069			49,982
Income tax benefit		(1,315	)		(7,858	)		(4,451	)		(59,397	)
Depreciation expense		21,687			17,731			40,968			38,803
Amortization expense		13,807			29,318			28,938			60,364
Establish public company financial reporting compliance (a)		1,308			185			1,692			2,816
Business transformation and integration costs (b)		4,664			2,125			8,921			18,934
Expenses related to initial public offering (c)		—			2,130			—			2,130
Equity-based compensation (d)		5,612			4,276			11,519			5,802
Management fees (e)		—			709			—			1,348
Adjusted EBITDA	$	61,102		$	51,621		$	111,223		$	118,043

Basic earnings (loss) per share is computed by dividing net income (loss) attributable to common shares by the weighted average number of common shares outstanding for the period. Diluted earnings (loss) per share is computed by dividing net income (loss) by the weighted-average number of shares of common stock outstanding during the period, increased to include the number of shares of common stock that would have been outstanding had potential dilutive shares of common stock been issued. Set forth below is a reconciliation of the numerator and denominator for basic and diluted earnings (loss) per share calculation for the periods indicated:

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis supplements our management’s discussion and analysis for the year ended September 30, 2018 as contained in our Annual Report on Form 10-K filed with the Securities and Exchange Commission on November 28, 2018, and presumes that readers have read or have access to such discussion and analysis. The following discussion and analysis should also be read together with the unaudited consolidated financial statements and the related notes thereto included elsewhere in this Quarterly Report on Form 10-Q. This discussion contains forward-looking statements that reflect our plans and strategy for our business, and involve risks and uncertainties. You should review the “Risk Factors” section of our Annual Report on Form 10-K for the fiscal year ended September 30, 2018 for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis. You should carefully read “Special Note Regarding Forward-Looking Statements” in this Quarterly Report on Form 10-Q.

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.

We report our results of operations through two reportable segments: Maintenance Services and Development Services. We serve a geographically diverse set of customers through our strategically located network of branches in 31 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 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. In addition to contracted maintenance services, we also have a strong track record of providing value-added landscape enhancements. We primarily self-perform our maintenance services through our national branch network, which are route-based in nature. Our maintenance services customers include Fortune 500 corporate campuses and commercial properties, home owners associations, 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.

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. Our development services are comprised of sophisticated design, coordination and installation of landscapes at some of the most recognizable corporate, athletic, professional sports and university complexes and showcase highly visible work that is paramount to our customers’ perception of our brand as a market leader.

In our Development Services business, we are typically hired by general contractors, with whom we maintain strong relationships as a result of our superior technical and project management capabilities. We believe the quality of our work is also well-regarded by our end-customers, some of whom directly request that their general contractors utilize our services when outsourcing their landscape development projects.

Our 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 our recurring fixed fee landscape maintenance and snow removal services are recorded under the series guidance. The right to invoice practical expedient, defined within Note 3 “Revenue” in the Notes to Unaudited Consolidated Financial Statements, 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 of 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 when 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 revenues and are recognized in the period in which such revisions are determined.

Cost of services provided is comprised of direct costs we incur associated with our operations during a period and includes employee costs, subcontractor costs, purchased materials, operating equipment and vehicle costs. Employee costs consist of wages and other labor-related expenses, including benefits, workers compensation and healthcare costs, for those employees involved in delivering our services. Subcontractor costs consist of costs relating to our qualified service partner network in our Maintenance Services segment and subcontractors we engage from time to time in our Development Services segment. When our use of subcontractors increases, we may experience incrementally higher costs of services provided. Operating equipment and vehicle costs primarily consist of depreciation related to branch operating equipment and vehicles and related fuel expenses. A large component of our costs are variable, such as labor, subcontractor expense and materials.

Selling, general and administrative expense consists of costs incurred related to compensation and benefits for management, sales and administrative personnel, equity-based compensation, branch and office rent and facility operating costs, depreciation expense related to branch and office locations, as well as professional fees, software costs and other miscellaneous expenses. Corporate expenses, including corporate executive compensation, finance, legal and information technology, are included in consolidated selling, general and administrative expense and not allocated to the business segments.

Amortization expense consists of the periodic amortization of intangible assets, including customer relationships, non-compete agreements and trademarks, recognized when KKR acquired us on December 18, 2013 and in connection with businesses we have acquired since December 18, 2013.

Interest expense relates primarily to our long-term debt. See Note 8 “Long-term Debt” in the unaudited consolidated financial statements included herein.

The benefit for income taxes includes U.S. federal, state and local income taxes. Our effective tax rate differs from the statutory U.S. income tax rate due to the effect of state and local income taxes, tax credits and certain nondeductible expenses. Our effective tax rate may vary from quarter to quarter based on recurring and nonrecurring factors including, but not limited to the geographical distribution of our pre-tax earnings, changes in the tax rates of different jurisdictions, the availability of tax credits and nondeductible items. Changes in judgment due to the evaluation of new information resulting in the recognition, derecognition or remeasurement of a tax position taken in a prior annual period are recognized separately in the period of the change.

On December 22, 2017, H.R. 1, originally known as the U.S. Tax Cuts and Jobs Act (the “Tax Act”), was enacted. Among the significant changes to the U.S. Internal Revenue Code, the Tax Act lowered the U.S. federal corporate income tax rate (“Federal Tax Rate”) from 35% to 21% effective January 1, 2018. The Company computed its income tax expense for the September 30, 2018 fiscal year using a blended Federal Tax Rate of 24.5%. The 21% Federal Tax Rate will apply to fiscal years ending September 30, 2019 and each year thereafter. The Company has already accounted for the effects of the new legislation in the prior fiscal year, and the revaluation of the Company’s deferred taxes was reflected within the tax benefit recorded during that period. The Company will continue to monitor for additional guidance released by the Internal Revenue Service in relation to the Tax Act.

Other (expense) income consists primarily of investment gains and losses related to deferred compensation.

Various trends and other factors affect or have affected our operating results, including:

Our services, particularly in our Maintenance Services segment, have seasonal variability such as increased mulching, flower planting and intensive mowing in the spring, leaf removal and cleanup work in the fall, snow removal services in the winter and potentially minimal mowing during drier summer months. This can drive fluctuations in revenue, costs and cash flows for interim periods.

We have a significant presence in geographies that have a year-round growing season, which we refer to as our evergreen markets. Such markets require landscape maintenance services twelve months per year. In markets that do not have a year-round growing season, which we refer to as our seasonal markets, the demand for our landscape maintenance services decreases during the winter months. Typically, our revenues and net income have been higher in the spring and summer seasons, which correspond with our third and fourth fiscal quarters. The lower level of activity in seasonal markets during our first and second fiscal quarters is partially offset by revenue from our snow removal services. Such seasonality causes our results of operations to vary from quarter to quarter.

Weather may impact the timing of performance of landscape maintenance and enhancement services and progress on development projects from quarter to quarter. For example, snow events in the winter, hurricane-related cleanup in the summer and fall, and the effects of abnormally high rainfall or drought in a given market may impact our services. These less predictable weather patterns can impact both our revenues and our costs, especially from quarter to quarter, but also from year to year in some cases. Extreme weather events such as hurricanes and tropical storms can result in a positive impact to our business in the form of increased enhancement services revenues related to disaster recovery. However, such weather events may also negatively impact our ability to deliver our contracted services or impact the timing of performance.

In our seasonal markets, the performance of our snow removal services is broadly correlated with the amount of snowfall, its geographic impact, the nature of the precipitation and the number of snowfall events in a given season. We benchmark our performance against ten- and thirty-year cumulative annual snowfall averages.

In addition to our organic growth, we have grown, and expect to continue to grow, our business through acquisitions in an effort to better service our existing customers and to attract new customers. These acquisitions have allowed us to increase our density and leadership positions in existing local markets, enter into attractive new geographic markets and expand our portfolio of landscape enhancement services and improve technical capabilities in specialized services. In accordance with GAAP, the results of the acquisitions we have completed are reflected in our consolidated financial statements from the date of acquisition. We incur transaction costs in connection with identifying and completing acquisitions and ongoing integration costs as we integrate acquired companies and seek to achieve synergies. We incurred $3.1 million of integration costs during the first half of fiscal 2019 related to acquisitions completed during fiscal 2018 and $0.6 million related to acquisitions completed during fiscal 2019.

The following table summarizes key components of our results of operations for the periods indicated.

	Three Months Ended March 31,						Six Months Ended March 31,
($ in millions)	2019			2018			2019			2018
Net service revenues	$	596.6		$	590.4		$	1,122.7		$	1,141.5
Cost of services provided		450.6			448.1			844.7			856.7
Gross profit		146.1			142.2			278.0			284.8
Selling, general and administrative expense		119.4			117.8			229.6			237.6
Amortization expense		13.8			29.3			28.9			60.4
Income (loss) from operations		12.8			(4.9	)		19.5			(13.2	)
Other income (expense)		1.2			-			(0.3	)		1.0
Interest expense		18.9			25.1			36.1			50.0
Loss before income taxes		(4.9	)		(29.9	)		(16.9	)		(62.1	)
Income tax benefit		1.3			7.9			4.5			59.4
Net loss	$	(3.6	)	$	(22.1	)	$	(12.4	)	$	(2.7	)
Adjusted EBITDA⁽¹⁾	$	61.1		$	51.6		$	111.2		$	118.0
Adjusted Net Income⁽¹⁾	$	15.6		$	7.6		$	26.0		$	21.0
Cash flows from operating activities	$	58.3		$	(3.3	)	$	64.7		$	79.2
Free Cash Flow⁽¹⁾	$	34.2		$	(16.8	)	$	25.1		$	36.6
Adjusted Free Cash Flow⁽¹⁾	$	34.2		$	(16.8	)	$	25.1		$	58.2

Net service revenues for the three months ended March 31, 2019 increased $6.2 million, or 1.1%, to $596.6 million, from $590.4 million in the 2018 period. The increase was driven by increases in Maintenance Services revenues of $13.2 million partially offset by decreases in Development Services revenues of $7.0 million as discussed further below in Segment Results.

Gross profit for the three months ended March 31, 2019 increased $3.9 million, or 2.7%, to $146.1 million, from $142.2 million in the 2018 period. The increase in gross profit was driven by the increase in revenues, described above, along with a slight improvement in gross margin. Gross margin increased 40 basis points from 24.1% in the 2018 period to 24.5% for the three months ended March 31, 2019.

Selling, general and administrative expense for the three months ended March 31, 2019 increased $1.6 million, or 1.4%, to $119.4 million, from $117.8 million in the 2018 period. This increase was driven by a $2.6 million increase in business transformation

and integration costs, and an increase in equity-based compensation expense of $1.3 million, largely related to the IPO. The increase was partially offset by $2.1 million decrease in professional fees incurred during the 2018 period largely related to the IPO. As a percentage of revenue, selling, general and administrative expense remained flat for the three months ended March 31, 2019 at 20.0% compared to the 2018 period.

Amortization expense for the three months ended March 31, 2019 decreased $15.5 million, or 52.9%, to $13.8 million, from $29.3 million in the 2018 period. The decrease was principally due to the expected decrease of $16.6 million in the amortization of intangible assets recognized in connection with the KKR Acquisition and the acquisition of ValleyCrest Holding Co. (“ValleyCrest”) in 2014, based on the accelerated pattern consistent with expected future cash flows calculated at that time, offset by an increase in amortization expense for intangible assets recognized in connection with acquisitions completed subsequent to 2017 of $1.1 million.

Other income was $1.2 million for the three months ended March 31, 2019, an increase of $1.2 million from the 2018 period, primarily driven by an increase in gains on deferred compensation investments.

Interest expense for the three months ended March 31, 2019 decreased $6.2 million, or 24.4%, to $18.9 million, from $25.1 million in the 2018 period. The decrease was driven by an overall reduction in debt due to term loan repayments made during the fourth quarter of fiscal 2018 and the impact of our interest rate swaps for the period, partially offset by a higher weighted average interest rate on our term loans in the 2019 period of 5.03% compared to 4.87% in the 2018 period.

Income tax benefit for the three months ended March 31, 2019 decreased $6.6 million, or 83.3%, to $1.3 million, from $7.9 million in the 2018 period. The decrease in tax benefit is primarily attributable to the reduction in the Loss before Income taxes due to the declines in Interest Expense and Amortization Expense, discussed above, as well as a $0.9 million discrete tax benefit recorded in the 2018 period for the revaluation of our net deferred tax liabilities as a result of the enactment of the Tax Act and the related reduction in the U.S. corporate income tax rate.

For the three months ended March 31, 2019, net loss decreased $18.5 million, to $3.6 million, from net loss of $22.1 million in the 2018 period. The decrease was due to the changes noted above.

Adjusted EBITDA increased $9.5 million for the three months ended March 31, 2019, to $61.1 million, from $51.6 million in the 2018 period. Adjusted EBITDA as a percentage of revenue was 10.2% and 8.7% in the three months ended March 31, 2019 and 2018, respectively. The increase in Adjusted EBITDA was principally driven by an increase in Maintenance Services Segment Adjusted EBITDA of $6.7 million, or 11.5% coupled with a reduction of corporate expenses, partially offset by a decrease in Development Services Segment Adjusted EBITDA of $1.9 million, or 14.3%, both driven by changes in segment revenues as discussed below.

Adjusted Net Income for the three months ended March 31, 2019 increased $8.0 million to $15.6 million, from $7.6 million in the 2018 period. The increase was primarily due to the decrease in interest expense as well as the increase in gross profit discussed above.

Net service revenues for the six months ended March 31, 2019 decreased $18.8 million, or 1.6%, to $1,122.7 million, from $1,141.5 million in the 2018 period. The decrease was driven by decreases in Maintenance Services revenues of $1.0 million and decreases in Development Services revenues of $17.8 million as discussed further below in Segment Results.

Gross profit for the six months ended March 31, 2019 decreased $6.8 million, or 2.4%, to $278.0 million, from $284.8 million in the 2018 period. The decrease in gross profit was driven by the decline in revenues, described above, along with a slight decline in gross margin. Gross margin decreased 10 basis points from 24.9% in the 2018 period to 24.8% for the six months ended March 31, 2019.

Selling, general and administrative expense for the six months ended March 31, 2019 decreased $8.0 million, or 3.4%, to $229.6 million, from $237.6 million in the 2018 period. This decrease was driven by a $10.0 million decrease in business transformation and integration costs, inclusive of an $11.7 million decrease in costs as a result of the substantial completion of our fleet rebranding initiative and a $2.1 million decrease in professional fees incurred during the 2018 period largely related to the IPO. The decrease was partially offset by an increase in equity-based compensation expense of $5.7 million, largely related to the IPO. As a percentage of revenue, selling, general and administrative expense decreased 30 basis points for the six months ended March 31, 2019 to 20.5%, from 20.8% in the 2018 period.

Amortization expense for the six months ended March 31, 2019 decreased $31.5 million, or 52.1%, to $28.9 million, from $60.4 million in the 2018 period. The decrease was principally due to the expected decrease of $33.9 million in the amortization of intangible assets recognized in connection with the KKR Acquisition and the acquisition of ValleyCrest in 2014, based on the accelerated pattern consistent with expected future cash flows calculated at that time, offset by an increase in amortization expense for intangible assets recognized in connection with acquisitions completed subsequent to 2017 of $2.4 million.

Other expense was $0.3 million for the six months ended March 31, 2019, a decrease of $1.3 million from income of $1.0 million in the 2018 period driven by an increase in losses on deferred compensation investments.

Interest expense for the six months ended March 31, 2019 decreased $13.9 million, or 27.8%, to $36.1 million, from $50.0 million in the 2018 period. The decrease was driven by an overall reduction in debt due to term loan repayments made during the fourth quarter of fiscal 2018 and the impact of our interest rate swaps for the period, partially offset by a higher weighted average interest rate on our term loans in the 2019 period of 4.94% compared to 4.76% in the 2018 period.

Income tax benefit for the six months ended March 31, 2019 decreased $54.9 million, or 92.5%, to $4.5 million, from $59.4 million in the 2018 period. The decrease in tax benefit was driven by a $41.4 million discrete tax benefit recorded in the 2018 period for the revaluation of our net deferred tax liabilities as a result of the enactment of the Tax Act and the related reduction in the U.S. corporate income tax rate, as well as a reduction in the Loss before Income taxes due to the declines in Interest Expense and Amortization expense as discussed above.

For the six months ended March 31, 2019, net loss increased $9.7 million, to $12.4 million, from net loss of $2.7 million in the 2018 period. The decrease was due to the changes noted above.

Adjusted EBITDA decreased $6.8 million for the six months ended March 31, 2019, to $111.2 million, from $118.0 million in the 2018 period. Adjusted EBITDA as a percentage of revenue was 9.9% and 10.3% in the six months ended March 31, 2019 and 2018, respectively. The decrease in Adjusted EBITDA was driven by a decrease in Maintenance Services Segment Adjusted EBITDA of $5.2 million, or 4.4%, as well as a decrease in Development Services Segment Adjusted EBITDA of $5.2 million, or 15.8%, both as a result of lower segment revenues as discussed below. These decreases at the segment level were partially offset by a reduction of corporate expenses.

Adjusted Net Income for the six months ended March 31, 2019 increased $5.0 million to $26.0 million, from $21.0 million in the 2018 period. The increase was primarily due to the decrease in interest expense, partially offset by the decrease in gross profit discussed above.

In addition to our GAAP financial measures, we review various non-GAAP financial measures including Adjusted EBITDA, Adjusted Net Income, Adjusted Earnings per Share (“Adjusted EPS”), Free Cash Flow and Adjusted Free Cash Flow.

We believe that Adjusted EBITDA, Adjusted Net Income and Adjusted EPS are helpful supplemental measures to assist us and investors in evaluating our operating results as they exclude certain items whose fluctuations from period to period do not necessarily correspond to changes in the operations of our business. Adjusted EBITDA represents net (loss) income before interest, taxes, depreciation, amortization and certain non-cash, non-recurring and other adjustment items. Adjusted Net Income is defined as net (loss) income including interest and depreciation and excluding other items used to calculate Adjusted EBITDA and further adjusted for the tax effect of these exclusions and the removal of the discrete tax items. Adjusted EPS is defined as Adjusted Net Income divided by the weighted average number of common shares outstanding for the period used in the calculation of basic EPS. We believe that the adjustments applied in presenting Adjusted EBITDA, Adjusted Net Income and Adjusted EPS are appropriate to provide additional information to investors about certain material non-cash items and about non-recurring items that we do not expect to continue at the same level in the future.

We believe Free Cash Flow and Adjusted Free Cash Flow are helpful supplemental measures to assist us and investors in evaluating our liquidity. Free Cash Flow represents cash flows from operating activities less capital expenditures, net of proceeds from the sale of property and equipment. Adjusted Free Cash Flow represents Free Cash Flow as further adjusted for the acquisition of certain legacy properties associated with our acquired ValleyCrest business. We believe Free Cash Flow and Adjusted Free Cash Flow are useful to provide additional information to assess our ability to pursue business opportunities and investments and to service our debt. Free Cash Flow and Adjusted Free Cash Flow have limitations as analytical tools, including that they do not account for our future contractual commitments and exclude investments made to acquire assets under capital leases and required debt service payments.

Set forth below are the reconciliations of net (loss) income to Adjusted EBITDA and Adjusted Net Income, and cash flows from operating activities to Free Cash Flow and Adjusted Free Cash Flow. Adjusted EPS is defined as Adjusted Net Income (shown below) divided by the weighted average number of common shares outstanding for the period used in the calculation of basic EPS and presented in Note 14 “(Loss) Earnings Per Share of Common Stock” in the Notes to Unaudited Consolidated Financial Statements.

	Three Months Ended March 31,						Six Months Ended March 31,
(In millions)	2019			2018			2019			2018
Adjusted EBITDA
Net loss	$	(3.6	)	$	(22.1	)	$	(12.4	)	$	(2.7	)
Plus:
Interest expense, net		18.9			25.1			36.1			50.0
Income tax benefit		(1.3	)		(7.9	)		(4.5	)		(59.4	)
Depreciation expense		21.7			17.7			41.0			38.8
Amortization expense		13.8			29.3			28.9			60.4
Establish public company financial reporting compliance (a)		1.3			0.2			1.7			2.8
Business transformation and integration costs (b)		4.7			2.1			8.9			18.9
Expenses related to initial public offering (c)		—			2.1			—			2.1
Equity-based compensation (d)		5.6			4.3			11.5			5.8
Management fees (e)		—			0.7			—			1.3
Adjusted EBITDA	$	61.1		$	51.6		$	111.2		$	118.0
Adjusted Net Income
Net loss	$	(3.6	)	$	(22.1	)	$	(12.4	)	$	(2.7	)
Plus:
Amortization expense		13.8			29.3			28.9			60.4
Establish public company financial reporting compliance (a)		1.3			0.2			1.7			2.8
Business transformation and integration costs (b)		4.7			2.1			8.9			18.9
Expenses related to initial public offering (c)		—			2.1			—			2.1
Equity-based compensation (d)		5.6			4.3			11.5			5.8
Management fees (e)		—			0.7			—			1.3
Income tax adjustment (f)		(6.2	)		(9.1	)		(12.6	)		(67.7	)
Adjusted Net Income	$	15.6		$	7.6		$	26.0		$	21.0
Free Cash Flow and Adjusted Free Cash Flow
Cash flows from operating activities	$	58.3		$	(3.3	)	$	64.7		$	79.2
Minus:
Capital expenditures		25.3			14.3			42.6			44.1
Plus:
Proceeds from sale of property and equipment		1.2			0.8			3.0			1.5
Free Cash Flow	$	34.2		$	(16.8	)	$	25.1		$	36.6
Plus:
ValleyCrest land and building acquisition (g)		—			—			—			21.6
Adjusted Free Cash Flow	$	34.2		$	(16.8	)	$	25.1		$	58.2

(d) Represents equity-based compensation expense recognized for equity incentive plans outstanding, including $3.1 and $7.0 million related to the IPO in the three and six months ended March 31, 2019, respectively.

We classify our business into two segments: Maintenance Services and Development Services. Our corporate operations are not allocated to the segments and are not discussed separately as any results that had a significant impact on operating results are included in the consolidated results discussion above.

We evaluate the performance of our segments on Net Service Revenues, Segment Adjusted EBITDA and Segment Adjusted EBITDA Margin (Segment Adjusted EBITDA as a percentage of Net Service Revenues). Segment Adjusted EBITDA is indicative of operational performance and ongoing profitability. Our management closely monitors Segment Adjusted EBITDA to evaluate past performance and identify actions required to improve profitability.

The following tables present Net Service Revenues, Segment Adjusted EBITDA, and Segment Adjusted EBITDA Margin for each of our segments. Changes in Segment Adjusted EBITDA Margin are shown in basis points, or bps.

Maintenance Services net service revenues for the three months ended March 31, 2019 increased by $13.2 million, or 2.9%, from the 2018 period. Revenues from landscape services were $281.8 million, an increase of $11.8 million over the 2018 period and revenues from snow removal services were $191.5 million, an increase of $1.4 million over the 2018 period. The increase in landscape services revenues was driven by a $22.6 million revenue contribution from acquired businesses. This increase was partially offset by a $9.4 million decrease in revenue as a result of our managed exit strategy surrounding underperforming contracts. The increase in snow removal services was primarily attributable to a $1.6 million revenue contribution from acquired businesses.

Segment Adjusted EBITDA for the three months ended March 31, 2019 increased $6.7 million to $65.0 million, compared to $58.3 million in the 2018 period. The increase in Segment Adjusted EBITDA was primarily due to the increase in revenues described above, coupled with a continued focus on efficiency initiatives to reduce overhead, personnel and related costs across our core functions. Segment Adjusted EBITDA Margin increased 100 basis points, to 13.7%, in the three months ended March 31, 2019, from 12.7% in the 2018 period.

Development Services net service revenues for the three months ended March 31, 2019 decreased $7.0 million, or 5.4%, compared to the 2018 period. The decrease in development services revenues was driven by the completion of certain large projects in the prior fiscal year, partially offset by the commencement of work on new projects coupled with incremental revenue of $2.2 million related to development projects from the Maintenance Services acquisitions.

Segment Adjusted EBITDA for the three months ended March 31, 2019 decreased $1.9 million, to $11.0 million, compared to the 2018 period. The decrease in Segment Adjusted EBITDA was due to the decrease in net revenue described above as well as an increase in selling, general and administrative expense, which was the result of a cash collection in the 2018 period on a previously reserved receivable. Segment Adjusted EBITDA Margin decreased 90 basis points, to 8.9%, in the three months ended March 31, 2019, from 9.8% in the 2018 period.

Maintenance Services net service revenues for the six months ended March 31, 2019 decreased by $1.0 million, or 0.1%, from the 2018 period. Revenues from landscape services were $626.1 million, an increase of $3.0 million over the 2018 period and revenues from snow removal services were $239.7 million, a decrease of $4.0 million over the 2018 period. The increase in landscape services revenues was driven by a $45.1 million revenue contribution from acquired businesses. This increase was offset by a $17.5 million decline in hurricane clean-up services revenue in the 2019 period, compared with revenue from hurricanes Irma and Maria in the 2018 period, a $20.2 million decrease in revenue as a result of our managed exit strategy related to underperforming contracts, and a decline in revenues from the prior year turnover of national accounts. The decrease in snow removal services is primarily attributable to the timing of snowfall during the period, a decreased frequency of snowfall events, the volume of snowfall per event and the lower relative snowfall in the six months ended March 31, 2019 (snowfall for the six months ended March 31, 2019 and 2018

was 82.6% and 87.7%, respectively, of the historical 10-year average for that six-month period). This was partially offset by a $1.8 million snow removal services revenue contribution from acquired businesses.

Segment Adjusted EBITDA for the six months ended March 31, 2019 decreased $5.2 million, to $113.7 million, compared to $118.9 million in the 2018 period. The decrease in Segment Adjusted EBITDA was due to the decrease in revenues described above, primarily the decline in hurricane clean-up services which typically contributes a higher gross margin compared with other landscape maintenance services. Segment Adjusted EBITDA Margin decreased 60 basis points, to 13.1%, in the six months ended March 31, 2019, from 13.7% in the 2018 period.

Development Services net service revenues for the six months ended March 31, 2019 decreased $17.8 million, or 6.5%, compared to the 2018 period. The decrease in development services revenues was driven by the completion of certain large projects in the prior fiscal year, partially offset by the commencement of work on new projects as well as incremental revenue of $5.0 million related to development projects from the Maintenance Services acquisitions.

Segment Adjusted EBITDA for the six months ended March 31, 2019 decreased $5.2 million, to $28.1 million, compared to the 2018 period. The decrease in Segment Adjusted EBITDA was due to the decrease in net revenue described above as well as an increase in selling, general and administrative expense, which was the result of a cash collection in the 2018 period on a previously reserved receivable. Segment Adjusted EBITDA Margin decreased 120 basis points, to 10.9%, in the six months ended March 31, 2019, from 12.1% in the 2018 period.

Since the consummation of the KKR Acquisition and related financing transactions, our principal sources of liquidity have been existing cash and cash equivalents, cash generated from operations and borrowings under the Credit Agreement and the Receivables Financing Agreement. Our principal uses of cash following the consummation of the KKR Acquisition and related financing transactions have been to provide working capital, meet debt service requirements, fund capital expenditures and finance strategic plans, including acquisitions. We may also seek to finance capital expenditures under capital leases or other debt arrangements that provide liquidity or favorable borrowing terms. We continue to consider acquisition opportunities, but the size and timing of any future acquisitions and the related potential capital requirements cannot be predicted. While we have in the past financed certain acquisitions with internally generated cash, in the event that suitable businesses are available for acquisition upon acceptable terms, we may obtain all or a portion of the necessary financing through the incurrence of additional long-term borrowings.

As discussed in Note 1 “Business and Basis of Presentation” in the Notes to Unaudited Consolidated Financial Statements, we completed an IPO in July 2018 and in conjunction with and following such IPO we repaid approximately $501.1 million of outstanding indebtedness with proceeds from the IPO.

Based on our current level of operations and available cash, we believe our cash flow from operations, together with availability under the Revolving Credit Facility and the Receivables Financing Agreement, will provide sufficient liquidity to fund our current obligations, projected working capital requirements, debt service requirements and capital spending requirements for the next twelve months.

A substantial portion of our liquidity needs arise from debt service requirements, and from the ongoing cost of operations, working capital and capital expenditures.

The Company is party to a credit agreement dated December 18, 2013 (as amended, the “Credit Agreement”), a five-year revolving credit facility that matures on August 15, 2023 (the “Revolving Credit Facility”) and, through a wholly-owned subsidiary, a receivables financing agreement dated April 28, 2017 (as amended, the “Receivables Financing Agreement”).

We can increase the borrowing availability under the Credit Agreement or increase the term loans outstanding under the Credit Agreement by up to $303.0 million, in the aggregate, in the form of additional commitments under the Revolving Credit Facility and/or incremental term loans under the Credit Agreement, or in the form of other indebtedness in lieu thereof, plus an additional amount so long as we do not exceed a specified senior secured leverage ratio and, in the case of second lien indebtedness, a specified senior secured leverage ratio. We can incur such additional secured or other unsecured indebtedness under the Credit Agreement if certain specified conditions are met. Our liquidity requirements are significant primarily due to debt service requirements. See Note 8 “Long-term Debt” to our unaudited consolidated financial statements included herein.

Our business may not generate sufficient cash flows from operations or future borrowings may not be available to us under our Revolving Credit Facility or the Receivables Financing Agreement in an amount sufficient to enable us to pay our indebtedness, or to fund our other liquidity needs. Our ability to do so depends on, among other factors, prevailing economic conditions, many of which are beyond our control. In addition, upon the occurrence of certain events, such as a change in control, we could be required to repay or refinance our indebtedness. We may not be able to refinance any of our indebtedness, including the Series B Term Loan under the Credit Agreement, on commercially reasonable terms or at all. Any future acquisitions, joint ventures, or other similar transactions may require additional capital and there can be no assurance that any such capital will be available to us on acceptable terms or at all.

Information about our cash flows, by category, is presented in our statements of cash flows and is summarized below:

Net cash provided by operating activities for the six months ended March 31, 2019 decreased $14.5 million, to $64.7 million, from $79.2 million in the 2018 period. This decrease was primarily due to an increase in accounts receivable due to the timing of collections, partially offset by an increase in deferred revenue.

Net cash used in investing activities remained flat at $87.7 million for the six months ended March 31, 2019 compared to the 2018 period. Cash used in investing activities included cash paid for acquisitions for the six months ended March 31, 2019 of $49.3 million, compared to $44.7 million in the 2018 period. Capital expenditures decreased 3.4%, or $1.5 million, year over year primarily

due to the acquisition of legacy ValleyCrest land and buildings for $21.6 million during the 2018 period, partially offset by increases in the purchase of vehicles and equipment of $4.2 million and $11.3 million, respectively, during the six months ended March 31, 2019 compared to the 2018 period.

Net cash flows used in financing activities of $1.0 million for the six months ended March 31, 2019 consisted of scheduled principal payments on long-term borrowings of $7.8 million and repayments of capital lease obligations of $2.8 million, offset by net proceeds from our Revolving Credit Facility of $10.0 million. Cash provided by financing activities was $5.3 million for the six months ended March 31, 2018 and consisted of proceeds from our Receivables Financing Agreement of $55.0 million, offset by scheduled principal payments on long-term borrowings of $46.2 million, repayments of capital lease obligations of $3.2 million and repurchases of common stock of $0.5 million.

Free Cash Flow decreased $11.5 million to $25.1 million for the six months ended March 31, 2019 from $36.6 million in the 2018 period. The decrease in Free Cash Flow was due to a decrease in cash flows from operating activities of $14.5 million, partially offset by a decrease in capital expenditures of $1.5 million each as described above. Adjusted Free Cash Flow decreased $33.1 million to $25.1 million for the six months ended March 31, 2019 from $58.2 million in the 2018 period. The decrease in Adjusted Free Cash Flow was due to a decrease in cash flows from operating activities of $14.5 million and an increase in capital expenditures of $20.1 million (exclusive of $21.6 million related to the acquisition of legacy ValleyCrest land and buildings in the 2018 period).

Net working capital is defined as current assets less current liabilities. Net working capital decreased $42.8 million, to $156.9 million, at March 31, 2019, from $199.7 million at September 30, 2018, primarily driven by a decrease in cash and cash equivalents of $24.0 million and an increase in deferred revenue of $27.6 million, offset by an increase in accounts receivable of $36.0 million due to the timing of collections.

As of March 31, 2019, we were in compliance with all of our debt covenants and no event of default has occurred or was ongoing. See Note 8 “Long-term Debt” to our unaudited consolidated financial statements included herein.

During the six months ended March 31, 2019, there were no material changes outside the ordinary course of business in our contractual obligations and commercial commitments from those reported as of September 30, 2018 in our Annual Report on Form 10-K.

We have no off-balance sheet arrangements that have or are materially likely to have a current or future material effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

Management has evaluated the accounting policies used in the preparation of the Company’s consolidated financial statements and related notes and believe those policies to be reasonable and appropriate. Certain of these accounting policies require the application of significant judgment by management in selecting appropriate assumptions for calculating financial estimates. By their

nature, these judgments are subject to an inherent degree of uncertainty. These judgments are based on historical experience, trends in the industry, information provided by customers and information available from other outside sources, as appropriate. The most significant areas involving management judgments and estimates may be found in the Annual Report on Form 10-K, in the “Critical Accounting Policies and Estimates” section of “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” There have been no material changes to our critical accounting policies as compared to the critical accounting policies described in the Annual Report on Form 10-K for the year ended September 30, 2018, other than those related to revenue as a result of the adoption of ASU 2014-09.

The information set forth in Note 2 “Recent Accounting Pronouncements” to our unaudited consolidated financial statements under Part I, Item 1, “Financial Statements” is incorporated herein by reference.

For quantitative and qualitative disclosures about market risk, see “Item 7A. Quantitative and Qualitative Disclosure of Market Risk” in the Annual Report on Form 10-K for the fiscal year ended September 30, 2018.

We maintain disclosure controls and procedures as that term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) that are designed to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer (“CEO”) and our Chief Financial Officer (“CFO”), as appropriate, to allow timely decisions regarding required disclosures. Any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.

In accordance with Rule 13a-15(b) of the Exchange Act, we have evaluated, under the supervision of our CEO and our CFO, the effectiveness of disclosure controls and procedures as of March 31, 2019. Based on this evaluation, our CEO and our CFO concluded that our disclosure controls and procedures were effective as of March 31, 2019 at a reasonable assurance level.

There has not been any change in our internal control over financial reporting (as such term is defined in Rule 13a-15(f) under the Exchange Act) during the fiscal quarter to which this report relates that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

The information set forth in Note 12 “Commitments and Contingencies” to our consolidated financial statements under Part I, Item 1, “Financial Statements,” is incorporated herein by reference.

As of March 31, 2019, there have been no material changes to the risk factors included in our Annual Report on Form 10-K for the fiscal year ended September 30, 2018, as filed with the SEC on November 28, 2018.

The following is a list of all exhibits filed or furnished as part of this report:

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Delaware	46-4190788
( State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
980 Jolly Road Blue Bell, Pennsylvania	19422
(Address of principal executive offices)	(Zip Code)
401 Plymouth Road Suite 500 Plymouth Meeting, Pennsylvania	19462
(Former address)	(Zip Code)


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common stock, $0.01 par value	BV	New York Stock Exchange

		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	33
Item 4.	Controls and Procedures	33
PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings	34
Item 1A.	Risk Factors	34
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	34
Item 3.	Defaults Upon Senior Securities	34
Item 4.	Mine Safety Disclosures	34
Item 5.	Other Information	34
Item 6.	Exhibits	35
Signatures		36

	Three Months Ended March 31,						Six Months Ended March 31,
	2019			2018			2019			2018
Net loss	$	(3,606	)	$	(22,064	)	$	(12,433	)	$	(2,740	)
Net derivative (losses) gains arising during the period, net of tax of $303, $(1,158), $1,439 and $(2,322), respectively		(756	)		3,055			(3,778	)		4,815
Reclassification of losses into net loss, net of tax of $710, $607, $1,013 and $1,642, respectively		1,888			1,616			2,420			3,181
Other comprehensive income (loss)		1,132			4,671			(1,358	)		7,996
Comprehensive (loss) income	$	(2,474	)	$	(17,393	)	$	(13,791	)	$	5,256

	Deferred Revenue
Balance, October 1, 2018	$	72,476
Recognition of revenue		(445,420	)
Deferral of Revenue		473,064
Balance, March 31, 2019	$	100,120

	March 31, 2019		September 30, 2018
Finished products	$	6,264	$	6,913
Semi-finished products		10,790		8,580
Raw materials and supplies		7,419		8,337
Inventories	$	24,473	$	23,830

	Useful Life	March 31, 2019		September 30, 2018
Land	—	$	52,696	$	51,490
Buildings and leasehold improvements	2-40 yrs.		36,873		36,275
Operating equipment	2-7 yrs.		198,948		186,499
Transportation vehicles	3-7 yrs.		222,006		208,371
Office equipment and software	3-10 yrs.		57,928		57,976
Construction in progress	—		9,893		4,202
Property and equipment			578,344		544,813
Less: Accumulated depreciation			311,676		288,007
Property and equipment, net		$	266,668	$	256,806

		March 31, 2019					September 30, 2018
	Estimated Useful Life	Gross Carrying Amount		Accumulated Amortization			Gross Carrying Amount		Accumulated Amortization
Customer relationships	6-21 yrs.	$	635,394	$	(366,417	)	$	622,710	$	(337,800	)
Trademarks⁽¹⁾	4-12 yrs.		4,800		(1,504	)		230,900		(227,520	)
Non-compete agreements	5 yrs.		2,740		(392	)		2,320		(155	)
Total intangible assets		$	642,934	$	(368,313	)	$	855,930	$	(565,475	)

	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		32,448		—		32,448
Balance, March 31, 2019	$	1,604,811	$	194,398	$	1,799,209

	March 31, 2019			September 30, 2018
Series B term loan, net of original issue discount of $2,523 and $2,712 at March 31, 2019 and September 30, 2018, respectively (excluding the effect of the hedges)	$	1,026,700		$	1,034,288
Receivables financing agreement		150,000			140,000
Financing costs, net		(18,861	)		(20,046	)
Total debt, net		1,157,839			1,154,242
Less: Current portion of long-term debt		10,370			12,963
Long-term debt, net	$	1,147,469			1,141,279

	March 31,
2020	$	10,370
2021		10,370
2022		160,370
2023		10,370
2024 and thereafter		987,743
Total long-term debt		1,179,223
Less: Current maturities		10,370
Less: Original issue discount		2,523
Less: Financing costs		18,861
Total long-term debt, net	$	1,147,469

	Three Months Ended March 31,						Percent Change
(In millions)	2019			2018			2019 vs. 2018
Net Service Revenues	$	473.3		$	460.1			2.9	%
Segment Adjusted EBITDA	$	65.0		$	58.3			11.5	%
Segment Adjusted EBITDA Margin		13.7	%		12.7	%		100	bps

Exhibit Number		Description

3.1		Third Amended and Restated Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on July 2, 2018)
3.2 10.1		Amended and Restated Bylaws of the Company (incorporated by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K filed on July 2, 2018) First Amendment to the Receivables Financing Agreement, including as Exhibit A thereto, a marked version of the Receivables Financing Agreement, dated as of February 21, 2019, by and among BrightView Funding LLC, as borrower, BrightView Landscapes LLC, as initial servicer and PNC Bank, National Association, as lender, letter of credit bank, letter of credit participant and administrative agent (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on February 22, 2019)
31.1		Certification of Periodic Report by Chief Executive Officer under Section 302 of the Sarbanes-Oxley Act of 2002 (furnished herewith)
31.2		Certification of Periodic Report by Chief Financial Officer under Section 302 of the Sarbanes-Oxley Act of 2002 (furnished herewith)
32.1		Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith)
32.2		Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith)
101.INS		XBRL Instance Document
101.SCH		XBRL Taxonomy Extension Schema Document
101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF		XBRL Taxonomy Extension Definition Linkbase Document
101.LAB		XBRL Taxonomy Extension Label Linkbase Document
101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document

	BrightView Holdings, Inc.

Date: May 8, 2019	By:	/s/ Louay H. Khatib

		Louay H. Khatib
		Chief Accounting Officer
		(Principal Accounting Officer)