Lambeth Council has been modernising its business applications environment over the past few years, against the background of cost pressure, Covid, and now the rising cost of living crisis.
With a long history as a progressive borough, even a militant one, Lambeth has a culturally diverse population that has been economically under the cosh for many years. It has almost 330,000 inhabitants, is just over 10 square miles in size, and was known as a landing place for lambs in the Middle Ages, hence the name.
Hamant Bharadia, assistant director of finance at Lambeth Council, says it has learned to do more with less, and, in relation to IT, has pursued a cloud strategy that involves Oracle and Microsoft technology.
Lambeth Council became the first UK public sector body to adopt Oracle’s suite of business applications in the cloud, in 2018.
Bharadia says, in a video on an Oracle web page: “We are a £1bn business, with 3,000 staff providing 700-800 services to our businesses, residents and wider community. Over the last 10 years, our funding has reduced by 50%, about £250m. But the demand for our services has not changed and has become more complex.
“The reasons for the move to the cloud were to have a simpler and easier solution, to have nimble, anywhere, anytime access. That is critical for us.”
Lambeth has a long-standing relationship with Oracle, and was one of six London councils in a multi-year Oracle shared services partnership that started in 2012, and ran until March 2018.
Bharadia tells Computer Weekly that when it was looking, in 2017, at moving its applications to the cloud, Oracle came out ahead of SAP in terms of breadth and depth of functionality, especially in relation to financials, while Workday was still in its infancy at that time. There was also continuity in respect of the previous joint customer relationship with the other London councils, namely Barking and Dagenham, Brent, Lewisham, Havering and Croydon.
“The reasons for the move to the cloud were to have a simpler and easier solution, to have nimble, anywhere, anytime access. That is critical for us”
Hamant Bharadia, Lambeth Council
Bharadia has worked for the council for 32 years, and recalls having the ICL system, Lafis (Local Authority Financial Information System), as well as the shared Oracle partnership. “That [the latter] had its challenges – getting everybody to agree to the right kind of format, specifications, processes. We managed it, but it came to end of life.
“At that point, we’d already committed, as an organisation, that our future lay in the cloud primarily. We couldn’t justify occupying central London property to store databases. And then the other half about the cloud was about flexibility of working.”
The intention was to reduce the council’s property estate and get staff working flexibly, with a view that “data can be accessible from anywhere”.
It started its cloud migration, in 2015-2016, with a move to Microsoft Office 365. All post comes into a processing centre outside London, where it is scanned and delivered to council workers’ mailboxes digitally. “We’re trying to reduce paper as much as possible, on the basis that making as much information as possible online, available for analytics and decision making, is the way forward,” says Bharadia.
“We started looking at our options in 2017. We knew we wanted cloud. In 2017, there wasn’t much ERP [enterprise resource planning] in the cloud space. Oracle, with some of their products, but not with everything. Oracle Financials, yes, and they’d made good progress on bits of HR.”
Oracle came out ahead of SAP in terms of breadth and depth of functionality, he says, while Workday was still perceived to be less mature. However, even with Oracle, payroll was not yet there in the cloud, so it was the last module to be implemented, in May 2018, while everything else went live in March of that year.
Financial forecasting has improved for the council by virtue of the Oracle cloud applications for that. Previously, Bharadia says it was a scenario of “budget forecasting done on Excel spreadsheets, with lots of files being shuffled around the organisation, lots of meetings between accountants and budget holders”. The aim was for “budget holders to have sight of their budgets more routinely, and to be able to do their own forecasts so that they have control”.
The self-service model the council has moved to has developed from around 20-30% of budget holders routinely updating their forecasts to more like 70%. The finance team, of around 120 accountants, is now liberated, he says, to engage sooner with budget holders, playing a more advisory role with respect to activities like procurement.
In the HR function, with more self-service capabilities, the council has seen a 55% improvement in appraisal and performance reporting, allowing the HR team to allocate fewer resources to share a greater workload.
In the area of supply chain, the council has used the Oracle cloud Enterprise Performance Management (EPM) product to streamline its suppliers, reducing the number of these by 19%.
One area that is still evolving is recruitment. It had struggled with Oracle’s legacy Taleo product and is now moving to Oracle Recruiting, which is part of the supplier’s Oracle Cloud HCM service. “We were experiencing a lot of incomplete applications, with people giving up halfway through. So, we were missing candidates,” says Bharadia. “From what we have seen, Oracle Recruiting cloud is a lot more user friendly.”
Putting together the Oracle implementation with its Microsoft estate, the council is aiming at a new vista of using data more effectively to serve its residents. Part of that has involved building a small data science team, which has been working on activities such as identifying people especially vulnerable to Covid-19, socially and economically, as well as medically. Now, in a similar vein, it is identifying people especially vulnerable to the rising cost of living crisis.
Hamant Bharadia, Lambeth Council
“The next piece we’re working on is data,” says Bharadia. “We’ve got all this data in Oracle systems, we’ve got a housing system that has data, and we have a social care system that has data. So, one of the things we’re now exploring is better use of data.
“We now have a data analytics team internally, that’s looking at those connections. They are using [Microsoft] PowerBI and other cloud-based products to bring together different datasets to target our services better.”
This team has existed for around two years. They could have done this kind of work before, but it would, he says, have taken a lot longer.
Another legacy of the Covid period is the council will not return to previous levels of office occupancy. “What we’re saying to staff and managers is come into our office buildings if you’re going to be collaborating, not as a matter of routine just for the sake of doing your day job.”
It is working to a ratio of six office desks for 10 people, and Bharadia says it might end up with more collaborative spaces rather than individual desks.
It is also freeing up office space for use by local businesses. “One of our buildings is entirely based on that model, for new and emerging businesses in the community,” he adds. “We also delivered lockdown support without taking on lots of extra staff. So, we were doing the vaccination centres, the food hubs, the additional support to our residents during the period, through a combination of remote working and some mobile working, where people were just out there in vans delivering things, getting stuff done.
“So, it is possible to have that hybrid model of working. That’s not to say it’s perfect. In either model, you are going to get some people who are not 100% contributing. But you get that currently anyway,” says Bharadia.
BrightView Holdings, Inc. (NYSE:BV) Q3 2022 Earnings Conference Call August 4, 2022 10:00 AM ET
Faten Freiha - Vice President of Investor Relations
Andrew Masterman - Chief Executive Officer
John Feenan - Chief Financial Officer
Brett Urban - Incoming Chief Financial Officer
Conference Call Participants
Tim Mulrooney - William Blair
George Tong - Goldman Sachs
Justin Hauke - Baird
Pete Lukas - CJS Securities
Good morning and welcome to today's BrightView Holdings Incorporated Third Quarter Fiscal 2022 Results Call. My name is Bailey and I will be your moderator for today's call. All lines will be muted during the presentation portion of the call with an opportunity for questions-and-answers at the end. [Operator Instructions]
I would now like to pass the conference over to our host Faten Freiha, Vice President of Investor Relations. Please go ahead.
Thank you, operator, and good morning everyone. Thank you for joining BrightView's third quarter fiscal 2022 earnings conference call. Andrew Masterman, Chief Executive Officer; John Feenan, Chief Financial Officer; and Brett Urban, Incoming Chief Financial Officer are on the call.
Please remember that some of the comments made today including responses to questions and information reflected on the presentation slides are forward-looking and real results may differ materially from those projected. Please refer to the company's SEC filings for more details on the risks and uncertainties that could impact the company's future operating results and financial condition. Comments made today will also include a discussion of certain non-GAAP financial measures. Reconciliations to 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.
I'll now turn the call over to Brightview's CEO, Andrew Masterman.
Thank you Faten, and good morning, everyone. We are delighted to report on another strong quarter, demonstrating momentum in our fundamental business drivers and the resiliency of our model.
Before we start, let me take the opportunity to thank the BrightView team for their hard work and dedication in a rapidly changing and challenging environment. Their efforts help fuel our performance and enable us to remain poised for long-term success.
On today's call, I will review the third quarter performance at a high level, discuss execution against our key growth drivers, elaborate on external headwinds facing our durable business, and outline the confidence underpinning our optimistic long-term view.
Let me start with Q3 performance. We delivered strong land organic growth for the fifth consecutive quarter, implemented our strategic pricing initiatives and managed through multiple external headwinds with tenacity and focus on positioning BrightView for long-term success. We continue to execute on our successful Strong-on-Strong M&A strategy, made progress on ESG initiatives and enhance our value proposition to customers through technology investments, all while managing through rising fuel costs as well as continued inflation of material and labor expenses. Our focus on organic growth and profitability improvements will enable us to leverage our scale to further power our growth and deliver exceptional shareholder value.
Let's review a few financial highlights for the quarter on slide 4. Revenue grew by 11% for the quarter, reflecting strong total organic growth of 5.6% and continued benefits from M&A transactions. Strong net new growth, ancillary penetration, snow removal services and pricing initiatives powered our total maintenance organic growth of 3.1% on top of a prior year organic growth rate of 11%. Due to a late spring and extended snow season, our maintenance business benefited from significant growth in snow removal services relative to the prior year.
In addition our land business delivered 2.3% organic growth, which resulted in total maintenance organic growth of 3.1%, in line with our expectations. This dynamic demonstrates the agility of our business and how our service mix, snow and land, allows us to manage through seasonality.
A robust rebound in our backlog drove development organic growth of 14%, demonstrating a continuation of our strong performance. Development organic growth continues to exceed our expectations. And looking at the bidding pipeline, we remain optimistic about the momentum in the business.
It is clear from our top line results that we transform the business to focus on driving sustainable organic growth. Importantly, we anticipate this momentum to continue over the near and long-term. As a result we expect fourth quarter maintenance land organic growth to be approximately 3% in line with long-term plans and development organic growth to be about 8%.
Furthermore, we are confident that our robust sales engine will continue to drive solid organic growth in fiscal year 2023 and beyond. Adjusted EBITDA was $94 million in the quarter, up about 1% year-over-year. Our profitability was impacted by the unexpected level of increase in fuel costs. Fuel expense increased by about $10 million year-over-year, roughly $1 million of that was driven by volume and the remaining $9 million was price.
We began implementing fuel surcharges in April, which enabled us to offset approximately $2 million of that rise in fuel costs. As a result, fuel costs had a net impact of approximately $7 million on adjusted EBITDA. Excluding this incremental fuel headwind, our adjusted EBITDA would have been $101 million or up about 8% prior to relative to the prior year, above the high end of our guidance range. The strength of our performance demonstrates the outsized execution of our team across our 280-plus branches.
Adjusted EPS came in at $0.43 per share for the quarter, reflecting the benefit of latest share repurchases, strong top line performance, and effective management of our direct costs, labor and materials.
Let's move to slide 5 to discuss our growth drivers. We are intently focused on executing on our strategy, which is validated by the momentum in our business and centered around three main pillars. First, delivering robust organic growth through our dedicated locally driven sales force of 200-plus team members focused on customers and new opportunities. Second, investing in technology, digital services and marketing, to continue to drive a significantly differentiated customer value proposition and expand our market share. Third, executing on our strategic and accretive M&A transactions, enabling efficient expansion in the high-growth markets.
Let me dive into each pillar with some details. Starting on slide six. Our strong organic growth performance over the last five quarters was powered by significant growth in net new sales, as our sales force continued to attract new and larger customers. Over the last several years, we have increased average job size by more than 40% in the maintenance business, as we attracted customers with larger demands and expanded share of wallet with existing customers.
Our land maintenance business generated more than $150 million of organic revenue growth over the last five consecutive quarters. Importantly, our growth is ahead of the industry, which is projected to grow at 0.9% for 2022 according to IBIS reporting. This compares to our projected land organic growth of 4% to 5% and our total projected growth of approximately 8% for fiscal 2022. Despite the headwinds we are facing, we are significantly outgrowing the industry.
Furthermore, we have, and continue to gain market share. Despite the scope reductions, we are seeing across the landscaping industry. These scope reductions are driven by two factors. First, there is natural desilting that occurs as plant life takes group of soil requiring less maintenance over time. Second, the current inflationary environment and some customers -- we've led some customers to actively reduce scope. As a result, we are seeing modest growth in the market that is certainly below today's inflationary levels.
However, landscape maintenance continues to be a sizable marketplace with massive opportunities, given our share of approximately 3%. Similar to maintenance, our development business is relationship based with the majority of our customer relationships exceeding 10 years. Repeat customers make up more than 85% of our development business. And retaining these repeat marquee clients remains our goal through our intense customer focus.
Our model is project-based and we learned over decades of experience that highly repeatable customers tend to be more profitable in nature. Our end markets are diverse with a balanced distribution of contract sizes and verticals, including commercial, hospitality, parks and public facilities. Furthermore, we are increasing workload in the public sector, a market that will benefit from increased infrastructure spending. All of these efforts have helped power the recovery of our development business and the strength of its organic growth.
Let's turn to technology on slide 7. Strategic investments in technology provide a differentiated customer value proposition across all verticals. Technology investments directly support our maintenance book with new and bigger accounts and enhance retention. Technology also drives efficiency and engagement, including many of the tools we've discussed, BrightView or HOA Connect, quality site assessments, Salesforce CRM and service confirmation. Each has been implemented as digital tools to engage customers, while supporting property enhancement and increased ancillary penetration.
By the end of this calendar year, we will be upgrading our customer portal and launching BrightView Connect 2.0. This enhanced portal will be available to all customers and will put the entire relationship online, similar to online banking. Once this portal is launched, our customers' quality site assessments, monthly reviews, enhancement proposals, contact points and maintenance schedules will all be digitally available. Through this service, customers can engage with us in an efficient manner and we can readily address their needs.
Importantly, we will be the only landscaping company that offers this customized service, which is aligned with our customers' demands. All of these digital advancements have driven net new growth and is one of the reasons we continue to see it for the fifth consecutive quarter, solid land organic growth, exceeding our industry. In addition, our integrated suite of applications enable efficiency, seamless acquisition, integration and robust data analytics, and operational efficiencies delivered cost savings along with better service quality and safety.
Let's turn now to our acquisitions and move to slide eight. We continue to execute on our Strong-on-Strong M&A strategy, a strategy we have developed, refined and effectively deployed over the last five years. Our 30-plus acquisitions over that period position us as market leaders in key high-growth MSAs enable us to further extend our reach and grow market share. Importantly, our pipeline remains robust with attractive valuations of more than $700 million of opportunity.
Recently, we acquired SGS Hawaii, a premier commercial landscaping provider headquartered in Wailuku, Hawaii with operations on Maui, the Big Island and Kauai. SGS focuses primarily on the hotel and resort sector with services ranging from ground management and lawn maintenance to irrigation, tree trimming, arbor care, soil testing and fertilization.
Importantly, SGS sustainability characteristics aligned with our ESG priorities, SGS utilizes electric powered equipment across all of its operations and its business is entirely supported by a modern specialized electric fleet. SGS's expertise in the hotel and resort industry strengthens our portfolio, while its commitment to reducing carbon emissions through the use of electric powered equipment is the perfect complement to our environmental sustainability strategy. With SGS, we now have presence on all major islands in Hawaii which solidifies our presence in this attractive market.
Let's now move to Slide 9. Our successful execution comes in a challenging and dynamic environment with sustained uncertainty associated with notably -- most notably with inflationary trends. Let me address three external factors that are influencing our business: Material cost inflation, labor challenges and rising fuel costs. And how our team is responding to position the company for long-term profitable growth.
Let's start with material cost inflation which has mainly impacted the profitability in our development business. Development has been impacted by material price increases that has put significant pressure on margins over the last five quarters. Historically, contracts had three to six months and sometimes 9-month lead times. We have shifted now to allow 10 to 15 days of pricing commitments in our contracts which shortens the time line and mitigates the impact of rising material costs.
By the end of this current fiscal year, the impact of the contracts with longer lead times and fixed pricing should be behind us. As a result, we expect our margins in the development business to Strengthen over the coming quarters. Labor cost inflation continues to be a headwind similar to many other companies. Historically, we have seen on average wages increase in the 4% to 5% range and now we are seeing increases in the 6% to 7% range.
Our pricing volume and operating efficiencies have helped to offset this wage pressure. The teams in the field have done an outstanding job of attracting labor to execute on our customers' demands usually during this busy summer season. In addition, the influx of H2B workers continues to support our labor needs. The combination of this influx and the ability of our teams to recruit and step up has put us in a great position to ensure that we can execute on our customers' demands this year.
Lastly rising fuel costs have significantly impacted our business this quarter. As I mentioned earlier fuel costs had a net impact of approximately $7 million on our adjusted EBITDA. While we have been able to offset inflationary pressure on wages through pricing initiatives, fuel costs have presented more of a challenge given the rapid escalation in costs.
Although we instituted food fuel surcharges, they were based on lower gasoline prices back in fiscal Q2. Also keep in mind that these are customers, we reached out to a few months back for significant price increases. It's important to note that the dialogue with customers has been constructive and the majority have accepted the fuel surcharges.
We have elected to take a balanced approach, absorb some of the incremental fuel costs in the near term and focus on strategic pricing initiatives improving ancillary penetration and attracting larger clients. Ultimately, we believe the impact of rising fuel cost is transitory, either costs will normalize or we will further adjust our pricing in the upcoming renewal season to reflect the continued rising costs.
Let's turn to Slide 10. Despite these external headwinds business fundamentals remain strong and give us confidence that we continue to be poised for long-term profitable growth. First commercial landscaping is a resilient business that has withstood various economic cycles and environments. We have over 80 years of experience in this business and have navigated countless cycles. Our team is prepared and focused on achieving our goals.
Second our customers span across a number of diverse verticals. We serve marquee customers across various end markets including corporate and commercial properties HOAs, public parks, hotels and resorts, hospitals and other healthcare facilities, educational institutions, restaurants and retail and golf courses among others. Our business and customer mix give us the agility to continue to thrive in a rapidly changing environment.
Third, we have a differentiated customer value proposition powered by technology, a focus on sustainability and an unparalleled network of expertise. Fourth, secular trends including moving towards greener equipment and irrigation and maintenance are in our favor and position us very well competitively.
We have invested heavily behind our environmental efforts and have made great progress in moving towards using greener handheld equipment, as well as technology-powered water systems that reduce usage. Lastly, we have multiple opportunities organic and M&A that will power our growth and fuel long-term profitability. Our organic growth will be driven by technology enhancements, as well as our powerful sales engine and expertise across various ancillary services. Our M&A pipeline remains robust and we are well positioned to attract M&A candidates.
Before turning the call over to John, I'd like to speak to our environmental sustainability efforts on Slide 11. As a company dedicated to designing developing and maintaining the best landscape on earth, we have continually focused on seeking and investing behind sustainable solutions that minimize, our impact on the environment.
Our customers have understood the value of sustainability for many years. In addition to reducing carbon emissions, water conservation remains at the forefront for many of our clients particularly as we continue to face drought conditions across several regions in the United States. As the leader in irrigation services, we are thrilled to partner with customers to help them reduce water usage through smart irrigation technology and turf conversion into native landscapes which are less water-intensive.
Let me illustrate with a couple of examples. A few years ago, we partnered with Oracle to maintain two of their California locations. We installed smart irrigation controllers and planted native plants to help reduce water consumption, enabling them to achieve savings of more than $0.5 million and 91 million gallons of water in one year. Both sites were recognized for efficient water use by the Silicon Valley Water Conservation Awards Coalition.
We continue to work with Oracle, along with several other large companies across the country with corporate campuses, to maintain native landscapes, track and monitor water usage and enhance irrigation helping them save millions of gallons of water and significant reduced facility costs.
Importantly, we support customers across a diverse set of end markets including golf course, municipalities, and HOA communities. For instance, earlier this year in Nevada, legislation was put into place that requires turf removal, in cases where grass exists for purely aesthetic purposes. As a result, we are now working closely with a number of HOAs in Las Vegas, to help them convert decorative or nonfunctional turf, into less water-intensive native landscapes.
Our expertise in water management enables us to drive water conservation efforts and allows us to expand our relationship with existing customers, through additional ancillary irrigation services. We are privileged to work with a diverse mix of customers, who continue to embrace environmentally conscious practices, particularly in the area of water conservation.
To wrap up, we are pleased with our results and proud of our financial and strategic progress amid a challenging environment. We are executing on our key growth drivers, investing in our sales team and technology, with power net new customers and improved ancillary penetration leading to solid organic growth.
Our M&A strategy continues to be a reliable and sustainable source of growth. Our disciplined pricing efforts, build on that growth and support our ability to offset cost headwinds. Importantly, we are dedicated to positioning the business to thrive in the face of external macro headwinds, changing secular trends and regulatory requirements. I'm confident that our efforts will continue to position us for long-term profitable growth.
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. I'm pleased to report on another solid quarter. We delivered strong organic growth in our Maintenance and Development businesses, and our team navigated through a challenging environment and managed through rapidly evolving external headwinds, including most notably the continued rise in fuel costs. We remain focused on our key investment pillars of cash generation, organic growth, mergers and acquisitions, and margin enhancement over time.
Before I cover our financial results in detail, I'd like to give Brett Urban, our incoming CFO, a couple of minutes to introduce himself. Going forward, Brett will be leading our earnings calls. Brett?
Thank you, John and good morning, everyone. BrightView is a durable business with multiple growth opportunities, and an exciting time for me to be part of this dedicated team. I have been with BrightView for seven years and have served as head of the company's Financial Planning and Analysis Group, as well as CFO of our Maintenance segment. In my new role, as the company's CFO, I will follow in John's footsteps and support the team to execute on growth drivers that maximize our potential and expand our market share
In addition, I'll be focused on consistently growing our business, enhancing our balance sheet and executing on capital allocation plans that create long-term shareholder value. I'm fortunate to have John's guidance during this transition period, which will certainly position me and BrightView for success.
Lastlym I believe engagement with our investors and analysts, is essential to our long-term success. Working with Andrew, John and the team, I look forward to meeting and partnering with you all over the coming months.
I will now turn the call back over to John, to cover our results.
Thank you, Brett. Let me now provide a snapshot of our third quarter results. Moving to Slide 14. Total revenue for the third quarter, increased by 11% reflecting 5.6% of total organic growth. Total revenue growth was supported by increases in both on maintenance and development segments. Maintenance revenues, increased by 7.1% driven by 3.1% of total organic growth, which included 2.3% of land organic growth. Our total maintenance organic growth benefited from better-than-expected snow removal services, as a result of the longer than typical snow season, which offset ancillary services in April.
Land organic growth was driven by strong contract growth and a continued rebound in our ancillary services. In addition, our pricing strategy contributed approximately 50 basis points to our land organic top line growth, net of scope reductions as expected. Last week, we realized $20.8 million of incremental revenue from acquired businesses. Development revenues increased by 24% compared to the prior year. The increase was driven by a combination of strong organic growth of 14%, and M&A contributions of approximately $15 million.
We remain encouraged by our pipeline and bid calendar, and we anticipate continued strong organic growth in the fourth quarter, of approximately 8%. As Andrew mentioned, we serve a diverse mix of end markets in our development business and we are seeing growth across all of these verticals most notably in public works, and commercial construction projects.
Turning to the details on Slide 15. Total adjusted EBITDA for the third quarter was $94.3 million, up 0.7% compared to the prior year. Our adjusted EBITDA performance was impacted predominantly by higher fuel prices. For the third quarter, of this fiscal year gasoline spend represented 3.4% of total revenue compared to 2.2% in the prior year.
While the guidance for the third quarter that we provided back on the second quarter call reflected the higher level of fuel versus prior year. The real surge was much higher than anticipated, especially in May and June, two of our busiest months of the year, where fuel consumption is at its highest.
As a result, the unanticipated level of increase resulted in adjusted EBITDA that is about a net $7 million below our expectations. Excluding this incremental fuel headwind, our adjusted EBITDA would have been $101 million for the fiscal third quarter, above the high end of our guidance range.
Looking at our results by segment. Maintenance adjusted EBITDA was $89 million or down 1.5% compared to the prior year and reflects an adjusted EBITDA margin of 15.9% compared to 17.3% in the prior year. Solid contract growth and a rebound in our ancillary services penetration was more than offset by the surge in fuel prices.
The rise in fuel prices year-over-year largely impacted our maintenance segment, where the net impact was approximately $6 million. Excluding the net impact of fuel, maintenance adjusted EBITDA margin for the third quarter would have been approximately 17%, roughly flat with the prior year.
In the Development segment adjusted EBITDA increased by 11.8% for the third quarter. This growth was driven by stronger revenues and the implementation of mitigating actions to offset inflationary headwinds, primarily in material costs. Development adjusted EBITDA margin was 11.2% or 120 basis points lower than the prior year, roughly in line with the guidance we provided last quarter.
Relative to the prior year, profitability in the Development segment was impacted by higher subcontracted labor, due to project mix, as well as higher fuel costs, which were partially offset by reduced material costs.
As a reminder, the margin decline in the Development segment represents an improvement over prior quarters, where development adjusted EBITDA margins were decelerating at a greater pace.
On slide 16, this chart illustrates the historical improvement we have experienced in our development adjusted EBITDA margins over the last three quarters. We expect this improvement to be sustained and we still anticipate achieving positive margin growth in the fourth quarter of fiscal 2022 for the Development segment, despite the expected fuel headwind.
Turning now to slide 17. For fiscal Q3, corporate expenses represented 2.1% of revenue, a 20 basis point improvement relative to the prior year and reflects our focus on expense management. Interest expense for the third quarter was $15 million compared to $9 million in the prior year, reflecting an increase in interest rates coupled with increased borrowings.
Looking ahead to the fourth quarter, we expect interest expense to be approximately $20 million, reflecting higher SOFR rates and increased long-term debt due to our latest refinancing.
Our adjusted earnings per share for the quarter was $0.43, compared to $0.44 for the prior year. Adjusted earnings per share benefited from a decrease in our share count driven by latest share repurchases, strong top line performance as well as solid cost management of direct costs, labor and materials. These benefits were offset by the rise in fuel costs and higher interest expense.
In summary, we are pleased with the top line growth we delivered during the quarter. Net new growth, improved ancillary trends and our pricing initiatives drove solid organic growth and enabled us to offset labor and material cost inflation. Furthermore, our M&A strategy continued to be a reliable source of growth.
Fuel will likely remain a headwind for the fourth quarter and we will continue to work to mitigate its impact on our profitability. We believe our pricing initiatives and operational efficiencies will continue to support our goal of expanding margins to pre-pandemic levels over time.
Let's move now to our balance sheet and capital allocation on slide 18. Net capital expenditures totaled $21 million for the third quarter or 2.8% of revenue, compared to $13 million or 1.9% of revenue in the prior year. This increase was driven by the timing of received orders that were impacted by pandemic-related supply chain challenges. Looking ahead, we continue to anticipate capital expenditures to be approximately 3.5% of revenue for fiscal 2022, which is in line with our latest guidance.
Net debt on June 30 2022 was approximately $1.37 billion reflecting an increase of $109 million sequentially. Our leverage ratio was 4.8 times at the end of the third quarter, up from 4.4 times in the second quarter. The increase in net debt and leverage ratio was driven primarily by the repurchase of the second tranche of shares held by MSD. We expect positive free cash flow in the fourth quarter and anticipate a modest decline in our leverage ratio by fiscal year-end.
Moving to slide 19. Year-to-date free cash flow was an outflow of $17 million compared to positive $96 million in the prior year. The variance in our free cash flow was driven by the following: first, $45 million of increase in net capital expenditures, due to the timing of received orders that were impacted by pandemic-related supply chain challenges; $34 million of net outflow associated with the repayment of the payroll tax deferral under the CARES Act; and $13 million of cash tax outflow due to the timing associated with the CARES Act tax planning.
Looking ahead, we expect fourth quarter free cash flow to significantly Strengthen relative to the fourth quarter of the prior year resulting in second half 2022 results that are in line or modestly ahead of 2021 second half performance.
It's important to reiterate, that we expect capital expenditures for 2022, to represent approximately 3.5% of revenue in line with our prior projections. And we anticipate a similar run rate for fiscal 2023.
Fiscal year 2022 free cash flow is not typical of our business which has consistently delivered solid free cash flow, as evidenced by the generation of $500 million of free cash flow over the last five years.
Looking beyond 2022 and the impact of timing-related drivers such as the tax impact associated with the CARES Act, we anticipate robust free cash flow generation over the long-term. An update on liquidity is on slide 20.
At the end of the third quarter of fiscal 2022, we had approximately $324 million of availability under our revolver and receivable financing agreement and $26 million of cash on hand.
Total liquidity as of June 30th 2022 was approximately $350 million, compared to $403 million in the prior year. Our liquidity continues to provide us with ample flexibility and optionality. Let's turn now to slide 21, to review our outlook for the fourth quarter.
We remain optimistic about the momentum we are seeing in our business and expect to deliver another strong quarter of organic growth in both land maintenance and development segments. Our maintenance land contract-based business is growing and demand for ancillary services is improving.
We believe this will result in durable organic maintenance land growth of approximately 3% for the fourth quarter, in line with our long-term expectations. Notably, this growth is up a high growth rate in the prior year of 9.2%, which demonstrates the strength of our momentum in our business.
In our Development segment, we are encouraged by our pipeline and booking and backlog trends. And we expect organic growth to be about 8% for the fourth quarter. In both segments, the market pressure we have seen from inflation which affects the cost for materials needed for projects and labor will continue.
We are confident that our efforts including pricing will help to offset these headwinds. Fuel will remain a headwind for the fourth quarter, and we will continue to manage the impact on our profitability with fuel surcharges through a balanced approach.
Given the uncertainty around fuel prices our guidance assumes a fuel headwind that is similar to the headwind we experienced in the third quarter. As a result for our fourth quarter fiscal 2022, we now anticipate total revenues between $711 million and $731 million in line with our prior implied guidance.
And our total adjusted EBITDA, we now expect between $88 million and $94 million compared to our prior implied guidance of $94 million to $100 million. This decrease is driven by the $6 million to $7 million of expected net impact of fuel costs. Note that at the midpoint, this implies 2% adjusted EBITDA growth year-over-year for the fourth quarter.
With that, I'll turn the call back over to Andrew.
Thank you, John. We have a strong, resilient and agile business. We are leaders in our industry with an unparalleled customer value proposition, supported by our investments behind digital services and sustainability.
We are executing against our growth initiatives and driving strong momentum in our business. Our investment in sales, technology and marketing continue to fuel our momentum. Pricing efforts will help us enhance our profitability and our excellent M&A engine will support further top line acceleration and expand our footprint.
Our performance in the third quarter was excellent and we exceeded our internal expectations excluding the fuel headwind. We drove strong organic growth, offset our operational costs, labor and materials through price increases and our teams executed at the highest level.
We expect this momentum to continue for the fourth quarter. And, as we look out to fiscal year 2023, we continue to see a clear path to approaching $3 billion in total revenues. Importantly, 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.
Our model creates a cycle of high free cash flow and reinvestment capacity. The recurring revenue model drives profitable top line growth. And that in turn delivers strong free cash flow which is predictable and consistent overtime, as evidenced by the generation of approximately $500 million of free cash flow over the last five years.
All of these efforts along with the benefit of secular trends give us strong confidence in the long-term prospects of our business. Our future remains 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, and working with us on managing the current inflationary environment. We are excited to see our customers' landscape blossom, as we move through our green season.
Also I'm thankful for our teams, for 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.
Thank you. [Operator Instructions] The first question today comes from the line of Tim Mulrooney from William Blair. Please go ahead, your line is now open.
Andrew, John, Brett, good morning.
Good morning Tim.
So, I wanted to ask about your maintenance land business. You were forecasting 3% to 4% organic growth in the back half of the year. And it looks like the third quarter came in slightly below that at 2%. So, I was wondering if that was because you didn't get the net new contract growth that you were looking for this selling season or if maybe there was a slight pullback in enhancement spend could you just provide a little bit more color on the spending patterns that you're seeing within your customer base with a particular focus on how that enhancement piece of the business is doing? Thank you.
Absolutely Tim. Yes, it was a dynamic similar to what we saw a couple of years ago and that we had a late spring with snow coming in at the beginning of April. And so as we missed that window for ancillary installation because we had snow coming down that really was the offset.
So, if we hadn't had the snow, we would have replaced it with ancillary. So, we saw a similar demand as we expected. It just we couldn't get to it because there was snow on the ground. And so it really was that straightforward.
Yes. That makes sense. And we're hearing that from like the pest guys other similar industries were affected by a cold spring. So, that all makes sense.
Exactly. And we continue to be very confident that as we go forward that continued growth right around 3% is what we should expect going forward.
Okay. All right. That's helpful too. If I could sneak one more in. Just on pricing. Last time we spoke I think you expected about 50 to 100 basis points of organic growth in maintenance land come from pricing this year. And I know usually you get pricing through changes in scope.
But this year you're actually expecting price to contribute to organic growth now that we're through that key selling season and with the fuel surcharge, I wanted to check in on that number and see how we should still be thinking about pricing this year if that 50 to 100 basis points contributing to organic growth is the right number or if it's a little higher or lower than that? Thank you.
Yes, right in that range, Tim. We're seeing -- we saw this quarter about 50 basis points impacting us from price. And we believe that as you said the pricing and season is by and large over and we expect that to continue into the fourth quarter.
Very helpful. Thanks guys.
Thank you. The next question today comes from the line of George Tong from Goldman Sachs. Please go ahead, your line is now open.
Hi, thanks. Good morning. I wanted to dive a little bit into fuel prices which remain a headwind. To the extent that fuel prices remain elevated, could you talk a little bit more about the strategies you have to manage through the impact?
You touched on efficiencies and pricing anything directly related to hedging or pass-throughs that you can implement that can help mitigate any surprises or unforeseen changes in oil prices?
Yes George and obviously fuel was the biggest impact to our business here in the third quarter. And as we look at the fourth quarter we see fuel continuing to be at a relatively higher level compared to last year. What we continue to do is work with our customers on fuel surcharges.
We feel like we've pretty much completed the discussions with those customers to be able to continue to receive the surcharges as long as fuel remains above that kind of $3.50 kind of level and so we're able to protect it there.
Fuel hedges we did not hedge in 2022 for 2023 because we saw escalating fuel prices continuing to raise and we're concerned a little more about the volatility that we would see at fuel. And the last thing I think anyone wants to do is to see the hedge of the peak and when fuel prices potentially came down.
So, that's why we didn't hedge before. We'll think about it again as we look at every year about hedges as a potential mechanism to be able to offset the fuel. But at this point in time given where fuel is at we have not placed any additional hedges as we look forward into Q1 or Q2 2023.
Okay, got it. That's helpful. You talked a bit about market impact that you're seeing from inflation as it relates to material and labor in your development business. Are you seeing any easing of trends or peaking of trends here, or is the momentum still sort of up and to the right as it relates to input costs?
Yes. And well I will have to say we've said we're beyond the peak. We're kind of on the other side of the curve. And so we saw especially as we progressed through the third quarter as we saw the material portion of material impact or the negative material impact to lessen in the development segment.
So, we're believing as we go into the fourth quarter that we're going to start to see that turn as we've talked about for several quarters now is that we needed to get towards the latter half of the summer into the fall and we are actually seeing that. We're seeing improvements in our material rates.
And that's a combination of getting out of the contracts that were priced with historically longer lead times and getting into the newer contracts, which have much shorter lead times. So on the material side we see a turn on that.
And on the labor side of the business, the teams in both the development and maintenance segments have done an outstanding job of managing labor. If you can look at our notes that we talked about as well as the overall results being able to manage a labor environment and deliver -- basically the only impact being fuel deliver results that were pretty much in line with what we expected with the exception of a commodity base.
Fuel drive has really been able to give us confidence about what we see looking forward. And this is in combination with leveraging the technology that we've deployed with our electronic time capture and our labor management tools to be able to have that tight management across both segments the Maintenance and Development segments in our business.
That’s great. Thanks very much.
Thank you. The next question today comes from the line of Justin Hauke from Baird. Please go ahead. Your line is open.
Hello, Justin. Are you there?
Yes. Can you hear me now?
We can now Justin.
Great. Thank you. So I wanted to ask I guess how do I ask this a little bit about kind of the balance sheet and cash flow here. The reason why I ask you quantified for 4Q the M&A contribution is going to be about the same as what it's been so $35 million-ish a quarter that you had.
As we look into 2023 though with leverage being 4.8 times, I'm just curious the extent to which you're able to continue to do a similar level of M&A next year? And part of the reason why I ask is because some of the cash flow headwinds you had this year I think will continue.
Next year you've got another CARES Act repayment. I think you're making in December. And then also your interest expense the $20 million you're guiding to in 4Q is like $80 million annualized. So I'm just thinking -- I guess the question is how do you think about free cash flow for next year and the ability to actually continue to deploy the balance sheet as you have over the last couple of quarters?
Yes. It’s a great. A lot in there Justin. So let me unpack that question for you. I think when we look at the cash flow this year it was definitely impacted when you look at it year-to-date by really three things. It was impacted by the increase in capital, but we were very clear that we expect that to maintain a 3.5%, and you can do that math.
We also were impacted by I call it the unwinding of the CARES Act where we had benefits and then payments and that was about $34 million $35 million. And then the increase in cash taxes which is more of a normalized rate this year when we were benefited from tax planning in the prior year.
When we look forward we are very confident that this is still going to revert back to our average. If you go look at our average over the last five years where we mentioned about $0.5 billion we're averaging about $100 million a year and we think that's still very attainable.
Let me kind of walk you through some of the key points. When we think about where we're going to be next year we've guided -- or we've said that we would be at approximately -- approaching $3 billion right? And what's going to happen next year? We are going to grow so there's going to be a headwind around working capital. We're growing quite a bit.
We are going to have an increase in interest expense driven by -- mainly around rates and the increase in SOFR. But a couple of positives are going to occur. We're growing the business so we would expect incremental EBITDA. And then when you look at the payments into your piece on the CARES Act, yes, we have that outflow in the first half of fiscal 2023.
But we're also going to benefit from some tax planning that we've put in place that will more than offset that CARES Act payment probably by a magnitude of 1.5 times to 2 times that CARES Act component. So we're very confident we'll still be in that $90 million - $100 million range of cash generation, which reverts right back to our average over the last five years. And obviously that allows us to continue the M&A strategy.
Okay. Great. So $90 million to $100 million is kind of -- that's in tune for next year. I guess the next question I don't have a lot on the P&L just because you did a good job talking about the fuel impact and then labor it sounds like it's mostly offset by what you're doing.
But on some of the items that you're also spending on like all the IT spend this year. I guess, I was just curious how much more is there to go on kind of that spend? Does that taper off after the fourth quarter. And then some of the other items that are excluded like the COVID expenses how much longer is that going to be something that's continuing to impact the results at least on a GAAP basis?
Justin, let me talk about the IT and maybe John can then pick up on the COVID expenses. But our IT pipeline that we have for initiatives around digital implementation of tools actually has a pretty long horizon when I look over several years. And these tools are things which will engage customer engagement things like HOA and BV Connect 2.0 that's going to be coming out. That's only 2.0.
There are actually constructs out there what 3.0 could look like. And as we continue to enhance that combined with tools that help us in our ancillary management, help us in our tree care management things that think about employee engagement.
There are multiple tools that we have out as we continue to transform this industry into a really a more digital and future-focused organization that will not only drive better customer retention and employee engagement and employee retention, but also look at growth initiatives in our digital marketing spend and our approach to digital. So that IT spend, I don't see coming down and I see the opportunity is fairly significant as we continue to deploy that. Fortunately, that mostly happens in a capitalized way. So we don't foresee that to be an expense headwind at all. And John I'll have you.
Yeah. And Justin on the COVID, we expect that to drop precipitously going forward. We have started to see that this year. We're down about $2 million sequentially from Q2 to Q3. We expect that to continue to drop quite a bit, where it will be I would say de minimis in fiscal 2023.
Great. Thank you for better color on both of those. I appreciate it.
Yeah. No problem.
Thank you. The next question today comes from the line of Bob Labick from CJS Securities. Please go ahead. Your line is now open.
Hi. Good morning. It's Pete Lukas for Bob. Just looking at it, due to cost inflation scope changes et cetera kind of hard to gauge the underlying growth of the business in terms of net number of contracts, revenue per contract. Just wondering if you could comment a little bit more on how these have trended and give us a little sense and any kind of clarity or more info you can give us on that? And also, is there a better way to look at growth there?
Yeah, sure. And I can give you certainly, we looked at price and the impact of price being about 50 bps in the quarter. Outside of that, it's really a combination of contracts and ancillary. We saw some rebound in ancillary, but ancillary is pretty much running at historical levels. So we continue to see net new contract improvement, which basically that's underlying growth. And we saw that in the first quarter, we saw the second quarter and we're seeing in the third quarter and we're going to see in the fourth quarter. And we see that because our contract wins that we've got in the third quarter we see that kind of spill out and basically impact the next several quarters when it comes to contract growth.
So we do see a significant amount of growth continuing to come into the business and net new contracts and then you look at the size of our contracts also those are growing. So we see our positive about the trends of the investments in our sales force really continue to pay off and will continue to deliver a sustainable picture. We've done five quarters of organic growth. Next quarter, will be our sixth quarter and we believe those quarters will continue. This is a steady machine that we expect to continue to deliver for the foreseeable future.
Great. And just following up on that. In terms of the biggest focus for new wins, if you could kind of talk about that and what end markets do you think you have the biggest advantages there?
Yeah. It's a great question because this marketplace has so many diverse elements of -- there are so many different types of customers. And we are seeing -- it's interesting. We're not seeing necessarily any specific customer except I would say the larger customers, one that have a more sophisticated approach. And so that can be in the commercial area. It can be in homeowners associations. It can be in parks and recreation. But the larger size of a customer comes, the more resonation that comes with ancillary services that we can provide across the whole suite of services we deliver combined with the attention that our account managers who are doing a great job of really engaging with our customers and really demand that level of horticultural expertise combined with direct customer communication. So there is something about size of customer and that's why we've increased the size of our customers by over 40% in the last several years looking at what contracts really demand that high customer touch and really delivers the kind of value that we see. So I would say rather than necessarily any particular vertical, it's more just on looking at the increasing size of the customer.
Very helpful. Thanks.
Thank you. There are no additional questions waiting at this time. So I'd like to pass the conference over to Andrew Masterman for closing remarks.
Thank you, operator. Once again, I'd like to thank everyone for participating in the call today and for your interest in BrightView. We look forward to speaking with you at upcoming events and we will report our fourth quarter results in November. Until then, stay safe and be well.
That concludes today's conference call. Thank you all for your participation. You may now disconnect your lines.