This article originally appeared on LandscapeManagement.net on February 28, 2023. Greg Herring regularly writes for Landscape Management, providing financial analysis and insights tailored to landscape business owners.
BrightView reported organic growth (excludes growth due to acquisitions) in landscape maintenance services of 1.5 percent (“nominal organic growth”) for the quarter that ended Dec. 31, 2022, as compared with the quarter that ended Dec. 31, 2021. Inflation significantly exceeded 1.5 percent, which means that BrightView had negative real organic growth — a significant issue.
Real growth is a term used by economists to exclude growth in revenue caused by inflation. If a company has a $10,000 contract in 2021 and increases the price to $11,000 in 2022, nominal growth is 10 percent; real growth is zero.
The more volatile landscape development services division had nominal organic growth of 5.9 percent for the same period.
Organic growth for snow was significant (50.5 percent), but not a meaningful indicator of BrightView performance due to varying snowfall.
I suspect BrightView is under tremendous pressure to improve its organic growth in landscape maintenance services. You can come to your own conclusion as to how BrightView might boost its organic growth in the short term. Your conclusion should impact your business strategy and tactics, including your narratives as you sell services. As financial leaders, we discuss these issues and opportunities with our clients routinely. BrightView is too big to ignore in many markets.
In the next article, I comment on BrightView’s valuation and whether it represents a warning to the industry and, specifically, sellers of landscape companies.
Income statement summary
In its public reports, BrightView “adjusts” its earnings before interest taxes depreciation and amortization and net income for certain expenses. I have used some of these adjustments for operating income in the tables below.
The idea is that these expenses are not part of ordinary operations. Historically, the adjustments included expenses associated with business transformation and integration, becoming a public company and defending shareholder lawsuits, paying some employees partially through equity-based compensation, and some other unusual expenses.
The company also adjusted for COVID-19-related expenses. In the table below, I did not adjust the results for COVID-19 expenses because they are a normal part of operations for landscape companies.
For the accounting experts: Note that I have excluded from operating income the expense related to the amortization of intangible assets that were recorded as BrightView acquired other businesses. Since most landscape companies do not have the amortization of intangible assets, I excluded it, for comparison to BrightView’s numbers.
To see short-term trends, the following table shows operating results for each of the past five quarters:
| Qtr Ended Dec- 21 | Qtr Ended Mar- 22 | Qtr Ended Jun- 22 | Qtr Ended Sep- 22 | Qtr Ended Dec-22 | |
| Snow removal services | 36.0 | 208.2 | 12.9 | (0.8) | 61.8 |
| Landscape maintenance | 402.2 | 345.2 | 548.9 | 529.4 | 421.4 |
| Landscape development | 154.7 | 159.7 | 186.4 | 198.0 | 174.4 |
| Eliminations | (1.1) | (1.2) | (0.8) | (3.1) | (1.7) |
| Net service revenues | 591.8 | 711.9 | 747.4 | 723.5 | 655.9 |
| Year-over-year growth rate | 10.8% | ||||
| Cost of services | 451.9 | 554.8 | 558.2 | 534.9 | 508.3 |
| Gross Profit | 139.9 | 157.1 | 189.2 | 188.6 | 147.6 |
| Gross profit margin | 23.6% | 22.1% | 25.3% | 26.1% | 22.5% |
| Selling, general and admin (SG&A) expenses | 134.9 | 133.4 | 131.3 | 135.3 | 137.6 |
| Adjustments | (10.7) | (7.0) | (9.1) | (13.8) | (10.4) |
| Ongoing SGA&A expenses | 124.2 | 126.4 | 122.2 | 121.5 | 127.2 |
| SG&A as a percent of revenue | 21.0% | 17.8% | 16.4% | 16.8% | 19.4% |
| Adjusted operating income | $15.7 | $30.7 | $67.0 | $67.1 | $20.4 |
| Operating profit margin | 2.7% | 4.3% | 9.0% | 9.3% | 3.1% |
To see long-term trends, the following table shows operating results for each of the past four years:
| Year Ended Dec-19 | Year Ended Dec-20 | Year Ended Dec-21 | Year Ended Dec-22 | |
| Snow removal services | 252.5 | 163.3 | 265.1 | 282.1 |
| Landscape maintenance | 1,587.2 | 1,558.5 | 1,738.0 | 1,844.9 |
| Landscape development | 613.8 | 601.6 | 592.2 | 718.5 |
| Eliminations | (4.2) | (3.7) | (4.3) | (6.8) |
| Net services revenues | 2,449.3 | 2,329.7 | 2,591.0 | 2,838.7 |
| Year-over-year growth rate | -4.9% | 11.2% | 9.6% | |
| Cost of services | 1,800.0 | 1,743.8 | 1,933.9 | 2,156.2 |
| Gross profit | 649.4 | 585.9 | 657.1 | 682.5 |
| Gross profit margin | 26.5% | 25.1% | 25.4% | 24.0% |
| Selling, general and admin (SG&A) expenses | 472.5 | 520.4 | 519.6 | 537.6 |
| Adjustments | (46.4) | (101.6) | (48.2) | (40.3) |
| Ongoing SG&A expenses | 426.1 | 418.8 | 471.4 | 497.3 |
| SG&A as a percent of revenue | 17.4% | 18.0% | 18.2% | 17.5% |
| Adjusted operating income | $223.3 | $167.1 | $185.7 | $185.2 |
| Operating profit margin | 9.1% | 7.2% | 7.2% | 6.5% |