This article originally appeared on LandscapeManagement.net on May 24, 2022. Greg Herring regularly writes for Landscape Management, providing financial analysis and insights tailored to landscape business owners.
BrightView‘s revenue grows again. Landscape maintenance revenue was up 8.1 percent in the quarter that ended March 31, 2022, as compared with the quarter the prior year, without the impact of acquisitions.
The company projects a landscape maintenance growth of 3 to 4 percent for the next six months. Thereafter, it expects to see growth of 2 to 3 percent without the impact of acquisitions. Some of that growth will be caused by increases in prices.
The acquisition pipeline has companies with aggregate revenue of $600 million.
From a profit perspective, BrightView is projecting an adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) margin of 10.8 percent with the intention to get it to 13 percent in two to three years, despite the rise in fuel prices. By way of comparison, the adjusted EBITDA margin was 12.4 percent for the 12 months ending Dec. 31, 2019. It has fallen to 9.9 percent for the 12 months ended March 31, 2022. The table below shows a similar decline in the adjusted operating profit margin. In the calculations below, operating profit is equal to EBITDA less depreciation expense.
Price increases and fuel surcharges
During its call with analysts, management said, “Similar to many other companies, we have been introducing fuel surcharges across our business and we expect to continue to do this as long as fuel prices remain higher than prior years.”
Management indicated that the primary customer response was one of a willingness to engage in a discussion of price increases or scope reductions or both. They also stated that some customers have reacted by putting the contracts out to bid. As a result, the company has seen a slight reduction in its retention rate.
Over the years, I have written about BrightView’s significant debt. Recently, that debt increased because the company bought the BrightView shares owned by MSD Partners, a BrightView investor for 15 years. BrightView handles its relationship with its lenders quite well. In April 2022, the company refinanced its term loan, extending the maturity to April 2029, and its revolving line of credit, extending the maturity to April 2027. The combined borrowing capacity increased from $1.3 billion to $1.5 billion, providing BrightView with plenty of cash for future acquisitions as part of their growth strategy.
BrightView plans to convert 35,000 pieces of 2-cycle gas-powered equipment to rechargeable energy sources by 2025 as part of its ESG commitment.
BrightView focuses on technology as a strategic enabler. One example is creating a customer portal for its HOA customers. Recently, the company’s customer technology advisory panel, a group of its top 10 HOA Connect adopters, suggested that BrightView add text message or email service confirmation capability. The company added this functionality to its software and launched a pilot in April 2022.
Income Statement Summary
In its public reports, BrightView “adjusts” its earnings before interest, tax and depreciation 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 most recent four quarters also included an adjustment for $22 million in 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 now.
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 amortization of intangible assets, I have excluded it, so they can compare their numbers to BrightView’s numbers.
To see short-term trends, the following table shows operating results for each of the past five quarters:
|Qtr Ended Mar- 21||Qtr Ended Jun- 21||Qtr Ended Sep- 21||Qtr Ended Dec- 21||Qtr Ended Mar-22|
|Snow removal services||226.0||3.4||(0.3)||36.0||208.2|
|Net service revenues||651.9||673.6||673.7||591.8||711.9|
|Year over year growth rate||9.2%|
|Cost of services||493.8||494.6||493.6||451.9||554.8|
|Gross profit margin||24.3%||26.6%||26.7%||23.6%||22.1%|
|Selling, general and admin (SG&A) expenses||127.9||123.1||133.7||134.9||133.4|
|Ongoing SGA&A expenses||116.4||110.3||120.5||124.2||126.4|
|SG&A as a % of revenue||17.9%||16.4%||17.9%||21.0%||17.8%|
|Adjusted operating income||$41.7||$68.7||$59.6||$15.7||$30.7|
|Operating profit margin||6.4%||10.2%||8.8%||2.7%||4.3%|
To see long-term trends, the following table shows operating results for each of the past four years:
|Year Ended Mar-19||Year Ended Mar-20||Year Ended Mar-21||Year Ended Mar-22|
|Snow removal services||248.3||163.5||286.8||247.3|
|Net services revenues||2,334.8||2,411.8||2,422.5||2,651.0|
|Year over year growth rate||3.3%||0.4%||9.4%|
|Cost of services||1,715.5||1776.2||1810.8||1,994.9|
|Gross profit margin||26.5%||26.4%||25.3%||24.7%|
|Selling, general and admin (SG&A) expenses||473.0||480.0||521.4||525.1|
|Ongoing SG&A expenses||403.6||430.2||423.3||481.4|
|SG&A as a % of revenue||17.3%||17.8%||17.5%||18.2%|
|Adjusted operating income||$215.6||$205.4||$188.4||$174.7|
|Operating profit margin||9.2%||8.5%||7.8%||6.6%|