BrightView 10Q 2023 Q3 Quarterly report

BrightView (BV) 10-Q2023 Q3 Quarterly report

Content analysis

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2023


☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 001-38579

BrightView Holdings, Inc.

(Exact name of Registrant as specified in its Charter)


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)

Registrant’s telephone number, including area code: (844) 235-7778

Securities registered pursuant to Section 12(b) of the Act:


Title of Each Class	Trading Symbol	Name of exchange on which registered
Common Stock, Par Value $0.01 Per Share	BV	New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None

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 ☒

The number of shares of Registrant’s Common Stock outstanding as of July 31, 2023 was 93,400,000.

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		Page
PART I.	FINANCIAL INFORMATION	5
Item 1.	Financial Statements (Unaudited)	5
	Consolidated Balance Sheets	5
	Consolidated Statements of Operations	6
	Consolidated Statements of Comprehensive Income (Loss)	7
	Consolidated Statements of Stockholders’ Equity	8
	Consolidated Statements of Cash Flows	9
	Notes to Unaudited Consolidated Financial Statements	10
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	24
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	38
Item 4.	Controls and Procedures	38
PART II.	OTHER INFORMATION	39
Item 1.	Legal Proceedings	39
Item 1A.	Risk Factors	39
Item 2.	Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities	39
Item 3.	Defaults Upon Senior Securities	39
Item 4.	Mine Safety Disclosures	39
Item 5.	Other Information	39
Item 6.	Exhibits	40
Signatures

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q (this “Form 10-Q”) contains “forward-looking statements” within the meaning of the safe harbor provision of the U.S. Private Securities Litigation Reform Act of 1995, 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,” “continues,” 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 the heading “Business”, “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this Form 10-Q. New risk factors and uncertainties may emerge from time to time, and it is not possible for management to predict all risk factors and uncertainties. Some of the key factors that could cause actual results to differ from our expectations include, but are not limited to, risks related to:

•

general business, economic and financial conditions;

•

the duration and extent of the novel coronavirus (COVID-19) pandemic and its resurgence, and the impact of federal, state and local governmental actions and customer behavior in response to the pandemic, including possible additional or reinstated restrictions as a result of a resurgence of the pandemic;

•

higher operational and supply costs and expenses due to inflation, and our inability to pass higher costs and expenses onto our customers through price increases;

•

competitive industry pressures;

•

the failure to retain current customers, renew existing customer contracts and obtain new customer contracts;

•

the failure to enter into profitable contracts, or maintaining customer contracts that are unprofitable;

•

a determination by customers to reduce their outsourcing or use of preferred vendors;

•

the dispersed nature of our operating structure;

•

our ability to implement our business strategies and achieve our growth objectives;

•

the possibility that the anticipated benefits from our business acquisitions will not be realized in full or at all or may take longer to realize than expected; the possibility that costs or difficulties related to the integration of acquired businesses’ operations will be greater than expected and the possibility that integration efforts will disrupt our business and strain management time and resources;

•

the seasonal nature of our landscape maintenance services;

•

our dependence on weather conditions and the impact of severe weather and climate change on our business;

•

increases in prices for raw materials, labor and fuel caused by rising inflation, or otherwise;

•

disruptions in our supply chain and changes in our ability to source adequate supplies and materials in a timely manner;

•

any failure to accurately estimate the overall risk, requirements, or costs when we bid on or negotiate contracts that are ultimately awarded to us;

•

the conditions and periodic fluctuations of real estate markets, including residential and commercial construction;

•

our ability to retain or hire our executive management and other key personnel;

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•

our ability to attract and retain field and hourly employees, trained workers, and third-party contractors and seasonal workers;

•

any failure to properly verify employment eligibility of our employees;

•

subcontractors taking actions that harm our business;

•

our recognition of future impairment charges;

•

laws and governmental regulations, including those relating to employees, wage and hour, immigration, human health and safety and transportation;

•

environmental, health and safety laws and regulations, including regulatory costs, claims and litigation related to the use of chemicals and pesticides by employees and related third-party claims;

•

our ability to meet our environmental, social and governance (“ESG”) goals and targets and the possibility that complying with ESG standards and meeting our goals may be significantly more costly than anticipated;

•

the distraction and impact caused by litigation, of adverse litigation judgments and settlements resulting from legal proceedings;

•

increase in on-job accidents involving employees;

•

any failure, inadequacy, interruption, security failure or breach of our information technology systems;

•

our ability to adequately protect our intellectual property;

•

restrictions imposed by our debt agreements that limit our flexibility in operating our business;

•

our ability to generate sufficient cash flow to satisfy our significant debt service obligations;

•

our ability to obtain additional financing to fund future working capital, capital expenditures, investments or acquisitions, or other general corporate requirements;

•

increases in interest rates governing our variable rate indebtedness increasing the cost of servicing our substantial indebtedness;

•

any future sales, or the perception of future sales, by us or our affiliates, which could cause the market price for our common stock to decline;

•

the ability of KKR BrightView Aggregator L.P., which holds approximately 54% of our shares as of June 30, 2023, to exert significant influence over us;

•

occurrence of natural disasters, terrorist attacks, geopolitical events, hostilities or other external events;

•

changes in generally accepted accounting principles in the United States; and

•

costs and requirements imposed as a result of maintaining compliance with the requirements of being a public company.

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. We undertake no obligation to publicly update or revise any forward-looking statements to reflect subsequent events or circumstances, any change in assumptions, beliefs or expectations or any change in circumstances upon which any such forward-looking statements are based, except as required by law.

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PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

BrightView Holdings, Inc.

Consolidated Balance Sheets

(Unaudited)

(In millions, except par value and share data)


	June 30, 2023			September 30, 2022
Assets
Current assets:
Cash and cash equivalents	$	9.6		$	20.1
Accounts receivable, net		445.7			397.6
Unbilled revenue		138.2			130.2
Other current assets		93.2			129.2
Total current assets		686.7			677.1
Property and equipment, net		330.7			328.3
Intangible assets, net		143.0			174.3
Goodwill		2,021.5			2,008.8
Operating lease assets		84.8			81.6
Other assets		53.0			35.4
Total assets	$	3,319.7		$	3,305.5
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	144.8		$	151.2
Current portion of long-term debt		12.0			12.0
Deferred revenue		79.4			59.3
Current portion of self-insurance reserves		52.6			45.6
Accrued expenses and other current liabilities		200.3			193.5
Current portion of operating lease liabilities		27.3			26.8
Total current liabilities		516.4			488.4
Long-term debt, net		1,336.2			1,330.7
Deferred tax liabilities		50.5			68.6
Self-insurance reserves		95.6			101.1
Long-term operating lease liabilities		63.8			61.3
Other liabilities		36.8			38.6
Total liabilities		2,099.3			2,088.7
Stockholders’ equity:
Preferred stock, $0.01 par value; 50,000,000 shares authorized; no shares issued or outstanding as of June 30, 2023 and September 30, 2022		—			—
Common stock, $0.01 par value; 500,000,000 shares authorized; 106,300,000 and 105,700,000 shares issued and 93,400,000 and 93,000,000 shares outstanding as of June 30, 2023 and September 30, 2022, respectively		1.1			1.1
Treasury stock, at cost; 12,900,000 and 12,700,000 shares as of June 30, 2023 and September 30, 2022, respectively		(169.5	)		(168.2	)
Additional paid-in capital		1,526.7			1,509.5
Accumulated deficit		(151.7	)		(127.6	)
Accumulated other comprehensive income		13.8			2.0
Total stockholders’ equity		1,220.4			1,216.8
Total liabilities and stockholders’ equity	$	3,319.7		$	3,305.5

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

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BrightView Holdings, Inc.

Consolidated Statements of Operations

(Unaudited)

(In millions, except per share data)


	Three Months Ended June 30,					Nine Months Ended June 30,
	2023			2022		2023			2022
Net service revenues	$	766.0		$	747.4	$	2,072.3		$	2,051.2
Cost of services provided		567.4			558.2		1,579.0			1,565.0
Gross profit		198.6			189.2		493.3			486.2
Selling, general and administrative expense		136.6			131.3		413.0			399.5
Amortization expense		10.8			13.2		33.7			38.7
Income from operations		51.2			44.7		46.6			48.0
Other (income) expense		(0.6	)		14.6		(2.1	)		15.1
Interest expense		27.4			14.8		78.3			34.5
Income (loss) before income taxes		24.4			15.3		(29.6	)		(1.6	)
Income tax expense (benefit)		7.6			4.5		(5.5	)		(0.3	)
Net income (loss)	$	16.8		$	10.8	$	(24.1	)	$	(1.3	)
Earnings (loss) per share:
Basic and diluted earnings (loss) per share	$	0.18		$	0.12	$	(0.26	)	$	(0.01	)

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

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BrightView Holdings, Inc.

Consolidated Statements of Comprehensive Income (Loss)

(Unaudited)

(In millions)


	Three Months Ended June 30,					Nine Months Ended June 30,
	2023			2022		2023			2022
Net income (loss)	$	16.8		$	10.8	$	(24.1	)	$	(1.3	)
Net derivative gains and other costs arising during the period, net of tax expense of $5.8; $0.5; $6.2; and $1.5, respectively (1)		16.0			1.1		17.2			3.9
Reclassification of (gains) losses into net income (loss), net of tax (expense) of $(0.5); $0.0; $(1.5); and $0.0, respectively		(2.1	)		0.1		(5.4	)		0.2
Other comprehensive income		13.9			1.2		11.8			4.1
Comprehensive income (loss)	$	30.7		$	12.0	$	(12.3	)	$	2.8

(1)

Other costs include the effects of foreign currency translation adjustments which were immaterial during the periods presented.

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

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BrightView Holdings, Inc.

Consolidated Statements of Changes in Stockholders’ Equity

Three and Nine Months Ended June 30, 2023 and 2022

(Unaudited)

(In millions)


	Common Stock					Additional Paid-In		Accumulated			Accumulated Other Comprehensive			Treasury			Total Stockholders’
	Shares			Amount		Capital		Deficit			Income (Loss)			Stock			Equity
Balance, March 31, 2023		106.4		$	1.1	$	1,522.8	$	(168.5	)	$	(0.1	)	$	(169.4	)	$	1,185.9
Net income		—			—		—		16.8			—			—			16.8
Other comprehensive income, net of tax		—			—		—		—			13.9			—			13.9
Capital contributions and issuance of common stock		(0.1	)		—		—		—			—			—			—
Equity-based compensation		—			—		3.9		—			—			—			3.9
Repurchase of common stock and distributions		—			—		—		—			—			(0.1	)		(0.1	)
Balance, June 30, 2023		106.3		$	1.1	$	1,526.7	$	(151.7	)	$	13.8		$	(169.5	)	$	1,220.4

Balance, September 30, 2022		105.7		$	1.1	$	1,509.5	$	(127.6	)	$	2.0		$	(168.2	)	$	1,216.8
Net (loss)		—			—		—		(24.1	)		—			—			(24.1	)
Other comprehensive income, net of tax		—			—		—		—			11.8			—			11.8
Capital contributions and issuance of common stock		0.6			—		1.5		—			—			—			1.5
Equity-based compensation		—			—		15.7		—			—			—			15.7
Repurchase of common stock and distributions		—			—		—		—			—			(1.3	)		(1.3	)
Balance, June 30, 2023		106.3		$	1.1	$	1,526.7	$	(151.7	)	$	13.8		$	(169.5	)	$	1,220.4



	Common Stock					Additional Paid-In		Accumulated			Accumulated Other Comprehensive			Treasury			Total Stockholders’
	Shares			Amount		Capital		Deficit			Loss			Stock			Equity
Balance, March 31, 2022		105.7		$	1.1	$	1,499.9	$	(153.7	)	$	1.4		$	(95.2	)	$	1,253.5
Net income		—			—		—		10.8			—			—			10.8
Other comprehensive income, net of tax		—			—		—		—			1.2			—			1.2
Equity-based compensation		—			—		4.8		—			—			—			4.8
Repurchase of common stock and distributions		—			—		—		—			—			(72.9	)		(72.9	)
Balance, June 30, 2022		105.7		$	1.1	$	1,504.7	$	(142.9	)	$	2.6		$	(168.1	)	$	1,197.4

Balance, September 30, 2021		105.2		$	1.1	$	1,489.1	$	(141.6	)	$	(1.5	)	$	(4.4	)	$	1,342.7
Net (loss)		—			—		—		(1.3	)		—			—			(1.3	)
Other comprehensive income, net of tax		—			—		—		—			4.1			—			4.1
Capital contributions and issuance of common stock		0.5			—		1.6		—			—			—			1.6
Equity-based compensation		—			—		14.0		—			—			—			14.0
Repurchase of common stock and distributions		—			—		—		—			—			(163.7	)		(163.7	)
Balance, June 30, 2022		105.7		$	1.1	$	1,504.7	$	(142.9	)	$	2.6		$	(168.1	)	$	1,197.4

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

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BrightView Holdings, Inc.

Consolidated Statements of Cash Flows

(Unaudited)

(In millions)


	Nine Months Ended June 30,
	2023			2022
Cash flows from operating activities:
Net (loss)	$	(24.1	)	$	(1.3	)
Adjustments to reconcile net (loss) to net cash provided by operating activities:
Depreciation		80.9			71.5
Amortization of intangible assets		33.7			38.7
Amortization of financing costs and original issue discount		2.7			2.8
Loss on debt extinguishment		—			12.6
Deferred taxes		(23.0	)		(12.7	)
Equity-based compensation		15.7			14.0
Realized (gain) loss on hedges		(6.9	)		0.2
Other non-cash activities, net		0.1			(2.5	)
Change in operating assets and liabilities:
Accounts receivable		(53.3	)		(28.8	)
Unbilled and deferred revenue		11.0			16.0
Other operating assets		17.3			(7.6	)
Accounts payable and other operating liabilities		35.2			(37.2	)
Net cash provided by operating activities		89.3			65.7
Cash flows from investing activities:
Purchase of property and equipment		(57.9	)		(88.1	)
Proceeds from sale of property and equipment		6.8			5.4
Business acquisitions, net of cash acquired		(13.8	)		(89.4	)
Other investing activities, net		1.9			—
Net cash (used) by investing activities		(63.0	)		(172.1	)
Cash flows from financing activities:
Repayments of finance lease obligations		(20.9	)		(18.1	)
Repayments of term loan		(9.0	)		(1,003.3	)
Repayments of receivables financing agreement		(448.0	)		(203.0	)
Repayments of revolving credit facility		(33.5	)		(165.0	)
Proceeds from term loan, net of issuance costs		—			1,180.1
Proceeds from receivables financing agreement, net of issuance costs		460.0			223.7
Proceeds from revolving credit facility		33.5			165.0
Debt issuance costs		—			(4.6	)
Proceeds from issuance of common stock, net of share issuance costs		1.0			1.3
Repurchase of common stock and distributions		(1.3	)		(163.7	)
Contingent business acquisition payments		(18.5	)		—
Other financing activities, net		(0.1	)		(3.4	)
Net cash (used) provided by financing activities		(36.8	)		9.0
Net change in cash and cash equivalents		(10.5	)		(97.4	)
Cash and cash equivalents, beginning of period		20.1			123.7
Cash and cash equivalents, end of period	$	9.6		$	26.3
Supplemental Cash Flow Information:
Cash (received) paid for income taxes, net	$	(18.4	)	$	16.5
Cash paid for interest	$	62.9		$	31.1

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

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BrightView Holdings, Inc.

Notes to Consolidated Financial Statements

(Unaudited)

(In millions, except per share and share data)

1. Business and Basis of Presentation

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. (“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.

Basis of Presentation

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, 2022, presented herein, has been derived from the Company’s audited consolidated financial statements as of and for the fiscal year ended September 30, 2022, 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, 2022, filed with the Securities and Exchange Commission (“SEC”).

Use of Estimates

The preparation of the consolidated 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 consolidated 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.

2. Recent Accounting Pronouncements

Reference Rate Reform

In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting which provides optional expedients and exceptions for the accounting for contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The guidance in ASU 2020-04 is optional and may be elected over time as reference rate reform activities occur. In January 2021, the FASB issued ASU 2021-01 to clarify the scope of certain optional expedients for derivatives that are affected by the discounting transition. In December 2022, the FASB issued ASU 2022-06 to defer the sunset date of Topic 848 from December 31, 2022, to December 31, 2024, after which entities will no longer be permitted to apply the relief in Topic 848. As of June 30, 2023, the Company was not party to any contracts, hedging relationships, or other transactions affected by reference rate reform.

Business Combinations

In October 2021, the FASB issued ASU No. 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers which requires that an entity (acquirer) recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606 as if it had originated the contracts. The Company

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adopted the guidance in the first quarter of fiscal 2023. The adoption of ASU No. 2021-08 did not have a material impact on the Company’s consolidated financial statements and disclosures.

3. Revenue

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.

Maintenance Services

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 30-90 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 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.

Development Services

Development Services revenues are generated primarily through landscape architecture and development services. These revenues are primarily recognized over time using the cost-to-cost input 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 are immaterial to current and historical operations. 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.

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Disaggregation of revenue

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 depicts 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 12 “Segments”, the Company’s reportable segments are Maintenance Services and Development Services.


	Three Months Ended June 30,						Nine Months Ended June 30,
	2023			2022			2023			2022
Landscape Maintenance	$	555.3		$	548.9		$	1,335.8		$	1,296.3
Snow Removal		9.3			12.9			209.9			257.1
Maintenance Services		564.6			561.8			1,545.7			1,553.4
Development Services		203.4			186.4			533.3			500.8
Eliminations		(2.0	)		(0.8	)		(6.7	)		(3.0	)
Net service revenues	$	766.0		$	747.4		$	2,072.3		$	2,051.2

Remaining Performance Obligations

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 June 30, 2023, 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 $499.3. The Company expects to recognize revenue on 52% of the remaining performance obligations over the next 12 months and an additional 48% over the 12 months thereafter.

Contract Assets and Liabilities

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 nine month period ended June 30, 2023 were as follows:


	Deferred Revenue
Balance, September 30, 2022	$	59.3
Recognition of revenue		(844.4	)
Deferral of revenue		864.5
Balance, June 30, 2023	$	79.4

There were $151.7 of billings and $159.7 of additions to our Unbilled revenue balance during the nine month period ended June 30, 2023.

Practical Expedients and Exemptions

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.

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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.

4. Accounts Receivable, net

Accounts receivable of $445.7 and $397.6, is net of an allowance for doubtful accounts of $5.6 and $4.0 and includes amounts of retention on incomplete projects to be completed within one year of $55.4 and $48.8 at June 30, 2023 and September 30, 2022, respectively.

5. Property and Equipment, net

Property and equipment, net consists of the following:


	Useful Life	June 30, 2023		September 30, 2022
Land	—	$	44.7	$	43.3
Buildings and leasehold improvements	2-40 yrs.		46.8		46.3
Operating equipment	2-7 yrs.		343.8		302.4
Transportation vehicles	3-7 yrs.		348.4		339.8
Office equipment and software	3-10 yrs.		79.0		75.1
Construction in progress	—		5.3		5.7
Property and equipment			868.0		812.6
Less: Accumulated depreciation			537.3		484.3
Property and equipment, net		$	330.7	$	328.3

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 $26.4 and $25.7 for the three months ended June 30, 2023 and 2022, respectively. Depreciation expense related to property and equipment was $80.9 and $71.5 for the nine months ended June 30, 2023 and 2022, respectively.

6. Intangible Assets, Goodwill and Acquisitions

Intangible Assets

Identifiable intangible assets consist of acquired customer contracts and relationships, trademarks and non-compete agreements. Amortization expense related to intangible assets was $10.8 and $13.2 for the three months ended June 30, 2023 and 2022, respectively. Amortization expense related to intangible assets was $33.7 and $38.7 for the nine months ended June 30, 2023 and 2022, respectively. These assets are amortized over their estimated useful lives of which the reasonableness is continually evaluated by the Company. The weighted average amortization periods of intangible assets acquired during the nine months ended June 30, 2023 and 2022 were seven years.

Intangible assets as of June 30, 2023 and September 30, 2022 consisted of the following:


		June 30, 2023					September 30, 2022
	Estimated Useful Life	Gross Carrying Amount		Accumulated Amortization			Gross Carrying Amount		Accumulated Amortization
Customer relationships	6-21 yrs.	$	725.5	$	(583.5	)	$	723.1	$	(550.5	)
Trademarks	12 yrs.		3.8		(2.9	)		3.8		(2.6	)
Non-compete agreements	5 yrs.		2.7		(2.6	)		2.7		(2.2	)
Total intangible assets		$	732.0	$	(589.0	)	$	729.6	$	(555.3	)

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Goodwill

The following is a summary of the goodwill activity for the periods ended September 30, 2022 and June 30, 2023:


	Maintenance Services		Development Services		Total
Balance, September 30, 2021	$	1,758.0	$	192.8	$	1,950.8
Acquisitions (1)		34.7		23.3		58.0
Balance, September 30, 2022	$	1,792.7	$	216.1	$	2,008.8
Acquisitions (1)		10.8		1.9		12.7
Balance, June 30, 2023	$	1,803.5	$	218.0	$	2,021.5

(1)

The acquisitions adjustment includes the immaterial impact of foreign currency adjustments during the period.

Acquisitions

During the nine months ended June 30, 2023, the Company acquired, through a series of separate transactions, 100% of the operations of three unrelated companies, all of which were allocated to Maintenance Services. The Company paid approximately $13.8 in aggregate consideration for the acquisitions, net of cash acquired. The Company accounted for the business combinations under the acquisition method and, accordingly, recorded the assets acquired and liabilities assumed at their estimated fair market values based on management’s preliminary estimates, with the excess allocated to goodwill. The fair values were primarily estimated using Level 3 assumptions within the fair value hierarchy, including estimated future cash flows, discount rates and other factors. The valuation process to determine fair values is not yet complete. The Company continues to refine the valuation data and estimates primarily related to unbilled revenue, property and equipment, intangible assets, net, accounts payable, accrued expenses and other current liabilities and deferred revenue and will finalize the amounts recognized as it obtains the information necessary to complete the analysis, but no later than one year from the acquisition date. The identifiable assets acquired were primarily customer relationship intangible assets of $4.0. The amount allocated to goodwill is reflective of the benefits the Company expects to realize from anticipated synergies and the acquired assembled workforce. The Company expects a portion of the goodwill resulting from these acquisitions will be deductible for tax purposes.

From each acquisition date through June 30, 2023, the amount of revenue of the companies acquired during the period included in our Consolidated Statement of Operations for the nine months ended June 30, 2023, was $11.2.

During the nine months ended June 30, 2022, the Company acquired, through a series of separate transactions, 100% of the operations of seven unrelated companies, one of which was allocated between Maintenance Services and Development Services. The Company paid approximately $89.4 in aggregate consideration for the acquisitions, net of cash acquired. The Company accounted for the business combinations under the acquisition method and, accordingly, recorded the assets acquired and liabilities assumed at their estimated fair market values based on management’s preliminary estimates, with the excess allocated to goodwill. The purchase accounting related to these acquisitions was finalized within one year from each acquisition date. As a result of the final purchase accounting, certain of the fair value amounts previously estimated were adjusted during the measurement period. These measurement period adjustments resulted from updated valuation reports and appraisals received from our external valuation specialists, as well as revisions to internal estimates. The measurement period adjustments were not material to the Consolidated Balance Sheets as of June 30, 2023 and September 30, 2022. The fair values were primarily estimated using Level 3 assumptions within the fair value hierarchy, including estimated future cash flows, discount rates and other factors. The identifiable assets acquired were primarily customer relationship intangible assets of $27.4. The amount allocated to goodwill is reflective of the benefits the Company expects to realize from anticipated synergies and the acquired assembled workforce. A portion of the goodwill resulting from these acquisitions is deductible for tax purposes.

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7. Long-term Debt

Long-term debt consists of the following:


	June 30, 2023			September 30, 2022
Series B term loan	$	1,177.6		$	1,185.3
Receivables financing agreement		180.0			168.0
Revolving Credit Agreement		—			—
Financing costs, net		(9.4	)		(10.6	)
Total debt, net		1,348.2			1,342.7
Less: Current portion of long-term debt		12.0			12.0
Long-term debt, net	$	1,336.2		$	1,330.7

First Lien credit facility term loans and Series B Term Loan due 2029

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 $1,460.0 term loans (“First Lien Term Loans”) and a five-year $210.0 revolving credit facility. All amounts outstanding under the Credit Agreement were collateralized by substantially all of the assets of the Company.

On April 22, 2022, the Company, entered into Amendment No. 6 to the Credit Agreement (the “Amendment Agreement”). Under the terms of the Amendment Agreement, the existing Credit Agreement was amended to provide for: (i) a $1,200.0 seven-year term loan (the “Series B Term Loan”) and (ii) a $300.0 five-year revolving credit facility (the “Revolving Credit Facility”). The Series B Term Loan matures on April 22, 2029 and bears interest at a rate per annum of a secured overnight financing rate (“Term SOFR”), plus a margin of either 3.25% or 3.00% or a base rate (“ABR”) plus a margin of either 2.25% or 2.00%, subject to SOFR and ABR floors of 0.50% and 1.50%, respectively, with the margin on the Series B Term Loan determined based on the Company’s first lien net leverage ratio. The Company used the net proceeds from the Series B Term Loan to repay all amounts outstanding under the Credit Agreement as in effect prior to the Amendment Agreement. An original issue discount of $12.0 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 3.42%. Debt repayments for the Series B Term Loan totaled $9.0 and $1,003.3 for the nine months ended June 30, 2023 and 2022, respectively.

Revolving credit facility

The Company has a five-year $300.0 revolving credit facility (the “Revolving Credit Facility”) that matures on April 22, 2027 and bears interest at a rate per annum of Term SOFR plus a margin ranging from 2.00% to 2.50% or ABR plus a margin ranging from 1.00 to 1.50%, subject to SOFR and ABR floors of 0.00% and 1.00%, respectively, with the margin on the Revolving Credit Facility determined based on the Company’s first lien net leverage ratio. The Revolving Credit Facility replaced the previous $260.0 revolving credit facility under the Credit Agreement as in effect prior to the Amendment Agreement. During the nine months ended June 30, 2023 the Company borrowed and repaid $33.5 against the capacity. There were $165.0 borrowings under the facility for the nine months ended June 30, 2022 of which, $165.0 were repaid during the same period.

Receivables financing agreement

On April 28, 2017, the Company, through a wholly-owned subsidiary, entered into a receivables financing agreement (the “Receivables Financing Agreement”). On June 22, 2022, the Company entered into the Third Amendment to the Receivables Financing Agreement (the "Third Amendment") which extended the term through June 22, 2025 and increased the borrowing capacity to $275.0. All amounts outstanding under the Receivables Financing Agreement are collateralized by substantially all of the accounts receivable and unbilled revenue of the Company. During the nine months ended June 30, 2023 the Company borrowed $460.0 against the capacity and voluntarily repaid $448.0. During the nine months ended June 30, 2022 the Company borrowed $224.0 against the capacity and voluntarily repaid $203.0.

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The following are the scheduled maturities of long-term debt for the remainder of fiscal 2023 and the following four fiscal years and thereafter, which do not include any estimated excess cash flow payments:


2023	$	3.0
2024		12.0
2025		192.0
2026		12.0
2027 and thereafter		1,149.0
Total long-term debt		1,368.0
Less: Current maturities		12.0
Less: Original issue discount		10.4
Less: Financing costs		9.4
Total long-term debt, net	$	1,336.2

The Company has estimated the fair value of its long-term debt to be approximately $1,353.2 and $1,317.1 as of June 30, 2023 and September 30, 2022, respectively. Fair value is based on market bid prices around period-end (Level 2 inputs).

8. Fair Value Measurements and Derivative Instruments

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).

Fair Value Hierarchy

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:

Level 1 Quoted prices in active markets for identical assets or liabilities that are accessible at the measurement dates.

Level 2 Significant observable inputs that are used by market participants in pricing the asset or liability based on market data obtained from independent sources.

Level 3 Significant unobservable inputs the Company believes market participants would use in pricing the asset or liability based on the best information 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.

Investments held in Rabbi Trust

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. Gains and losses on these investments are included in Other (income) expense on the Consolidated Statements of Operations.

Derivatives

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

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and its counterparties. However, as of June 30, 2023 and September 30, 2022, the Company assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions and 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 June 30, 2023 and September 30, 2022:


	June 30, 2023
	Carrying Value		Level 1		Level 2		Level 3
Other assets:
Investments held by Rabbi Trust	$	11.4	$	11.4	$	—	$	—
Interest rate derivative contracts		19.5		—		19.5		—
Total assets	$	30.9	$	11.4	$	19.5	$	—
Other liabilities:
Obligation to Rabbi Trust	$	11.4	$	11.4	$	—	$	—
Total liabilities	$	11.4	$	11.4	$	—	$	—


	September 30, 2022
	Carrying Value		Level 1		Level 2		Level 3
Other assets:
Investments held by Rabbi Trust	$	10.6	$	10.6	$	—	$	—
Interest rate swap contracts		3.0		—		3.0		—
Total Assets	$	13.6	$	10.6	$	3.0	$	—
Other liabilities:
Obligation to Rabbi Trust	$	10.6	$	10.6	$	—	$	—
Total Liabilities	$	10.6	$	10.6	$	—	$	—

Hedging Activities

As of June 30, 2023 and September 30, 2022, the Company’s outstanding derivatives qualified 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 entire change in the fair value for highly effective derivatives is reported in Other comprehensive income and subsequently reclassified into Interest expense (in the case of interest rate contracts) and Cost of services provided (in the case of fuel hedge contracts) in the Consolidated Statements of Operations when the hedged item affects earnings. If the hedged forecasted transaction is no longer probable of occurring, then the amount recognized in Accumulated other comprehensive income is released to earnings. Cash flows from the derivatives are classified in the same category as the cash flows from the underlying hedged transaction.

Interest Rate Contracts

The Company has exposures to variability in interest rates associated with its variable interest rate debt, which includes the Series B Term Loan. As such, the Company has entered into interest rate contracts 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, 2022, the Company held interest rate swaps with a notional amount of $500.0. In January 2023, the Company entered into an interest rate swap agreement with a notional amount of $500.0 and an interest rate collar agreement with a notional amount of $500.0, each effective for the period January 31, 2023 through January 31, 2028. The notional amount of interest rate contracts was $1,000.0 and $500.0 at June 30, 2023 and September 30, 2022, respectively. The net deferred gain on the interest rate swaps as of June 30, 2023 of $9.5, net of taxes, is expected to be recognized in Interest expense over the next 12 months.

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The effects on the consolidated financial statements of the interest rate contracts which were designated as cash flow hedges were as follows:


	Three Months Ended June 30,					Nine Months Ended June 30,
	2023		2022			2023		2022
Income recognized in Other comprehensive income	$	21.9	$	1.8		$	23.4	$	5.4
Net income (loss) reclassified from Accumulated other comprehensive income into Interest expense		2.6		(0.1	)		6.9		(1.7	)

Fuel Contracts

The Company has exposures to variability in fuel pricing associated with its purchase and usage of fuel during the ordinary course of business operating a large fleet of vehicles and equipment. As such, the Company had entered into gasoline hedge contracts to help reduce its exposure to volatility in the fuel markets. As of June 30, 2023, no fuel hedge contracts were outstanding.

The effects on the consolidated financial statements of the fuel swap contracts which were designated as cash flow hedges were as follows:


	Three Months Ended June 30,				Nine Months Ended June 30,
	2023		2022		2023		2022
Income recognized in Other comprehensive income	$	—	$	—	$	—	$	0.2
Net gain reclassified from Accumulated other comprehensive income into Cost of services provided		—		—		—		1.5

9. Income Taxes

The following table summarizes the Company’s income tax expense (benefit) and effective income tax rate for the three and nine months ended June 30, 2023 and 2022.


	Three Months Ended June 30,						Nine Months Ended June 30,
	2023			2022			2023			2022
Income (loss) before income taxes	$	24.4		$	15.3		$	(29.6	)	$	(1.6	)
Income tax expense (benefit)		7.6			4.5			(5.5	)		(0.3	)
Effective income tax rate		31.1	%		29.4	%		18.6	%		18.7	%

The increase in the effective tax rate for the three months ended June 30, 2023 when compared to the three months ended June 30, 2022, is primarily attributable to the increase in pre-tax book income period over period.

The decrease in the effective tax rate for the nine months ended June 30, 2023 when compared to the nine months ended June 30, 2022, is primarily attributable to the geographical distribution of pre-tax earnings across legal entities, offset by the expense related to the vesting of restricted stock units that was recorded discretely in the current period.

10. Equity-Based Compensation

Amended and Restated 2018 Omnibus Incentive Plan

On June 28, 2018 (and as amended and restated on March 10, 2020), in connection with the IPO, the Company’s Board of Directors adopted, and its stockholders approved, the BrightView Holdings, Inc. 2018 Omnibus Incentive Plan (the “2018 Omnibus Incentive Plan”). The 2018 Omnibus Incentive Plan provides that the total number of shares of common stock that may be issued under the plan is 18,650,000. Under the plan, the Company may grant stock options, stock appreciation rights, restricted stock, other equity-based awards and other cash-based awards to employees, directors, officers, consultants and advisors.

Restricted Stock Awards

A summary of the Company’s restricted stock award activity for the nine month period ended June 30, 2023 is presented in the following table:

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	Shares		Weighted-Avg Distribution Price per Share
Outstanding at September 30, 2022		541,000	$	14.40
Less: Redeemed		136,000	$	13.63
Less: Forfeited		184,000	$	14.66
Outstanding at June 30, 2023		221,000	$	14.66

Restricted Stock Units

A summary of the Company’s restricted stock unit activity for the nine month period ended June 30, 2023 is presented in the following table:


	Shares		Weighted-Avg Distribution Price per Share
Outstanding at September 30, 2022		2,285,000	$	12.73
Granted		2,427,000	$	7.30
Less: Vested		523,000	$	14.73
Less: Forfeited		644,000	$	10.21
Outstanding at June 30, 2023		3,545,000	$	9.18

During the nine month period ended June 30, 2023, the Company issued 2,427,000 restricted stock units (“RSUs”) at a weighted average grant date fair value of $7.30 per share, all of which are subject to vesting. The majority of these units vest ratably over a four-year period commencing on the grant date. Non-cash equity-based compensation expense associated with the new grants will total approximately $14.5 over the requisite service period. During the nine month period ended June 30, 2023, 523,000 RSUs vested and 644,000 RSUs were forfeited.

Stock Option Awards

A summary of the Company’s stock option activity for the nine month period ended June 30, 2023 is presented in the following table:


	Shares		Weighted-Avg Exercise Price per Share
Outstanding at September 30, 2022		7,489,000	$	19.07
Less: Forfeited		1,212,000	$	19.01
Outstanding at June 30, 2023		6,277,000	$	19.08
Vested and exercisable at June 30, 2023		4,928,000	$	19.23
Expected to vest after June 30, 2023		1,349,000	$	18.55

Performance Stock Unit Awards

A summary of the Company’s performance stock unit activity for the nine month period ended June 30, 2023 is presented in the following table:


	Shares		Weighted-Avg Distribution Price per Share
Outstanding at September 30, 2022		403,000	$	12.41
Granted		838,000	$	7.48
Less: Forfeited		716,000	$	10.25
Outstanding at June 30, 2023		525,000	$	7.48

During the nine month period ended June 30, 2023, the Company issued 838,000 performance stock units (“PSUs”) at a weighted average distribution price of $7.48 per share and a weighted average grant date fair value of $7.48 per share, which cliff vest

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at the end of the three-year performance period. The number of the PSUs that vest upon completion of the performance period can range from 0% to 200% of the original grant, subject to certain limitations, contingent upon performance conditions. The performance condition metrics are the Company’s three-year average Adjusted EBITDA margin and compound annual growth rate of the Company’s land organic revenue. The fair value of these awards is determined based on the trading price of the company’s common shares on the date of grant. Non-cash equity-based compensation expense associated with the grant will be approximately $3.4 over the requisite service period. During the nine month period ended June 30, 2023, no PSUs vested and 716,000 PSUs were forfeited.

Equity-Based Compensation Expense

The Company recognizes equity-based compensation expense using the estimated fair value as of the grant date over the requisite service or performance period applicable to the grant. Estimates of future forfeitures are made at the date of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.

The Company recognized $3.9 and $4.8 in equity-based compensation expense for the three months ended June 30, 2023 and 2022, respectively, included in Selling, general and administrative expense in the accompanying Consolidated Statements of Operations. The Company recognized $15.7 and $14.0 in equity-based compensation expense for the nine month periods ended June 30, 2023 and 2022, respectively, included in Selling, general and administrative expense in the accompanying Consolidated Statements of Operations. The resulting charges increased Additional paid-in capital by the same amount for each applicable period. Total unrecognized compensation cost was $29.4 and $36.2 as of June 30, 2023 and September 30, 2022, respectively, which is expected to be recognized over a weighted average period of 1.1 and 1.3 years as of June 30, 2023 and September 30, 2022, respectively.

2018 Employee Stock Purchase Plan

The Company’s Stockholders have approved the Company’s 2018 Employee Stock Purchase Plan, (the “ESPP”). A total of 1,100,000 shares of the Company’s common stock were made available for sale under the Company’s 2018 Employee Stock Purchase Plan on October 22, 2018, of which 177,000 were issued on November 14, 2022 and 112,000 were issued on November 15, 2021. An additional portion thereof is expected to be issued in November 2023.

11. Commitments and Contingencies

Risk Management

The Company carries general liability, auto liability, workers’ compensation, and employee health care insurance policies. In addition, the Company carries other reasonable and customary insurance policies for a Company of our size and scope, as well as 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 June 30, 2023 was $148.2, of which $52.6 was classified in current liabilities and $95.6 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, 2022 was $146.7, of which $45.6 was classified in current liabilities and $101.1 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 June 30, 2023 includes $12.8 related to claims recoverable from third-party insurance carriers. Corresponding assets of $3.8 and $9.0 are recorded at June 30, 2023, as Other current assets and Other assets, respectively. The Company’s reserve for unpaid and incurred but not reported claims at September 30, 2022 includes $17.9 related to claims recoverable from third-party insurance carriers. Corresponding assets of $5.1 and $12.8 were recorded at September 30, 2022, as Other current assets and Other assets, respectively.

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Litigation Contingency

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.

12. Segments

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.

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, 2022. 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 June 30,						Nine Months Ended June 30,
	2023			2022			2023			2022
Maintenance Services	$	564.6		$	561.8		$	1,545.7		$	1,553.4
Development Services		203.4			186.4			533.3			500.8
Eliminations		(2.0	)		(0.8	)		(6.7	)		(3.0	)
Net Service Revenues	$	766.0		$	747.4		$	2,072.3		$	2,051.2
Maintenance Services	$	94.0		$	89.2		$	196.2		$	197.4
Development Services		24.1			20.9			53.6			48.2
Corporate		(16.3	)		(15.8	)		(52.7	)		(49.0	)
Adjusted EBITDA(1)	$	101.8		$	94.3		$	197.1		$	196.6
Maintenance Services	$	9.3		$	18.5		$	46.0		$	67.4
Development Services		2.5			2.8			7.2			10.9
Corporate		3.4			2.6			4.7			9.8
Capital Expenditures	$	15.2		$	23.9		$	57.9		$	88.1

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(1)

Presented below is a reconciliation of Net income (loss) to Adjusted EBITDA:


	Three Months Ended June 30,				Nine Months Ended June 30,
	2023		2022		2023			2022
Net income (loss)	$	16.8	$	10.8	$	(24.1	)	$	(1.3	)
Interest expense		27.4		14.8		78.3			34.5
Income tax expense (benefit)		7.6		4.5		(5.5	)		(0.3	)
Depreciation expense		26.4		25.7		80.9			71.5
Amortization expense		10.8		13.2		33.7			38.7
Business transformation and integration costs (a)		8.9		4.3		17.5			12.7
Offering-related expenses (b)		—		0.1		—			0.1
Equity-based compensation (c)		3.9		4.8		15.9			14.2
COVID-19 related expenses (d)		—		3.5		0.4			13.9
Debt extinguishment (e)		—		12.6		—			12.6
Adjusted EBITDA	$	101.8	$	94.3	$	197.1		$	196.6

(a)

Business transformation and integration costs consist of (i) severance and related costs; (ii) business integration costs and (iii) information technology infrastructure, transformation costs, and other.


	Three Months Ended June 30,				Nine Months Ended June 30,
(in millions)	2023		2022		2023		2022
Severance and related costs	$	4.1	$	0.6	$	6.0	$	0.9
Business integration (f)		2.8		0.3		5.3		4.8
IT infrastructure, transformation, and other (g)		2.0		3.4		6.2		7.0
Business transformation and integration costs	$	8.9	$	4.3	$	17.5	$	12.7

(b)

Represents transaction related expenses incurred for IPO related litigation and completed or contemplated subsequent registration statements.

(c)

Represents equity-based compensation expense and related taxes recognized for equity incentive plans outstanding.

(d)

Represents expenses related to the Company’s response to the COVID-19 pandemic, principally temporary and incremental salary and related expenses, personal protective equipment, cleaning and supply purchases, and other.

(e)

Represents losses on the extinguishment of debt related to Amendment No. 6 to the Credit Agreement and includes the write-off of deferred finance fees and original issue discount.

(f)

Represents isolated expenses specifically related to the integration of acquired companies such as one-time employee retention costs, employee onboarding and training costs, and fleet and uniform rebranding costs. The Company excludes Business integration costs from the measures disclosed above since such expenses vary in amount due to the number of acquisitions and size of acquired companies as well as factors specific to each acquisition, and as a result lack predictability as to occurrence and/or timing, and create a lack of comparability between periods.

(g)

Represents expenses related to distinct initiatives, typically significant enterprise-wide changes. Such expenses are excluded from the measures disclosed above since such expenses vary in amount based on occurrence as well as factors specific to each of the activities, are outside of the normal operations of the business, and create a lack of comparability between periods.

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13. Earnings (Loss) Per Share of Common Stock

Basic (loss) earnings 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 (loss) earnings 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 (loss) earnings per share calculation for the periods indicated:


	Three Months Ended June 30,				Nine Months Ended June 30,
	2023		2022		2023			2022
Numerator:
Net income (loss) available to common stockholders	$	16.8	$	10.8	$	(24.1	)	$	(1.3	)
Denominator:
Weighted average number of common shares outstanding – basic		93,504,000		93,207,000		93,409,000			102,705,000
Basic earnings (loss) per share	$	0.18	$	0.12	$	(0.26	)	$	(0.01	)

Weighted average number of common shares outstanding – diluted		94,001,000		93,436,000		93,409,000			102,705,000
Diluted earnings (loss) per share	$	0.18	$	0.12	$	(0.26	)	$	(0.01	)
Other Information:
Weighted average number of anti-dilutive options and restricted stock(a)		4,663,000		4,180,000		4,712,000			4,968,000

(a)

Weighted average number of anti-dilutive options is based upon the average closing price of the Company’s common stock on the NYSE for the period.

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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, 2022 as contained in our Annual Report on Form 10-K filed with the Securities and Exchange Commission on November 17, 2022, 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, uncertainties and other factors outside of the Company's control. You should review the “Risk Factors” section of our Annual Report on Form 10-K for the fiscal year ended September 30, 2022, as updated by subsequent filings with the Securities and Exchange Commission, 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.

Overview

Our Company

We are the largest provider of commercial landscaping services in the United States, with revenues approximately 6 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 290 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.

Our Segments

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 35 U.S. states, and, through our qualified service partner network, we are able to efficiently provide nationwide coverage in all 50 U.S. states.

Maintenance Services

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, HOAs, 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.

Development Services

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 moving 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 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.

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Components of Our Revenues and Expenses

Net Service Revenues

Maintenance Services

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 30-90 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” to our 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.

Development Services

For Development Services, revenue is primarily recognized over time using the cost-to-cost input 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 are immaterial to current and historical operations. 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.

Expenses

Cost of Services Provided

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, and 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

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

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

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Other (Income) Expense

Other (income) expense consists primarily of investment gains and losses related to investments held in Rabbi Trust as well as losses on debt extinguishment.

Interest Expense

Interest expense relates primarily to our long-term debt. See Note 7 “Long-term Debt” in the unaudited consolidated financial statements included under Part I, Item 1, “Financial Statements”.

Income Tax Expense (Benefit)

Income tax expense (benefit) 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.

Trends and Other Factors Affecting Our Business

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

Seasonality

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 of our fiscal year ending September 30. 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 Conditions

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 cleanup and other services. 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 correlated with the amount of snowfall and number of snowfall events in a given season. We benchmark our performance against ten- and thirty-year cumulative annual snowfall averages.

Acquisitions

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 execute our “strong-on-strong” acquisition strategy in which we focus on increasing our density and leadership positions in existing local markets, entering into attractive new geographic markets and expanding our portfolio of landscape enhancement services and improving technical capabilities in specialized services. As we continue to selectively pursue acquisitions that complement our “strong-on-strong” acquisition strategy, we believe we are the acquirer of choice in the highly fragmented commercial landscaping industry because we offer the ability to leverage our significant size and scale, as well as provide stable and potentially expanding career opportunities for employees of acquired businesses. In accordance with GAAP, the results of the acquisitions we have completed are reflected in our consolidated

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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. During the nine months ended June 30, 2023, the Company acquired three businesses and paid approximately $13.8 million in aggregate consideration, net of cash acquired. We incurred $5.3 million of integration costs during the first nine months of fiscal 2023, of which $4.6 million related to acquisitions completed prior to fiscal 2023 and $0.7 million related to acquisitions completed during fiscal 2023. While integration costs vary based on factors specific to each acquisition, such costs are primarily comprised of one-time employee retention costs, employee onboarding and training costs, and fleet and uniform rebranding costs. We typically anticipate integration costs to represent approximately 7%-9% of the acquisition price, and to be incurred within 12 months of acquisition completion.

Goodwill

Goodwill represents the excess of the purchase price over the fair values of the underlying net assets acquired in an acquisition. Goodwill is not amortized, but rather is tested annually for impairment in the fourth quarter of each year, or more frequently if events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable.

Goodwill is allocated to, and evaluated for impairment at our three identified reporting units. Goodwill is tested for impairment by either performing a qualitative evaluation or a quantitative test. The qualitative evaluation is an assessment of factors to determine whether it is more likely than not that a reporting unit’s fair value is less than its carrying amount. We may elect not to perform the qualitative assessment for some or all reporting units and perform the quantitative impairment test. The quantitative goodwill impairment test requires us to compare the carrying value of the reporting unit’s net assets to the fair value of the reporting unit. The Company determined fair values of each of the reporting units using a combination of the income and market multiple approaches. The estimates used in each approach include significant management assumptions, including long-term future growth rates, operating margins, discount rates and future economic and market conditions.

If the fair value exceeds the carrying value, no further evaluation is required, and no impairment loss is recognized. If the carrying amount of a reporting unit, including goodwill, exceeds the estimated fair value, the excess of the carrying value over the fair value is recorded as an impairment loss, the amount of which would not exceed the total amount of goodwill allocated to the reporting unit.

Our methodology for estimating the fair value of our reporting units utilizes a combination of the market and income approaches. The market approach is based on the guideline public company method, which measures the value of the reporting unit through applying valuation multiples of selected guideline public companies to the reporting unit’s key operating metrics. The income approach is based on the Discounted Cash Flow (“DCF”) method, which is based on the present value of future cash flows. The principal assumptions utilized in the DCF methodology include long-term future growth rates, operating margins, and discount rates. There can be no assurance that our estimates and assumptions regarding forecasted cash flow, long-term future growth rates and operating margins made for purposes of the annual goodwill impairment test will prove to be accurate predictions of the future. We believe the current assumptions and estimates utilized under each approach are both reasonable and appropriate.

During the second quarter of fiscal 2023, the Company identified a triggering event from increases in interest rates and the recent decline in the market price of its common stock. As a result, the Company performed an interim quantitative impairment test for the Maintenance reporting unit as of March 31, 2023. Based on the analysis, the fair value of the reporting unit exceeded the carrying value; however, the fair value of the Maintenance reporting unit exceeded the carrying value by 1.8%. Since the Maintenance reporting unit fair value did not substantially exceed the carrying value, we may be at risk for an impairment loss in the future if interest rates and market conditions continue to trend unfavorably or if our forecasts assumed in the fair value calculation are not realized. As of June 30, 2023, there was $1,797.7 million of goodwill recorded related to the Maintenance reporting unit.

Industry and Economic Conditions

We believe the non-discretionary nature of our landscape maintenance services provides us with a fairly predictable recurring revenue model. The perennial nature of the landscape maintenance service sector, as well as its wide range of end users, minimizes the impact of a broad or sector-specific downturn. However, in connection with our enhancement services and development services, when demand for commercial construction declines, demand for landscape enhancement services and development projects may decline. When commercial construction activity rises, demand for landscape enhancement services to maintain green space may also increase. This is especially true for new developments in which green space tends to play an increasingly important role. Economic conditions, including rising inflation and fuel prices, as well as rising interest rates, have impacted and may further impact our costs and expenses, and fluctuations in labor markets, may impact our ability to identify, hire and retain employees. Increased labor costs, including recruiting, retention, and overtime expenditures, have and could adversely affect our profitability.

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COVID-19 Update

While most of the impact of the COVID-19 pandemic has largely subsided, the effects of any resurgence of the virus or lingering macroeconomic effects such as labor and supply constraints and inflation continue to be highly uncertain and outside the Company’s control. Although our Maintenance and Development operations are considered essential services, future governmental orders or other restrictions may limit, restrict or prohibit operations in the future. Further limitations could have a material adverse impact on our business, financial condition and results of operations.

The scope, duration and magnitude of the direct and indirect effects of the COVID-19 pandemic are difficult or impossible to anticipate. Due to the uncertainty related to the extent of the ongoing impact of the pandemic, the Company’s results in the third quarter of 2023 and 2022 may not be indicative of the Company’s future results. For additional information on the risks posed by COVID-19, see “Item 1A – Risk Factors” in our Annual Report on Form 10-K for the year ended September 30, 2022.

Results of Operations

The following tables summarize key components of our results of operations for the periods indicated.


	Three Months Ended June 30,					Nine Months Ended June 30,
(in millions)	2023			2022		2023			2022
Net service revenues	$	766.0		$	747.4	$	2,072.3		$	2,051.2
Cost of services provided		567.4			558.2		1,579.0			1,565.0
Gross profit		198.6			189.2		493.3			486.2
Selling, general and administrative expense		136.6			131.3		413.0			399.5
Amortization expense		10.8			13.2		33.7			38.7
Income from operations		51.2			44.7		46.6			48.0
Other (income) expense		(0.6	)		14.6		(2.1	)		15.1
Interest expense		27.4			14.8		78.3			34.5
Income (loss) before income taxes		24.4			15.3		(29.6	)		(1.6	)
Income tax expense (benefit)		7.6			4.5		(5.5	)		(0.3	)
Net income (loss)	$	16.8		$	10.8	$	(24.1	)	$	(1.3	)
Adjusted EBITDA(1)	$	101.8		$	94.3	$	197.1		$	196.6
Adjusted Net Income(1)	$	41.4		$	39.8	$	33.5		$	66.4
Earnings (Loss) per Share	$	0.18		$	0.12	$	(0.26	)	$	(0.01	)
Adjusted Earnings per Share(1)	$	0.44		$	0.43	$	0.36		$	0.65
Cash flows from operating activities	$	34.3		$	23.4	$	89.3		$	65.7
Free Cash Flow(1)	$	22.3		$	2.3	$	38.2		$	(17.0	)

(1) See the “Non-GAAP Financial Measures” section included below for a reconciliation to the most directly comparable GAAP measure.

Three Months Ended June 30, 2023 compared to Three Months Ended June 30, 2022

Net Service Revenues

Net service revenues for the three months ended June 30, 2023 increased $18.6 million, or 2.5%, to $766.0 million, from $747.4 million in the 2022 period. The increase was driven by increases in Maintenance Services revenues of $2.8 million and Development Services revenues of $17.0 million as discussed further below in Segment Results.

Gross Profit

Gross profit for the three months ended June 30, 2023 increased $9.4 million, or 5.0%, to $198.6 million, from $189.2 million in the 2022 period. Gross margin increased 60 basis points, to 25.9%, in the three months ended June 30, 2023, from 25.3% in the 2022 period. The increase in gross profit was driven by the increases in Development Services and Maintenance Services revenues as well as lower fuel costs, partially offset by an increase in labor costs.

Selling, General and Administrative Expense

Selling, general and administrative expense for the three months ended June 30, 2023 increased $5.3 million, or 4.0%, to $136.6 million, from $131.3 million in the 2022 period. As a percentage of revenue, Selling, general and administrative expense increased 20

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basis points for the three months ended June 30, 2023 to 17.8%, from 17.6% in the 2022 period. The increase was driven principally by increases in compensation-related costs, partially offset by decreases in COVID-19 related expenses during the period.

Amortization Expense

Amortization expense for the three months ended June 30, 2023 decreased $2.4 million, or 18.2%, to $10.8 million, from $13.2 million in the 2022 period. The decrease was principally due to a $1.2 million decrease in amortization expense for intangible assets recognized in connection with our acquired businesses subsequent to the ValleyCrest Acquisition and a $1.2 million decrease in the amortization of historical intangible assets recognized in connection with the KKR Acquisition and the ValleyCrest Acquisition, based on the pattern consistent with expected future cash flows calculated at the time of acquisition.

Other (Income) Expense

Other income was $0.6 million for the three months ended June 30, 2023 compared to expense of $14.6 million in the 2022 period. The increase of $15.2 million was driven principally by the losses on the extinguishment of debt in connection with Amendment No. 6 to the Credit Agreement incurred in the 2022 period and the change in value of investments held in the Rabbi Trust.

Interest Expense

Interest expense for the three months ended June 30, 2023 increased $12.6 million, or 85.1%, to $27.4 million, from $14.8 million in the 2022 period. The increase was driven principally by increased interest rates, partially offset by the impact of the interest rate derivative contracts.

Income Tax Expense

For the three months ended June 30, 2023, Income tax expense was $7.6 million, compared to $4.5 million in the 2022 period. The increase was primarily attributable to the increase in the Company’s pretax income of $24.4 million in the current period compared to $15.3 million in the prior period.

Net Income

Net income for the three months ended June 30, 2023 increased $6.0 million to $16.8 million, from $10.8 million in the 2022 period due to the changes noted above. Net income as a percentage of revenue was 2.2% for the nine months ended June 30, 2023 compared to 1.4% in the 2022 period.

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Adjusted EBITDA

Adjusted EBITDA increased $7.5 million for the three months ended June 30, 2023, to $101.8 million, from $94.3 million in the 2022 period. Adjusted EBITDA as a percentage of revenue was 13.3% and 12.6% for the three months ended June 30, 2023 and 2022, respectively. The increase in Adjusted EBITDA was primarily driven by an increase of $4.8 million, or 5.4% in Maintenance Services Segment Adjusted EBITDA and an increase of $3.2 million, or 15.3% in Development Services Segment Adjusted EBITDA, as discussed further below in Segment Results.

Adjusted Net Income

Adjusted net income for the three months ended June 30, 2023 increased $1.6 million to $41.4 million, from $39.8 million in the 2022 period due to the changes noted above.

Nine Months Ended June 30, 2023 compared to Nine Months Ended June 30, 2022

Net Service Revenues

Net service revenues for the nine months ended June 30, 2023 increased $21.1 million, or 1.0%, to $2,072.3 million, from $2,051.2 million in the 2022 period. The increase was driven by an increase in Development Services revenues of $32.5 million which was partially offset by a decrease in Maintenance Services revenues of $7.7 million as discussed further below in Segment Results.

Gross Profit

Gross profit for the nine months ended June 30, 2023 increased $7.1 million, or 1.5%, to $493.3 million, from $486.2 million in the 2022 period. Gross margin increased 10 basis points, to 23.8%, in the nine months ended June 30, 2023, from 23.7% in the 2022 period. The increases in gross profit and gross margin were driven by the increase Development Services revenues and a decrease in subcontractor costs. These increases were partially offset by increases in labor and materials costs as well as depreciation.

Selling, General and Administrative Expense

Selling, general and administrative expense for the nine months ended June 30, 2023 increased $13.5 million, or 3.4%, to $413.0 million, from $399.5 million in the 2022 period. As a percentage of revenue, Selling, general and administrative expense increased 40 basis points for the nine months ended June 30, 2023 to 19.9%, from 19.5% in the 2022 period. The increase was driven principally by increases in compensation-related costs and the impact of acquisitions, partially offset by decreases in COVID-19 related expenses during the period.

Amortization Expense

Amortization expense for the nine months ended June 30, 2023 decreased $5.0 million, or 12.9%, to $33.7 million, from $38.7 million in the 2022 period. The decrease was due to a $3.8 million decrease in the amortization of historical intangible assets recognized in connection with the KKR Acquisition and the ValleyCrest Acquisition, based on the pattern consistent with expected future cash flows calculated at that time and a $1.2 million decrease in amortization expense for intangible assets recognized in connection with our acquired businesses subsequent to the ValleyCrest Acquisition.

Other (Income) Expense

Other income was $2.1 million for the nine months ended June 30, 2023 compared to expense of $15.1 million in the 2022 period. The decrease of $17.2 million was driven principally by the losses on the extinguishment of debt in connection with Amendment No. 6 to the Credit Agreement incurred in the 2022 period and the change in value of investments held in the Rabbi Trust.

Interest Expense

Interest expense for the nine months ended June 30, 2023 increased $43.8 million, or 127.0%, to $78.3 million, from $34.5 million in the 2022 period. The increase was driven principally by increased interest rates coupled with the increase in the borrowings under the Series B Term Loan associated with the execution of Amendment No. 6 to the credit agreement dated December 18, 2013 (as so amended, the “Credit Agreement”), partially offset by the impact of the interest rate derivative contracts.

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Income Tax Benefit

Income tax benefit for the nine months ended June 30, 2023, was $5.5 million, compared to $0.3 million in the 2022 period. The change was primarily attributable to the change in the Company’s pretax loss of $29.6 million in the current period compared to $1.6 million in the prior period, coupled with the geographical distribution of pre-tax earnings across legal entities and the expense related to the vesting of restricted stock units that was recorded discretely in the current period.

Net Loss

For the nine months ended June 30, 2023, Net loss was $24.1 million, compared to $1.3 million in the 2022 period due to the changes noted above. Net loss as a percentage of revenue was 1.2% for the nine months ended June 30, 2023 compared to 0.1% in the 2022 period.

Adjusted EBITDA

Adjusted EBITDA increased $0.5 million for the nine months ended June 30, 2023, to $197.1 million, from $196.6 million in the 2022 period. Adjusted EBITDA as a percentage of revenue was 9.5% and 9.6% for the nine months ended June 30, 2023 and 2022, respectively. The increase in Adjusted EBITDA was primarily driven by an increase of $5.4 million, or 11.2% in Development Services Segment Adjusted EBITDA, partially offset by a decrease of $1.2 million, or 0.6% in Maintenance Services Segment Adjusted EBITDA, as discussed further below in Segment Results.

Adjusted Net Income

Adjusted net income for the nine months ended June 30, 2023 decreased $32.9 to $33.5 million, from $66.4 million in the 2022 period due to the changes noted above.

Non-GAAP Financial Measures

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”) and 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 income (loss) before interest, taxes, depreciation, amortization and certain non-cash, non-recurring and other adjustment items. Adjusted Net Income is defined as net income (loss) 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 is a helpful supplemental measure 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. We believe Free Cash Flow is useful to provide additional information to assess our ability to pursue business opportunities and investments and to service our debt. Free Cash Flow has limitations as an analytical tool, including that it does not account for our future contractual commitments and excludes investments made to acquire assets under finance leases and required debt service payments.

Adjusted EBITDA, Adjusted Net Income, Adjusted EPS and Free Cash Flow are not recognized terms under GAAP and should not be considered as an alternative to net income (loss) as a measure of financial performance or cash flows provided by operating activities as a measure of liquidity, or any other performance measure derived in accordance with GAAP. The presentations of these measures have limitations as analytical tools and should not be considered in isolation, or as a substitute for analysis of our results as reported under GAAP. Because not all companies use identical calculations, the presentations of these measures may not be comparable to the same or other similarly titled measures of other companies and can differ significantly from company to company.

Set forth below are the reconciliations of net income (loss) to Adjusted EBITDA and Adjusted Net Income, and cash flows from operating activities to 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 13 “Earnings (Loss) Per Share of Common Stock” in the Notes to our unaudited consolidated financial statements.

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	Three Months Ended June 30,					Nine Months Ended June 30,
(in millions)	2023		2022			2023			2022
Adjusted EBITDA
Net income (loss)	$	16.8	$	10.8		$	(24.1	)	$	(1.3	)
Plus:
Interest expense, net		27.4		14.8			78.3			34.5
Income tax expense (benefit)		7.6		4.5			(5.5	)		(0.3	)
Depreciation expense		26.4		25.7			80.9			71.5
Amortization expense		10.8		13.2			33.7			38.7
Business transformation and integration costs (a)		8.9		4.3			17.5			12.7
Offering-related expenses (b)		—		0.1			—			0.1
Equity-based compensation (c)		3.9		4.8			15.9			14.2
COVID-19 related expenses (d)		—		3.5			0.4			13.9
Debt extinguishment (e)		—		12.6			—			12.6
Adjusted EBITDA	$	101.8	$	94.3		$	197.1		$	196.6
Adjusted Net Income
Net income (loss)	$	16.8	$	10.8		$	(24.1	)	$	(1.3	)
Plus:
Amortization expense		10.8		13.2			33.7			38.7
Business transformation and integration costs (a)		8.9		4.3			17.5			12.7
Offering-related expenses (b)		—		0.1			—			0.1
Equity-based compensation (c)		3.9		4.8			15.9			14.2
COVID-19 related expenses (d)		—		3.5			0.4			13.9
Debt extinguishment (e)		—		12.6			—			12.6
Income tax adjustment (f)		1.0		(9.5	)		(9.9	)		(24.5	)
Adjusted Net Income	$	41.4	$	39.8		$	33.5		$	66.4
Free Cash Flow
Cash flows provided by operating activities	$	34.3	$	23.4		$	89.3		$	65.7
Minus:
Capital expenditures		15.2		23.9			57.9			88.1
Plus:
Proceeds from sale of property and equipment		3.2		2.8			6.8			5.4
Free Cash Flow	$	22.3	$	2.3		$	38.2		$	(17.0	)

(a)


	Three Months Ended June 30,				Nine Months Ended June 30,
(in millions)	2023		2022		2023		2022
Severance and related costs	$	4.1	$	0.6	$	6.0	$	0.9
Business integration (g)		2.8		0.3		5.3		4.8
IT infrastructure, transformation, and other (h)		2.0		3.4		6.2		7.0
Business transformation and integration costs	$	8.9	$	4.3	$	17.5	$	12.7

(b)

Represents transaction related expenses incurred for IPO related litigation and completed or contemplated subsequent registration statements.

(c)

Represents equity-based compensation expense and related taxes recognized for equity incentive plans outstanding.

(d)

(e)

Represents losses on the extinguishment of debt related to Amendment No. 6 to the Credit Agreement and includes the write-off of deferred finance fees and original issue discount.

(f)

Represents the tax effect of pre-tax items excluded from Adjusted Net Income and the removal of the applicable discrete tax items, which collectively result in a reduction of income tax expense (benefit). The tax effect of pre-tax items excluded from Adjusted Net Income is computed using the statutory rate related to the jurisdiction that was impacted by the adjustment after taking into account the impact of permanent

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differences and valuation allowances. Discrete tax items include changes in laws or rates, changes in uncertain tax positions relating to prior years and changes in valuation allowances.


	Three Months Ended June 30,						Nine Months Ended June 30,
(in millions)	2023			2022			2023			2022
Tax impact of pre-tax income adjustments	$	(2.0	)	$	9.7		$	10.8		$	24.7
Discrete tax items		1.0			(0.2	)		(0.9	)		(0.2	)
Income tax adjustment	$	(1.0	)	$	9.5		$	9.9		$	24.5

(g)

(h)

Segment Results

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.

Segment Results for the Three Months Ended June 30, 2023 and 2022

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 Segment Results


	Three Months Ended June 30,						Percent Change
(in millions)	2023			2022			2023 vs. 2022
Net Service Revenues	$	564.6		$	561.8			0.5	%
Segment Adjusted EBITDA	$	94.0		$	89.2			5.4	%
Segment Adjusted EBITDA Margin		16.6	%		15.9	%		70 bps

Maintenance Services Net Service Revenues

Maintenance Services net service revenues for the three months ended June 30, 2023 increased by $2.8 million, or 0.5%, from the 2022 period. The increase was driven by $7.5 million contribution from acquired businesses. Partially offsetting this was a decrease of $3.6 million in snow removal services and a decrease of $1.1 million in underlying commercial landscape services.

Maintenance Services Segment Adjusted EBITDA

Segment Adjusted EBITDA for the three months ended June 30, 2023 increased by $4.8 million to $94.0 million from $89.2 million in the 2022 period. Segment Adjusted EBITDA Margin increased 70 basis points, to 16.6%, in the three months ended June 30, 2023, from 15.9% in the 2022 period. The increases in Segment Adjusted EBITDA and Segment Adjusted EBITDA Margin were driven by disciplined management of labor costs in underlying commercial landscape services, coupled with lower fuel costs and savings from cost management initiatives, partially offset by the decrease in snow removal services revenue discussed above.

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Development Services Segment Results


	Three Months Ended June 30,						Percent Change
(in millions)	2023			2022			2023 vs. 2022
Net Service Revenues	$	203.4		$	186.4			9.1	%
Segment Adjusted EBITDA	$	24.1		$	20.9			15.3	%
Segment Adjusted EBITDA Margin		11.8	%		11.2	%		60 bps

Development Services Net Service Revenues

Development Services net service revenues for the three months ended June 30, 2023 increased $17.0 million, or 9.1%, compared to the 2022 period. The increase was principally driven by an increase in Development Services project volumes of $17.0 million.

Development Services Segment Adjusted EBITDA

Segment Adjusted EBITDA for the three months ended June 30, 2023 increased $3.2 million, to $24.1 million, compared to the 2022 period. Segment Adjusted EBITDA Margin increased 60 basis points, to 11.8% for the quarter from 11.2% in the 2022 period. The increases in Segment Adjusted EBITDA and Segment Adjusted EBITDA Margin were primarily driven by the increase in project volumes described above, partially offset by increased labor and materials costs attributable to the mix of projects relative to the prior year.

Segment Results for the Nine Months Ended June 30, 2023 and 2022

Maintenance Services Segment Results


	Nine Months Ended June 30,						Percent Change
(in millions)	2023			2022			2023 vs. 2022
Net Service Revenues	$	1,545.7		$	1,553.4			(0.5	)%
Segment Adjusted EBITDA	$	196.2		$	197.4			(0.6	)%
Segment Adjusted EBITDA Margin		12.7	%		12.7	%		— bps

Maintenance Services Net Service Revenues

Maintenance Services net service revenues for the nine months ended June 30, 2023 decreased by $7.7 million, or 0.5%, from the 2022 period. The decrease was driven by a decrease of $47.2 million in snow removal services due to lower snowfall, net of $15.6 million from acquired businesses. Partially offsetting this was a $39.5 million increase in landscape services revenue consisting of a $28.9 million contribution from acquired businesses and an increase of $10.6 million, or 0.8%, in underlying commercial landscape services underpinned by contract and to a lesser extent ancillary services growth.

Maintenance Services Segment Adjusted EBITDA

Segment Adjusted EBITDA for the nine months ended June 30, 2023 decreased by $1.2 million to $196.2 million from $197.4 million in the 2022 period. Segment Adjusted EBITDA Margin was 12.7% in each of the nine months ended June 30, 2023 and 2022. The decrease in Segment Adjusted EBITDA was driven by the decrease in snow removal services revenues described above, partially offset by increases in revenues from underlying commercial landscape services and acquisitions discussed above.

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Development Services Segment Results


	Nine Months Ended June 30,						Percent Change
(in millions)	2023			2022			2023 vs. 2022
Net Service Revenues	$	533.3		$	500.8			6.5	%
Segment Adjusted EBITDA	$	53.6		$	48.2			11.2	%
Segment Adjusted EBITDA Margin		10.1	%		9.6	%		50 bps

Development Services Net Service Revenues

Development Services net service revenues for the nine months ended June 30, 2023 increased $32.5 million, or 6.5%, compared to the 2022 period. The increase was principally driven by an increase of $21.1 million due to additional project volumes combined with an $11.4 million contribution from acquired businesses.

Development Services Segment Adjusted EBITDA

Segment Adjusted EBITDA for the nine months ended June 30, 2023 increased $5.4 million, to $53.6 million, compared to the 2022 period. Segment Adjusted EBITDA Margin increased 50 basis points, to 10.1% for the period from 9.6% in the 2022 period. Segment Adjusted EBITDA and Segment Adjusted EBITDA Margin increased principally due to the increase in revenues described above coupled with disciplined management of materials costs.

Liquidity and Capital Resources

Liquidity

Our principal sources of liquidity are 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 are to provide working capital, meet debt service requirements, fund capital expenditures and finance strategic plans, including acquisitions and share repurchases under the share repurchase program announced in December 2021. We may also seek to finance capital expenditures under finance 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.

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 under the Credit Agreement 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.


(in millions)	June 30, 2023		September 30, 2022
Cash and cash equivalents	$	9.6	$	20.1

Short-term borrowings and current maturities of long-term debt	$	12.0	$	12.0
Long-term debt		1,336.2		1,330.7
Total debt	$	1,348.2	$	1,342.7

The Company is party to the Credit Agreement, a five-year revolving credit facility that, pursuant to the Amendment Agreement, currently matures on April 22, 2027 (the “Revolving Credit Facility”) and, through a wholly-owned subsidiary, a receivables financing agreement dated April 28, 2017 (as amended, the “Receivables Financing Agreement”). Each of the Company's credit facilities bear interest based in-part on a secured overnight financing rate.

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

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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 7 “Long-term Debt” to our unaudited consolidated financial statements included under Part I, Item 1, “Financial Statements”.

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.

Cash Flows

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


	Nine Months Ended June 30,
(in millions)	2023			2022
Operating activities	$	89.3		$	65.7
Investing activities	$	(63.0	)	$	(172.1	)
Financing activities	$	(36.8	)	$	9.0
Free Cash Flow (1)	$	38.2		$	(17.0	)

(1) See “Non-GAAP Financial Measures” above for a reconciliation to the most directly comparable GAAP measure.

Cash Flows provided by Operating Activities

Net cash provided by operating activities for the nine months ended June 30, 2023 increased $23.6 million, to $89.3 million, from $65.7 million in the 2022 period. This increase was due to a decrease in cash used by accounts payable and other operating liabilities and an increase in cash provided by other operating assets. This was partially offset by an increase in cash used by accounts receivable, an increase in net loss and a decrease in the cash provided by unbilled and deferred revenue.

Cash Flows used in Investing Activities

Net cash used in investing activities decreased $109.1 million to $63.0 million for the nine months ended June 30, 2023 from $172.1 million in the 2022 period. The decrease was driven by a decrease of $75.7 million in cash used for acquisitions coupled with a decrease of $30.2 million in capital expenditures in comparison to the prior period.

Cash Flows (used) provided by Financing Activities

Net cash flows used in financing activities of $36.8 million for the nine months ended June 30, 2023 included repayments of our Receivables Financing Agreement of $448.0 million, repayments of our Revolving Credit Facility of $33.5 million, repayments of finance lease obligations of $20.9 million and contingent business acquisition payments of $18.5 million. These repayments were partially offset by proceeds from our Receivables Financing Agreement, net of issuance costs of $460.0 million and proceeds from our Revolving Credit Facility of $33.5 million.

Free Cash Flow

Free Cash Flow increased $55.2 million to an inflow of $38.2 million for the nine months ended June 30, 2023 from an outflow of $17.0 million in the 2022 period. The increase in Free Cash Flow was due to an increase in net cash provided by operating activities coupled with a decrease in cash used for capital expenditures, each as described above.

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Working Capital


(in millions)	June 30, 2023		September 30, 2022
Net Working Capital:
Current assets	$	686.7	$	677.1
Less: Current liabilities		516.4		488.4
Net working capital	$	170.3	$	188.7

Net working capital is defined as current assets less current liabilities. Net working capital decreased $18.4 million to $170.3 million at June 30, 2023, from $188.7 million at September 30, 2022, primarily driven by a decrease in other current assets of $36.0 million coupled with an increase in deferred revenue of $20.1 million and a decrease in cash and cash equivalents of $10.5 million. This was partially offset by an increase in accounts receivable, net of $48.1 million coupled with an increase in unbilled revenue of $8.0 million.

Description of Indebtedness

As of June 30, 2023, we were in compliance with all of our debt covenants and no event of default has occurred or was ongoing. See Note 7 “Long-term Debt” to our unaudited consolidated financial statements included under Part I, Item 1, “Financial Statements”.

Contractual Obligations and Commercial Commitments

As of June 30, 2023, 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, 2022 in our Annual Report on Form 10-K.

Critical Accounting Policies and Estimates

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, 2022.

Recently Issued Accounting Policies

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.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk.

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, 2022.

Item 4. Controls and Procedures.

Disclosure Controls and Procedures

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 June 30, 2023. Based on this evaluation, our CEO and our CFO concluded that our disclosure controls and procedures were effective as of June 30, 2023 at a reasonable assurance level.

Changes in Internal Control over Financial Reporting

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.

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PART II—OTHER INFORMATION

Item 1. Legal Proceedings.

The information set forth in Note 11 “Commitments and Contingencies” to our Condensed Consolidated Financial Statements under Part I, Item 1, “Financial Statements,” is incorporated herein by reference.

Item 1A. Risk Factors.

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, 2022, as filed with the SEC on November 17, 2022.

Item 2. Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities.

None.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

None.

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Item 6. Exhibits.

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


Exhibit No.		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		Certificate of Amendment to the 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 March 7, 2023)

3.3		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)

10.1†		Consultation and Separation Agreement, dated as of May 3, 2023, by and between Andrew V. Masterman and BrightView Landscapes, LLC (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on May 4, 2023)

10.2†		Interim Chief Executive Officer Agreement, dated as of May 3, 2023, by and between James R. Abrahamson and BrightView Holdings, Inc. (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on May 4, 2023)

10.3†*		Restricted Stock Unit Grant Agreement, dated as of June 1, 2023, by and between James R. Abrahamson and BrightView Holdings, Inc.

10.4†*		Form of 2023 Retention Award Agreement

31.1*		Certification of Periodic Report by Chief Executive Officer under Section 302 of the Sarbanes-Oxley Act of 2002

31.2*		Certification of Periodic Report by Chief Financial Officer under Section 302 of the Sarbanes-Oxley Act of 2002

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

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

101.INS		Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document

101.SCH		Inline XBRL Taxonomy Extension Schema Document

101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB		Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase Document

104		The cover page for the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2023, has been formatted in Inline XBRL.

* Filed herewith.

** Furnished herewith.

† Indicates a management contract or any compensatory plan, contract or arrangement

Table of Contents

SIGNATURES

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.


	BrightView Holdings, Inc.

Date: August 3, 2023	By:	/s/ Brian Jackson

		Brian Jackson
		Chief Accounting Officer
		(Principal Accounting Officer)

Positive
Negative
Uncertain
Constraining
Legalese
Litigous
Readability	H.S. sophomore Avg

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company