BrightView Holdings, Inc.

the comparable GAAP financial measures are provided in today's press release. Disclaimers on forward-looking statements and non-GAAP financial measures apply both to today's prepared remarks as well as the Q&A session. I'll now turn the call over to Brightview CEO, Andrew Masterman.

Thank you, and good morning. We appreciate your time today to review our second quarter results, and we also want to extend a warm welcome to Thad and Brad to join our team just recently as Vice President, Investor Relations. Cotton brings a wealth of investor relations experience, and we are delighted to have her on board. As you likely saw, this morning we announced John Feenan's retirement and Brett Urban's appointment as Chief Financial Officer, effective October 1, 2022. First, I'd like to thank John for six years of outstanding leadership and commitment to Brightview. He played a key role in the development and execution of our strategy and our robust financial stewardship. which has positioned us well for the near and long term. I'm grateful for all those contributions, but I'm glad he'll be with us for a period of time to ensure a smooth transition. Brett's appointment is consistent with our succession planning process, which covers multiple key positions throughout the organization and is regularly reviewed with our board of directors. John has built a deep bench and a well-oiled organization that will support Brett Urban in his new role. enabling him to help drive results and shareholder value. As CFO of our maintenance business, Brett has helped to drive growth and lead the execution of more than 30 acquisitions since 2017. We're confident that the momentum and leadership he instilled in the organization will help Brett New continue to reach its goals, and I'm excited to continue to work closely with him to deliver on our long-term plans. Before I cover the highlights, I'd like to start by thanking the entire Brightview team for their world-class execution and dedication. I'm proud to report on their hard work, which resulted in an impressive quarter with strategic, operational, and financial success. We delivered strong organic growth in both segments with total profitability at the high end of our guidance range. We refinanced our debt with favorable terms and extended maturities, and we successfully executed on our share buyback program. Our results and the progress we have made are underpinned by our strong net new customer wins, our successful strong-on-strong M&A strategy, our proactive strategic pricing efforts, and of course, our dedicated team. Despite the challenges associated with rising fuel prices, to continue to execute at the highest levels while managing our material and labor expenses. Our invigorated focus on profitable growth is unwavering. Let's dive right in and review our key highlights for the quarter on slide four. First, we delivered our fourth consecutive quarter of land organic growth. Land organic growth exceeded 8%, driven by strong new customer wins and improved ancillary penetration. We expect land organic growth to be in the 3% to 4% range for the second half of the year, slightly above our long-term expectations. Organic growth will benefit from the implemented pricing measures, which we have begun to realize. In the near term, the benefit of price related to top-line growth will be somewhat offset by scope reductions. Importantly, these pricing efforts will benefit our top-line and help us to mitigate cost headwinds, including material cost inflation, rising wages, and fuel prices. John will address this in greater detail in his remarks. Our development business returned a positive organic growth, increasing by 24% this quarter. This growth was driven by a strong rebound in our backlog as we continue to move past pandemic top-line impacts. Our profitability in the development segment was impacted by higher material and fuel costs, which were partially offset by reduced subcontracting costs. As we look ahead, we are encouraged by the momentum we see in the development business and expect organic growth to be north of 10% in the second half of the year. Second, adjusted EBITDA for the quarter was $60 million. which was at the high end of our guidance range and benefited from strength in our top-line growth and exceptional labor cost management. We are intently working on minimizing the expected cost headwinds on our margins for the remainder of the year, which are primarily rising fuel prices. Our ability to manage the fundamental direct business costs in the second quarter, primarily material inflation and labor costs, is a testament to our operational efficiencies. Importantly, these actions, combined with our pricing efforts, support our continued commitment to the adjusted EBITDA margin target we set at our investor day of 13%. Third, we executed against our previously announced $250 million share repurchase program with a repurchase of the final tranche of shares from MSD Partners, one of our two original private equity sponsors. Our repurchase included a negotiated discount from current trading prices and resulted in a meaningful reduction of outstanding shares. MSD has been a dedicated holder for more than 15 years and would like to thank them for their commitment and contribution to our company. Fourth, we completed the refinancing of our syndicated bank facilities at favorable rates and we're also able to extend maturities to 2027 and 2029. John will cover our capital allocation and balance sheet in greater detail. Lastly, we continue to execute on our successful strong-on-strong acquisition strategy. We completed four acquisitions this quarter, including a top 100-ranked company by lawn and landscape, a service leader in the desirable Phoenix market, and two market leaders in self-performed snow removal. Our acquisitions benefited second quarter revenue by $37 million. As we have previously said, acquisitions will continue to be a reliable and sustainable source of growth for our business. Moving now to slide five, I'd like to talk about our recent acquisitions. As you can see, since 2017, we completed more than 30 accretive acquisitions that position us as a market leader in several key MSAs. Importantly, our acquisitions are accretive and a value-creating use of free cash flow. Our M&A strategy leverages our scalable infrastructure while building on best-in-class platforms, processes, and people. And we have a dedicated team and a disciplined, repeatable framework. Our M&A success is core to our top-line growth, and we will continue to execute on the strategy we have developed and deployed over the last five years. The second quarter, we added Naturescape, Winter Services, CDE Group, and Intermountain Planning to the Brightview family. Let me provide more detail on each of them. NatureScape is a full-service commercial landscaping company serving Phoenix, Arizona, with a leadership team with more than 80 years of combined experience. The NatureScape acquisition grows are already a significant market presence in the greater Phoenix metropolitan area. This acquisition showcases our continued execution against our strategy to expand in areas with significant population growth, which will in turn fuel our momentum. Winter Services and TDE Group are leading commercial snow removal service providers. Winter Services operates throughout New Jersey, Delaware, eastern Pennsylvania, southern New York, and Connecticut. TDE operates primarily in greater Detroit. These two acquisitions expand our footprint in self-performance snow management, a margin accretive business. Self-performing snow management, where services are performed through direct labor without subcontractors, and those contracts are fixed fee-based, secures stable snow revenue as well as higher and sustainable margins. Notably, the commercial snow business in the United States is a highly fragmented industry approaching $20 billion in size. With these two acquisitions, we have increased our market share in this high-margin, self-performing, stable business. These transactions support our strategic focus to position our snow business to include more self-performing services, which leads to a higher mix of fixed fee contracts, enabling us to stabilize our snow business margins and mitigate future headwinds. And finally, we added Intermountain Planning, or IP, a top 100 commercial development and landscaping services company focused mainly on development business based in the Mountain West region. IT provides us with an opportunity to increase our footprint in two of the fastest-growing markets in the country, Salt Lake City and Boise. Turning to slide six, as you know, the largest variable to our first-half financial performance is snow removal. Our organic snow revenue of $196 million was down 13% or $30 million on an organic basis, offset by $12 million of acquired snow revenue during the quarter. WeatherWorks, the industry standard for our customer contracts for billing and invoicing purposes, reported snowfall totals in inches, mapped to our specific branch footprint, down almost 11% versus the prior year. Let me give a few year-to-year WeatherWorks specifics on our largest snow markets and regions. Denver, a historically strong and consistent snow removal market, recorded approximately 46 inches of snow during the quarter versus 52 in the prior year. Chicago reported approximately 33 inches of snow, down 24% versus prior year. And in New York, snowfall was 31 inches, down 15% versus prior year. Keep in mind, snow margin is driven by many factors, including when, where, how much, and how often it snows and will change every year. Let me put this impact in context of our Q2 profitability results. Recall that we are largely able to provide snow services with our existing fixed cost structure. As a result, the impact of lower snow revenue led to approximately a $10 million year-over-year headwind to adjust the EBITDA for the quarter and approximately $18 million for the first half. With our snow season behind us, we entered the green season with significant optimism. Turning to slide seven, we continue to be leaders in environmental, social, and corporate governance, or ESG. We truly embrace our ESD strategy, and it is embedded into our corporate foundation and culture. Last quarter, we provided a comprehensive update and subsequently published our inaugural ESD report. Importantly, we remain committed to our broader goals of carbon reduction for greener equipment and offset through hundreds of thousands of trees and shrubs we plant and nourish every day, which will enable us to achieve carbon neutrality by 2035. will continue to see a steady drumbeat on our progress let me share with you a couple of specific examples from our focus areas sustainability and greener equipment first we announced last week our partnership with the arbor day foundation to plant 300 000 trees throughout the u.s by march 2023 these trees are in addition to the more than 80 000 trees and millions of shrubs greenery and grass we put in the ground and nourish every day second We're making significant progress in converting our two-cycle gas-powered equipment to rechargeable energy sources, which will result in a greater than 50% reduction in bright-use carbon footprint by 2025. We initiated this effort with an external provider, and in the second half of this year, fiscal 2022, we expect to convert more than 3,500 pieces of gas-powered handheld street devices into greener equipment, which represents more than 10% of the 35,000 pieces we committed to convert by 2025. It is clear that we are making great and tangible progress so far on this effort. Moving down to slide 8, one of the clear advantages of Brightly to Scale is that it allows us to develop technology to result in a significant competitive advantage. technology drives efficiency and engagement with existing and prospective customers hoa connect quality site assessments and salesforce have all been implemented as digital tools to improve customer retention and satisfaction both supporting property enhancement and increased ancillary penetration in recent conversations with our customer technology advisory panel a group of our top 10 a2a connect adopters we learned that a key high-demand feature is service confirmation, which is the ability to receive a text message or email alert when our teams complete specified service activities. In response, we're excited to launch the pilot of this high-value customer engagement technology, Brightview Service Confirmation, in April. We developed a solution supported by a mobile application for our crew leaders and account managers that delivers an automated service summary with highlights and photos to the customer. Service confirmation of proprietary BrightView technology is enabled by our CRM platform and further differentiates BrightView capabilities designed to create customer value, increase retention, and enhance customer satisfaction. In summary, we are very pleased with our financial results and proud of the progress we made this quarter. Our investments in our sales team and technology are resulting in strong organic growth, powered by net new customers, and improved ancillary penetration. Our disciplined pricing efforts will build on that growth and will support our ability to offset cost headwinds, including material cost inflation, wages, and rising fuel prices. I am confident that our efforts will enable us to continue to win in the near and long term. I'll now turn it over to John, who will discuss our financial performance in greater detail. Thank you, Andrew, and good morning to everyone.

Before discussing our quarterly results, I'd like to say that I'm humbled to have had the opportunity to lead the finance organization at Brightview for the last six years. We are extremely proud of the team that we have built, and we look forward to working closely with Brett and the team to ensure a seamless transition. We are confident that Brett's leadership, strategic vision, and deep knowledge of the business will enable him to succeed in supporting our goal to drive profitable growth and long-term shareholder value. Let's now turn to our results. I am pleased to report on another strong quarter for Brightview. We delivered outstanding organic growth in our land and development businesses. Our adjusted EBITDA was at the high end of our guidance range despite headwinds from lower snowfall and a surge in the price of fuel. And recently, as Andrew mentioned, we successfully refinanced our syndicated bank facility Under the new terms, we secured a $1.2 billion seven-year term loan and a new $300 million five-year revolver. The term loan matures in 2029, and the revolver matures in 2027. Both are SOFR-based loans at favorable rates. Having a balance sheet with cost-effective funding and no near-term maturities enables us to continue to execute on our strategy and to grow our business and positions us for long-term success. We remain focused on our key investment pillars of cash generation, organic growth, mergers and acquisitions, and margin enhancement over time. With that, let me now provide a snapshot of our second quarter results. Moving to slide 11, total revenue for the second quarter increased by 9%. Total revenue growth was supported by increases in both our maintenance and development segments. Maintenance revenues increased by 3% driven principally by 8% land organic growth, which was offset by weakness in our snow business. Land organic growth was fueled by strong contract growth and a continued rebound in our ancillary services. Additionally, we realized $22 million of incremental revenue from acquired businesses. Development revenues increased by 36% compared to the prior year. The increase was driven by a combination of strong organic growth of 24% and M&A growth of $15 million. We remain encouraged by our bidding pipeline and bid calendar, and we continue to anticipate more than 10% organic growth during the second half of fiscal 2022. Turning to the details on slide 12, Total adjusted EBITDA for the second quarter was $60 million, down 7 million or 11% compared to the prior year. The decline in our adjusted EBITDA was driven by lower snowfall, which was a $10 million headwind, and higher fuel prices, which was approximately a $4 million headwind. The higher fuel prices impacted primarily our maintenance segments. Importantly, our adjusted EBITDA came in at the high end of our guidance range and benefited from positive contribution from our maintenance and development organic growth, as well as strong labor cost management. Excluding the snowfall and fuel headwind, our adjusted EBITDA would have been $74 million, up $7 million, or 10% relative to the prior year. Looking at our results by segment, maintenance adjusted EBITDA was $63 million, or down 13% compared to the prior year, and reflects an adjusted EBITDA margin of 11.4% compared to 13.5% in the prior year. Solid contract growth and a continued rebound in our ancillary services penetration was more than offset by lower snowfall across our branch footprint and the impact of the recent surge in fuel prices. In the development segment, adjusted EBITDA increased by 17% for the second quarter. The improvement was driven by stronger revenues and the implementation of mitigating actions to offset inflationary headwinds, primarily material costs. Development adjusted EBITDA margin was 8%, or 130 basis points lower than the prior year. The decline represents an improvement over prior quarters where development adjusted EBITDA margins were decelerating at a greater pace. On slide 13, this chart illustrates the historical improvement we have experienced in our development adjusted EBITDA margin over the last three quarters. As you can see, we have made significant improvement in year-over-year margin trends. We expect this improvement to be sustained and anticipate achieving positive margin growth in the fourth quarter of fiscal 2022. For fiscal Q2, corporate expenses represented 2.2% of revenue, a 30 basis point improvement relative to prior year and reflects our focus on expense management. Our adjusted earnings per share for the quarter were 18 cents compared to 26 cents for the prior year. Year to date, our adjusted earnings per share were 26 cents compared to 38 cents from the prior year. We believe earnings per share is a useful measurement of value for Brightview and expect us to discuss on future calls. In summary, we are very pleased with the top line growth we delivered during the quarter. New contract wins and improving ancillary trends drove land organic growth. We saw a return to organic growth in the development business underpinned by strong improvement in their backlog. And our M&A strategy continued to be a reliable source of growth for Brightview. Despite what we believe are short-term cost pressures and rising fuel prices and the idea of fluctuations that can occur from snowfall, we believe we are managing the business fundamentals we can control, notably material inflation costs and wages. These efforts will support our goal of expanding margins back to pre-pandemic levels over time. Let's move now to our balance sheet and capital allocation on slide 15. Net capital expenditures totaled $34 million for the second quarter, or 4.8% of revenue, compared to $15 million, or 2.4% of revenue, in the prior year. This increase was driven by the timing of received orders that were impacted by pandemic-related supply chain issues. Looking ahead, we continue to anticipate capital expenditures to be approximately 3.5% of revenue for fiscal 2022, which is in line with our historical guidance range. Net debt on March 31st, 2022 was approximately $1.26 billion, reflecting an increase of $212 million versus the prior year. The increase was driven primarily by executing against our stated share repurchase program, timing of our capital expenditures, and our execution on M&A transactions. Our leverage ratio was 4.4 times at the end of the second quarter, up from 3.5 times in the prior year. The increase in our leverage ratio was driven by continued accretive acquisitions, the repurchase of the first tranche of 5.9 million shares held by MSD, and the snow-driven year-over-year EBITDA decline in the first half. As we publicly disclosed in April, we acquired the final tranche of the MSD purchase. You will see an additional $72 million outflow in Q3 related to that purchase. The stability of our cash flow generation and strong business fundamentals give us the comfort to operate at higher leverage levels and to continue to execute on accretive and opportunistic acquisitions. For the second quarter of 2022, free cash flow was $31 million. The decline in our free cash flow of approximately $30 million compared to the prior year was driven by the timing of capital expenditures and the impact of lower snow revenue. For the first half of the year, free cash flow decreased to an outflow of $19.3 million compared to an inflow of $58.9 million in the prior year. This decrease was mainly due to the repayment of the payroll tax deferral under the CARES Act. Excluding the CARES Act impact, we would have been free cash flow positive. Our free cash flow trends reflect our renewed investment in our resilient and durable business, particularly in comparison to prior years. An update on liquidity is on slide 16. At the end of the second quarter of fiscal 2022, we had approximately $145 million of availability under our revolver and receivables financing agreement and $46 million of cash on hand. Total liquidity as of March 31st, 2022 was approximately $190 million, which is down from the prior year due to the share repurchase and timing of capital expenditures. Our liquidity continues to provide us with ample flexibility and optionality to run Brightview and support our growth strategy. Importantly, as of May 2nd, following the repurchase of the final tranche of shares from MSD and the refinancing of our syndicated bank facility, our liquidity increased by $100 million plus to approximately $300 million. Let's turn now to slide 17 to review our outlook for the fiscal year. Our maintenance land contract-based business is growing, and demand for ancillary services is improving. We are encouraged by market trends and believe this will result in durable maintenance land organic growth. For the second half of the year, we believe that organic maintenance land growth of approximately 3 to 4 percent is reasonable and slightly ahead of our long-term expectations. As Andrew mentioned, price increases will likely result in certain school productions, While this will mask the benefit on the top line, it will certainly support our adjusted EBITDA. Pricing benefits will enable us to offset cost headwinds, including rising wages, material costs, and fuel prices. We are confident that the positive momentum in Q2 maintenance land should continue in the second half of the year, and we expect to deliver incremental EBITDA for both organic and M&A revenue sources. additionally we remain optimistic about our green season and our ability to deliver solid results in our development segment we are encouraged by our pipeline and backlog trends we expect organic growth to continue throughout fiscal 2022 and into fiscal 23 and to be greater than 10 percent for the second half of the year the market pressures we have seen from inflation which affects the cost for materials needed for projects as well as fuel prices We'll continue, but we are confident that our proactive efforts, including pricing, will help to offset these headwinds. As a result, for our third quarter fiscal 2022, we anticipate total revenues between $715 and $735 million and adjusted EBITDA between $94 and $100 million. For our fiscal year 2022, we anticipate total revenues between $2.73 and $2.77 billion and adjusted EBITDA between $290 and $362 million. Let's move to slide 18. Before turning the call over to Andrew, let me speak about our adjusted EBITDA margin goals. In fiscal year 2021, we reported adjusted EBITDA margin of 11.8%. For fiscal 2022, the midpoint of our full-year guidance range implies an adjusted EBITDA margin of about 10.8%. This decline relative to the prior year is driven by, first, the rise in fuel prices. This would result in approximately 50 basis points of contribution to that decline. Second, the reintroduction of the 401 benefit was paused in the prior year. This is expected to contribute approximately 30 basis points to the decline. And third, the impact of lower snow revenue in the first half of the year, which drove approximately 30 basis points of margin pressure. Importantly, we were able to offset approximately 50 basis points of labor cost pressures through pricing increases that we will realize in the second half of the year. As we look to the second half of the year, the snow headwind will be behind us, and we will be focused on managing primarily our fuel costs, We are aggressively pursuing initiatives to mitigate this headwind. Similar to many other companies, we have been introducing fuel surcharges across our business, and we expect to continue to do this as long as fuel prices remain higher than prior years. We believe these midterm headwinds, rising fuel and material costs, are transitional. Our advantageous scale and efficient cost structure give us the confidence to believe that we have a clear path to improve our consolidated EBITDA margins from above 10.8% towards 13%, the target we set at our investor day in late 2021. We expect to achieve this through the following actions. First, our sustained focus on pricing. Within our maintenance segment, we are executing on a proactive pricing strategy, which we believe will return margin to historical levels. We expect the pricing focus to generate approximately 300 basis points in consolidated margin improvement. Second, in our development segment, our recent improvement is expected to drive sustained margin growth. As a result, we anticipate generating approximately 80 basis points in consolidated margin improvement. third our snow business we expect the business to rebound and recover to normalized levels importantly our focus on expanding our exposure to self-performance snow removal will secure higher snow revenue and more stable margins as a result we expect the snow business trends to drive approximately 40 basis points in consolidated margin improvement these actions will be partially offset by continued inflationary pressures including higher than average historical fuel prices and material costs. These headwinds combined will impact consolidated margins by approximately 200 basis points. Netting our efforts and the expected offsets, we continue to build the path of margin expansion exceeding the high end of our historical performance. With that, let me turn the call back over to Andrew.

Thank you, John. Industry trends remain in our favor and our investment in sales, technology, and marketing continue to fuel our momentum. Pricing efforts will help us to drive profitable growth and our excellent M&A engine will support further top-line acceleration and expand our footprint. As we look out to fiscal 2023, we see a clear path to approaching $3 billion in revenue as we continue to execute on our successful organic and M&A growth strategy. Importantly, we operate in a resilient and durable industry. Our business generates solid free cash flow, and the strength of our balance sheet gives us the flexibility to continue to invest in our business and drive shareholder value. We believe in the long-term prospects of our business, which is why we brought back 12 million shares from MSD, effectively reducing our share count by 10%, without impacting our public flow. We are a leader in ESG and continue to be committed to our 2035 carbon neutral goal. Our future is bright and we are confident that we have the right strategy to accelerate our performance. In closing, I'd like to thank our customers for their support and partnership in working with us on managing the labor and fuel increases we have experienced so far. And we look forward to seeing our customers' landscapes blossom as we move through the summer. Also, I thank all of our teams for their dedicated response to the winter storms and their continued attention to designing, creating, maintaining, and enhancing the best landscapes on Earth. Thank you for your interest and for your attention this morning. We'll now open the call for your questions.

Absolutely. If you would like to ask a question, please press star followed by 1 on your telephone keypad. If for any reason you would like to remove that question, please press star followed by 2. Again, to ask a question, press star 1. As a reminder, if you are using a speakerphone, please remember to pick up your handset before asking the question. We will pause here briefly as questions are registered. Our first question goes to Andrew Whitman with Baird. Andrew, your line is open. Please proceed.

Great. Good morning, and thanks for taking my question. I guess, first, Andrew, for you, I'm curious with the need to go out to your customers for price increases. It's probably not unexpected to them. In fact, I'm sure it's quite expected. But I'm just wondering if the posture of your customers is increasingly looking at the price increases and then taking the contracts out to bid, or if they're renewing with you ahead of rebidding the contracts. I'm just wondering if there's any change in the customer behavior from that perspective.

Yeah. You know, across the board, I would say the initial response we get from most all customers, Andrew, is an understanding of the pressures and the cost inflationary environment we live in. So there's a willingness to talk and a willingness to come in and try and figure out a way. Some of those have resulted in just pure price, top-line price increases, and some have also resulted in scope reductions and kind of adjustments down in what we actually perform, but while keeping price the same or sometimes even reducing the actual scope. But I think the general spirit and nature of our conversations has been fairly open. That being said, you know, we do expect and we are seeing a slight downtick in retention, as we see some customers depart or put things out to bid. But I'd have to say that that is really at the margin as opposed to the primary response, which is more a willingness to engage.

That's helpful. Thank you for those comments. And then maybe, John, for you. I was just hoping you could give us a little bit more context on the fuel impact in particular. And I think just for all of our identification, it would be helpful to know how much fuel you consume, either like on a gallon at your current business size, or maybe as a percentage of revenues, what you think that fuel is going to represent. I think that we'll all probably look at the volatile fuel markets and try to have a clear sense of how this is going to impact future quarters. And I think this information would help all of us.

Yeah, good morning, Andrew. Yeah, fuel was actually, you know, real challenging for us this quarter. As you know, it hits immediately. You know, the quantum of fuel that we use from a percentage of revenue has increased about 60 to 70 basis points. That has gone from roughly 1.6%, 1.7% of revenue to 2.3%, 2.4%. When we spend at any given week about a million dollars a week to put it in context, so when we saw those increases, they hit up immediately. Now, what we're doing that we mitigate that we talked about is we are in the early stages of the fuel surcharges. That's going to take a little bit of time to get into the invoicing and then the collection of that. Don't know exactly what the response is going to be. But, again, that hopefully should give you some color as far as the percentage of revenue and the quantum of fuel.

It does. Thank you very much.

You're welcome. Thank you, Andrew. Our next question goes to Tim Mulrooney with William Blair. Tim, your line is open. Please proceed.

Good morning, Andrew and John. Just a point of clarification on organic growth for your maintenance land business. Do you expect organic, do you expect maintenance land organic growth with three to 4% for the full year or that specifically for the second half of fiscal 2022?

Yeah, that's specifically for the second half. That's the second half. So, you know, the first two quarters, roughly seven to 8% organic growth. You combine that with three to four, we'll definitely be north of three to four for the consolidated year.

Perfect. Thank you for that clarification, Andrew. And just one more from me, building on Whitman's comments. You know, if you take pricing increases and scope reductions together, how would you characterize how much this represents in terms of pricing gains this year? You know, pricing's historically been... 1% to 2% per year. How is pricing now relative to the historical average? I know you're in the midst of these discussions right now, Andrew, so not looking for a perfect answer, but any direction would be helpful.

Absolutely, Tim, no problem. Typically, we've gotten 1% to 2%, but that's always been offset by scope, so it never has realized itself really in the organic growth column because of the offset. What we're experiencing right now in the second half, is that we're actually seeing some, due to the magnitude of our pricing increases, we will see some realization of pricing impacting organic growth. So in that 3% to 4% number, somewhere between 50 bps and half a percent to 1% will be realized from price increases. So that's the net improvement we'll see in that 3% to 4%, again, half to 1%. In the second half, in the first half, there was none. It basically is typically pricing offset by scope increases. And a lot of that is due, Tim, to the fact that the discussions with our customers really occurred, you know, in that kind of December through April time period. And so the effectivity of those increases is, By and large, it's happening between April and July. And we will realize in the third quarter some benefit on the top line. Small, small, but some benefit in that organic growth.

Got it. Thank you. Thank you, Tim. Our next question goes to George Tong with Goldman Sachs. George, your line is open. Please go ahead.

Hi, thanks. Good morning. As you look between your two segments, maintenance and development, can you talk a bit more about how you expect inflation to impact each of those segments differently based on cost structures and contract lengths, and then how price increases compare between the two segments?

Yeah, good morning, George. Interesting question because they do manifest themselves differently. You know, the biggest cost impact of the maintenance segment is labor, unquestionably, and considerably more than the development. And in development, the biggest cost impact is material. And so in the maintenance area, what we're doing is obviously, as we look at inflation, is the price increases that are offsetting the wage increases. And we're pretty much able to match that. In addition, the ancillary business we have is priced in a more current dynamic. So within four to six weeks of doing the project, we're pricing it. So we're reflecting those higher wage costs as well as any higher material costs that tend to be a little higher as a percentage of revenue in the ancillary part of the maintenance segment. So, you know, we're seeing the offsets occurring there. The one thing that, you know, we're struggling with is fuel, and then we're going with a fuel surcharge on that. That's what we do believe will impact us in the short term, but we feel that whether it's through pricing or whether hopefully it's through relaxation and fuel pricing, that we'll see that as a transitional cost. When you go into the nature of the development segment, really the inflationary impact hitting us there is primarily, primarily materials. And that material shift, we are seeing a change in that, and that's what's really good. In the slides we prepared, we've seen the big hit was back in Q4, 480 bits down. And so on top of that, we now see ourselves moving more towards as low as 100-bit impact in Q3, and actually changing that to a growth on the margin side of things as we go into Q4. So, again, materials and development. On top of that, you know, in development, yes, there's fuel. We're offsetting that fuel by really doing less subcontracting work and putting a lot of that subcontract work back into a self-performed situation, which also helps margins and helps offset some of those inflationary aspects.

Got it. Very helpful caller. And then secondly, can you talk a little bit about within the landscape maintenance business, how the recovery in key verticals is progressing, hospitality, retail? I know historically that or recently that's been recovered nicely. And then any other verticals that you would call out with respect to COVID-related recovery?

Yeah, I'd say right now, George, across the board, our maintenance segment is back to pre-pandemic levels. We are operating at a level now which really reflects, I think, more on a revenue basis where we're at. Obviously, still, as we just talked about, some of these inflationary pressures are hitting us in the short term on the margin side. But on the revenue side, we are optimistic. Our hospitality customers have come back. The ancillary penetration on both hospitality, retail, the highest impacted sectors versus segments during or verticals impacted during the COVID crisis, they're back. They're spending, and we continue to get out there and beautify those properties. So I am optimistic as we go forward that, you know, we are seeing ourselves back at a pre-pandemic level of operations.

Very helpful. Thank you.

Thank you, George. Our final question goes to Bob Labic with CJS Securities. Bob, your line is open. Please proceed.

Hi, good morning. It's Pete Lucas for Bob. Just two quick ones for me. Can you discuss labor availability and increased overtime and what you're seeing in terms of your staffing level versus what the optimal level would be?

Yeah. You know, as we head now into May and into June, these are the busy months for us. We hire over 5,000 people in April, May, and June as we ramp into the summer seasons. I have to say that the teams in the field have done an outstanding job of being able to attract labor, staff up, get people in the door, and be able to execute on the spring operations. So as we sit here today, well, labor is always an issue, and we can always use more folks. We actually are very close to having a full table of people to execute on our jobs. What's also been helpful is that we were able to get a fairly good allocation of H-2B labor through the process this year, just slightly more than last year, but it was a slight uptick. And so the combination of that meaning the labor influx we've had and the ability of our teams to go out and recruit and really staff up the jobs has put us in a great position to make sure our customers' properties do very well this year.

Great. And last one for me, sticking with labor, does the labor availability impact the overall M&A environment? Are you seeing any changes there given the labor challenges?

It's a good question. You know, we dive deep into every acquisition to understand their labor situation. And we won't go in and buy companies or acquire companies that rely too much on temporary labor, rely too much on H-2B. We want companies that have very stable workforces. So believe me, though, when you look at some acquisitions, they certainly do have an exposure to having a very, let's say, temporary workforce. So I'm pleased to say that the acquisitions we buy have a more stable environment as opposed to necessarily some of those out there. And that's part of the lens that we look at and we evaluate as we determine what acquisitions that we pursue.

Very helpful. Thank you.

Thank you. Our final question goes to Andrew Steinerman with J.P. Morgan. Hi.

Hi, Andrew. Could you just remind us of your medium-term organic revenue growth and margin goals? You just gave us that second-half guide, but I just wanted to know what we should think of that kind of building off of past the second half.

Yeah. I mean, we've been committed to that 2% to 3% annual organic growth trend. We're going to see, as we get into more of this pricing dynamic, how much more that might be additive to that. We definitely will be updating that as we give our results as we move through these quarters and through our pricing initiatives. Today, we'll stick to the 2% to 3%. But again, as we continue to realize that pricing initiative, we may update that. But for right now, I'd stick with 2% to 3% organic. And then on top of that, 2% to 3% M&A.

And I mentioned margins, too.

Margins, we continue to be in the medium term committed towards moving back towards that 13% level. I do believe that we will see ourselves improving over the next several years. Again, the pricing initiative is having some of it. And frankly, the turnaround that we're noticing already in our development group should help to be accretive and get back towards the higher levels we have. We feel that the initiatives and development, we will need a bit of a turnaround in the snow, but also the traction we're receiving in pricing gives us a lot of confidence moving back towards that kind of in that 12% to 13% range and towards 13%. Thank you very much. Much appreciated.

Thank you, Andrew. There are no further questions at this time, so I'll turn the conference back over to management, Andrew Masterman, for any closing remarks.

Great. Thank you, Nate. Once again, I want to thank everyone for participating in the call today and for your interest in Brightview. We look forward to speaking with you at upcoming conferences, and, of course, we'll report our third quarter results in August. Until then, stay safe and be well.

That concludes today's call.

Thank you for your participation.

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