Prior to going public, BrightView Holdings filed a 200+ page document with the Securities and Exchange Commission to discuss its business strategy, operations and financial statements. This document is designed to provide potential investors in BrightView with the information they need to make a wise investment decision. That information also holds tremendous value for BrightView’s competitors.

As I have spoken to people in the landscape industry, they have expressed confusion about BrightView’s profit margins. The confusion results from BrightView changing its fiscal years and incurring “one-time” costs related to the acquisition of many companies and the process of becoming a public company.

In the analysis below, I will eliminate the confusion.

As a former CFO, when I review a company’s income statement, I am interested in revenue mix, growth rates and profitability. BrightView provided clear numbers for the six-month periods ended March 31, 2018 and 2017, and the nine-month periods ended September 30, 2017 and 2016. However, in the landscape industry, we want to review 12-month periods to eliminate the impact of seasonality. Accordingly, I compiled the table below for the 12 months ended March 31, 2018 and 2017, from information in the filing. The dollars in the table are in millions.

	12-month periods ended March 31		Change
	2018	2017	Dollars	Percent
Snow removal services	$243.7	$188.5	55.2	29%
Landscape maintenance and development services	2,092.3	1,971.7	120.6	6%
Total revenue	2,336.0	2,160.2	175.8	8%
Cost of services	1,716.6	1,569.9	146.7	9%
Gross profit	619.4	590.3	29.1	5%
Gross profit margin	26.5%	27.3%
Selling, general and administrative expenses	446.2	455.2	(9.0)	-2%
Adjustments	(45.6)	(29.0)
Ongoing selling, general and administrative expenses	400.6	426.2	(25.6)	-6%
Operating income	$218.8	$164.1	54.7	33%
Operating profit margin	9.4%	7.6%

BrightView has three revenue sources:

• Landscape maintenance services, representing 63 percent of total revenue;
• Snow removal services, representing 10 percent of total revenue; and
• Development services (i.e. landscape construction), representing 27 percent of total revenue.

Landscape maintenance services and development services revenue, combined, grew $121 million or 6 percent in the 12-month period ended March 31, 2018, compared to the previous 12-month period. This growth includes revenue from new acquisitions.

Based on the filing, I suspect revenue from new acquisitions was $40 to $50 million in the 12-month period ended March 31, 2018. In its filing, BrightView disclosed that from January 1, 2017, through May 31, 2018, BrightView acquired eight businesses with aggregate annualized revenue of $188 million. The company paid $161 million for these businesses.

Snow removal service revenue grew $55 million or 29 percent in the 12-month period ended March 31, 2018, compared to the previous 12-month period.

Cost of services includes all job-related costs—both direct expenses allocated to specific jobs and indirect expenses, like fuel and equipment, not allocated to specific jobs.

BrightView computes gross profit and gross profit margin after indirect expenses. Many landscape companies compute these numbers after direct expenses like direct labor and direct materials. These companies will need to subtract indirect expenses from their gross profit to compare their numbers with BrightView’s numbers.

Selling, general and administrative expenses are what most companies call overhead. BrightView’s business strategy creates “noise” in their overhead expenses. To assist investors in determining its recurring revenue and expenses, BrightView provided adjustments to eliminate the noise. These adjustments include expenses associated with acquiring and integrating businesses, becoming a public company and paying some employees partially through equity-based compensation. These adjustments totaled $46 million in the 12-month period ended March 31, 2018.

BrightView’s overhead expenses declined $9 million or 2 percent before the adjustments and $26 million or 6 percent after the adjustments even though revenue increased—a significant accomplishment.

Overall operating income, after adjustments, increased $55 million or 33 percent in the 12-month period ended March 31, 2018, compared to the previous 12-month period.

The operating profit margin increased from 7.6 percent to 9.4 percent because of the significant reduction in overhead expenses.

In the five years that I have compiled a landscape industry benchmark report, I have found the average operating profit margin to be approximate 5-6 percent. Several industry experts believe the average operating profit margin is 3-4 percent. In my benchmark report, the best performers are routinely above 10 percent, with some surpassing 15 percent, but those levels are not attainable for a company of BrightView’s size.

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.

For most landscape companies, net income after depreciation and owners’ compensation but before interest and taxes will be the same as operating income.

For landscape business owners and managers, comparing profitability with peers is a great way to measure company performance and create goals for increased profitability.

Have a question or comment about the latest BrightView news? Leave a comment in the section below.

Greg Herring has served as a CFO of both public and private companies. Herring is the CEO of The Herring Group, an operational and strategic finance consultancy. He has significant experience in the landscape industry, where he serves business owners challenged by growth by installing financial dashboards and systems that provide more margin for their businesses and their lives. Reach him at greg.herring@herring-group.com.

Photo: Greg Herring