FinanceLooker

Excrept from filing document 2024-09-30

As of March 31 2024 the last day of the registrant s most recently completed second quarter the aggregate value of the registrant s common stock held by non affiliates was approximately 500 3 million based on the number of shares held by non affiliates as of March 31 2024 and the closing price of the registrant s common stock on the New York Stock Exchange on that date
This Annual Report on Form 10 K this Form 10 K 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 K 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 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 K 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 K 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 those described below under Summary of Risk Factors
We caution you that the risks uncertainties and other factors referenced herein 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
BrightView Holdings Inc is a holding company that conducts substantially all of its activity through its direct wholly owned operating subsidiary BrightView Landscapes LLC BrightView and its consolidated subsidiaries The holding company and BrightView are collectively referred to in this Form 10 K the Annual Report as we us our ourselves Company or BrightView
We are the largest provider of commercial landscaping services in the United States with revenues approximately 5 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 280 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
We operate through two segments Maintenance Services and Development Services Our maintenance services are primarily self performed through our national branch network and are route based in nature 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
As the number one player in the highly attractive and growing 113 billion commercial landscape maintenance and snow removal market we believe our size and scale present several compelling value propositions for our customers and allow us to offer a single source landscaping services solution to a diverse group of commercial customers across the United States We serve a broad range of end market verticals including corporate and commercial properties Homeowners Associations HOAs public parks hotels and resorts hospitals and other healthcare facilities educational institutions restaurants and retail and golf courses among others We are also the Official Field Consultant for Major League Baseball Our diverse customer base includes approximately 11 700 office parks and corporate campuses 10 000 residential communities and 700 educational institutions We believe that due to our geographic scale and breadth of service offerings we are the only commercial landscaping services provider able to service clients whose geographically disperse locations require a broad range of landscaping services delivered consistently and with high quality Our top ten customers accounted for approximately 9 of our fiscal 2024 revenues with no single customer accounting for more than 3 of our fiscal 2024 revenues
Our business model is characterized by stable recurring revenues a scalable operating model strong operating margins limited capital expenditures and low working capital requirements that together generate significant Free Cash Flow For the year ended September 30 2024 we generated net service revenues of 2 767 1 million net income of 66 4 million and Adjusted EBITDA of 324 7 million with a net income margin of 2 4 and an Adjusted EBITDA margin of 11 7 For a reconciliation of Adjusted EBITDA and Adjusted EBITDA margin to their most directly comparable GAAP measures see Non GAAP Financial Measures in Item 2 Management s Discussion and Analysis of Financial Condition and Results of Operations
Our Maintenance Services segment delivers a full suite of recurring commercial landscaping services 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 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 The chart below illustrates the diversity of our Maintenance Services revenues
In addition to contracted maintenance services we also have a strong track record of providing value added landscape enhancements defined as supplemental non contract specified maintenance or improvement services which are typically sold by our account managers to our maintenance services customers These landscape enhancements typically have a predictable level of demand related to our amount of contracted revenue with a customer
In our seasonal markets we are also a leading provider of snow removal services These route based snow removal services provide us with a valuable counter seasonal source of revenues allowing us to better utilize our crews and certain equipment during the winter months Our capabilities as a rapid response reliable service provider further strengthens our relationships with our customers all of which have an immediate and critical need for snow removal services Property managers also enjoy several benefits by using the same service provider for snow removal and landscape maintenance services including consistency of service single source vendor efficiency and volume discount savings This allows us to actively maintain relationships with key customers in seasonal markets year round A portion of our snow removal business is contracted each year under fixed fee servicing arrangements that are subject to guaranteed minimum payments regardless of the season s snowfall
The performance of our snow removal services business however is correlated with the amount of snowfall the number of snowfall events and the nature of those events in a given season We benchmark our performance against ten and thirty year averages as annual snowfall amounts modulate around these figures
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 These complex and specialized offerings showcase our technical expertise across a broad range of end market verticals
Depending on the scope of the work the contracts can vary in length from 2 3 months to up to 2 3 years We largely self perform our work and we subcontract certain services where we have strategically decided not to allocate resources such as fencing lighting and parking lot construction We believe that our capabilities as a single source landscape development provider represent a point of comfort for our customers who can be certain that we are managing their landscape development project from inception to completion
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 Similar to our maintenance contracts we leverage our proven cost estimation framework and proactive cost management tactics to optimize the profitability of the work we perform under fixed rate development contracts
In 2013 affiliates of KKR acquired our predecessor business Brickman Holding Group Inc In 2014 we acquired ValleyCrest Holding Co ValleyCrest Acquisition and changed our name to BrightView As a result of the ValleyCrest Acquisition BrightView nearly doubled in size and gained national coverage Our predecessor companies have long histories in the landscaping industry with Brickman Holding Group Inc founded in 1939 and ValleyCrest Holding Co founded in 1949
In November 2023 the Company launched our One BrightView initiative to position ourselves for sustained profitable growth Through this BrightView has undergone an organizational transformation re centered around a customer centric approach investing in frontline employees and streamlining our operating structure
The landscape services industry consists of landscape maintenance and development services as well as a number of related ancillary services such as tree care and snow removal for both commercial and residential customers BrightView operates only within the commercial sectors of each of the landscape maintenance landscape development and snow removal industries In 2024 commercial landscape maintenance including snow removal represents an 113 billion industry that is characterized by a number of attractive market drivers The industry benefits from commercial customers need to provide consistently accessible and aesthetically pleasing environments Due to the essential and non discretionary need of these recurring services the commercial landscape maintenance services and snow removal services industries have exhibited and are expected to continue to exhibit stable and predictable growth
In addition to its stable characteristics the industry is also highly fragmented Despite being the largest provider of commercial landscaping services we currently hold only a 1 7 market share representing a significant opportunity for future consolidation According to the 2024 IBISWorld Report there are over 660 000 enterprises providing landscape maintenance services in the United States The majority of industry participants are classified as sole proprietors with a limited set of companies having the capabilities to deliver sophisticated large scale landscaping services or operate regionally or nationally The chart below illustrates the segmentation of the landscape maintenance industry and highlights BrightView s coverage of the non residential sectors of the industry
Steady growth in the commercial property markets has underpinned the commercial landscaping industry s growth Unlike individual residential customers HOAs and military housing managers possess the same sophistication and expectation of high quality services as corporations and thus are more inclined to outsource landscaping needs to professional scaled companies
Our core operating strategy is to systematically deliver our services on a local level Our organization is designed to allow our branch level management teams to focus on identifying revenue opportunities and delivering high quality services to customers with the support of a national organization to provide centralized core functions such as human resources procurement and other process driven management functions
Our maintenance services model is grounded in our branch network For example a representative maintenance services branch typically serves 25 100 customers across 50 250 sites generating between 2 million and 22 million in annual revenues Each branch is led by a branch manager who focuses on performance drivers such as customer satisfaction crew retention safety and tactical procurement Branch managers are supported by production managers who focus on managing crew leaders and account managers who focus on customer retention and sales of landscape enhancement services Each branch is also supported by a dedicated business developer who is focused on winning new customers at a local level In addition to our network of branch managers production managers and account managers our platform is differentiated by a highly experienced team of operational senior vice presidents and vice presidents organized regionally with an average tenure of 18 years These team members are responsible for leading teaching and developing branch managers as well as maintaining adherence to key operational strategies Our senior operating personnel also foster a culture of engagement and emphasize promotion from within which has played a key role in making BrightView the employer of choice within the broader landscape maintenance industry
Our scale supports centralizing key functions which enables our branch production and account managers to focus their efforts on fostering deep relationships with customers delivering excellent service and finding new revenue opportunities As branches grow and we win new business our branch model is easily scalable within an existing well developed market based management structure with supporting corporate infrastructure
Our Development Services organization is centered around approximately 40 branch locations strategically located in large metropolitan areas with supportive demographics for growth and real estate development Certain facilities used by our Development Services segment are shared or co located with our Maintenance organization Our Development Services branch network is supported by centralized support functions similar to our Maintenance Services organization
As of September 30 2024 we had a total of approximately 19 600 employees including seasonal workers consisting of approximately 19 100 full time and approximately 500 part time employees in our two business segments The number of part time employees varies significantly from time to time during the year due to seasonal and other operating requirements We generally experience our highest level of employment during the spring and summer seasons which correspond with our third and fourth fiscal quarters The approximate number of full time employees by segment as of September 30 2024 is as follows Maintenance Services 15 750 Development Services 2 950 In addition our corporate staff is approximately 400 employees Approximately 5 of our employees are covered by collective bargaining agreements We have not experienced any material interruptions of operations due to disputes with our employees and consider our relations with our employees to be satisfactory Historically we have used and expect to
continue to use in the future a U S government program that provides H 2B temporary non immigrant visas to foreign workers to help satisfy a portion of our need for seasonal labor in certain markets We employed approximately 2 000 and 1 900 seasonal workers in 2024 and 2023 respectively through the H 2B visa program
We care about our employees and we believe that our commercial success is linked to a safe and healthy workforce We strive for zero injuries and an incident free workplace and have achieved significant progress towards this goal through risk reduction activities including robust training jobsite safety observations and pre job safety briefings to raise awareness around workplace hazards and reduce employee exposure to hazardous conditions Our care and concern for employee wellbeing is enhanced by the BrightView Landscapes Foundation a nonprofit organization used to support employees during periods of personal and financial stress
Our total rewards philosophy is designed to offer compensation and benefits programs that enable us to attract motivate reward and retain high caliber employees who are capable of creating and sustaining value for our stockholders over the long term We design our programs with a focus on being fair and competitive in order to appropriately reward employees for their contributions to our success Our programs are structured to meet the diverse needs of our employees and their families Among other things we offer eligible employees comprehensive health and wellness plans retirement savings plans continuing education support and the opportunity to earn short term and long term incentive awards
We are committed to fostering an engaged and skilled workforce that aligns with our company s long term growth and performance goals We have integrated microlearning modules and mobile platforms for accessible on the go skill development ensuring that all team members from hourly employees to leadership can continuously improve their capabilities We remain committed to aligning our workforce s development with BrightView s strategic priorities
We are committed to creating and sustaining a diverse workplace that understands and values individual differences across demographics experiences and perspectives We want to ensure that collaborative and respectful business practices in a performance based supportive environment enable every employee to realize his her their career ambitions
Although the United States landscaping snow removal and landscape design and development industries have experienced some consolidation there is significant competition in all the areas that we serve and such competition varies across geographies In our Maintenance Services segment most competitors are smaller local and regional firms however we also face competition from other large national firms such as Yellowstone Landscape Bartlett Tree Experts and HeartLand In our Development Services segment competitors are generally smaller local and regional firms We believe that the primary competitive factors that affect our operations are quality service experience breadth of service offerings and price We believe that our ability to compete effectively is enhanced by the breadth of our services and the technological tools used by our teams as well as our nationwide reach
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 our evergreen markets which require landscape maintenance services year round In our seasonal markets which do not have a year round growing season 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 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 may impact the timing of performance of landscape maintenance and enhancement services and progress on development projects from quarter to quarter Less predictable weather patterns including 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 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 sell and deliver enhancement services or impact the timing of performance
We hold or have rights to use various service marks trademarks and trade names we use in the operation of our businesses that are necessary to the operations of our businesses As of September 30 2024 we had a number of marks that were protected by registration either by direct registration or by treaty in the United States Other than the BrightView brand which includes our logo design and the BrightView word mark we do not consider our service marks trademarks or trade names to be material to the operations of our business
We are required to comply with various federal state and local laws and regulations which increases our operating costs limits or restricts the services provided by our operating segments or the methods by which our operating segments offer sell and fulfill those services or conduct their respective businesses or subjects us to the possibility of regulatory actions or proceedings Noncompliance with these laws and regulations can subject us to fines or various forms of civil or criminal prosecution any of which could have a material adverse effect on our reputation business financial position results of operations and cash flows
These federal state and local laws and regulations include laws relating to wage and hour immigration permitting and licensing workers safety tax healthcare reforms collective bargaining and other labor matters environmental federal motor carrier safety employee benefits and privacy and customer data security We must also meet certain requirements of federal and state transportation agencies including requirements of the U S Department of Transportation and Federal Motor Carrier Safety Administration with respect to certain types of vehicles in our fleets We are also regulated by federal state and local laws ordinances and regulations which are enforced by Departments of Agriculture environmental regulatory agencies and similar government entities
We are subject to various federal state and local laws and regulations governing our relationship with and other matters pertaining to our employees including regulations relating to wage and hour health insurance working conditions safety citizenship or work authorization and related requirements insurance and workers compensation anti discrimination collective bargaining and other labor matters
We are also subject to the regulations of U S Immigration and Customs Enforcement ICE and we are audited from time to time by ICE for compliance with work authorization requirements In addition some states in which we operate have adopted immigration employment protection laws Even if we operate in strict compliance with ICE and state requirements some of our employees may not meet federal work eligibility or residency requirements despite our efforts and without our knowledge which could lead to a disruption in our work force
Our businesses are subject to various federal state and local laws and regulations regarding environmental health and safety matters including the Comprehensive Environmental Response Compensation and Liability Act the Federal Insecticide Fungicide and Rodenticide Act the Resource Conservation and Recovery Act the Clean Air Act the Emergency Planning and Community Right to Know Act the Oil Pollution Act and the Clean Water Act each as amended Among other things these laws and regulations regulate the emission or discharge of materials into the environment govern the use storage treatment disposal handling and management of hazardous substances and wastes and the registration use notification and labeling of pesticides herbicides and fertilizers and protect the health and safety of our employees These laws also impose liability for the costs of investigating and remediating and damages resulting from present and past releases of hazardous substances including releases by us or prior owners or operators at sites we currently own lease or operate customer sites or third party sites to which we sent hazardous substances During fiscal 2024 there were no material capital expenditures for environmental control facilities
There are a number of proposed and pending rules and regulations relating to climate related disclosures that we will be subject to if such rules become effective and survive pending legal challenges For example on March 6 2024 the SEC adopted a final rule requiring public companies to include various climate related disclosures in certain documents filed with the SEC including climate related financial statement metrics greenhouse gas emissions and climate related targets and goals and management s role in managing material climate related risks A number of state legislators and regulators have adopted or are currently considering proposing or adopting other rules regulations directives initiatives and laws requiring climate related disclosures or limiting or affirmatively requiring certain climate related conduct including California laws S B 253 S B 261 and A B 1305 The Company is monitoring the status of such regulations
We have invested in technology designed to accelerate business performance enhancing our ability to support standard processes while retaining local and regional flexibility We believe these investments position BrightView at the forefront of technology within the commercial landscaping industry enabling us to drive operational efficiencies throughout the business Our IT systems allow us to provide a high level of convenience and service to our customers representing a competitive advantage that is difficult to replicate for less technologically sophisticated competitors
As an example our proprietary BrightView Connect application allows customers to submit service requests and landscape pictures directly to their account manager and field team ensuring that specific service needs are accurately delivered in a timely and efficient manner Similarly our mobile quality site assessment application which is designed for account managers to capture and annotate customer feedback provides us with the ability to walk the site with our customers confirm our understanding of their needs and highlight future enhancement opportunities These solutions are components of our integrated Customer Relationship Management CRM system for account managers in the Maintenance Services segment Among other benefits the CRM system is accessible on mobile devices and enables account managers to spend more time with their customers enhancing the quality of those relationships and supporting long term customer retention
We have also made significant investments in our internal IT infrastructure such as migrating to a consolidated enterprise resource planning system and enabling shared services for accounts payable accounts receivable and payroll Additionally we have implemented an electronic time capture system or ETC for our crew leaders and supervisors in the field ETC not only provides accurate information for compliance and payroll purposes but also enables our leadership with granular analytical insights into job costing and crew productivity
Our sales and marketing efforts are focused on both developing new customers and increasing penetration at existing customers We primarily sell our services to businesses commercial property managers general contractors and landscape architects through our professionally trained core sales force We have a field based sales approach driven by our growing team of more than 200 business developers that are focused on winning new customers at a local level We also have a separate 34 member sales team that is focused on targeting and capturing high value high margin opportunities including national accounts Within our Maintenance Services segment every customer relationship is maintained by one of our more than 665 branch level account managers who are responsible for ensuring customer satisfaction tracking service levels promoting enhancement services and driving contract renewals We believe our decentralized approach to customer acquisition and management facilitates a high level of customer service as local managers are empowered and incentivized to better serve customers and grow their respective businesses
Our marketing department is also integral to our strategy and helps drive business growth retention and brand awareness through marketing and communications efforts including promotional materials marketing programs and advertising digital marketing including search engine optimization and website development and trade shows and company wide public relations activities Our field marketing teams focus at the branch level to make our corporate marketing strategies more localized Given the local nature of our operations we believe that a sizeable amount of our new sales are also driven by customer referrals which stem from our strong reputation depth of customer relationships and quality of work
Our highly visible fleet of approximately 15 500 trucks and trailers foster the strong brand equity associated with BrightView We manage our fleet with a dedicated centralized team as well as regional equipment managers who together focus on compliance maintenance asset utilization and procurement We believe we have the largest fleet of vehicles in the commercial landscape maintenance industry
We source our equipment supplies and other related materials and products from a range of suppliers including landscaping equipment companies suppliers of fertilizer seed chemicals and other agricultural products irrigation equipment manufacturers and a variety of suppliers who specialize in nursery goods outdoor lighting hardscapes and other landscaping products
We generally procure our products through purchase orders rather than under long term contracts with firm commitments We work to develop strong relationships with a select group of suppliers that we target based on a number of factors including brand and market recognition price quality product support and service service levels delivery terms and their strategic positioning
We file annual quarterly and current reports proxy statements and other information with the Securities and Exchange Commission SEC Our SEC filings are available to the public over the internet at the SEC s website at https www sec gov Our SEC filings are also available on our website at https www brightview com as soon as reasonably practicable after they are filed with or furnished to the SEC
From time to time we may use press releases or our website as a distribution channel of material company information Financial and other important information regarding our company is routinely accessible through and posted on our website at https investor brightview com In addition you may automatically receive email alerts and other information about us when you enroll your email address by visiting the Email Alerts section at https investor brightview com Our website and the information contained on or connected to that site are not incorporated into this Annual Report on Form 10 K
You should carefully consider the following risk factors as well as the other information included in this Form 10 K including Management s Discussion and Analysis of Financial Condition and Results of Operations and our consolidated financial statements and related notes thereto Any of the following risks could materially and adversely affect our business financial condition or results of operations The selected risks described below however are not the only risks facing us Additional risks and uncertainties not currently known to us or those we currently view to be immaterial may also materially and adversely affect our business financial condition or results of operations
We operate in markets with relatively few large competitors but barriers to entry in the landscape services industry are generally low which has led to highly competitive markets consisting of entities ranging from small or local operators to large regional businesses as well as potential customers that choose not to outsource their landscape maintenance services Any of our competitors may foresee the course of market development more accurately than we do provide superior service have the ability to deliver similar services at a lower cost develop stronger relationships with our customers and other consumers in the landscape services industry adapt more quickly to evolving customer requirements devote greater resources to the promotion and sale of their services or access financing on more favorable terms than we can obtain In addition while regional competitors may be smaller than we are some of these businesses may have a greater presence than we do in a particular market As a result of any of these factors we may not be able to compete successfully with our competitors which could have an adverse effect on our business financial position results of operations and cash flows
Our customers consider the quality and differentiation of the services we provide our customer service and price when deciding whether to use our services As we have worked to establish ourselves as leading high quality providers of landscape maintenance and development services we compete predominantly on the basis of high levels of service and strong relationships We may not be able to or may choose not to compete with certain competitors on the basis of price and accordingly some of our customers may switch to lower cost services providers or perform such services themselves If we are unable to compete effectively with our existing competitors or new competitors enter the markets in which we operate or our current customers choose to discontinue landscape maintenance services our financial position results of operations and cash flows may be materially and adversely affected
In addition our former employees may start landscape services businesses similar to ours and compete directly with us While our employees customarily sign non competition agreements such agreements do not fully protect us against competition from former employees and may not be enforceable depending on applicable law and or circumstances including the rules approved by the Federal Trade Commission banning non competition agreements which at the time of the filing of this Form 10 K are unenforceable due to ongoing litigation Consequently we cannot predict with certainty whether if challenged a court will enforce any particular non competition agreement Any increased competition from businesses started by former employees may reduce our market share and adversely affect our business financial position results of operations and cash flows
Our success depends on our ability to retain our current customers renew our existing customer contracts and obtain new business Our ability to do so generally depends on a variety of factors including the quality price and responsiveness of our services as well as our ability to market these services effectively and differentiate ourselves from our competitors We largely seek to differentiate ourselves from our competitors on the basis of high levels of service breadth of service offerings and strong relationships and may not be able to or may choose not to compete with certain competitors on the basis of price There can be no assurance that we will be able to obtain new business renew existing customer contracts at the same or higher levels of pricing or that our current customers will not elect to self operate or terminate contracts with us In our Maintenance Services segment we primarily provide services pursuant to agreements that are cancelable by either party upon 30 days notice Consequently our customers can unilaterally terminate all services pursuant to the terms of our service agreements without penalty
Our business and growth strategies benefit from customers and prospective customers continuing to outsource services Customers will outsource if they perceive that outsourcing may provide quality services at a lower overall cost and permit them to focus on their core business activities We cannot be certain that customers that have outsourced functions will not decide to perform these functions themselves If a significant number of our existing customers reduced their outsourcing and elected to perform the services themselves such loss of customers could have a material adverse impact on our business financial position results of operations and cash flows
We operate our business through a network of dispersed locations throughout the United States supported by corporate executives and certain centralized services in our headquarters with local branch management retaining responsibility for day to day operations Our operating structure could make it difficult for us to coordinate procedures across our operations in a timely manner or at all and certain of our branches may require significant oversight and coordination from headquarters to support their growth In addition the operating results of an individual branch may differ from that of another branch for a variety of reasons including market size management practices competitive landscape regulatory requirements and local economic conditions Inconsistent or incomplete implementation of corporate strategy and policies at the local level could materially and adversely affect our business financial position results of operations and cash flows
We may not be able to fully implement our business strategies or realize in whole or in part within the expected time frames the anticipated benefits of our various growth or other initiatives Our various business strategies and initiatives including our growth operational and management initiatives are subject to business economic and competitive uncertainties and contingencies many of which are beyond our control The execution of our business strategy and our financial performance will continue to depend in significant part on our executive management team and other key management personnel our ability to identify and complete suitable acquisitions and our executive management team s ability to execute new operational initiatives In addition we may incur certain costs as we pursue our growth operational and management initiatives and we may not meet anticipated implementation timetables or stay within budgeted costs As these initiatives are undertaken we may not fully achieve our expected efficiency improvements or growth rates or these initiatives could adversely impact our customer retention supplier relationships or operations Also our business strategies may change from time to time in light of our ability to implement our business initiatives competitive pressures economic uncertainties or developments or other factors
We have acquired businesses in the past and expect to continue to acquire businesses or assets in the future However there can be no assurance that we will be able to identify and complete suitable acquisitions For example due to the highly fragmented nature of our industry it may be difficult for us to identify potential targets with revenues sufficient to justify taking on the risks associated with pursuing the acquisition of such targets The failure to identify suitable acquisitions and successfully integrate these acquired businesses may limit our ability to expand our operations and could have an adverse effect on our business financial position and results of operations
In addition acquired businesses may not perform in accordance with expectations and our business judgments concerning the value strengths and weaknesses of acquired businesses may not prove to be correct We may also be unable to achieve expected improvements or achievements in businesses that we acquire The process of integrating an acquired business may create unforeseen difficulties and expenses including the diversion of management s attention or resources away from our operations the inability to retain employees customers and suppliers difficulties implementing our strategy at the acquired business the assumption of actual or contingent liabilities including those relating to the environment failure to effectively and timely adopt and adhere to our internal control processes accounting systems and other policies write offs or impairment charges relating to goodwill and other intangible assets unanticipated liabilities relating to acquired businesses and potential expenses associated with litigation with sellers of such businesses
If management is not able to effectively manage the integration process or if any significant business activities are interrupted as a result of the integration process we may not be able to realize anticipated benefits and revenue opportunities resulting from acquisitions and our business could suffer Although we conduct due diligence investigations prior to each acquisition there can be no assurance that we will discover or adequately protect against liabilities of an acquired business for which we may be responsible as a successor owner or operator
In connection with our acquisitions we generally require that key management and former principals of the businesses we acquire enter into non competition agreements in our favor Enforceability of these non competition agreements varies from state to state and may depend on the relevant facts and circumstances including the rules approved by the Federal Trade Commission banning non competition agreements which are currently unenforceable due to ongoing litigation Consequently we cannot predict with certainty whether if challenged a court will enforce any particular non competition agreement Increased competition could materially and adversely affect our business financial position results of operations and cash flows
The demand for our services and our results of operations are affected by the seasonal nature of our landscape maintenance services in certain regions In geographies that do not have a year round growing season 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 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 In our Development Services segment we typically experience lower activity levels during the winter months Such seasonality causes our results of operations to vary from quarter to quarter Due to the seasonal nature of the services we provide we also experience seasonality in our employment and working capital needs Our employment and working capital needs generally correspond with the increased demand for our services in the spring and summer months and employment levels and operating costs are generally at their highest during such months Consequently our results of operations and financial position can vary from year to year as well as from quarter to quarter If we are unable to effectively manage the seasonality and year to year variability our results of operations financial position and cash flow may be adversely affected
We perform landscape services the demand for which is affected by weather conditions including impacts from climate change droughts severe storms significant rain or snowfall and other severe weather conditions or events including hurricanes and wildfires all of which may impact the timing and frequency of the performance of our services or our ability to perform the services at all For example severe weather conditions such as excessive heat or cold may result in maintenance services being omitted for part of a season or beginning or ending earlier than anticipated which could result in lost revenues or require additional services to be performed for which we may not receive corresponding incremental revenues Variability in the frequency of which we must perform our services can affect the margins we realize on a given contract
Certain extreme weather events such as hurricanes and tropical storms can result in increased revenues related to cleanup and other services However such weather events may also impact our ability to deliver our contracted services or cause damage to our facilities or equipment These weather events can also result in higher fuel costs higher labor costs and shortages of raw materials and products As a result a perceived earnings benefits related to extreme weather events may be moderated Droughts could cause shortages in the water supply and governments may impose limitations on water usage which may change customer demand for landscape maintenance and irrigation services There is a risk that demand for our services will change in ways that we are unable to predict
Climate change may increase in the frequency duration and severity of extreme weather events and make weather patterns change or more difficult to predict Such changes may impede our ability to provide services or make it difficult for us to anticipate customer demand The uncertainties caused by weather conditions could negatively impact our ability to execute on our business strategy which in turn could harm our business financial condition and results of operations
A significant portion of our contracts are subject to competitive bidding and or are negotiated on a fixed or capped fee basis for the services covered Such contracts generally require that the total amount of work or a specified portion thereof be performed for a single price irrespective of our actual costs If our cost estimates for a contract are inaccurate or if we do not execute the contract within our cost estimates then cost overruns may cause the contract not to be as profitable as we expected or could cause us to incur losses
Our landscape development services have been and in the future may be adversely impacted by fluctuations or declines in the new commercial construction sector as well as in spending on repair and upgrade activities Such variability in this part of our business could result in lower revenues and reduced cash flows and profitability
With respect to our Development Services segment a significant portion of our revenues are derived from development activities associated with new commercial real estate development including hospitality and leisure which has experienced periodic declines some of which have been severe including sustained declines associated with the COVID 19 pandemic The strength of these markets depends on among other things housing starts local occupancy rates demand for commercial space increased adoption of remote working arrangements non residential construction spending activity business investment and general economic conditions which are a function of many factors beyond our control including interest rates employment levels availability of credit consumer spending
consumer confidence and capital spending During a downturn in the commercial real estate development industry customers may decrease their spending on landscape development services by generally reducing the size and complexity of their new landscaping development projects Additionally when interest rates rise there may be a decrease in the spending activities of our current and potential Development Services customers Fluctuations in commercial real estate development markets could have an adverse effect on our business financial position results of operations or cash flows
Our results of operations for our snow removal services depend primarily on the level timing and location of snowfall As a result a decline in frequency or total amounts of snowfall in multiple regions for an extended time could cause our results of operations to decline and adversely affect our ability to generate cash flows
As a provider of snow removal services our revenues are impacted by the frequency amount timing and location of snowfall in the regions in which we offer our services A high number of snowfalls in a given season generally has a positive effect on the results of our operations However snowfall in the months of March April October and or November could have a potentially adverse effect on ordinary course maintenance landscape services typically performed during those periods A low level or lack of snowfall in any given year in any of the snow belt regions in North America primarily the Midwest Mid Atlantic and Northeast regions of the United States or a sustained period of reduced snowfall events in one or more of the geographic regions in which we operate will likely cause revenues from our snow removal services to decline in such year which in turn may adversely affect our revenues results of operations and cash flow The regions that we service averaged 1 695 inches of annual snowfall in calendar year 2023 1 913 inches of annual snowfall in calendar year 2023 and 2 049 inches of annual snowfall in calendar year 2022 In the past ten fifteen and thirty year periods the regions that we service have averaged 2 456 inches 2 702 inches and 2 687 inches of annual snowfall respectively However there can be no assurance that these regions will receive seasonal snowfalls near their historical average in the future Variability in the frequency and timing of snowfalls creates challenges associated with budgeting and forecasting for the Maintenance Services segment Additionally the effects of climate change may impact the frequency and total amounts of future snowfall which could have a material adverse effect on our revenues results of operations and cash flow
Our future success depends to a significant degree on the skills experience and efforts of our executive management and other key personnel and their ability to provide us with uninterrupted leadership and direction From time to time there may be changes in our senior management team resulting from the hiring or departure of executives Since the beginning of calendar year 2022 we have hired a new Chief Executive Officer and Chief Financial Officer among other leadership changes The failure to retain our executive officers and other key personnel or a failure to provide adequate succession plans could have an adverse impact The availability of highly qualified talent is limited and the competition for talent is robust A failure to efficiently or effectively replace executive management members or other key personnel and to attract retain and develop new qualified personnel could have an adverse effect on our operations and implementation of our strategic plan
Our future success and financial performance depend substantially on our ability to attract train and retain hourly and field workers as well as trained workers including account branch and regional management personnel The landscape services industry is labor intensive and industry participants including us experience high turnover rates among hourly workers and competition for qualified supervisory personnel In addition we like many landscape service providers who conduct a portion of their operations in seasonal climates employ a portion of our field personnel for only part of the year In addition general labor shortages a high turnover rate and difficulty in recruiting and retaining qualified employees at any level of our organization could result in delays in our services
The competition for talent and labor in general is currently extremely high In this competitive environment our business could be adversely impacted by increases in labor costs which may include increases in wages and benefits necessary to attract and retain high quality employees with the right skill sets increases triggered by regulatory actions regarding wages scheduling and benefits and increases in health care and workers compensation insurance costs In light of the current challenging labor market conditions our wages and benefits programs and any steps we take to increase our wages and benefits may be insufficient to attract and retain talent at all levels of our organization Any increase in labor costs due to minimum wage laws or customer requirements about scheduling and overtime that we are unable to pass on to our customers could materially adversely affect our business financial condition and results of operations Existing labor shortages and our inability to attract employees to maintain a qualified workforce could adversely affect our production and our overall business and financial performance
We have historically relied on the H 2B visa program to bring workers to the United States on a seasonal basis We employed approximately 2 000 seasonal workers in fiscal year 2024 and approximately 1 900 seasonal workers in fiscal year 2023 through the H 2B visa program If we are unable to hire sufficient numbers of seasonal workers through the H 2B visa program or otherwise we may experience a labor shortage In the event of a labor shortage whether related to seasonal or permanent staff we could experience difficulty in delivering our services in a high quality or timely manner and could experience increased recruiting training and wage costs in order to attract and retain employees which would result in higher operating costs and reduced profitability
As of September 30 2024 we had approximately 19 600 employees approximately 5 of which are represented by a union pursuant to collective bargaining agreements If a significant number of our employees were to attempt to unionize and or successfully unionized including in the wake of any future legislation that makes it easier for employees to unionize our business could be negatively affected Any inability by us to negotiate collective bargaining arrangements could result in strikes or other work stoppages disrupting
our operations and new union contracts could increase operating and labor costs If these labor organizing activities were successful it could further increase labor costs decrease operating efficiency and productivity in the future or otherwise disrupt or negatively impact our operations Moreover certain of the collective bargaining agreements we participate in require periodic contributions to multiemployer defined benefit pension plans Our required contributions to these plans could increase because of a shrinking contribution base as a result of the insolvency or withdrawal of other companies that currently contribute to these plans the inability or failure of withdrawing companies to pay their withdrawal liability low interest rates lower than expected returns on pension fund assets or other funding deficiencies Additionally in the event we were to withdraw from some or all of these plans as a result of our exiting certain markets or otherwise and the relevant plans are underfunded we may become subject to a withdrawal liability The amount of these required contributions may be material
We use the U S government s E Verify program to verify employment eligibility for all new employees throughout our company However use of E Verify does not guarantee that we will successfully identify all applicants who are ineligible for employment Although we use E Verify and require all new employees to provide us with government specified documentation evidencing their employment eligibility some of our employees may without our knowledge be unauthorized workers The employment of unauthorized workers may subject us to fines or penalties and adverse publicity that negatively impacts our reputation and may make it more difficult to hire and keep qualified employees We are subject to regulations of U S Immigration and Customs Enforcement or ICE and we are audited from time to time by ICE for compliance with work authentication requirements While we believe we are in compliance with applicable laws and regulations if we are found not to be in compliance as a result of any audits we may be subject to fines or other remedial actions See Business Regulatory Overview Employee and Immigration Matters
Termination of a significant number of employees in specific markets or across our company due to work authorization or other regulatory issues would disrupt our operations and could also cause adverse publicity and temporary increases in our labor costs as we train new employees We could also become subject to fines penalties and other costs related to claims that we did not fully comply with all recordkeeping obligations of federal and state immigration compliance laws Our reputation and financial performance may be materially harmed as a result of any of these factors Furthermore immigration laws have been an area of considerable political focus in recent years and the U S Congress and the Executive Branch of the U S government from time to time consider or implement changes to federal immigration laws regulations or enforcement programs Further changes in immigration or work authorization laws may increase our obligations for compliance and oversight which could subject us to additional costs and potential liability and make our hiring process more cumbersome or reduce the availability of potential employees
In our Development Services segment and through our qualified service partner network in our Maintenance Services segment we use subcontractors to perform work in situations in which we are not able to self perform such work If we are unable to hire qualified subcontractors our ability to successfully complete a project or perform services could be impaired If we are not able to locate qualified third party subcontractors or the amount we are required to pay for subcontractors exceeds what we have estimated we could incur losses or realize lower than expected margins We may not have direct control over our subcontractors and although we have in place controls and programs to monitor the work of our subcontractors there can be no assurance that these programs will have the desired effect The actual or alleged failure to perform or negligence of a subcontractor may damage our reputation or expose us to liability which could impact our results of operations Furthermore if our subcontractors are unable to cover the cost of damages or physical injuries caused by their actions whether through insurance or otherwise we may be held liable for such costs
Accounting for our numerous historical transactions has resulted in the generation of various amounts of goodwill Goodwill is recorded as the difference if any between the aggregate consideration paid for an acquisition and the fair value of the tangible and identifiable intangible assets acquired liabilities assumed and any non controlling interest Intangible assets including goodwill are assigned to our segments based upon their fair value at the time of acquisition In accordance with accounting principles generally accepted in the United States of America GAAP goodwill and indefinite lived intangible assets are evaluated for impairment annually or more frequently if circumstances indicate impairment may have occurred As of September 30 2024 the net carrying value of goodwill and other intangible assets net represented 2 111 5 million or 62 of our total assets A future impairment if any could have a material adverse effect to our financial position or results of operations See Note 7 Intangible Assets Goodwill Acquisitions and Divestitures to our audited consolidated financial statements included in Part II Item 8 of this Form 10 K for additional information related to impairment testing for goodwill and other intangible assets and the associated charges taken
We are subject to governmental regulation at the federal state and local levels in many areas of our business such as employment laws wage and hour laws discrimination laws immigration laws human health and safety laws transportation laws environmental laws false claims or whistleblower statutes disadvantaged business enterprise statutes tax codes antitrust and competition laws intellectual property laws government funded entitlement programs and cost and accounting principles the Foreign Corrupt Practices
While we attempt to comply with all applicable laws and regulations there can be no assurance that we are in full compliance with all applicable laws and regulations or interpretations of these laws and regulations at all times or that we will be able to comply with any future laws regulations or interpretations of these laws and regulations If we fail to comply with applicable laws and regulations including those referred to above we may be subject to investigations criminal sanctions or civil remedies including fines penalties damages reimbursement injunctions seizures disgorgements or the loss of the ability to operate our motor vehicles The cost of compliance or the consequences of non compliance could have a material adverse effect on our business and results of operations In addition government agencies may make changes in the regulatory frameworks within which we operate that may require either the corporation as a whole or individual businesses to incur substantial increases in costs in order to comply with such laws and regulations
Compliance with environmental health and safety laws and regulations including laws pertaining to the use of pesticides herbicides and fertilizers or liabilities thereunder as well as the risk of potential litigation could result in significant costs that adversely impact our reputation business financial position results of operations and cash flows
We are subject to a variety of federal state and local laws and regulations relating to environmental health and safety matters In particular in the United States products containing pesticides generally must be registered with the U S Environmental Protection Agency or EPA and similar state agencies before they can be sold or applied The pesticides we use are manufactured by independent third parties and are evaluated by the EPA as part of its ongoing exposure risk assessment and may be subject to similar evaluation by similar state agencies The EPA or similar state agencies may decide that a pesticide we use will be limited or will not be re registered for use in the United States We cannot predict the outcome or the severity of the effect of the EPA s or a similar state agency s continuing evaluations The failure to obtain or the cancellation of any such registration or the partial or complete ban of such pesticides could have an adverse effect on our business the severity of which would depend on the products involved whether other products could be substituted and whether our competitors were similarly affected
The use of certain pesticides herbicides and fertilizer products is also regulated by various federal state and local environmental and public health and safety agencies These regulations may require that only certified or professional users apply the product or that certain products only be used on certain types of locations These laws may also require users to post notices on properties at which products have been or will be applied notification to individuals in the vicinity that products will be applied in the future or labeling of certain products or may restrict or ban the use of certain products We can give no assurance that we can prevent violations of these or other regulations from occurring Even if we are able to comply with all such regulations and obtain all necessary registrations and licenses we cannot assure you that the pesticides herbicides fertilizers or other products we apply or the manner in which we apply them will not be alleged to cause injury to the environment to people or to animals or that such products will not be restricted or banned in certain circumstances For example we could be named in or subject to personal injury claims stemming from alleged environmental torts similar to those that have been brought against certain manufacturers of herbicides The costs of compliance consequences of non compliance remediation costs and liabilities unfavorable public perceptions of such products or products liability lawsuits could have a material adverse effect on our reputation business financial position results of operations and cash flows
In addition federal state and local agencies regulate the use storage treatment disposal handling and management of hazardous substances and wastes emissions or discharges from our facilities or vehicles and the investigation and clean up of contaminated sites including our sites customer sites and third party sites to which we send wastes We could incur significant costs and liabilities including investigation and clean up costs fines penalties and civil or criminal sanctions for non compliance and claims by third parties for property and natural resource damage and personal injury under these laws and regulations If there is a significant change in the facts or circumstances surrounding the assumptions upon which we operate or if we are found to violate or be liable under applicable environmental and public health and safety laws and regulations it could have a material adverse effect on future environmental capital expenditures and other environmental expenses and on our reputation business financial position results of operations and cash flows In addition potentially significant expenditures could be required to comply with environmental laws and regulations including requirements that may be adopted or imposed in the future
From time to time we are subject to allegations and may be party to legal claims and regulatory proceedings relating to our business operations Such allegations claims or proceedings may for example relate to personal injury property damage general liability claims relating to properties where we perform services vehicle accidents involving our vehicles and our employees regulatory issues contract disputes or employment matters and may include class actions Such allegations claims and proceedings have been and may be brought by third parties including our customers employees governmental or regulatory bodies or competitors Defending against these and other such claims and proceedings is costly and time consuming and may divert management s attention and personnel resources from our normal business operations and the outcome of many of these claims and proceedings cannot be predicted If any of these claims or proceedings were to be determined adversely to us a judgment a fine or a settlement involving a payment of a material sum of money were to occur or injunctive relief were issued against us our business financial position and results of operations could be materially adversely affected
Currently we carry a broad range of insurance for the protection of our assets and operations However such insurance may not fully cover all material expenses related to potential allegations claims and proceedings or any adverse judgments fines or settlements resulting therefrom as such insurance programs are often subject to significant deductibles or self insured retentions or may not cover certain types of claims In addition we self insure with respect to certain types of claims To the extent we are subject to a higher frequency of claims are subject to more serious claims or insurance coverage is not available our liquidity financial position and results of operations could be materially adversely affected
We are also responsible for our legal expenses relating to such claims We reserve currently for anticipated losses and related expenses We periodically evaluate and adjust our claims reserves to reflect trends in our own experience as well as industry trends However ultimate results may differ from our estimates which could result in losses over our reserved amounts
As a company conducting business with physical operations throughout North America we are exposed both directly and indirectly to the effects of changes in U S federal state and local tax rules Taxes for financial reporting purposes and cash tax liabilities in the future may be adversely affected by changes in such tax rules Such changes may put us at a competitive disadvantage compared to some of our major competitors to the extent we are unable to pass the tax costs through to our customers
The Biden administration has announced and in certain cases has enacted a number of tax proposals in the past four years to fund new government investments in infrastructure healthcare and education among other things Certain of these proposals involve an increase in the domestic corporate tax rate which when implemented could have a material impact on our future results of operations and cash flows Beginning in 2024 the Inflation Reduction Act of 2022 IRA imposes a 15 minimum tax on global adjusted financial statement income for corporations with three year average annual adjusted financial statement income exceeding 1 billion The IRA also imposes a 1 excise tax on certain repurchases including certain redemptions of stock by publicly traded domestic corporations The IRA also created a number of potentially beneficial tax credits to incentivize investments in certain technologies and industries which may be applicable to our business Certain provisions of the IRA became effective beginning in fiscal 2023 While we do not believe the IRA will have a direct negative impact on our business the effects of the measures are unknown at this time
Many of the services that we provide pose the risk of serious personal injury to our employees Our employees regularly use dangerous equipment such as lawn mowers edgers and other power equipment As a result there is a significant risk of work related injury and workers compensation claims To the extent that we experience a material increase in the frequency or severity of accidents or workers compensation claims or unfavorable developments on existing claims or fail to comply with worker health and safety regulations our operating results and financial position could be materially and adversely affected In addition the perception that our workplace is unsafe may damage our reputation among current and potential employees which may impact our ability to recruit and retain employees which may adversely affect our business and results of operations
Any failure inadequacy interruption security failure or breach of our information technology systems whether owned by us or outsourced or managed by third parties could harm our ability to effectively operate our business and could have a material adverse effect on our business financial position and results of operations
We are dependent on certain centralized automated information technology systems and networks to manage and support a variety of business processes and activities Our ability to effectively manage our business and coordinate the sourcing of supplies materials and products and our services depends significantly on the reliability and capacity of these systems and networks Such systems and networks have experienced and could continue to be subject to damage or interruption from power outages telecommunications problems data corruption software errors network failures security breaches ransomware attacks phishing attempts acts of war or terrorist attacks fire flood and natural disasters Our servers or cloud based systems could be affected by physical or electronic break ins and computer viruses or similar disruptions may occur A system outage may also cause the loss of important data or disrupt our operations Our existing safety systems data backup access protection user management disaster recovery and information technology emergency planning may not be sufficient to prevent or minimize the effect of data loss or long term network outages
We periodically upgrade our existing information technology systems with the assistance of third party vendors and the costs to upgrade such systems may be significant Costs and potential problems and interruptions associated with the implementation of new or upgraded systems and technology or with maintenance or adequate support of existing systems could disrupt or reduce the efficiency of our operations If we cannot meet our information technology staffing needs we may not be able to fulfill our technology initiatives while continuing to provide maintenance on existing systems We could be required to make significant capital expenditures to remediate any such failure malfunction or breach with our information technology systems or networks Any material disruption or slowdown of our systems including those caused by our failure to successfully upgrade our systems and our inability to convert to alternate systems in an efficient and timely manner could have a material adverse effect on our business financial position and results of operations
We rely on commercially available systems software tools and monitoring to provide security for processing transmitting and storing confidential information of our customers employees and third parties Intentional or unintentional acts of customers employees and third parties including unlawful or unauthorized activities by third parties and failures in systems software encryption technology or other tools may facilitate or result in a compromise or breach of these systems We are subject to risks caused by data breaches and
operational disruptions particularly through cyber attack cyber intrusion ransomware attacks phishing attempts or other social engineering attempts to fraudulently induce the transfer of company funds including by computer hackers foreign governments and cyber terrorists Geopolitical instability including overseas conflicts may increase the risk that we will experience cyber attacks or cyber intrusions Any unauthorized disclosure of confidential information could damage our reputation interrupt our operations and could result in a violation of applicable laws regulations industry standards or agreements and potentially subject us to costs penalties and liabilities The occurrence of any of these events could have a material adverse impact on our reputation business financial position results of operations and cash flow Although we maintain insurance coverage for various cybersecurity risks there can be no guarantee that all costs incurred will be fully insured
There are new and emerging data privacy laws as well as frequent updates and changes to existing data privacy laws in most jurisdictions in which we operate Failure to comply with data privacy laws can result in substantial fines or penalties legal liability and or reputational damage Recently various U S states have enacted stringent consumer privacy laws Continued state by state introduction of privacy laws could lead to significantly greater complexity in our compliance requirements which could result in increased compliance costs complaints from data subjects and or action from regulators If we do not provide sufficient resources to ensure we are able to respond adapt and implement the necessary requirements to respond to the changing data privacy landscape which could include federal data privacy requirements in the US we could face exposure to fines levied by regulators which could have a significant financial impact on our business
Our ability to implement our business plan successfully depends in part on our ability to further build brand recognition using our trademarks service marks and other proprietary intellectual property including our name and logos While it is our policy to protect and defend vigorously our intellectual property we cannot predict whether such actions will be adequate to prevent infringement or misappropriation of these rights Although we believe that we have sufficient rights to all of our trademarks service marks and other intellectual property rights we may face claims of infringement that could interfere with our business or our ability to market and promote our brands If we are unable to successfully defend against such claims we may be prevented from using our intellectual property rights in the future and may be liable for damages
Although we make a significant effort to avoid infringing known proprietary rights of third parties we may be subject to claims of infringement by third parties Responding to and defending such claims regardless of their merit can be costly and time consuming and we may not prevail Depending on the resolution of such claims we may be barred from using a specific mark or other rights may be required to enter into licensing arrangements from the third party claiming infringement or may become liable for significant damages If any of the foregoing occurs our ability to compete could be affected or our business financial position and results of operations may be adversely affected
We have a significant amount of indebtedness As of September 30 2024 we had total indebtedness of 802 5 million and we had availability under the Revolving Credit Facility and the Receivables Financing Agreement of 300 0 million and 158 8 million respectively See Note 9 Long term Debt to our audited consolidated financial statements included in Part II Item 8 in this Form 10 K
Our level of debt could have important consequences including making it more difficult for us to satisfy our obligations with respect to our debt limiting our ability to obtain additional financing to fund future working capital capital expenditures investments or acquisitions or other general corporate requirements requiring a substantial portion of our cash flows to be dedicated to debt service payments instead of other purposes thereby reducing the amount of cash flows available for working capital capital expenditures investments or acquisitions and other general corporate purposes increasing our vulnerability to adverse changes in general economic industry and competitive conditions exposing us to the risk of increased interest rates as certain of our borrowings including borrowings under our credit agreement dated December 18 2013 as amended the Credit Agreement are at variable rates of interest limiting our flexibility in planning for and reacting to changes in the industries in which we compete placing us at a disadvantage compared to other less leveraged competitors increasing our cost of borrowing and hampering our ability to execute on our growth strategy
Borrowings under our Credit Agreement and Receivables Financing Agreement are at variable rates of interest and expose us to interest rate risk Increases in interest rates can result in increases to the cost of servicing our debt under our Credit Agreement and Receivables Financing Agreement For the year ended September 30 2024 our interest expense was 62 4 million compared to 97 4 million for the year ended September 30 2023 Moreover borrowings under our Credit Agreement and Receivables Financing Agreement bear interest at a rate per annum based on a secured overnight financing rate SOFR plus a margin If interest rates continue to increase our debt service obligations on the variable rate indebtedness will increase even though the amount borrowed will remain
We have entered into interest rate swap instruments to limit our exposure to changes in variable interest rates While our hedging strategy is designed to minimize the impact of increases in interest rates applicable to our variable rate debt there can be no guarantee that our hedging strategy will be effective and we may experience credit related losses in some circumstances See Note 10 Fair Value Measurements and Derivative Instruments to our audited consolidated financial statements included in Part II Item 8 of this Form 10 K
The Credit Agreement imposes significant operating and financial restrictions These covenants limit our ability and the ability of our subsidiaries to among other things incur additional indebtedness create or incur liens engage in certain fundamental changes including mergers or consolidations sell or transfer assets pay dividends and distributions on our subsidiaries capital stock make acquisitions investments loans or advances prepay or repurchase certain indebtedness engage in certain transactions with affiliates and enter into negative pledge clauses and clauses restricting subsidiary distributions
The Credit Agreement also contains certain customary affirmative covenants and events of default including a change of control The Credit Agreement also contains a financial maintenance requirement with respect to the Revolving Credit Facility prohibiting us from exceeding a certain first lien secured leverage ratio under certain circumstances As a result of these covenants and restrictions we are limited in how we conduct our business and we may be unable to raise additional debt or equity financing to compete effectively or to take advantage of new business opportunities The terms of any future indebtedness we may incur could include more restrictive covenants We cannot guarantee that we will be able to maintain compliance with these covenants in the future and if we fail to do so that we will be able to obtain waivers from the lenders and or amend the covenants
Our failure to comply with the restrictive covenants described above as well as others contained in our future debt instruments from time to time could result in an event of default which if not cured or waived could result in our being required to repay these borrowings before their maturity dates In addition any event of default or declaration of acceleration under one debt instrument could also result in an event of default under one or more of our other debt instruments If we are unable to repay refinance or restructure our indebtedness under our secured debt the holders of such debt could proceed against the collateral securing that indebtedness If we are forced to refinance these borrowings on less favorable terms or if we are unable to repay refinance or restructure such indebtedness our financial condition and results of operations could be adversely affected
Our ability to make principal and interest payments on and to refinance our indebtedness will depend on our ability to generate cash in the future and is subject to general economic financial competitive legislative regulatory and other factors that are beyond our control If our business does not generate sufficient cash flow from operations in the amounts projected or at all or if future borrowings are not available to us in amounts sufficient to fund our other liquidity needs our business financial condition and results of operations could be materially adversely affected
If we cannot generate sufficient cash flow from operations to make scheduled principal and interest payments we may need to refinance all or a portion of our indebtedness on or before maturity sell assets delay capital expenditures or seek additional equity The terms of our existing or future debt agreements may also restrict us from affecting any of these alternatives Any refinancing of our debt could be at higher interest rates and may require us to comply with more onerous covenants which could further restrict our business operations Further changes in the credit and capital markets including market disruptions and interest rate fluctuations may increase the cost of financing make it more difficult to obtain favorable terms or restrict our access to these sources of future liquidity In addition any failure to make scheduled payments of interest and principal on our outstanding indebtedness would likely result in a reduction of our credit rating which could harm our ability to incur additional indebtedness on commercially reasonable terms or at all Our inability to generate sufficient cash flow to satisfy our debt service obligations or to refinance or restructure our obligations on commercially reasonable terms or at all could have a material adverse effect on our business financial condition and results of operations as well as on our ability to satisfy our obligations in respect of our indebtedness
We and our subsidiaries may incur significant additional indebtedness in the future including off balance sheet financings contractual obligations and general and commercial liabilities Although the Credit Agreement contains restrictions on the incurrence of additional indebtedness these restrictions are subject to a number of qualifications and exceptions and the additional indebtedness
incurred in compliance with these restrictions could be substantial In addition we can increase the borrowing availability under the Credit Agreement by up to the greater of 1 303 0 million and 2 100 of Consolidated EBITDA as defined in the Credit Agreement for the most recently ended four consecutive fiscal quarters in the form of additional commitments under the Revolving Credit Facility and or incremental term loans plus an additional amount so long as we do not exceed a specified first lien secured leverage ratio If new debt is added to our current debt levels the related risks that we now face could intensify
We have access to capital through our Revolving Credit Facility which is governed by the Credit Agreement Each financial institution which is part of the syndicate for our Revolving Credit Facility is responsible on a several but not joint basis for providing a portion of the loans to be made under our facility If any participant or group of participants with a significant portion of the commitments in our Revolving Credit Facility fails to satisfy its or their respective obligations to extend credit under the facility and we are unable to find a replacement for such participant or participants on a timely basis if at all our liquidity may be adversely affected
Our employees directors officers and affiliates including KKR and One Rock hold substantial amounts of shares of our common stock and all of our outstanding Series A Convertible Preferred Stock the Series A Preferred Stock which is convertible into shares of our common stock As of September 30 2024 the Affiliated Investors held approximately 33 133 123 shares of our common stock and 500 000 shares of our Series A Preferred Stock which represents in the aggregate approximately 58 7 of the combined voting power of our outstanding shares of preferred stock and common stock Sales of a substantial number of shares of our common stock in the public market by these stockholders or the perception that such sales could occur could substantially decrease the market price of our common stock Conversion of a substantial number of shares of the Series A Preferred Stock into shares of our common stock or the perception that such conversion could occur could also decrease the market price of our common stock Other than restrictions on trading that arise under securities laws or pursuant to our securities trading policy that is intended to facilitate compliance with securities laws including the prohibition on trading in securities by or on behalf of a person who is aware of nonpublic material information we have no restrictions on the right of our employees directors and officers and their affiliates to sell their unrestricted shares of common stock
These factors could also make it more difficult for us to raise additional funds through future offerings of our shares of common stock or other securities In the future we may also issue equity securities in connection with investments or acquisitions The number of shares of our common stock issued in connection with an investment or acquisition could constitute a material portion of our then outstanding shares of our common stock Any issuance of additional securities in connection with investments or acquisitions may result in additional dilution to you
As of September 30 2024 the Affiliated Investors beneficially own approximately 58 7 of the combined voting power of our outstanding shares of preferred stock and common stock As a result the Affiliated Investors have the ability to influence the election of our directors and the outcome of other corporate actions requiring shareholder approval such as i a merger or a sale of our Company ii a sale of all or substantially all of our assets and iii amendments to our articles of incorporation and bylaws Additionally four members of our Board of Directors are affiliated with certain of the Affiliated Investors and so the Affiliated Investors also have significant control over our business policies and affairs by their affiliates serving as directors of our Company This concentration of voting power and control could have a significant effect in delaying deferring or preventing an action that might otherwise be beneficial to our other shareholders including a change in control of the Company or that could be disadvantageous to our shareholders with interests different from our Affiliated Investors In addition the significant concentration of stock ownership may adversely affect the market value of the Company s common stock due to investors perception that conflicts of interest may exist or arise
The Affiliated Investors and their respective affiliates are in the business of making investments in companies and may from time to time acquire and hold interests in businesses that compete directly or indirectly with us Our amended and restated certificate of incorporation provides that none of KKR any of its affiliates or any director who is not employed by us including any non employee director who serves as one of our officers in both his director and officer capacities or his or her affiliates will have any duty to refrain from engaging directly or indirectly in the same business activities or similar business activities or lines of business in which we operate KKR or One Rock and their respective affiliates also may pursue acquisition opportunities that may be complementary to our business and as a result those acquisition opportunities may not be available to us
Certain provisions of our certificate of incorporation and bylaws may have an anti takeover effect and may delay defer or prevent a merger acquisition tender offer takeover attempt or other change of control transaction that a stockholder might consider in its best interest including those attempts that might result in a premium over the market price for the shares held by our stockholders
These provisions provide for among other things our Board of Directors to issue one or more series of preferred stock advance notice requirements for nominations of directors by stockholders and for stockholders to include matters to be considered at our annual meetings certain limitations on convening special stockholder meetings the removal of directors only upon the affirmative vote of the holders of at least 66 2 3 of the shares of common stock entitled to vote generally in the election of directors if KKR and its affiliates cease to beneficially own at least 40 of shares of common stock entitled to vote generally in the election of directors In addition certain provisions of our certificate of incorporation and bylaws may be amended only by the affirmative vote of at least 66 2 3 of shares of common stock entitled to vote generally in the election of directors if KKR and its affiliates cease to beneficially own at least 40 of shares of common stock entitled to vote generally in the election of directors These anti takeover provisions could make it more difficult for a third party to acquire us even if the third party s offer may be considered beneficial by many of our stockholders As a result our stockholders may be limited in their ability to obtain a premium for their shares
Our certificate of incorporation authorizes our Board of Directors without the approval of our stockholders to issue 50 000 000 shares of our preferred stock subject to limitations prescribed by applicable law rules and regulations and the provisions of our certificate of incorporation as shares of preferred stock in series to establish from time to time the number of shares to be included in each such series and to fix the designation powers preferences and rights of the shares of each such series and the qualifications limitations or restrictions thereof The powers preferences and rights of these additional series of preferred stock may be senior to or on parity with our common stock which may reduce its value
On August 28 2023 we issued 500 000 shares of Series A Preferred Stock to One Rock for an aggregate purchase price of 500 million The holders of Series A Preferred Stock may have different interests to those of the holders of our common stock and could vote their shares in a manner deemed adverse to the holders of our common stock Future issuances of preferred stock or the future designation of additional series of preferred stock could also adversely affect holders of our common stock
The holders of Series A Preferred Stock vote on an as converted basis with the holders of our common stock on all matters brought before the holders of our common stock Holders of the Series A Preferred Stock will also be entitled to a separate class vote with respect to among other things the election of directors that the holders of the Series A Preferred Stock are entitled to designate under the Certificate of Designations of the Series A Preferred Stock amendments to the Company s organizational documents that have an adverse effect on the Series A Preferred Stock authorizations or issuances by the Company of securities that are senior to or equal in priority with the Series A Preferred Stock increases or decreases in the number of authorized shares of Series A Preferred Stock certain mergers or consolidations of the Company and certain restricted acquisitions As a result the holders of Series A Preferred Stock may vote in a manner that is deemed adverse to holders of our common stock
Payment of dividends in cash may adversely affect our financial position while payment of dividends in kind may cause incremental dilution to holders of our common stock In addition these dividend obligations as well as the rights of the Series A Preferred Stock on liquidation are senior to the rights of our common stock which could negatively affect the value of our common stock and impair our ability to raise additional capital At any time following the fourth 4th anniversary of the issuance of the Series A Preferred Stock the Company may redeem some or all of the Series A Preferred Stock which may require us to make a significant cash payment Our Series A Preferred Stock if not converted into common stock will also be senior to our common stock in distribution and liquidation if such shares are not converted into common stock which could negatively affect the value of our common stock and impair our ability to raise additional capital
Our certificate of incorporation provides subject to limited exceptions that the Court of Chancery of the State of Delaware and the federal district courts of the United States of America will be the sole and exclusive forums for certain stockholder litigation matters which could limit our stockholders ability to obtain a favorable judicial forum for disputes with us or our directors officers employees or stockholders
Our certificate of incorporation provides subject to limited exceptions that unless we consent to the selection of an alternative forum the Court of Chancery of the State of Delaware shall to the fullest extent permitted by law be the sole and exclusive forum for any i derivative action or proceeding brought on behalf of our company ii action asserting a claim of breach of a fiduciary duty owed by any director officer or other employee or stockholder of our company to the Company or our stockholders creditors or other constituents iii action asserting a claim against the Company or any director or officer of the Company arising pursuant to any provision of the Delaware General Corporation Law or the DGCL or our amended and restated certificate of incorporation or our amended and restated bylaws or as to which the DGCL confers jurisdiction on the Court of Chancery of the State of Delaware or iv action asserting a claim against the Company or any director or officer of the Company governed by the internal affairs doctrine Our certificate of incorporation further provides that to the fullest extent permitted by law the federal district courts of the United States of America will be the exclusive forum for resolving any complaint asserting a cause of action arising under the United States federal securities laws While the Delaware Supreme Court has upheld the validity of similar provisions under the DGCL there is uncertainty as to whether a court in another state would enforce such a forum selection provision Our exclusive forum provision does not relieve us of our duties to comply with the federal securities laws and the rules and regulations thereunder and our stockholders will not be deemed to have waived our compliance with these laws rules and regulations
Any person or entity purchasing or otherwise acquiring any interest in shares of our capital stock shall be deemed to have notice of and consented to the forum provisions in our certificate of incorporation These choice of forum provisions may limit a stockholder s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or any of our directors officers other employees or stockholders which may discourage lawsuits with respect to such claims It is possible that these exclusive forum provisions may be challenged in court and may be deemed unenforceable in whole or in part If a court were to find the choice of forum provisions contained in our certificate of incorporation to be inapplicable or unenforceable with respect to one or more of the specified types of actions or proceedings we may incur additional costs associated with resolving such action in other jurisdictions which could harm our business operating results and financial condition
Our business and results of operations are significantly affected by general business financial market and economic conditions General business financial market and economic conditions that could impact the level of activity in the commercial landscape services industry include the level of commercial construction activity the condition of the real estate markets where we operate interest rate fluctuations inflation unemployment and wage levels changes and uncertainties related to government fiscal and tax policies including change in tax rates duties tariffs or other restrictions capital spending bankruptcies volatility in both the debt and equity capital markets liquidity of the global financial markets the availability and cost of credit investor and consumer confidence global economic growth local state and federal government regulation the cost and availability of our supplies and equipment and the strength of regional and local economies in which we operate New or increased tariffs may impact the costs of some of our supplies and equipment The degree of our exposure is dependent on among other things the type of goods rates imposed and timing of the tariffs These factors could also negatively impact the timing or the ultimate collection of accounts receivable which would adversely impact our business financial position results of operations and cash flows
During an economic downturn our customers may decrease their spending on landscape services by seeking to reduce expenditures for landscape services in particular enhancement services engaging a lower cost service provider or performing landscape maintenance themselves rather than outsourcing to third parties like us or generally reducing the size and complexity of their new landscaping development projects
Our financial performance has been adversely affected in the past by increases in our operating expenses including fuel fertilizer chemicals road salt mulch wages and salaries employee benefits health care subcontractor costs vehicle facilities and equipment leases insurance and regulatory compliance costs Further increases in or sustained elevation of inflation rates or disruptions to our supply chain will adversely affect our financial performance Although we seek to manage price and availability risks related to raw materials such as fuel fertilizer chemicals road salt and mulch through procurement strategies these efforts may not be successful and we may experience adverse impacts due to the rising prices of such products In addition we closely monitor wage salary and benefit costs in an effort to remain competitive in our markets Attracting and maintaining a high quality workforce is a priority for our business and as wage salary or benefit costs increase including as a result of minimum wage legislation or increased competition for employees our operating costs will continue to increase We cannot predict the extent to which we may experience future increases in operating expenses as well as various regulatory compliance costs To the extent such costs continue to increase we may be prevented
Our ability to offer a wide variety of services to our customers is dependent upon our ability to obtain adequate supplies materials and products from manufacturers distributors and other suppliers Any disruption or shortage in our sources of supply due to unanticipated increased demand or disruptions in production or delivery of products such as fertilizer chemicals road salt and mulch could result in a loss of revenues reduced margins and damage to our relationships with customers In addition we source certain materials and products we use in our business from a limited number of suppliers If our suppliers experience difficulties or disruptions in their operations or if we lose any significant supplier we may experience increased supply costs or may experience delays in establishing replacement supply sources that meet our quality and control standards The loss of or a substantial decrease in the availability of supplies and products from our suppliers or the loss of key supplier arrangements could adversely impact our business financial position results of operations and cash flows
Natural disasters terrorist attacks global health emergencies and other adverse external events could materially damage our facilities or disrupt our operations or damage the facilities or disrupt the operations of our customers or suppliers Additionally a pandemic such as COVID 19 or other public health emergency together with preventative measures taken to contain or mitigate such crises and could affect the proper functioning of financial and capital markets foreign currency exchange rates product and energy costs labor supply and costs and interest rates The occurrence of any such event could also prevent us from providing services and adversely affect our business financial position and results of operations
Customer and consumer demand for our services may be impacted by weak economic conditions heightened inflation equity market volatility or other negative economic factors in the U S or other nations In addition if the U S economy enters a recession we may experience a decline in demand for our services and may have to decrease prices all of which could have a material adverse impact on our financial results The severity and length of time that a downturn in economic and financial market conditions may persist as well as the timing strength and sustainability of any recovery from such downturn are unknown and are beyond our control In addition geopolitical conflicts such as the current war in Ukraine conflicts in the Middle East or potential conflict between China and Taiwan and any related international response may exacerbate these inflationary pressures Therefore the recessionary risks discussed above and elsewhere in these risk factors are more pronounced in the current economic environment
In recent years there has been an increased focus from stakeholders regulators and the public in general on ESG matters including greenhouse gas emissions and climate related risks renewable energy water stewardship waste management diversity equality and inclusion responsible sourcing and supply chain human rights and social responsibility We actively manage these issues and have established and publicly announced certain goals commitments and targets which we may refine further in the future Evolving stakeholder expectations regulatory obligations economic conditions and our efforts to manage these issues report on them and accomplish our goals present numerous operational regulatory reputational financial legal and other risks any of which could have a material adverse impact including on our reputation and stock price In addition with anti ESG sentiment present in some of our markets we could experience reduced revenue and reputational harm if we are targeted by groups or influential individuals who disagree with our public positions on social or environmental issues
We may be unable to satisfactorily meet evolving standards regulations and disclosure requirements related to ESG For example on March 6 2024 the SEC adopted a final rule requiring public companies to include various climate related disclosures in certain documents filed with the SEC including climate related financial statement metrics greenhouse gas emissions and climate related targets and goals and management s role in managing material climate related risks A number of state legislators and regulators have adopted or are currently considering proposing or adopting other rules regulations directives initiatives and laws requiring ESG related disclosures or limiting or affirmatively requiring certain ESG related conduct including California laws S B 253 S B 261 and A B 1305 In the event that we were to become subject to any of the newly adopted climate change and or ESG related disclosure regimes it could require us to among other things i restrict or limit our operating activities or other conduct ii make material capital improvements and expend material capital resources in connection with such compliance efforts and iii alter our business and operational strategy more generally Furthermore there continues to be a lack of consistent proposed climate change and ESG related legislation which creates regulatory and economic uncertainty Such matters can affect the willingness or ability of investors to make an investment in our Company as well as our ability to meet regulatory requirements including proposed rules related to greenhouse gas emissions Any failure or perceived failure to meet evolving regulations and industry standards could have an adverse effect on our business results of operations financial condition or stock price
Our common stock has traded on the New York Stock Exchange under the symbol BV since June 2018 Since then our common stock has been relatively thinly traded and at times been subject to price volatility You may not be able to resell your shares at or above your purchase price due to various factors including those described in this Risk Factors section Some factors that may impact our stock price include results of operations that vary from the expectations of securities analysts and investors or from those of our competitors changes in expectations as to our future financial performance including estimates and investment recommendations by securities analysts and investors changes in market valuations stock prices or earnings and other announcements by peer companies or companies in the service sector announcements by us our competitors and our suppliers related to significant contracts acquisitions joint ventures other strategic relationships or capital commitments investor perceptions of or the investment opportunity associated with our common stock relative to other investment alternatives the public s response to press releases SEC filings or other public announcements by us or third parties including our filings with the SEC guidance if any that we provide to the public and any changes in or our failure to meet this guidance and the development and sustainability of an active trading market for our stock
Furthermore the stock market may experience extreme volatility that in some cases may be unrelated or disproportionate to the operating performance of particular companies These broad market and industry fluctuations may adversely affect the market price of our common stock regardless of our actual operating performance In addition fluctuations in our stock price and limited trading volume may make our stock attractive to momentum hedge or day trading investors who often shift funds into and out of stock rapidly exacerbating price fluctuations in either direction These fluctuations may adversely affect the trading price or liquidity of our common stock
In the past following periods of market volatility or following periods or events unrelated to market volatility stockholders have instituted securities class action litigation If we were to become involved in securities litigation it could have a substantial cost and divert resources and the attention of executive management from our business regardless of the merits or outcome of such litigation
The trading market for our common stock will rely in part on the research and reports that industry or financial analysts publish about us or our industry We do not control these analysts Furthermore if one or more of the analysts who do cover us downgrade our stock or our industry or the stock of any of our competitors or publish inaccurate or unfavorable research about our business the price of our stock could decline If one or more of these analysts stop covering us or fail to publish reports on us regularly we could lose visibility in the market which in turn could cause our stock price or trading volume to decline
As a public company we incur significant legal regulatory finance accounting investor relations and other expenses that we did not incur as a private company including costs associated with public company reporting requirements We are also required to comply with and incur costs associated with such compliance with the Sarbanes Oxley Act of 2002 the Sarbanes Oxley Act and the Dodd Frank Wall Street Reform and Consumer Protection Act the Dodd Frank Act as well as rules and regulations implemented by the SEC and the NYSE These rules and regulations have increased our legal and financial compliance costs and made some activities more time consuming and costly Our management devotes a substantial amount of time to ensure that we comply with all of these requirements diverting the attention of management away from revenue producing activities These laws and regulations also could make it more difficult or costly for us to obtain certain types of insurance including director and officer liability insurance and we may be forced to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage These laws and regulations could also make it more difficult for us to attract and retain qualified persons to serve on our Board of Directors our board committees or as our executive officers Furthermore if we are unable to satisfy our obligations as a public company we could be subject to delisting of our common stock fines sanctions and other regulatory action and potentially civil litigation
As a public company we have significant requirements for financial reporting and internal controls The process of maintaining effective internal controls is a continuous effort that requires us to anticipate and react to changes in our business and the economic and regulatory environments and to expend significant resources to maintain a system of internal controls that is adequate to satisfy our reporting obligations as a public company If we are unable to maintain appropriate internal financial reporting controls and procedures it could cause us to fail to meet our reporting obligations on a timely basis result in material misstatements in our consolidated financial statements and harm our results of operations In addition we are required pursuant to Section 404 to furnish annually a report by management on among other things the effectiveness of our internal control over financial reporting This assessment includes disclosure of any material weaknesses identified by our management in our internal control over financial reporting The rules governing the standards that must be met for our management to assess our internal control over financial reporting are complex and require significant documentation testing and possible remediation Testing and maintaining internal controls may divert our management s attention from other matters that are important to our business Our independent registered public accounting firm is also required to issue an attestation report on effectiveness of our internal controls in each annual report on Form 10 K
In the future if we identify a control deficiency that rises to the level of a material weakness in our internal controls over financial reporting this material weakness may adversely affect our ability to record process summarize and report financial information timely and accurately Any material weaknesses could result in a material misstatement of our annual or quarterly consolidated financial statements or disclosures that may not be prevented or detected In addition we may encounter problems or delays in completing the remediation of any deficiencies identified by our independent registered public accounting firm in connection with the issuance of their attestation report
We may not be able to conclude on an ongoing basis that we have effective internal control over financial reporting in accordance with Section 404 or our independent registered public accounting firm may not issue an unqualified opinion If either we are unable to conclude that we have effective internal control over financial reporting or our independent registered public accounting firm is unable to provide us with an unqualified report investors could lose confidence in our reported financial information which could have a material adverse effect on the trading price of our common stock
We recognize the critical importance of effective cyber risk management and response strategies in today s digital landscape As part of our comprehensive risk management framework we have developed a cyber crisis and data breach response plan for identifying assessing and managing material risks arising from cybersecurity incidents including those arising from third party service providers These engagements include routine audits threat assessments and consultations aimed at enhancing our security measures We have incorporated cybersecurity risk management within our comprehensive risk management framework to cultivate responsiveness and a corporate culture that prioritizes cybersecurity risk management Our cyber risk management team works closely with stakeholders across corporate functions to consistently assess and mitigate cybersecurity risks aligning with our business goals and operational requirements
We acknowledge that there are risks associated with third party service providers that have access to our systems and data we have implemented processes to oversee and manage these risks We oversee and identify material risks from cybersecurity threats associated with the use of third party service providers by reviewing service organization controls reports for key outsourced systems We also conduct security assessments of certain third party providers before engagement and monitor such providers to confirm compliance with industry accepted cybersecurity standards and practices This approach is designed to reduce risks related to data breaches operational disruptions or other security incidents originating from third parties
We are not aware of any cybersecurity incidents that have materially affected or are reasonably likely to materially affect our business strategy results of operations or financial condition However because of the inherent nature of cybersecurity threats and the evolution of such threats over time the Company s processes oversight and risk management cannot provide absolute assurance that a cybersecurity threat will not have a material effect on the Company in the future
Cybersecurity governance is a priority for both our Board of Directors and management The Board has delegated primary oversight of cybersecurity risks to the Audit Committee The Audit Committee monitors the cybersecurity risk management and cyber control functions including external security audits The Audit committee receives periodic updates from experienced senior management of the Company s cyber risk management team knowledgeable about assessing and managing cyber risks including as appropriate updates on the prevention detection mitigation and remediation of cyber incidents
The Company s Chief Information Officer has been serving in this role for the Company since 2013 and has over 30 years of experience in various information security and related technology roles The Chief Information Officer oversees the information technology and information security functions of the Company which includes our cyber risk management team
The Chief Legal Officer acts as the Company s Data Breach Coordinator and leads our Cyber Crisis and Data Breach Response Committee the Committee which consists of the Company s Chief Information Officer Chief Financial Officer and Chief Accounting Officer Cybersecurity incidents that may significantly impact the confidentiality integrity or availability of the Company s data or the reliability of the Company s systems or networks are reported to the Committee The Committee assesses the materiality of each incident which is made using both quantitative and qualitative analyses to determine an incident s immediate and reasonably likely future impacts Such cybersecurity incidents are also reported to the Audit Committee The Company s Data Governance Committee has oversight of that how the Company s data is handled and shared with third parties and is comprised of the Company s Chief Information Officer Chief Legal Officer Chief Human Resources Chief Accounting Officer Senior Vice President of Business Shared Services and Chief Audit Executive
The Company has a cybersecurity training program that requires all employees with access to the Company s networks to participate in regular and mandatory training on how to be aware of and help defend against cybersecurity risks Also the Company regularly tests the efficacy of its training efforts as well as its systems to assess vulnerabilities to cybersecurity risks including tabletop incident response exercises
Annually we conduct an Enterprise Risk Assessment during which we identify and quantify risks including cybersecurity risks which could enhance or impede the Company s ability to achieve current or future strategic objectives The conclusions of the annual Enterprise Risk Assessment are shared with the Audit Committee
We and our operating companies own and lease a variety of facilities primarily located in the United States for branch and service center operations and for office call center and storage space Our branches are strategically located to optimize route efficiency market coverage and branch overhead The following chart identifies the number of owned and leased facilities other than our headquarters listed above used by each of our operating segments as of September 30 2024 We believe that these facilities when considered with our headquarters are in good operating condition and suitable and adequate to support the current needs of our business
Our common stock 0 01 par value per share began trading on the New York Stock Exchange NYSE under the symbol BV on June 28 2018 Prior to that time there was no public market for our common stock As of September 30 2024 there were 241 holders of record of our common stock This stockholder figure does not include a substantially greater number of holders whose shares are held of record by banks brokers and other financial institutions
We do not intend to pay cash dividends on our common stock in the foreseeable future Any future determination to pay dividends will be at the discretion of our board of directors and will depend on among other things our results of operations cash requirements financial condition contractual restrictions contained in current or future financing instruments and other factors that our board of directors deem relevant We did not declare or pay dividends to the holders of our common stock in the fiscal year ended September 30 2024
This performance graph shall not be deemed soliciting material or filed with the SEC for purposes of Section 18 of the Exchange Act or otherwise subject to the liabilities under that Section and shall not be deemed to be incorporated by reference into any of our filings under the Securities Act or the Exchange Act
The graph below presents the Company s cumulative total stockholder returns relative to the performance of the Russell 2000 R2000 Index and the Russell 2500 Waste Disposal Services R2500 Services Index from September 30 2019 through September 30 2024 All values assume a 100 initial investment at the opening price of the Company s common stock on the NYSE and data for the R2000 Index and the R2500 Services Index assumes any dividends were reinvested on the date paid The comparisons are based on historical data and are not indicative of nor intended to forecast the future performance of our common stock
This section of this Form 10 K generally discusses the fiscal years ended September 30 2024 and 2023 and year to year comparisons between the fiscal years ended September 30 2024 and 2023 The discussion around results of operations for the fiscal year ended September 30 2023 and a comparison of our results for the fiscal years ended September 30 2023 and 2022 is included in Item 7 Management s Discussion and Analysis of Financial Condition and Results of Operations of our Annual Report on Form 10 K for fiscal year ended September 30 2023 filed with the SEC on November 16 2023 and is incorporated by reference herein Fiscal Year Ended September 30 2023 10 K
Some of the information contained in this discussion and analysis including information with respect to our plans and strategy for our business includes forward looking statements that involve risks and uncertainties You should review Item 1A Risk Factors and the Special Note Regarding Forward Looking Statements sections of this Form 10 K 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
We are the largest provider of commercial landscaping services in the United States with revenues approximately 5 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 280 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
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 36 U S states and through our qualified service partner network we are able to efficiently provide nationwide coverage across the United States
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
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
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 2 Summary of Significant Accounting Policies to our audited 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 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
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 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 goodwill impairment 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 consists of the periodic amortization of intangible assets including customer relationships non compete agreements and trademarks The corresponding intangible assets were originally recognized in connection with the KKR and ValleyCrest Acquisitions as well as from subsequent acquisitions
Income tax expense 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 period to period 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
We believe Adjusted EBITDA Adjusted EBITDA Margin 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 loss income before interest taxes depreciation amortization and certain non cash non recurring and other adjustment items We define Adjusted EBITDA Margin as Adjusted EBITDA divided by net service revenues Adjusted Net Income is defined as net loss income 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 We define Adjusted Earnings per Share as Adjusted Net Income divided by the i weighted average number of common shares outstanding used in the calculation of basic earnings per share plus ii shares of common stock related to the Series A Preferred Stock on an as converted basis assumed to be converted for the entire period 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 or 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 sales 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
Management regularly uses these measures as tools in evaluating our operating performance financial performance and liquidity while other measures can differ significantly depending on long term strategic decisions regarding capital structure and capital investments Management uses Adjusted EBITDA Adjusted EBITDA Margin Adjusted Net Income Adjusted EPS and Free Cash Flow to supplement comparable GAAP measures in the evaluation of the effectiveness of our business strategies to make budgeting decisions to establish discretionary annual incentive compensation and to compare our performance against that of other peer companies using similar measures In addition we believe that Adjusted EBITDA Adjusted EBITDA Margin Adjusted Net Income Adjusted EPS and Free Cash Flow are frequently used by investors and other interested parties in the evaluation of issuers many of which also present Adjusted EBITDA Adjusted EBITDA Margin Adjusted Net Income Adjusted EPS and Free Cash Flow when reporting their results in an effort to facilitate an understanding of their operating and financial results and liquidity Management supplements GAAP results with non GAAP financial measures to provide a more complete understanding of the factors and trends affecting the business than GAAP results alone
Adjusted EBITDA Adjusted EBITDA Margin Adjusted Net Income and Adjusted EPS are provided in addition to and should not be considered as alternatives to net loss income or any other performance measure derived in accordance with GAAP Free Cash Flow is provided in addition to and should not be considered as an alternative to cash flow from operating activities or any other measure derived in accordance with GAAP as a measure of our liquidity Adjusted EBITDA Adjusted EBITDA Margin Adjusted Net Income Adjusted EPS and Free Cash Flow have limitations as analytical tools and you should not consider such measures either in isolation or as substitutes for analyzing our results as reported under GAAP In addition because not all companies use identical calculations the presentations of these measures may not be comparable to other similarly titled measures of other companies and can differ significantly from company to company Additionally these measures are not intended to be a measure of free cash flow available for management s discretionary use as they do not consider certain cash requirements such as interest payments tax payments and debt service requirements
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 the third and fourth quarters of our fiscal year ended 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 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 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 attract new customers These acquisitions focused 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 move forward we will selectively pursue accretive acquisitions that will focus on increasing market density to build upon our existing footprint in strategic markets entering new attractive geographies i e greenfield and increasing service line density and entering adjacent service lines to provide a robust and consistent suite of services to our customers Under this renewed 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 to drive accretive acquisitions quickly and seamlessly integrate new businesses into ours and 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 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 fiscal year ended September 30 2024 the Company incurred 0 4 million of integration costs related to acquisitions completed prior to fiscal 2024 While integration costs vary based on factors specific to each acquisition such costs are primarily comprised of one time employee retention costs employee
As we continue to focus on profitable growth part of our strategic initiatives include strengthening our core business To strengthen our core business we are implementing cost efficiency plans designed to lead to EBITDA margin expansions As part of implementing these initiatives we entered into a strategic sale of our non core U S Lawns franchise business during the year ended September 30 2024 On January 12 2024 we completed the sale of our wholly owned subsidiary U S Lawns for total cash consideration of 51 0 million The transaction resulted in a gain of 43 6 million for the year ended September 30 2024 which we reinvested back into the Company
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 further adversely affect our profitability
Net service revenues for the fiscal year ended September 30 2024 decreased 48 9 million or 1 7 to 2 767 1 million from 2 816 0 million in the 2023 period The decrease was driven by a decrease in Maintenance Services revenues of 102 5 million partially offset by an increase in Development Services revenues of 50 8 million as discussed further below in Segment Results
2023 period The decreases in gross profit and gross margin were primarily driven by the decrease net service revenues described above coupled with increased labor costs resulting from increased investments in service levels Partially offsetting this was lower subcontractor costs as a result of our strategic reduction in non core businesses
Selling general and administrative expense for the fiscal year ended September 30 2024 decreased 36 9 million or 6 9 to 496 5 million from 533 4 million in the 2023 period As a percentage of revenue selling general and administrative expense decreased 110 basis points for the fiscal year ended September 30 2024 to 17 9 from 19 0 in the 2023 period The decrease was driven primarily by decreases in compensation related costs as a result of cost cutting measures partially offset by the increase in business transformation and integration costs
Amortization expense for the fiscal year ended September 30 2024 decreased 8 7 million or 19 6 to 35 8 million from 44 5 million in the 2023 period The decrease was principally due the decrease in the amortization of intangible assets based on the pattern consistent with expected future cash flows calculated at the time the assets were acquired
Other income was 2 0 million for the fiscal year ended September 30 2024 compared to other expense of 6 7 million in the 2023 period The 8 7 million increase in other income expense was driven principally by the losses on the extinguishment of debt incurred in connection with the repayment of a portion of the Series B Term Loan in 2023
Interest expense for the fiscal year ended September 30 2024 decreased 35 0 million or 35 9 to 62 4 million from 97 4 million in the 2023 period The decrease was driven principally by the decrease in the long term debt balance combined with an increase in interest income associated with the increase in the cash and cash equivalents balance
For the fiscal year ended September 30 2024 income tax expense increased 25 5 million or 554 3 to 30 1 million compared to 4 6 million in the 2023 period The change in income tax expense is primarily attributable to the change in the Company s pretax income of 96 5 million in the current period compared to pretax loss of 3 1 million in the 2023 period
For the fiscal year ended September 30 2024 Dividends on Series A Convertible Preferred Shares were 35 7 million compared to 3 2 million in the 2023 period The dividends on the Series A Convertible Preferred Stock were the result of the Series A convertible preferred share agreement which was entered into in the fourth quarter of fiscal 2023
Adjusted EBITDA increased 26 0 million for the fiscal year ended September 30 2024 to 324 7 million from 298 7 million in the 2023 period Adjusted EBITDA as a percentage of revenue was 11 7 and 10 6 for the fiscal years ended 2024 and 2023 respectively The increase in Adjusted EBITDA was principally driven by an increase of 23 5 million or 28 4 in Development Services Segment Adjusted EBITDA and an increase of 1 8 million or 0 6 in Maintenance Services Segment Adjusted EBITDA as discussed further below in 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
Maintenance Services net service revenues for the fiscal year ended September 30 2024 decreased by 102 5 million or 5 0 compared to the 2023 period The decrease was driven by a 115 2 million or 5 6 decrease in underlying commercial landscape services largely underpinned by strategic reductions in our non core businesses as well as a decline in our ancillary services business This was partially offset by a 11 8 million increase in snow removal services revenue primarily due to increased snow removal services volume
Segment Adjusted EBITDA for the fiscal year ended September 30 2024 increased 1 8 million to 279 7 million compared to 277 9 million in the 2023 period Segment Adjusted EBITDA Margin increased 80 basis points to 14 2 in the year ended September 30 2024 from 13 4 in the 2023 period The increase in Segment Adjusted EBITDA and Segment Adjusted EBITDA Margin were principally driven by lower labor costs as a result of the Company s cost management initiatives
Segment Adjusted EBITDA for the fiscal year ended September 30 2024 increased 23 5 million to 106 3 million compared to 82 8 million in the 2023 period Segment Adjusted EBITDA Margin increased 220 basis points to 13 1 for the period from 10 9 in the prior year The increases in Segment Adjusted EBITDA and Segment Adjusted EBITDA Margin were primarily driven by the increase in revenues described above
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 as defined below Our principal uses of cash are to provide working capital meet debt service requirements fund capital expenditures and finance strategic plans including acquisitions 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 each as defined below 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
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 See Description of Indebtedness
We can increase the borrowing availability under the Credit Agreement or increase the term loans outstanding under the Credit Agreement by up to the greater of 1 303 0 million and 2 100 of Consolidated EBITDA as defined in the Credit Agreement for the most recently ended four consecutive fiscal quarters 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 first lien secured 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 9 Long term Debt to our audited consolidated financial statements included elsewhere in Part II Item 8 of this Form 10 K
The Company is party to the Investment Agreement dated August 28 2023 pursuant to which the Company issued and sold in a private placement an aggregate of 500 000 shares of the Company s Series A Convertible Preferred Stock for an aggregate purchase price of 500 0 million The Series A Convertible Preferred Stock is entitled to dividends at a rate of 7 0 per annum compounding quarterly paid in kind or paid in cash at the Company s election
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
Net cash provided by operating activities for the fiscal year ended September 30 2024 increased 75 7 million to 205 6 million from 129 9 million in the 2023 period This increase was due to an increase in net income adjusted for non cash activities combined with increases in cash provided by accounts receivable and unbilled and deferred revenue This was partially offset by increases in cash used for other operating assets and accounts payable and other operating liabilities
Net cash used in investing activities was 5 6 million in the fiscal year ended September 30 2024 a decrease of 55 8 million compared to 61 4 million for the 2023 period The decrease in cash used in investing activities was driven by 51 million of proceeds from divestitures and 13 8 million decrease in cash used for acquisitions This was partially offset by 7 1 million increase in capital expenditures and 3 5 million decrease in proceeds from the sale of property and equipment
Net cash used in financing activities of 126 6 million for the fiscal year ended September 30 2024 included repayments of our Receivables Financing Agreement of 87 3 million repayments of finance lease obligations of 36 3 million and Series A preferred stock dividend payments of 17 8 million These were partially offset by an increase in book overdrafts of 20 1 million
Free Cash Flow increased 65 1 million to 145 3 million for the fiscal year ended September 30 2024 from 80 2 million in the 2023 period The increase in Free Cash Flow was due to an increase in net cash provided by operating activities offset by an increase in cash used for capital expenditures each as described above
Net working capital is defined as current assets less current liabilities Net working capital decreased 38 6 million to 236 8 million at September 30 2024 from 275 4 million at September 30 2023 primarily driven by increases in accrued expenses and other current liabilities of 57 5 million deferred revenue of 15 6 million and accounts payable of 7 9 million and decreases in accounts receivable net of 21 1 million unbilled revenue of 5 7 million and other current assets of 2 6 million These were partially offset by an increase in cash and cash equivalents of 73 4 million and decreases in current portion of self insurance reserves of 2 0 million and current portion of operating lease liabilities of 2 4 million
On April 22 2022 the Company entered into Amendment No 6 to the Credit Agreement the Amendment Agreement which amended the existing Credit Agreement to provide for i a 1 200 0 million seven year term loan the Series B Term Loan and ii a 300 0 million 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 3 25 or a base rate ABR plus a margin of 2 25 subject to SOFR and ABR floors of 0 50 and 1 50 respectively The Company used the net proceeds from the Series B Term Loan to repay all amounts then outstanding under the Company s Credit Agreement As a result of the repayment of the amounts outstanding under the Company s Credit Agreement the Company recorded a loss on debt extinguishment of 12 6 million due to accelerated amortization of deferred financing fees and original issue discount included in the Other expense income line of the Consolidated Statements of Operations for the year ended September 30 2022 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
On August 28 2023 the Company voluntarily repaid 450 0 million of the amount outstanding under the Company s Amendment Agreement As a result of this voluntary repayment the Company recorded a loss on debt extinguishment of 8 3 million due to accelerated amortization of deferred financing fees and original issue discount as well as fees paid to lenders and third parties The loss on debt extinguishment is included in the Other income expense line of the Consolidated Statements of Operations for the year ended September 30 2023
On August 31 2023 the Company entered into Amendment No 7 to the Credit Agreement the Seventh Credit Agreement Amendment The Seventh Credit Agreement Amendment i amends the definition of Permitted Holders to include Birch Equity Holdings LP a Delaware limited partnership Birch OR Equity Holdings LLC a Delaware limited liability company and One Rock Capital Partners LLC and ii provides for a 1 00 prepayment premium for voluntary prepayments made in connection with repricing transactions or amendments made where the primary purpose of which is to decrease the effective yield and which shall be applicable until six months after entering into the Seventh Credit Agreement Amendment
On May 28 2024 the Company entered into Amendment No 8 to the Credit Agreement the Eighth Credit Agreement Amendment Under the Eighth Credit Agreement Amendment the existing Series B Term Loans were amended to bear interest at a rate per annum based on Term SOFR plus a margin of 2 50 or ABR plus a margin of 1 50 subject to SOFR and ABR floors of 0 50 and 1 50 respectively
In addition to scheduled payments the Company is obligated to pay a percentage of excess cash flow as defined in the Credit Agreement as payments to principal The percentage varies with the ratio of the Company s debt to its cash flow The excess cash flow calculation did not result in any required payment due for the periods ended September 30 2024 September 30 2023 and September 30 2022
The Company has a five year 300 million 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 million revolving credit facility under the Credit Agreement The Company had no outstanding balance under the Revolving Credit Facility as of September 30 2024 and September 30 2023 There were no borrowings or repayments under the facility during the year ended September 30 2024 There were 33 5 million borrowings under the facility during the year ended September 30 2023 of which 33 5 million were repaid during the same period The Company had no letters of credits issued and outstanding as of September 30 2024 and had 42 6 million of letters of credits issued and outstanding as of September 30 2023 The weighted average interest rate on the Revolving Credit Facility was 6 9 for the year ended September 30 2023
On April 28 2017 the Company through a wholly owned subsidiary entered into a 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 million On August 31 2023 the Company entered into the Fourth Amendment to the Receivables Financing Agreement the Fourth Amendment which amends the definition of Permitted Holders to align with the definition of Permitted Holders under the Credit Agreement Amendment as of the date of the closing of the Receivables Financing Amendment described above On June 27 2024 the Company through a wholly owned subsidiary entered into the Fifth Amendment to the Receivables Financing Agreement the Fifth Amendment which increased the borrowing capacity to 325 0 million and extended the term through June 27 2027 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 year ended September 30 2024 the Company borrowed 0 5 million against the capacity and voluntarily repaid 87 3 million During the year ended September 30 2023 the Company borrowed 549 5 million against the capacity and voluntarily repaid 554 5 million
The interest rate on the amounts borrowed under the Receivables Financing Agreement is established for periods of up to six months at 140 170 bps over SOFR depending on the Company s leverage ratio and a commitment fee equal to 0 4 of the unused balance of the facility The weighted average interest rate on the amounts borrowed under the Receivables Financing Agreement was 6 7 and 6 3 for the years ended September 30 2024 and September 30 2023 respectively
For additional information on our material indebtedness including our First Lien Term Loans Series B Term Loans and Revolving Credit Facility and our outstanding borrowings under the Receivables Financing Agreement see Note 9 Long term Debt in our audited consolidated financial statements included elsewhere in this Form 10 K
The Company has outstanding variable rate debt through its Series B Term Loan Revolving Credit Facility Receivables Financing Agreement and other debt instruments which hold varying maturities See Note 9 Long term Debt to our audited consolidated financial statements included in Part II Item 8 of this Form 10 K for further information including the timing of principal and interest payments associated with the Company s long term debt
The Company has operating and finance leases for branch and administrative offices vehicles certain machinery and equipment and furniture The Company s leases have remaining lease terms of one month up to 9 4 years See Note 12 Leases to our audited consolidated financial statements included in Part II Item 8 of this Form 10 K for additional information including the maturity schedule of future principal and interest payments associated with our finance and operating lease portfolios
Purchase obligations include commitments for various products and services made in the normal course of business to meet operational requirements including the procurement of capital assets As of September 30 2024 the Company had 54 7 million of operational purchase obligations with 23 0 million payable within twelve months These purchase obligation amounts represent only those items for which we are contractually obligated as of September 30 2024
Accounting estimates and assumptions discussed in this section are those that we consider to be the most critical to an understanding of our consolidated financial statements because they involve significant judgments and uncertainties Management believes that the application of these policies on a consistent basis enables us to provide the users of the consolidated financial statements with useful and reliable information about our operating results and financial condition Certain of these estimates include determining fair value All of these estimates reflect our best judgment about current and for some estimates future economic and market conditions and their effect based on information available as of the date of these consolidated financial statements If these conditions change from those expected it is reasonably possible that the judgments and estimates described below could change which may result in future impairments of goodwill intangibles and long lived assets increases in reserves for contingencies establishment of valuation allowances on deferred tax assets and increase in tax liabilities among other effects Also see Note 2 Summary of Significant Accounting Policies to our audited consolidated financial statements included elsewhere in this Form 10 K which discusses the significant accounting policies that we have selected from acceptable alternatives
From time to time we enter into strategic acquisitions in an effort to better service existing customers and to attain new customers When we acquire a controlling financial interest in an entity or group of assets that are determined to meet the definition of a business we apply the acquisition method described in ASC Topic 805 Business Combinations In accordance with GAAP the results of the acquisitions we have completed are reflected in our consolidated financial statements from the date of acquisition forward
We allocate the purchase consideration paid to acquire the business to the assets and liabilities acquired based on estimated fair values at the acquisition date with the excess of purchase price over the estimated fair value of the net assets acquired recorded as goodwill If during the measurement period a period not to exceed twelve months from the acquisition date we receive additional information that existed as of the acquisition date but at the time of the original allocation described above was unknown to us we make the appropriate adjustments to the purchase price allocation in the reporting period the amounts are determined
Significant judgment is required to estimate the fair value of intangible assets and in assigning their respective useful lives Accordingly we typically engage third party valuation specialists who work under the direction of management to assist in valuing significant tangible and intangible assets acquired
We typically use an income method to estimate the fair value of intangible assets which is based on forecasts of the expected future cash flows attributable to the respective assets Significant estimates and assumptions inherent in the valuations reflect a consideration of other marketplace participants and include the amount and timing of future cash flows including expected growth rates and profitability a brand s relative market position and the discount rate applied to the cash flows Unanticipated market or macroeconomic events and circumstances may occur which could affect the accuracy or validity of the estimates and assumptions
Determining the useful life of an intangible asset also requires judgment All of our acquired intangible assets e g trademarks non compete agreements and customer relationships are expected to have finite useful lives Our estimates of the useful lives of finite lived intangible assets are based on a number of factors including competitive environment market share brand history operating plans and the macroeconomic environment of the regions in which the brands are sold
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 or more frequently if events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable We test goodwill for impairment annually in the fourth quarter of each year using data as of July 1 of that year
Goodwill is allocated to and evaluated for impairment at our two 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 valuation multiples of selected guideline public companies long term future growth rates operating margins and discount rates
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 not to 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
Based on our most recent annual analysis as of July 1 2024 the fair values for both of our reporting units exceeded the carrying values and therefore no indicators of impairment existed for those reporting units however the fair value of the Maintenance reporting unit exceeded the carrying value by 9 6 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 forecasted trends assumed in the fair value calculation are not realized As of September 30 2024 there was 1 797 7 million of goodwill recorded related to the Maintenance reporting unit See Note 7 Intangible Assets Goodwill Acquisitions and Divestitures to our audited consolidated financial statements included in Part II Item 8 of this Form 10 K for additional information
Long lived assets with finite lives are depreciated and amortized generally on a straight line basis over their estimated useful lives These lives are based on our previous experience for similar assets potential market obsolescence and other industry and business data Property and equipment and definite lived intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset If the carrying amount of an asset exceeds its estimated future cash flows an impairment charge is recognized for the amount by which the carrying amount of the asset exceeds the fair value Changes in estimated useful lives or in the asset values could cause us to adjust our book value or future expense accordingly
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 2 Summary of Significant Accounting Policies to our audited 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 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 have been immaterial in prior periods 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
We carry general liability auto liability workers compensation and employee health care insurance policies In addition we carry 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 Our 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 We use estimates in the determination of the required accrued self insured claims These estimates are based upon calculations performed by third party actuaries as well as examination of historical trends and industry claims experience We adjust our estimate of accrued self insured claims when required to reflect changes based on factors such as changes in health care costs accident frequency and claim severity We believe the use of actuarial methods to account for these liabilities provides a consistent and effective way to measure these highly judgmental accruals However the use of any estimation technique in this area is inherently sensitive given the magnitude of claims involved and the length of time until the ultimate cost is known We believe our recorded obligations for these expenses are consistently measured Nevertheless changes in healthcare costs accident frequency and claim severity can materially affect the estimates for these liabilities
We account for equity based compensation plans under the fair value recognition and measurement provisions in accordance with applicable accounting standards which require all equity based payments to employees and non employees including grants of stock options to be measured based on the grant date fair value of the awards We use the Black Scholes Merton valuation model to estimate the fair value of stock options granted to employees and non employees This model requires certain assumptions including the estimated expected term of the stock options the risk free interest rate and the exercise price of which certain assumptions are highly complex and subjective The expected option life represents the period of time that the options granted are expected to be outstanding based on management s best estimate of the timing of a liquidity event and the contractual term of the stock option As there is not sufficient trading history of our common stock we use a group of our competitors which we believe are similar to us adjusted for our capital structure in order to estimate volatility Our exercise price is the stock price on the date in which shares were granted
Prior to our IPO our stock price was calculated based on a combination of the income and market multiple approaches Under the income approach specifically the discounted cash flow method forecasted cash flows are discounted to the present value at a risk adjusted discount rate The valuation analyses determine discrete free cash flows over several years based on forecast financial information provided by management and a terminal value for the residual period beyond the discrete forecast which are discounted at an appropriate rate to estimate our enterprise value Under the market multiple approach specifically the guideline public company methods we selected publicly traded companies with similar financial and operating characteristics as us and calculated valuation multiples based on the guideline public company s financial information and market data Subsequent to the IPO the estimation of our stock price is no longer necessary as we rely on the market price to determine the market value of our common stock
We use a Monte Carlo simulation to estimate the fair value of performance stock units subject to a market condition that are granted to employees This model requires certain assumptions including the risk free interest rate and the number of shares expected to vest The number of shares expected to vest represents the expected achievement of certain performance conditions Our vesting price is the stock price on the date in which shares were granted
The determination of our provision for income taxes requires management s judgment in the use of estimates and the interpretation and application of complex tax laws Judgment is also required in assessing the timing and amounts of deductible and taxable items We may establish contingency reserves for material known tax exposures relating to deductions transactions and other matters involving some uncertainty as to the proper tax treatment of the item Such reserves reflect our judgment as to the resolution of the issues involved if subject to judicial review Several years may elapse before a particular matter for which we have established a reserve is audited and finally resolved or clarified While we believe that our reserves are adequate to cover reasonably expected tax risks issues raised by a tax authority may be finally resolved at an amount different than the related reserve Such differences could materially increase or decrease our income tax provision in the current and or future periods When facts and circumstances change including a resolution of an issue or statute of limitations expiration these reserves are adjusted through the provision for income taxes in the period of change
In December 2019 the FASB issued ASU No 2019 12 Income Taxes Topic 740 Simplifying the Accounting for Income Taxes which removes specified exceptions and adds requirements to simplify the accounting for income taxes The Company adopted the guidance in the first quarter of fiscal 2022 The adoption of ASU 2019 12 did not have a material impact on the Company s consolidated financial statements and disclosures
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 is effective for the Company upon issuance through December 31 2022 The guidance in ASU 2020 04 is optional and may be elected over time as reference rate reform activities occur During the third quarter of fiscal 2020 the Company elected to apply the hedge accounting expedients related to probability and the assessments of effectiveness for future LIBOR indexed cash flows to assume that the index upon which future hedged transactions will be based matches the index on the corresponding derivatives Application of these expedients preserves the presentation of derivatives consistent with past presentation 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 The Company continues to evaluate the impact of the guidance on its consolidated financial statements and may apply other elections as applicable as additional changes in the market occur
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 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
In November 2023 the FASB issued ASU No 2023 07 Segment Reporting Topic 280 Improvements to Reportable Segment Disclosures The ASU expands public entities segment disclosures by requiring disclosure of significant segment expenses that are regularly provided to the chief operating decision maker and included within each reported measure of segment profit or loss an amount and description of its composition for other segment items and interim disclosures of a reportable segment s profit or loss and assets The purpose of the guidance is to enable investors to better understand an entity s overall performance and assess potential future cash flows The amendment is effective for fiscal years beginning after December 15 2023 and interim periods in fiscal years beginning after December 15 2024 The Company is in the process of evaluating the impact of ASU No 2023 07 on its financial statements
In December 2023 the FASB issued ASU No 2023 09 Income Taxes Topic 740 Improvements to Income Tax Disclosures The ASU expands public entities tax disclosures including improving disclosures surrounding the company s rate reconciliation cash taxes paid and disaggregation of income tax expense or benefit from continuing operations The amendment is effective for annual periods beginning after December 15 2024 The Company is in the process of evaluating the impact of ASU No 2023 09 on its consolidated financial statements
We are exposed to interest rate risk as a result of our variable rate borrowings We manage our exposure to interest rate risk by using pay fixed interest rate swap and collar contracts as cash flow hedges of a portion of our variable rate debt We have historically targeted hedging between 80 and 90 of the principal amount outstanding under our Series B Term Loan
As of September 30 2024 we had variable rate debt outstanding of 809 0 million at a weighted average interest rate of 8 1 for the year ended September 30 2024 excluding the impact of our outstanding hedge agreements Substantially all of our outstanding variable rate debt was incurred under the Amended Credit Agreement and the Receivables Financing Agreement Each of these loans bears interest based on SOFR plus a spread
We use interest rate swap and collar contracts to offset our exposure to interest rate movements These outstanding interest rate contracts qualify and are designated as cash flow hedges of forecasted SOFR based interest payments At September 30 2024 we were a fixed rate payer on fixed floating interest rate swap and collar contracts that effectively fixed swap or limited collar the SOFR based index used to determine the interest rates charged on our SOFR based variable rate borrowings See Note 10 Fair Value Measurements and Derivative Instruments to our audited consolidated financial statements included elsewhere in this Form 10 K
Based on the debt outstanding and hedge contracts in place for the year ended September 30 2024 a 100 basis point change in interest rates on our variable rate debt would result in a change to our fiscal 2024 interest expense by approximately 2 7 million inclusive of the impact from the active hedge contracts Actual interest rates could change significantly more than 100 bps
We are exposed to market risk for changes in fuel prices through the consumption of fuel by our vehicle fleet and mowers in the delivery of services to our customers We purchase our fuel at prevailing market prices We manage our exposure through the execution of a documented hedging strategy We have historically entered into fuel swap contracts to mitigate the financial impact of fluctuations in fuel prices when appropriate We currently have open fuel based derivative instruments
During the year ended September 30 2024 we purchased approximately 21 1 million gallons of fuel Based on the hedging contract in place during fiscal 2024 a ten percent change in fuel prices would have resulted in a change of approximately 6 2 million in our annual fuel cost inclusive of the impact from the active hedge contracts
Regulations under the Exchange Act require public companies including us to maintain disclosure controls and procedures which are defined in Rule 13a 15 e and Rule 15d 15 e of the Exchange Act to mean a company s controls and other procedures that are designed to ensure that information required to be disclosed in the 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 management including our principal executive officer and principal financial officer or persons performing similar functions as appropriate to allow timely decisions regarding required or necessary disclosures In designing and evaluating our disclosure controls and procedures management recognizes that disclosure controls and procedures no matter how well conceived and operated can provide only reasonable not absolute assurance that the objectives of the disclosure controls and procedures are met The design of any controls and procedures also is based on certain assumptions about the likelihood of future events and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions Additionally in designing disclosure controls and procedures our management necessarily was required to apply its judgment in evaluating the cost benefit relationship of possible disclosure controls and procedures Our management with the participation of our principal executive officer and principal financial officer has evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of September 30 2024 Based upon that evaluation and subject to the foregoing our principal executive officer and principal financial officer concluded that as of September 30 2024 the design and operation of our disclosure controls and procedures were effective to accomplish their objectives at a reasonable assurance level
The Company s management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a 15 f and 15d 15 f under the Exchange Act The Company s internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in accordance with generally accepted accounting principles in the United States
Because of its inherent limitations internal control over financial reporting may not prevent or detect misstatements Also projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the process or procedures may deteriorate
Under the supervision and with the participation our Chief Executive Officer and Chief Financial Officer the Company conducted an evaluation of the effectiveness of the Company s internal control over financial reporting as of September 30 2024 based on the framework set forth in Internal Control Integrated Framework 2013 issued by the Committee of Sponsoring Organizations of the Treadway Commission Based on that evaluation the Company s management concluded that the Company s internal control over financial reporting was effective as of September 30 2024
Regulations under the Exchange Act require public companies to evaluate any change in the Company s internal control over financial reporting as such term is defined in Rule 13a 15 f and Rule 15d 15 f of the Exchange Act There have been no changes in the Company s internal control over financial reporting during the Company s most recent fiscal quarter that have materially affected or are reasonably likely to materially affect the Company s internal control over financial reporting
Second Amended and Restated Limited Partnership Agreement of BrightView Parent L P dated June 30 2014 by and among BrightView GP I LLC and the other parties party thereto incorporated by reference to Exhibit 10 2 to the Company s Registration Statement on Form S 1 A filed with the SEC on June 11 2018
Amendment No 2 to the Second Amended and Restated Limited Partnership Agreement of BrightView Parent L P dated as of June 27 2018 by and among BrightView GP I LLC and BrightView Holdings Inc incorporated by reference to Exhibit 4 2 to the Company s Current Report on Form 8 K filed with the SEC on July 2 2018
First Lien Credit Agreement dated as of December 18 2013 among Garden Acquisition Holdings Inc Garden Merger Sub LLC Morgan Stanley Senior Funding Inc as administrative agent collateral agent swingline lender and a lender Morgan Stanley Bank N A as the letter of credit issuer Morgan Stanley Senior Funding Inc Credit Suisse Securities USA LLC Goldman Sachs Bank USA Royal Bank of Canada Mizuho Bank Ltd KKR Capital Markets LLC Macquarie Capital USA Inc Sumitomo Mitsui Banking Corporation and UBS Securities LLC as joint lead arrangers and bookrunners and the several lenders from time to time parties thereto incorporated by reference to Exhibit 10 7 to the Company s Registration Statement on Form S 1 filed with the SEC on May 30 2018
Amendment to First Lien Credit Agreement dated as of June 30 2014 among Garden Acquisition Holdings Inc The Brickman Group Ltd LLC Morgan Stanley Senior Funding Inc as administrative agent and collateral agent and the several lenders from time to time parties thereto incorporated by reference to Exhibit 10 8 to the Company s Registration Statement on Form S 1 filed with the SEC on May 30 2018
Amendment No 2 to First Lien Credit Agreement dated as of December 18 2017 among BrightView Acquisition Holdings Inc BrightView Landscapes LLC and Morgan Stanley Senior Funding Inc as administrative agent letter of credit issuer and swingline lender and the several lenders from time to time parties thereto incorporated by reference to Exhibit 10 9 to the Company s Registration Statement on Form S 1 filed with the SEC on May 30 2018
Amended and Restated Joinder Agreement dated as of June 30 2014 by and among Jefferies Finance LLC MIHI Mizuho Bank Ltd Sumitomo Mitsui Banking Corporation Nomura Corporate Funding Americas LLC and KKR Corporate Lending LLC Garden Merger Sub LLC as borrower Morgan Stanley Bank N A as a letter of credit issuer and Morgan Stanley Senior Funding Inc as administrative agent and collateral agent incorporated by reference to Exhibit 10 11 to the Company s Registration Statement on Form S 1 filed with the SEC on May 30 2018
First Lien Security Agreement dated as of December 18 2013 among Garden Acquisition Holdings Inc Garden Merger Sub LLC The Brickman Group Ltd LLC the subsidiary grantors party thereto and Morgan Stanley Senior Funding Inc as collateral agent incorporated by reference to Exhibit 10 13 to the Company s Registration Statement on Form S 1 filed with the SEC on May 30 2018
First Lien Pledge Agreement dated as of December 18 2013 among Garden Acquisition Holdings Inc Garden Merger Sub LLC The Brickman Group Ltd LLC each of the subsidiary pledgors party thereto and Morgan Stanley Senior Funding Inc as collateral agent incorporated by reference to Exhibit 10 14 to the Company s Registration Statement on Form S 1 filed with the SEC on May 30 2018
Receivables Financing Agreement dated as of April 28 2017 by and among BrightView Funding LLC BrightView Landscapes LLC PNC Bank National Association PNC Capital Markets LLC and the persons from time to time party thereto as lenders and LC participant incorporated by reference to Exhibit 10 22 to the Company s Registration Statement on Form S 1 filed with the SEC on May 30 2018
First Amendment to the Receivables Financing Agreement including as Exhibit A thereto a marked version of the Receivables Financing Agreement dated as of February 21 2019 by and among BrightView Funding LLC as borrower BrightView Landscapes LLC as initial servicer and PNC Bank National Association as lender letter of credit bank letter of credit participant and administrative agent incorporated by reference to Exhibit 10 1 to the Company s Current Report on Form 8 K filed with the SEC on February 22 2019
Second Amendment to the Receivables Financing Agreement including as Exhibit A thereto a marked version of the Receivables Financing Agreement dated as of February 19 2021 by and among BrightView Funding LLC as borrower BrightView Landscapes LLC as initial servicer and PNC Bank National Association as lender letter of credit bank letter of credit participant and administrative agent incorporated by reference to Exhibit 10 1 to the Company s Current Report on Form 8 K filed with the SEC on February 19 2021
Third Amendment to the Receivables Financing Agreement including Exhibit A thereto a marked version of the Receivables Financing Agreement dated as of June 22 2022 by and among BrightView Funding LLC as borrower BrightView Landscapes LLC as initial servicer and PNC Bank National Association as lender letter of credit bank letter of credit participant and administrative agent incorporated by reference to Exhibit 10 1 to the Company s Current Report on Form 8 K filed with the SEC on June 22 2022
Fifth Amendment to the Receivables Financing Agreement including Exhibit A thereto a marked version of the Receivables Financing Agreement dated as of June 27 2024 by and among BrightView Funding LLC as borrower BrightView Landscapes LLC as initial servicer and PNC Bank National Association as lender letter of credit bank letter of credit participant and administrative agent incorporated by reference to Exhibit 10 1 to the Company s Current Report on Form 8 K filed with the SEC on June 28 2024
Joinder to the Receivables Financing Agreement dated as of May 2 2023 by and among BrightView Funding LLC as borrower BrightView Landscapes LLC as initial servicer and PNC Bank National Association as lender letter of credit bank letter of credit participant and administrative agent incorporated by reference to Exhibit 10 1 to the Company s Quarterly Report on Form 10 Q filed with the SEC on May 4 2023
Assignment Agreement relating to the Receivables Financing Agreement dated as of April 28 2017 as amended and the Purchase and Sale Agreement dated as of April 28 2017 as amended dated as of December 29 2023 by and between U S Lawns Inc and BrightView Funding LLC incorporated by reference to Exhibit 10 2 to the Company s Quarterly Report on Form 10 Q filed with the SEC on January 31 2024
Second Amendment to the Purchase and Sale Agreement dated as of September 30 2020 by and among BrightView Landscapes LLC as servicer BrightView Tree Company as an originator BrightView Funding LLC as buyer and the parties listed thereto as remaining originators incorporated by reference to Exhibit 10 20 to the Company s Annual Report on Form 10 K filed with the SEC on November 18 2020
Third Amendment to the Purchase and Sale Agreement dated as of September 30 2020 by and among BrightView Landscapes LLC as servicer BrightView Puerto Rico LLC as an originator BrightView Funding LLC as buyer and the parties listed thereto as remaining originators incorporated by reference to Exhibit 10 21 to the Company s Annual Report on Form 10 K filed with the SEC on November 18 2020
Fourth Amendment to the Purchase and Sale Agreement dated as of November 23 2020 by and among BrightView Landscapes LLC as servicer Metheny Commercial Lawn Maintenance INC as an originator BrightView Funding LLC as buyer and the parties listed thereto as remaining originators incorporated by reference to Exhibit 10 1 to the Company s Quarterly Report on Form 10 Q filed with the SEC on February 4 2021
Fifth Amendment to the Purchase and Sale Agreement dated as of December 22 2021 by and among BrightView Landscapes LLC as Servicer BrightView Landscape Development Inc an Arizona corporation as an Originator BrightView Landscape Development Inc a Colorado corporation as an Originator various parties listed on the signature pages thereto as Originators and BrightView Funding LLC as Buyer incorporated by reference to Exhibit 10 1 to the Company s Quarterly Report on Form 10 Q filed with the SEC on February 3 2022
Sixth Amendment to the Purchase and Sale Agreement and Waiver dated as of December 29 2023 by and among BrightView Landscapes LLC as Servicer and an Originator U S Lawns Inc as an Originator BrightView Chargers Inc as an Originator various parties listed on the signature pages thereto as Originators BrightView Funding LLC as Buyer the Company as Performance Guarantor PNC Bank National Association as Administrative Agent and MUFG Bank Ltd as Lender incorporated by reference to Exhibit 10 1 to the Company s Quarterly Report on Form 10 Q filed with the SEC on January 31 2024
Incremental Amendment and Amendment No 4 to First Lien Credit Agreement dated June 8 2018 by and among JPMorgan Chase Bank N A BrightView Holdings Inc BrightView Landscapes LLC and Morgan Stanley Senior Funding Inc as administrative agent incorporated by reference to Exhibit 10 35 to the Company s Registration Statement on Form S 1 A filed with the SEC on June 11 2018
Amendment No 5 to Credit Agreement including as Exhibit A thereto the Amended Credit Agreement dated as of August 15 2018 by and among BrightView Holdings Inc BrightView Landscapes LLC and the lenders or other financial institutions or entities from time to time party thereto and JPMorgan Chase Bank N A as successor Administrative Agent and Collateral Agent incorporated by reference to Exhibit 10 1 to the Company s Current Report on Form 8 K filed with the SEC on August 15 2018
Amendment No 6 to Credit Agreement including as Exhibit A thereto the Amended Credit Agreement dated as of April 22 2022 by and among the Company the Borrower and the lenders or other financial institutions or entities from time to time party thereto and JPMorgan Chase Bank N A as Administrative Agent and Collateral Agent incorporated by reference to Exhibit 10 1 to the Company s Current Report on Form 8 K filed with the SEC on April 22 2022
Amendment No 7 to Credit Agreement dated as of August 31 2023 by and among BrightView Landscapes LLC the other credit parties party thereto the lenders or other financial institutions or entities party thereto and JPMorgan Chase Bank N A as Administrative Agent and Collateral Agent incorporated by reference to Exhibit 10 1 to the Company s Current Report on Form 8 K filed with the SEC on September 1 2023
Amendment No 8 to Credit Agreement dated as of May 28 2024 by and among BrightView Holdings Inc BrightView Landscapes LLC each of the other credit parties thereto the lenders or other financial institutions or entities party thereto and JPMorgan Chase Bank N A as Administrative Agent and Collateral Agent incorporated by reference to Exhibit 10 1 to the Company s Current Report on Form 8 K filed with the SEC on May 28 2024
First Amendment to the Adoption Agreement for the BrightView Executive Savings Plan dated as of December 13 2022 by and between BrightView Landscapes LLC and Fidelity Management Trust Company incorporated by reference to Exhibit 10 5 to the Company s Quarterly Report on Form 10 Q filed with the SEC on January 31 2024
We have audited the accompanying consolidated balance sheets of BrightView Holdings Inc and subsidiaries the Company as of September 30 2024 and 2023 the related consolidated statements of operations comprehensive income stockholders equity and mezzanine equity and cash flows for each of the three years in the period ended September 30 2024 and the related notes collectively referred to as the financial statements In our opinion the financial statements present fairly in all material respects the financial position of the Company as of September 30 2024 and 2023 and the results of its operations and its cash flows for each of the three years in the period ended September 30 2024 in conformity with accounting principles generally accepted in the United States of America
We have also audited in accordance with the standards of the Public Company Accounting Oversight Board United States PCAOB the Company s internal control over financial reporting as of September 30 2024 based on criteria established in Internal Control Integrated Framework 2013 issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated November 13 2024 expressed an unqualified opinion on the Company s internal control over financial reporting
These financial statements are the responsibility of the Company s management Our responsibility is to express an opinion on the Company s financial statements based on our audits We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U S federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB
We conducted our audits in accordance with the standards of the PCAOB Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement whether due to error or fraud Our audits included performing procedures to assess the risks of material misstatement of the financial statements whether due to error or fraud and performing procedures that respond to those risks Such procedures included examining on a test basis evidence regarding the amounts and disclosures in the financial statements Our audits also included evaluating the accounting principles used and significant estimates made by management as well as evaluating the overall presentation of the financial statements We believe that our audits provide a reasonable basis for our opinion
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that 1 relates to accounts or disclosures that are material to the financial statements and 2 involved our especially challenging subjective or complex judgments The communication of critical audit matters does not alter in any way our opinion on the financial statements taken as a whole and we are not by communicating the critical audit matter below providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates
Goodwill is not amortized but rather is tested annually for impairment or more frequently if events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable The Company tests goodwill for impairment annually in the fourth quarter of each year using data as of July 1 of that year
The Company s methodology for estimating the fair value of their 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 method which is based on the present value of future cash flows The principal assumptions utilized in the income approach include the long term future revenue growth rates operating margins and discount rates Changes in these assumptions could have a significant impact on either the fair value the amount of any goodwill impairment charge or both The fair value of the Maintenance reporting unit as of the measurement date of July 1 2024 exceeded the carrying value Therefore no impairment was recognized As of September 30 2024 there was 1 797 7 million of goodwill recorded related to the Maintenance reporting unit
We identified the valuation of the Maintenance reporting unit goodwill as a critical audit matter because of the significant judgments made by management to estimate the fair value of the Maintenance reporting unit Auditing the fair value of this reporting unit involved a high degree of auditor judgment and an increased effort which included the involvement of our fair value specialists as it related to evaluating whether management s significant estimates and assumptions related to valuation multiples of selected guideline public companies long term future revenue growth rates operating margins and discount rate were appropriate
Our audit procedures related to the significant estimates and assumptions related to valuation multiples of selected guideline public companies long term future revenue growth rates operating margins and discount rate used by management to estimate the fair value of the Maintenance reporting unit included the following among others
We have audited the internal control over financial reporting of BrightView Holdings Inc and subsidiaries the Company as of September 30 2024 based on criteria established in Internal Control Integrated Framework 2013 issued by the Committee of Sponsoring Organizations of the Treadway Commission COSO In our opinion the Company maintained in all material respects effective internal control over financial reporting as of September 30 2024 based on criteria established in Internal Control Integrated Framework 2013 issued by COSO
We have also audited in accordance with the standards of the Public Company Accounting Oversight Board United States PCAOB the consolidated financial statements and related notes as of and for the year ended September 30 2024 of the Company and our report dated November 13 2024 expressed an unqualified opinion on those financial statements
The Company s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management s Report on Internal Control Over Financial Reporting Our responsibility is to express an opinion on the Company s internal control over financial reporting based on our audit We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U S federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB
We conducted our audit in accordance with the standards of the PCAOB Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects Our audit included obtaining an understanding of internal control over financial reporting assessing the risk that a material weakness exists testing and evaluating the design and operating effectiveness of internal control based on the assessed risk and performing such other procedures as we considered necessary in the circumstances We believe that our audit provides a reasonable basis for our opinion
A company s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles A company s internal control over financial reporting includes those policies and procedures that 1 pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the company 2 provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company and 3 provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition use or disposition of the company s assets that could have a material effect on the financial statements
Because of its inherent limitations internal control over financial reporting may not prevent or detect misstatements Also projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate
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
These consolidated financial statements have been prepared by the Company in accordance with accounting principles generally accepted in the United States of America GAAP and include the accounts of the Company and its wholly owned subsidiaries which are directly or indirectly owned by the Company Results of acquired companies are included in the consolidated financial statements from the effective date of the acquisition All intercompany transactions and account balances have been eliminated
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
Cash and cash equivalents include deposits in banks and money market funds with maturities of less than three months at the time of deposit or investment Under our cash management system checks issued but not yet presented to banks that would result in negative bank balances when presented are classified as a current liability in the Consolidated Balance Sheets Changes in book overdrafts from period to period are reported in the Consolidated Statements of Cash Flows as a financing activity
Accounts receivable are recorded at the invoiced amount and do not bear interest The Company reserves for all accounts that are deemed to be uncollectible and reviews its allowance for doubtful accounts regularly The allowance is based on the age of receivables and a specific identification of receivables considered at risk representing its best estimate of probable credit losses in existing trade accounts receivable see Note 5 Accounts Receivable net Account balances are written off against the allowance when the potential for recovery is considered remote
Property and equipment is carried at cost including the cost of labor for internal use software less accumulated depreciation except for those assets acquired through a business combination in which case they have been stated at estimated fair value as of the date of the business combination less accumulated depreciation Costs of replacements or maintenance and repairs that do not improve or extend the life of the related assets are expensed as incurred Depreciation is computed using the straight line method over the estimated useful lives of the assets and included in Cost of services provided or Selling general and administrative expense as appropriate
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 or more frequently if events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable The Company tests goodwill for impairment annually in the fourth quarter of each year using data as of July 1 of that year
Goodwill is allocated to and evaluated for impairment at the Company s two 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 The Company 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 the Company to compare the carrying value of the reporting unit s net assets to the estimated fair value of the reporting unit The Company determines the estimated 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 valuation multiples of selected guideline public companies long term future growth rates operating margins and discount rates
If the estimated 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 estimated fair value is recorded as an impairment loss the amount of which is not to exceed the total amount of goodwill allocated to the reporting unit
Definite lived intangible assets consist of acquired customer contracts and relationships non compete agreements and trademarks Acquired customer relationships are amortized in an accelerated pattern consistent with expected future cash flows Non compete agreements and trademarks are amortized straight line over their estimated useful lives
Property and equipment and definite lived intangible assets are reviewed for impairment annually or whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset If the carrying amount of an asset exceeds its estimated future cash flows an impairment charge is recognized for the amount by which the carrying amount of the asset exceeds the fair value
Financing costs consisting of fees and other expenses associated with borrowings are amortized over the terms of the related borrowings using the effective interest rate method see Note 9 Long term Debt Financing costs are presented in the Consolidated Balance Sheets as a direct reduction from the carrying amount of the related borrowings
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 general liability vehicle liability workers compensation and employee health care for certain employees contain self insured retention amounts Claims that are not self insured as well as claims in excess of the self insured retention 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 demographic factors and industry claims experience A receivable for an insurance recovery is generally recognized when the loss has occurred and collection is considered probable see Note 14 Commitments and Contingencies
In evaluating the fair value of financial assets and liabilities GAAP outlines a valuation framework and creates a fair value hierarchy that distinguishes between market assumptions based on market data observable inputs and a reporting entity s own assumptions about market data unobservable inputs Fair value is defined as the price at which an orderly transaction to sell an asset or 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
The carrying amounts shown for the Company s cash and cash equivalents 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 See Note 9 Long term Debt Note 10 Fair Value Measurements and Derivative Instruments and Note 16 Mezzanine Equity for other financial instruments subject to fair value estimates
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 Consolidated Balance Sheets and measures those instruments at fair value Since all of the Company s derivatives are designated as cash flow hedges the entire change in the fair value of the derivative included in the assessment of hedge effectiveness is initially reported in Other comprehensive loss income and subsequently reclassified to Interest expense net interest rate contracts or Cost of services provided fuel hedge contracts in the accompanying Consolidated Statements of Operations at the time the hedge transaction affects earnings If it is determined that a derivative is not highly effective as a hedge or if the hedged forecasted transaction is no longer probable of occurring the amount recognized in Accumulated other comprehensive loss income is released to earnings See Note 10 Fair Value Measurements and Derivative Instruments for more information
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 which is typically ratably over the terms of the contracts 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 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
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 per occurrence contracts as well as enhancement services When the practical expedient is not applied 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 revenues are generated primarily through landscape architecture and 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 The full amount of anticipated losses on contracts is recorded as soon as such losses can be estimated 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
When contract revenue is recognized in excess of the amount the Company has invoiced or has the right to invoice 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 consideration that is contractually due from customers or payments thereof 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
The Company leases office space branch locations vehicles and operating equipment Lease agreements are evaluated to determine whether they are finance or operating leases If substantially all of the risks and benefits of property ownership are expected to transfer to the Company the lease qualifies as a finance lease
Finance leases are capitalized at the lower of net present value of the total amount of rent payable under the leasing agreement utilizing the implicit borrowing rate of the Company as applicable or the fair market value of the leased asset Finance lease assets are depreciated on a straight line basis over a period consistent with the Company s normal depreciation policy for property and equipment but not exceeding the lease term Interest charges are expensed over the period of the lease in relation to the carrying value of the finance lease obligation
The Company s equity based compensation consists of stock options restricted stock awards restricted stock units and performance stock units The Company expenses equity based compensation 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 later periods if subsequent information indicates actual forfeitures will differ from those estimates See Note 13 Equity Based Compensation for more information
Deferred tax assets and liabilities are determined based on differences between financial reporting and tax basis of assets and liabilities and are measured by applying enacted tax rates and laws for the taxable years in which those differences are expected to reverse Deferred tax assets are evaluated for the estimated future tax effects of deductible temporary differences and tax operating loss carryovers A valuation allowance is recorded when it is more likely than not that a deferred tax asset will not be realized
The Company records a liability for unrecognized tax benefits resulting from uncertain tax positions taken or expected to be taken in a tax return We assess income tax positions for all years subject to examination based upon our evaluation of the facts circumstances and information available at the reporting date For those income tax positions where it is not more likely than not that a tax benefit would be sustained upon ultimate settlement with a taxing authority assumed to have full knowledge of all relevant information the Company would record a liability for unrecognized tax benefits The Company recognizes interest and penalties if any related to unrecognized tax benefits in income tax expense and benefit
In December 2019 the FASB issued ASU No 2019 12 Income Taxes Topic 740 Simplifying the Accounting for Income Taxes which removes specified exceptions and adds requirements to simplify the accounting for income taxes The Company adopted the guidance in the first quarter of fiscal 2022 The adoption of ASU 2019 12 did not have a material impact on its consolidated financial statements and disclosures
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 September 30 2024 the Company was not party to any contracts hedging relationships or other transactions affected by reference rate reform
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 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
In November 2023 the FASB issued ASU No 2023 07 Segment Reporting Topic 280 Improvements to Reportable Segment Disclosures The ASU expands public entities segment disclosures by requiring disclosure of significant segment expenses that are regularly provided to the chief operating decision maker and included within each reported measure of segment profit or loss an amount and description of its composition for other segment items and interim disclosures of a reportable segment s profit or loss and assets The purpose of the guidance is to enable investors to better understand an entity s overall performance and assess potential future cash flows The amendment is effective for fiscal years beginning after December 15 2023 and interim periods in fiscal years beginning after December 15 2024 The Company is in the process of evaluating the impact of ASU No 2023 07 on its financial statements
In December 2023 the FASB issued ASU No 2023 09 Income Taxes Topic 740 Improvements to Income Tax Disclosures The ASU expands public entities tax disclosures including improving disclosures surrounding the company s rate reconciliation cash taxes paid and disaggregation of income tax expense or benefit from continuing operations The amendment is effective for annual periods beginning after December 15 2024 The Company is in the process of evaluating the impact of ASU No 2023 09 on its consolidated financial statements
In November 2024 the FASB issued ASU No 2024 03 Income Statement Reporting Comprehensive Income Expense Disaggregation Disclosures Subtopic 220 40 Disaggregation of Income Statement Expenses The ASU requires new tabular disclosures disaggregating prescribed expense categories within relevant income statement captions The amendment is effective for annual periods beginning after December 15 2026 and interim periods in fiscal years beginning after December 15 2027 The Company is in the process of evaluating the impact of ASU No 2024 03 on its consolidated financial statements
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 15 Segments the Company s reportable segments are Maintenance Services and Development Services
As of September 30 2024 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 546 4 The Company expects to recognize revenue on 54 of the remaining performance obligations over the next 12 months and an additional 46 over the 12 months thereafter
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
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
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
Identifiable intangible assets consist of acquired customer contracts and relationships trademarks and non compete agreements Amortization expense related to intangible assets was 35 8 44 5 and 51 5 for the years ended September 30 2024 September 30 2023 and September 30 2022 respectively These assets are amortized over their estimated useful lives the reasonableness of which are continually evaluated by the Company There were no intangible assets acquired during the year ended September 30 2024 The weighted average amortization period of intangible assets acquired during the year ended September 30 2023 was seven years
During the year ended September 30 2023 the Company acquired through a series of separate transactions 100 of the operations of three unrelated companies all of which was 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 purchase accounting related to these acquisitions was finalized within one year from each acquisition date As a result of final purchase accounting certain of the fair value amounts previously estimated were adjusted during the measurement period 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 measurement period adjustments were not material to the Consolidated Balance Sheets as of September 30 2024 and September 30 2023 The identifiable assets acquired as part of the fiscal 2023 acquisitions 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 in place A portion of the goodwill resulting from the acquisitions is deductible for tax purposes
On January 12 2024 the Company completed the sale of one of its fully owned subsidiaries U S Lawns for total cash consideration of 51 0 The gain on the transaction of 43 6 is included in Gain on divestiture in the Consolidated Statements of Operations for the year ended September 30 2024 The Maintenance Services operating segment includes the operations of the divested entity and its results of operations are included in the Consolidated Statements of Operations through January 12 2024 The company disposed of the U S Lawns customer relationships and trademarks as part of the divestiture
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 which amended the existing Credit Agreement 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 3 25 or a base rate ABR plus a margin of 2 25 subject to SOFR and ABR floors of 0 50 and 1 50 respectively The Company used the net proceeds from the Series B Term Loan to repay all amounts then outstanding under the Company s Credit Agreement As a result of the repayment of the amounts outstanding under the Company s Credit Agreement the Company recorded a loss on debt extinguishment of 12 6 due to accelerated amortization of deferred financing fees and original issue discount included in the Other expense income line of the Consolidated Statements of Operations for the year ended September 30 2022 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
On August 28 2023 the Company voluntarily repaid 450 0 of the amount outstanding under the Company s Amendment Agreement As a result of this voluntary repayment the Company recorded a loss on debt extinguishment of 8 3 due to accelerated amortization of deferred financing fees and original issue discount as well as fees paid to lenders and third parties The loss on debt extinguishment is included in the Other income expense line of the Consolidated Statements of Operations for the year ended September 30 2023
On August 31 2023 the Company entered into Amendment No 7 to the Credit Agreement the Seventh Credit Agreement Amendment The Seventh Credit Agreement Amendment i amends the definition of Permitted Holders to include Birch Equity Holdings LP a Delaware limited partnership Birch OR Equity Holdings LLC a Delaware limited liability company and One Rock Capital Partners LLC and ii provides for a 1 00 prepayment premium for voluntary prepayments made in connection with repricing transactions or amendments made where the primary purpose of which is to decrease the effective yield and which shall be applicable until six months after entering into the Seventh Credit Agreement Amendment
On May 28 2024 the Company entered into Amendment No 8 to the Credit Agreement the Eighth Credit Agreement Amendment Under the Eighth Credit Agreement Amendment the existing Series B Term Loans were amended to bear interest at a rate per annum based on Term SOFR plus a margin of 2 50 or ABR plus a margin of 1 50 subject to SOFR and ABR floors of 0 50 and 1 50 respectively
In addition to scheduled payments the Company is obligated to pay a percentage of excess cash flow as defined in the Credit Agreement as payments to principal The percentage varies with the ratio of the Company s debt to its cash flow The excess cash flow calculation did not result in any accelerated payment due for the periods ended September 30 2024 September 30 2023 and September 30 2022
The Credit Agreement restricts the Company s ability to among other things incur additional indebtedness create liens enter into mergers and acquisitions dispose of assets and make distributions without the approval of the lenders In certain circumstances under the Credit Agreement the Company is prohibited from making certain restricted payments including dividends or distributions to its stockholders subject to certain exceptions set forth in that agreement including an exception for the making of such restricted payments up to an agreed limit which limit is determined by a formula that takes into account consolidated net income net cash proceeds and other amounts in each case as described in greater detail in that agreement The Credit Agreement imposes financial covenants upon the Company with respect to leverage and interest coverage under certain circumstances The Credit Agreement contains provisions permitting the bank to accelerate the repayment of the outstanding debt under this agreement upon the occurrence of an Event of Default as defined in the Credit Agreement including a material adverse change in the financial condition of the Company since the date of the Credit Agreement
The weighted average interest rate on the Series B Term Loan was 8 2 and 7 8 for the years ended September 30 2024 and September 30 2023 respectively The Series B Term Loan has required amortization debt repayments that are due in quarterly installments of 0 25 of the original principal balance of the Series B Term Loans As a result of the August 28 2023 voluntary repayment of the amount outstanding under the Amendment Agreement the quarterly installment payments of the remaining amount outstanding under the Series B Term Loan are no longer required
The Company has a five year 300 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 The Company had no outstanding balance under the Revolving Credit Facility as of
September 30 2024 and September 30 2023 There were no borrowings or repayments under the facility during the year ended September 30 2024 There were 33 5 borrowings under the facility during the year ended September 30 2023 of which 33 5 were repaid during the same period The Company had no letters of credits issued and outstanding as of September 30 2024 and had 42 6 of letters of credits issued and outstanding as of September 30 2023 The weighted average interest rate on the Revolving Credit Facility was 6 9 for the year ended September 30 2023
On April 28 2017 the Company through a wholly owned subsidiary entered into a receivables financing agreement the Receivables Financing Agreement On August 31 2023 the Company entered into the Fourth Amendment to the Receivables Financing Agreement the Fourth Amendment which amends the definition of Permitted Holders to align with the definition of Permitted Holders under the Credit Agreement Amendment as defined above as of the date of the closing of the Receivables Financing Amendment On June 27 2024 the Company through a wholly owned subsidiary entered into the Fifth Amendment to the Receivables Financing Agreement the Fifth Amendment which increased the borrowing capacity to 325 0 and extended the term through June 27 2027 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 year ended September 30 2024 the Company borrowed 0 5 against the capacity and voluntarily repaid 87 3 During the year ended September 30 2023 the Company borrowed 549 5 against the capacity and voluntarily repaid 554 5
The interest rate on the amounts borrowed under the Receivables Financing Agreement is established for periods of up to six months at 140 170 bps over SOFR depending on the Company s leverage ratio and a commitment fee equal to 0 4 of the unused balance of the facility The weighted average interest rate on the amounts borrowed under the Receivables Financing Agreement was 6 7 and 6 3 for the years ended September 30 2024 and September 30 2023 respectively
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
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
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
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 Consolidated Balance Sheets 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 and its counterparties However as of September 30 2024 and September 30 2023 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
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 loss income and subsequently reclassified into Interest expense net in the case of interest rate contracts or 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 loss 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
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
On August 28 2023 the Company terminated 400 0 of the notional amount of its outstanding interest rate collar agreement The Company accelerated the reclassification of a gain of 5 2 in other comprehensive income to earnings as a result of the hedged forecasted transactions becoming probable not to occur
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 has entered into gasoline hedge contracts to help reduce its exposure to volatility in the fuel markets In March 2024 the Company entered into a fuel swap agreement with a notional volume of 4 0 million gallons covering the period March 4 2024 through February 24 2025 The net deferred loss on the fuel swap as of September 30 2024 was immaterial and is expected to be recognized in Cost of services provided over the next 6 months
In March 2020 the Coronavirus Aid Relief and Economic Security Act the CARES Act was signed into law and included various provisions to provide additional economic relief to address the impact of the COVID 19 pandemic Notable provisions included net operating loss carrybacks adjustments to the interest expense limitations under the U S Tax Code Section 163 j increase in the charitable contributions limitation payroll tax deferrals of the employer portion of social security tax a portion of which was repaid during the year ended September 30 2022 and the remainder of which was repaid in fiscal year 2023 and an employee retention credit for wages paid to an idle employee under certain circumstances resulting from the COVID 19 pandemic The Company recorded a tax receivable of 39 0 and a benefit of 10 1 to the tax provision for the tax net operating losses incurred in 2021 from the enactment of the CARES Act net of adjustments The tax net operating losses have been carried back to prior years The Company has received all but 8 4 of the benefit from the carryback claims as of September 30 2024 Further the Company previously elected to defer the employer portion of social security taxes through 2020 and has filed for the employee retention credit allowed for under the CARES Act The Company recorded a tax credit of 3 3 related to the employee retention credit during the year ended September 30 2022 and has received all but 1 0 as of September 30 2024
The Company has state income tax net operating losses NOLs of 90 9M having varying expirations from fiscal year 2025 through an indefinite useful life The Company has a federal interest expense carryforward of 58 4M and state interest expense carryforwards of 94 6M that can be carried forward indefinitely The Company believes it is more likely than not it will be unable to utilize some of its separate state NOLs and separate state interest expense carryforwards to offset future income The increase to the valuation allowance was 1 2 million in FY2024
At September 30 2024 6 3 million of the valuation allowances presented above relate to separate state NOLs and interest expense carryforwards that are not expected to be realized We evaluate the realization of deferred tax assets by considering such factors as the reversal of existing taxable temporary differences expected profitability by tax jurisdiction and available carryforward periods The extent and timing of any such reversals will influence the extent of tax benefits recognized in a particular year Should applicable losses credits and deductions ultimately be realized the resulting reduction in the valuation allowance would generally be recognized as an income tax benefit
As of September 30 2024 and 2023 the Company had no unrecognized tax benefits that if recognized would impact the Company s effective tax rate The total amount of unrecognized tax benefits could change within the next twelve months for a number of reasons including audit settlements tax examination activities and the recognition and measurement considerations under this guidance
The Company has operating and finance leases for branch and administrative offices vehicles certain machinery and equipment and furniture The Company s leases have remaining lease terms from one month up to 9 4 years with one or more exercisable renewal periods and specified increases in lease payments upon exercise of the renewal options For purposes of calculating lease liabilities lease terms include options to extend the lease only when it is reasonably certain that the Company will exercise those options Some leasing arrangements require variable payments that are dependent on usage output or may vary for other reasons such as insurance common area maintenance and tax payments The variable lease payments are not presented as part of the initial right of use asset or lease liability The Company s lease agreements do not contain any material restrictive covenants or residual value guarantees
As most of the Company s leases do not specifically state an implicit rate the Company uses an incremental borrowing rate consistent with the lease term as of the lease commencement date when calculating the present value of remaining lease payments The incremental borrowing rate reflects the cost to borrow on a securitized basis The remaining lease term does not reflect all renewal options available to the Company only those renewal options that the Company has assessed as reasonably certain
On June 28 2018 and as amended and restated on March 10 2020 and amended on March 5 2024 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 total number of shares of common stock that may be issued under the 2018 Omnibus Incentive Plan is 24 650 000 Under 2018 Omnibus Incentive 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
On September 11 2023 the Company adopted the BrightView Holdings Inc 2023 Employment Inducement Incentive Award Plan the Inducement Plan Pursuant to the Inducement Plan the Company may grant equity incentive compensation as a material inducement for certain individuals to commence employment with the Company A total of 1 750 000 shares of common stock are reserved for grant under the Inducement Plan Awards granted under the Inducement Plan may be in the form of non qualified stock options stock appreciation rights restricted stock awards restricted stock units unrestricted stock awards dividend equivalent rights and other equity based awards or any combination of those awards
During the year ended September 30 2024 the Company issued 2 667 000 restricted stock units RSUs at a weighted average grant date fair value of 8 24 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 19 2 over the requisite service period During the year ended September 30 2024 1 285 000 RSUs vested and 689 000 RSUs were forfeited
During the year ended September 30 2024 the Company issued 918 000 performance stock units PSUs at a weighted average distribution price of 7 35 per share and a weighted average grant date fair value of 7 35 per share which cliff vest at the end of the three year service 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 is expected to be approximately 6 3 over the requisite service period dependent on the achievement of the identified performance conditions During the year ended September 30 2024 no PSUs vested and 316 000 PSUs were forfeited
The fair value of the stock option awards granted were estimated on the date of grant using the Black Scholes Merton option pricing model The Company chose the Black Scholes Merton model based on its experience with the model and the determination that the model could be used to provide a reasonable estimate of the fair value of awards with terms such as those discussed above
For PSU awards subject to a market condition the metric is the Company s total shareholder return during the performance period relative to a pre defined set of industry peer companies The fair value of these awards is estimated using a Monte Carlo simulation For PSU awards subject to a performance condition the fair value is determined based on the trading price of the company s common shares on the date of grant
There were no new PSU awards subject to a market condition or stock option awards granted for the years ended September 30 2024 and September 30 2023 The weighted average assumptions used in the valuation of PSU awards subject to a market condition and stock option awards granted for the year ended September 30 2022 are presented in the table below
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 20 2 22 1 and 18 9 in equity based compensation expense for the years ended September 30 2024 September 30 2023 and September 30 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 Total unrecognized compensation cost was 30 6 23 7 and 36 2 as of September 30 2024 September 30 2023 and September 30 2022 respectively which is expected to be recognized over a weighted average period of 1 2 years
The Company s Stockholders have approved the Company s 2018 Employee Stock Purchase Plan the ESPP A total of 2 100 000 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 188 000 177 000 and 112 000 were issued on November 17 2023 November 14 2022 and November 15 2021 respectively An additional portion thereof is expected to be issued in November 2024
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 healthcare 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 September 30 2024 was 165 6 of which 52 8 was classified in current liabilities and 112 8 was classified in non current liabilities in the accompanying Consolidated Balance Sheets The Company s reserve for unpaid and incurred but not reported claims under these programs at September 30 2023 was 159 9 of which 54 8 was classified in current liabilities and 105 1 was classified in non current liabilities
in the accompanying Consolidated Balance Sheets 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 September 30 2024 includes 13 4 related to claims recoverable from third party insurance carriers Corresponding assets of 4 0 and 9 4 are recorded at September 30 2024 as Other current assets and Other assets respectively The Company s reserve for unpaid and incurred but not reported claims at September 30 2023 includes 18 1 related to claims recoverable from third party insurance carriers Corresponding assets of 5 3 and 12 8 were recorded at September 30 2023 as Other current assets and Other assets respectively
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
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 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
On August 28 2023 the Original Issuance Date BrightView Holdings Inc entered into an Investment Agreement with each of Birch Equity Holdings LP a Delaware limited partnership and Birch OR Equity Holdings LLC a Delaware limited liability company collectively the Investors pursuant to which the Company issued and sold in a private placement an aggregate of 500 000 shares of the Company s Series A Convertible Preferred Stock par value 0 01 per share the Series A Preferred Stock for an aggregate purchase price of 500 0 the Issuance excluding issuance costs The Series A Preferred Stock was recorded at that amount net of issuance costs of 5 0 in the Company s Consolidated Balance Sheets and statement of changes in stockholders equity and mezzanine equity
The Series A Preferred Stock is redeemable in the event of certain change of control events involving the Company S99 3A 2 of the SEC s Accounting Series Release No 268 ASR 268 requires preferred securities that are redeemable for cash or other assets to be classified outside of permanent equity if they are redeemable i at a fixed or determinable price on a fixed or determinable date ii at the option of the holder or iii upon the occurrence of an event that is not solely within the control of the issuer Preferred securities that are mandatorily redeemable are required to be classified by the issuer as liabilities whereas under ASR 268 guidance an issuer should classify a preferred security whose redemption is contingent on an event not entirely in control of the issuer as mezzanine equity The Series A Preferred Stock is not mandatorily redeemable however a change in control is not solely in control of the Company accordingly the Company determined that mezzanine treatment is appropriate for the Series A and has presented it as such in our Consolidated Balance Sheets and statement of changes in stockholders equity and mezzanine equity as of and for the year ended September 30 2024
The Series A Preferred Stock will rank senior to the Company s common stock par value 0 01 per share the Common Stock with respect to dividend rights and rights on the distribution of assets on any voluntary or involuntary liquidation dissolution or winding up of the affairs of the Company The aggregate liquidation preference of the Series A Preferred Stock was 512 0 and 503 2 as of September 30 2024 and September 30 2023 respectively
Holders of the Series A Preferred Stock are entitled to a dividend at the rate of 7 0 per annum compounding quarterly paid in kind or paid in cash at the Company s election Dividends paid in kind are measured at fair value For any quarter in which the Company elects not to pay the dividend in cash such dividend will become part of the liquidation preference of each such share of Series A Preferred Stock as of the applicable dividend payment date Shares of the Series A Preferred Stock also entitle the holder to participate in any dividends paid on the Common Stock on an as converted basis During the year ended September 30 2024 the Company paid in kind dividends of 8 9 in the aggregate on the Series A Preferred Stock which increased the aggregate liquidation preference of the Series A Preferred Stock by the same amount In addition the Company declared cash dividends of 26 8 during the year ended September 30 2024 of which 17 8 was paid Accrued dividends of 9 0 are presented within Accrued expense and other current liabilities on the Consolidated Balance Sheets as of September 30 2024 There were no dividends issued to common stockholders during the years ended September 30 2024 and 2023
The Series A Preferred Stock will be entitled to vote with the holders of the Common Stock on an as converted basis subject to the conversion limitations set forth in the Certificate of Designations of the Series A Preferred Stock the Certificate of Designations Holders of the Series A Preferred Stock will be entitled to a separate class vote with respect to among other things amendments to the Company s organizational documents that have an adverse effect on the Series A Preferred Stock authorizations or issuances by the Company of securities that are senior to or equal in priority with the Series A Preferred Stock increases or decreases in the number of authorized shares of Series A Preferred Stock after the Issuance certain mergers or consolidations of the Company and certain restricted acquisitions
Notwithstanding the foregoing pursuant to the terms of the Certificate of Designations in no event shall the Series A Preferred Stock have voting rights in excess of 49 together with any shares of Common Stock otherwise held by the Investors permitted transferees and their affiliates of the then issued and outstanding Common Stock
At any time on or after the fourth anniversary of the Original Issuance Date the Company may redeem the Company Redemption Right ratably in whole or so long as the Company reasonably determines in good faith taking into account solely the holders ownership of the Series A Preferred Stock and ownership of any Common Stock received in connection with the conversion of such Series A Preferred Stock that such partial redemption of Series A Preferred Stock will be treated as a sale or exchange for United States federal income tax purposes pursuant to Section 302 b of the Internal Revenue Code of 1986 in part the shares of Series A Preferred Stock of any holder outstanding at such time at a redemption price per share of Series A Preferred Stock equal to the following A if the applicable redemption date is on or after the fourth anniversary of the Original Issuance Date and before the fifth anniversary of the Original Issuance Date the greater of 1 the product of x the sum of I the liquidation preference of such shares of Series A Preferred Stock to be redeemed plus II the accrued dividends in respect of such share of Series A Preferred Stock to be redeemed as of such redemption date multiplied by y 105 and 2 the volume weighted average price VWAP of the average of the Common Stock for each of the 10 consecutive full trading days ending on and including the trading day immediately preceding such day of measurement adjusted pursuant to the Certificate of Designations the Current Market Price as of such redemption date of the Common Stock into which such shares of Series A Preferred Stock could be converted on an as converted basis B if the applicable
redemption date is on or after the fifth anniversary of the Original Issuance Date and before the sixth anniversary of the Original Issuance Date the greater of 1 the product of x the sum of I the liquidation preference of such share of Series A Preferred Stock to be redeemed plus II the accrued dividends in respect of such share of Series A Preferred Stock to be redeemed multiplied by y 103 and 2 the Current Market Price as of such redemption date of the Common Stock into which such shares of Series A Preferred Stock could be converted on an as converted basis and C if the applicable redemption date is on or after the sixth anniversary of the Original Issuance Date the greater of 1 the product of x the sum of I the liquidation preference of such share of Series A Preferred Stock to be redeemed plus II the accrued dividends in respect of such share of Series A Preferred Stock to be redeemed multiplied by y 100 and 2 the Current Market Price as of such redemption date of the Common Stock into which such shares of Series A Preferred Stock could be converted on an as converted basis Notwithstanding the foregoing the Company will not exercise the Company Redemption Right or otherwise send a notice of company redemption in respect of the redemption of any Series A Preferred Stock unless the Company has sufficient funds legally available to fully pay the redemption price in respect of all shares of Series A Preferred Stock called for redemption
Upon certain change of control events involving the Company the holders of Series A Preferred Stock may at such holder s election convert all or a portion of its shares of Series A Preferred Stock provided that if the holder does not make such an election with respect to all of its shares of Series A Preferred Stock the Company shall redeem all of such holder s shares of Series A Preferred Stock that have not been so converted at a purchase price per share of Series A Preferred Stock payable in cash equal to the greater of A the sum of the liquidation preference thereof plus any accrued dividends as of the applicable change of control purchase date and B the amount of cash and the fair market value of any other property that the holder would have received if such holder had converted their Series A Preferred Stock into Common Stock immediately prior to the change of control without regard to any limitations on conversions set forth in the Certificate of Designations
The Series A Preferred Stock is convertible in whole or in part at the option of the holders subject to the conversion limitation set forth in the Certificate of Designations into shares of Common Stock at an initial conversion rate of 105 9322 shares of Common Stock per share of Series A Preferred Stock
At any time after the third anniversary of the Original Issuance Date if i the VWAP of the Common Stock exceeds 18 88 the Mandatory Conversion Price for at least 20 trading days in any period of 30 consecutive trading days and ii either x the Common Stock VWAP is greater than the Mandatory Conversion Price on the trading day immediately prior to the date the Company sends the applicable notice of mandatory conversion or y the Company has not filed a press release or report under the Securities Exchange Act of 1934 as amended between the last trading day in such 30 day trading period and the date the Company sends the applicable notice of mandatory conversion then the Company may elect to convert all or any portion of the Series A Preferred Stock into the relevant number of shares of Common Stock
Notwithstanding the foregoing pursuant to the terms of the Certificate of Designations in no event shall the Series A Preferred Stock be convertible into Common Stock in a manner that would result in the Investors their permitted transferees and affiliates holding more than 49 together with any shares of Common Stock otherwise held by the Investors permitted transferees and their affiliates of the then issued and outstanding Common Stock
The Company calculates basic and diluted loss earnings per common share using the two class method The two class method is an allocation formula that determines net income loss per common share for each share of common stock and Series A Convertible Preferred Stock a participating security according to dividends declared and participation rights in undistributed earnings Under this method all earnings distributed and undistributed are allocated to common shares and Series A Convertible Preferred Stock based on their respective rights to receive dividends The holders of Series A Convertible Preferred Stock participate in cash dividends that the Company pays on its common stock in an as converted basis Diluted net income loss per common share is computed based on the weighted average number of shares of common stock outstanding during each period plus potential common shares considered outstanding during the period as long as the inclusion of such awards is not antidilutive Potential common shares consist of unvested and unexercised stock compensation awards and the Series A Convertible Preferred Stock using the more dilutive of either the two class method or if converted stock method
Commencing with the first quarter of fiscal 2025 which began on October 1 2024 the Company adopted a revised segment presentation whereby certain expenses currently classified as Corporate including corporate executive compensation finance legal and information technology will be instead allocated to its two reportable segments Maintenance Services and Development Services on a pro rata basis based on segment revenue The changes to the Company s segment reporting will be reflected beginning with its Quarterly Report on Form 10 Q for the quarter ending December 31 2024

Company Name	BrightView Holdings, Inc. Vist SEC web-site
Category	AGRICULTURE SERVICES
Trading Symbol	BV