BrightView recently reported its results for the quarter ended June 30, 2023.
Both the results and management’s comments indicate that BrightView is a company in transition — a transition back to the basics.
As I read the transcript of the management team’s comments on its earning call, I hear enthusiasm for the company’s numbers. Then, I look at the numbers and see a disconnect between the numbers and management’s remarks. It’s difficult to get excited about those numbers and the company’s situation.
Why? Because despite acquisitions and strong industry growth, the company’s core landscape maintenance business has negative real revenue growth (real growth is actual growth minus inflation). In addition, management’s comments speak of a transition that will be measured in quarters or years, not months.
BrightView’s transitions
Here are the transitions (my word) that management mentions:
- Focus on industry fundamentals: targeting the right customers, pricing discipline, increasing the contract sales win rates, retaining customers and improving low-performing branches. How would you like to be a member of a management team that tells the world that the company needs to focus on the fundamentals of success in your industry?
- A permanent cost savings initiative that now includes a focus on branch-level costs.
- Emphasize free cash flow. This focus is necessary because BrightView has a lot of debt by any measure and its interest expense has doubled. Simply put, a landscape company can increase free cash flow by growing revenue, increasing prices, using less labor or deferring capital expenditures. As you can see in the tables below, the company’s adjusted operating profit margin has increased slightly. Increasing the operating profit margin takes significant time. It is much faster to reduce capital expenditures. (It is difficult to permanently reduce capital expenditures in this industry. In fact, I expect capital expenditures as a percentage of revenue will increase for most companies.)
- Centralize purchasing. BrightView hired some consulting firms to help them accomplish this objective to reduce costs. It sounds like that initiative will take quite a bit of time.
- A new CEO — In this situation, a new CEO will bring a new strategy and maybe new people – extending the time of transition.
- Management’s prepared remarks did not even mention acquisitions. When questioned, management stated acquisitions are not on an official pause, but they are being very selective in the acquisitions — meaning management’s focus is elsewhere. Integrating acquisitions consumes a lot of cash and management time.
If you are a competitor to BrightView, where do you see opportunity?
Income statement summary
In its public reports, BrightView adjusts its earnings before interest, taxes, depreciation, amortization and net income for certain expenses. I 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 made an adjustment 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 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 Jun- 22 | Qtr Ended Sep- 22 | Qtr Ended Dec- 22 | Qtr Ended Mar-23 | Qtr Ended Jun- 23 | |
| Snow removal services | 12.9 | (0.8) | 61.8 | 138.8 | 9.3 |
| Landscape maintenance | 548.9 | 529.4 | 421.4 | 359.0 | 555.3 |
| Landscape development | 186.4 | 198.0 | 174.4 | 155.6 | 203.4 |
| Eliminations | (0.8) | (3.1) | (1.7) | (3.0) | (2.0) |
| Net service revenues | 747.4 | 723.5 | 655.9 | 650.4 | 766.0 |
| Year-over-year growth rate | 2.5% | ||||
| Cost of services | 558.2 | 534.9 | 508.3 | 503.3 | 567.4 |
| Gross Profit | 189.2 | 188.6 | 147.6 | 147.1 | 198.6 |
| Gross profit margin | 25.3% | 26.1% | 22.5% | 22.6% | 25.9% |
| Selling, general and admin (SG&A) expenses | 131.3 | 135.3 | 137.6 | 138.7 | 136.6 |
| Adjustments | (9.1) | (13.8) | (10.4) | (10.4) | (12.8) |
| Ongoing SGA&A expenses | 122.2 | 121.5 | 127.2 | 128.3 | 123.8 |
| SG&A as a percent of revenue | 16.4% | 16.8% | 19.4% | 19.7% | 16.2% |
| Adjusted operating income | $67.0 | $67.1 | $20.4 | $18.8 | $74.8 |
| Operating profit margin | 9.0% | 9.3% | 3.1% | 2.9% | 9.8% |
To see long-term trends, the following table shows operating results for each of the past four years:
| Year Ended Jun-20 | Year Ended Jun-21 | Year Ended Jun-22 | Year Ended Jun-23 | |
| Snow removal services | 162.9 | 285.1 | 256.8 | 209.1 |
| Landscape maintenance | 1,581.2 | 1,637.2 | 1,801.2 | 1,865.1 |
| Landscape development | 622.6 | 569.9 | 670.9 | 731.4 |
| Eliminations | (4.1) | (4.2) | (4.1) | (9.8) |
| Net services revenues | 2,362.7 | 2,488.0 | 2,724.8 | 2,795.8 |
| Year-over-year growth rate | 5.3% | 9.5% | 2.6% | |
| Cost of services | 1,759.3 | 1,853.7 | 2,058.5 | 2,113.9 |
| Gross profit | 603.4 | 634.3 | 666.3 | 681.9 |
| Gross profit margin | 25.5% | 25.5% | 24.5% | 24.4% |
| Selling, general and admin (SG&A) expenses | 497.8 | 512.7 | 533.3 | 548.2 |
| Adjustments | (83.6) | (71.1) | (40.0) | (47.4) |
| Ongoing SG&A expenses | 414.2 | 441.6 | 493.3 | 500.8 |
| SG&A as a percent of revenue | 17.5% | 17.7% | 18.1% | 17.9% |
| Adjusted operating income | $189.2 | $192.7 | $173.0 | $181.1 |
| Operating profit margin | 8.0% | 7.7% | 6.3% | 6.5% |
