Brightview Holdings Inc
NYSE:BV
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Good day, and welcome to the BrightView Fourth Quarter and Full Year 2024 Earnings Call. [Operator Instructions] Please note, today's call will be recorded. [Operator Instructions]
It is now my pleasure to turn the call over to Chris Stoczko, Vice President of Finance and Investor Relations. Please go ahead.
Good morning, and thank you for joining BrightView's Fourth Quarter and Full Year Fiscal 2024 Earnings Call. Dale Asplund, BrightView's President and Chief Executive Officer; and Brett Urban, Chief Financial Officer, are on the call.
I will now refer you to Slide 2 of the presentation, which can also be found on our Investor Relations website and contains our safe harbor disclaimer. Our presentation includes forward-looking statements subject to risks and uncertainty. In addition, during the call, we will refer to certain non-GAAP financial measures. Please see our press release and 8-K issued yesterday for a reconciliation of these measures.
With that, I will now turn the call over to Dale.
Thank you, Chris. And good morning, everyone. As I reflect on my first year here, I am both honored and humbled to lead this journey and incredibly proud of the progress the team has made in such a short period of time. As we committed to you 12 months ago, we delivered breakout results for fiscal 2024, all while transforming this business, unwinding [ BES ], selling our U.S. lawns business, streamlining our operating structure and snow coming in below original expectations.
We are also positioned to grow EBITDA again in fiscal 2025, reflecting a second consecutive annual record EBITDA. This is underpinned by revenue growth in both our development and land maintenance business. As each quarter passes, we as a team [ aims ] greater conviction that we are in the early stages of capitalizing on the many expansive opportunities that will benefit our results in both the near and long term. We are doing all this by operating as a unified One BrightView team. As I have said since the first day I joined BrightView, this begins with taking better care of our employees, who will, in turn, provide better service to our customers to make us the service provider of choice. This is the cornerstone of our One BrightView approach that will drive long-term profitable growth and deliver meaningful shareholder value.
I will start on Slide 4 by emphasizing our achievements and ongoing progress, along with strategic updates that will enhance our position to accomplish our future objectives. First, we delivered record Q4 and full year EBITDA results while expanding EBITDA margins in both operating segments. Throughout 2024, we not only demonstrated consistent financial improvement but position the company for further success in 2025. With our fiscal year 2025 guidance, we are on track to deliver another record EBITDA year reaffirming our commitment to delivering profitable growth. And we have significantly improved the balance sheet, enabling us to reinvest in the business with our employees at the epicenter of this investment. Brett will get into more details on the financials in a few minutes.
I want to focus my comments on the tremendous progress being made towards further developing our One BrightView culture. We continue to prioritize our employees and customers to become both the employer of choice and service provider of choice. This will be the key to our sustained success as we progress on this journey, which remains in the early stages. Further leveraging our size and scale will supplement these initiatives to drive our laser-focused goal of long-term profitable growth with margin expansion to deliver continued value to our shareholders.
Moving on to Slide 5. Here, we recap many of the initiatives and we have been successfully delivering on, equipping us to drive organic revenue and continue the momentum of profitable growth. As you can see on the top left of this slide, we have been prioritizing our employees through multiple avenues and are highly confident these actions will continue to improve our employee turnover and customer retention rates. By putting our customers first and delivering best-in-class service with improved communication to our customers, we are demonstrated why we should be the preferred partner of choice. All of our ongoing hard work will generate a more unified One BrightView culture, which will continue to drive the exciting transformation already underway. This was all done while streamlining our operating structure and integrating our sales group into our branches.
On the customer retention front, we again saw sequential momentum resulting in a 200 basis point improvement in 2024. Further evidence that we are gaining traction. But again, we remain in the early innings and are excited for what is still to come. On Slide 6, we illustrate a long-term perspective of the transformation we are undergoing. While we are proud of the strategic success to date and the financial results we delivered this year, it's important to keep in context how far we have come.
In fiscal 2022, EBITDA margins were at all-time low. The company was operating in silos, and we were executing nonaccretive acquisitions that led to an over-levered balance sheet with limited liquidity. During 2023, we partnered with One Rock Capital, a strategic partner with the operational expertise whose investments enabled us to delever the balance sheet and significantly improve liquidity. This set the stage for the breakout year in 2024.
Looking ahead, there is much more to accomplish with plenty of runway ahead of us. This includes returning to top line land growth, leveraging our size and scale and executing future acquisitions. As we reincorporate acquisitions into our growth strategy, we will be utilizing a drastically revised playbook to ensure the transactions are accretive.
Before turning it over to Brett, who will discuss our strong results and our financial guidance. I will say it again. It's an honor to lead this journey, and I am proud of the team for executing and delivering on the multifaceted transformation. This has enabled BrightView to turn the corner, and we will benefit from these initiatives for years to come. With that said, I will now turn it over to Brett.
Thank you, Dale, and good morning to everyone. I'll start by echoing Dale's enthusiasm and conviction as we continue to transform this business. As we sit here today, a little more than a year into our One BrightView journey, the future has never been more exciting. This is a testament to the hard work and dedication of our 20,000 employees working together to make BrightView better by placing our customers at the center of everything we do. This unwavering passion and focus led to our record results in EBITDA for the year, alongside meaningful margin expansion. We successfully executed on our commitment to deliver a breakout year. While our transformation is not complete, we are already seeing the impact take shape in our results.
Moving to Slide 8. Total revenue for the fourth quarter was $729 million, which was an approximate 2% increase when adjusting for the U.S. lawn sale and the unwinding of BES, our aggregator business. In maintenance, we remain encouraged by the underlying trends in the business that will lead to long-term profitable growth, notably our customer retention improvement and our continued focus on cross-selling and route density. The development business increased 8.6% as a result of the ongoing conversion of our backlog into high-quality projects. As we continue to further align our One BrightView culture, we see numerous cross-selling opportunities to convert development work into recurring maintenance contracts. We believe this represents a meaningful lever as we drive future top line growth in all segments of the business.
Turning now to profitability on Slide 9. Total adjusted EBITDA for the fourth quarter was $105.2 million, an increase of $3.6 million or 4% higher versus the prior year period. Adjusted EBITDA margins expanded by 70 basis points, which is the sixth consecutive quarter of year-over-year margin expansion on a company-wide basis. The adjusted EBITDA margin in the Maintenance segment expanded 110 basis points as we continue to streamline our cost structure and create efficiencies. We are now well positioned to capitalize on our strong operating leverage as we return to land revenue growth.
In the Development segment, adjusted EBITDA for the fourth quarter was $41 million, which represented a record quarter for this segment. The adjusted EBITDA margin expanded 390 basis points, which is driven by a combination of converting our high-quality backlog and further cost efficiencies.
Turning to Slide 10. Fiscal '24 was a breakout year as we delivered on our commitment to transform this business by taking better care of our employees and prioritizing our customers. In the past year alone, we delivered record EBITDA performance and expanded margins by 110 basis points, making significant progress from the low point in fiscal '22. We delivered these results despite unwinding BES, selling our U.S. lawns business and snow coming in below original expectations. The 110 basis point margin improvement was driven by a combination of factors, including our new streamlined operating structure and reduced SG&A, the alignment of compensation plans that promotes profitable growth and continued focus on centralization, scale advantages and efficiencies. All of these factors allowed us to execute our strategy and reinvest back into the business, our employees and our customers.
Now let's turn to Slide 11 to review our free cash flow, capital expenditures and leverage. For the full year, our reported free cash flow was $145 million versus $80 million in the prior year, and CapEx was $60 million versus $50 million in the prior year. Important to note, there is a timing impact to CapEx related to newly purchased vehicles being delivered in fiscal '24, but paid for in fiscal '25. We will discuss this more in the guide section of this presentation. On a normalized basis, adjusting for the timing impact of capital expense payments, free cash flow still increased $14 million or 18%. Additionally, we executed our capital allocation and fleet strategy, which saw more than double the amount of net capital spend on a normalized basis from $50 million to $111 million.
Net leverage at the end of the year came in at 2.3x, representing the lowest leverage ratio in the history of BrightView. This lower leverage reflects the impact from lower debt levels, improved profitability and generating more cash flow alongside improved liquidity. The improved leverage dynamics provides significant financial flexibility and reduced interest expense.
Moving to Slide 12. We outlined our revenue and EBITDA guidance for fiscal '25, which translates to another record-breaking EBITDA year and continued margin expansion, and is underpinned by returning to growth in our land maintenance business. For revenue, we expect to deliver results in a range of $2.75 billion to $2.84 billion and EBITDA in a range of $335 million to $355 million. The revenue guidance range assumes the following: for land, we expect total core land revenue to increase by 1% to 3%. When including the roughly $20 million impact from unwinding our BES business, we expect total land to be approximately flat to 2%. For snow, we are anticipating revenue to be in the range of $160 million to $200 million, which incorporates the impact of unwinding the Snow BES business, which is separate from the land business.
We are also implementing a strategic sales strategy in the snow business to reduce the revenue volatility as we begin to shift towards more fixed rate contracts. For development, we expect revenue to increase in the range of 3% to 6% as the segment is well positioned to continue to benefit from the healthy backlog. Moving to adjusted EBITDA. We expect margins in the maintenance segment to expand by 60 to 100 basis points, and margins in the Development segment to expand by 10 to 30 basis points reflecting continued momentum in the multiple initiatives that are currently underway to drive profitable growth. It is important to note these margin assumptions reflect the reallocation of corporate expense into the operating segments.
Turning to Slide 13, we will expand on this. As we continue to focus on centralization, scale advantages and driving efficiencies. In fiscal '25, we have eliminated our corporate segment and will allocate corporate expenses into the 2 operating segments. Here on Slide 13, we present both as reported and the recast of our historical segment results, reflecting the elimination of the corporate segment. Further details, including quarterly views are provided in our 8-K and the appendix of this presentation.
Continuing with guidance on Slide 14. We are issuing free cash flow guidance in the range of $40 million to $60 million. However, as we referenced earlier, free cash flow in both fiscal '24 and fiscal '25 is being impacted by the timing difference related to vehicles being delivered in fiscal '24, but paid for in fiscal '25. This represents a $51 million benefit in fiscal '24 as described earlier, with an offset in fiscal '25. Normalizing guidance to reflect the impact from the CapEx timing difference, the free cash flow range would be $90 million to $110 million. Delivering on this range would represent a 3-year cash flow conversion of approximately 30%.
Before turning the call back over to Dale, I will provide a longer-term perspective on Slide 15 of the exciting momentum we are seeing as we continue to transform this business. From the low of fiscal '22, we have increased EBITDA margins by 130 basis points and expect continued improvement in fiscal '25. From a leverage ratio perspective, we are currently at 2.3x, which is less than half of where we stood in 2022. Also, our net debt has gone from $1.4 billion to approximately $740 million, and our liquidity has increased dramatically to $600 million. Furthermore, our free cash flow generation has increased from $7 million in 2022 to approximately $100 million based on the adjusted midpoint of fiscal '25 guidance.
While still early in our One BrightView journey, this year's breakout year and our outlook for fiscal '25 reinforce our conviction in the incredible prospects that lie ahead. With that, let me now turn the call back to Dale to wrap up on Slide 16.
Thanks, Brett. Before we open the call for your questions, I will provide a few examples of the many levers we are utilizing to drive further momentum in our profitable growth strategy. As you can see on the slide, there are many, including route density, lead management, procurement and continued focus on size and scale with centralized support. However, at the end of the day, it all comes back to our people and operating as One BrightView. By investing in our employees so they provide best-in-class service, this will lead to a return to land revenue growth, which is paramount to our success in continuing to deliver on our commitments and drive value for our employees, customers and shareholders.
We will now open the call for your questions.
[Operator Instructions] Our first question will come from Bob Labick with CJS Securities.
Congratulations on a fantastic year and doing what you said you would do a year ago. Great work there. Yes, I wanted to focus on, obviously, the transformation is driven around the One BrightView foundation. And as you've said, it's the focus on the employees, who focus on the customers. And you've really focused on employee retention which has led to customer retention. So maybe, are there incremental steps that you'll be taking in 2025? Or what are the carryover steps that you've already taken or maybe a little of both, that should help you benefit both of these key metrics, retention of employees and customers in 2025 and beyond?
Yes. Great question, Bob. So from day 1, I said, as I said in my script, which starts with our employees. Our employees touch our customers every day. So it's critical to make sure they feel good about the place that they work and they feel the value that they give us. We have made such progress and it's shown in our employee turnover number, which we saw another sequential decline in the fourth quarter. This is going to be critical as we keep driving that customer retention improvement that we talked about.
We've used several examples from giving them safety boots to show how much we care about their safety, better fleet, better mowers, newer trucks, all those have been great. The next thing we started working on is our hourly frontline employees will be paying less for benefits than our salary people as we try to make it more affordable for them in the year to come. So our goal is to make sure these people understand the value they put into the business and every day how critical they are in our mission to make sure our customers recognize they're the most critical thing for us to grow this business.
So the employees feel so much better, Bob. We just recently launched our employee engagement survey because after a year being here and traveling to the branches, I really want to get a pulse of what they're saying. And when I see responses like they feel that we prioritize safety in the sense of belonging, empowerment and teamwork, those types of things that they're responding about, that just gives me a sense of we are making a transition in this business. We have a long way to go. We are just at the early stages of this journey, but like I've said from day one, those hourly frontline people are the most critical asset we have.
Brett, do you want to add anything?
Yes, I would agree with everything Dale said, it's still early days with a One BrightView journey, but it's amazing with the right focus on taking care of our employees and in turn, will take care of our customers and the ability for us to streamline our new operating structure and lean out our SG&A to be able to take those dollars and reinvest them right back in the front line, Bob. And that 200 basis points customer retention improvement, as Dale mentioned, I mean, that's really the -- what we're driving towards.
So more improvement to come in '25. We got to continue to stay focused on the right things, taking care of the employees who take care of the customers ever down in the front line, get them the right equipment, get them the right safety, equipment as well and more good things to come.
That's super. And then maybe just 1 other quick question, and I'll jump back in queue. And one of the themes also throughout the past year has been in terms of One BrightView getting the development services and the maintenance services to work together. And you've talked in the past a little bit, getting development work into the maintenance service work, and you've been very low previously. Where do you stand now? And where do you see that going? How is that playing out?
Yes. Great question. I think as I travel the country, the one thing I quickly came aware of is our development group has some of the best talent across North America and the jobs that we do. They were probably the group that unfortunately were operating the most in a silo versus our maintenance team. So we put a focus on that, and we have leaders in our business that are working with our branches today, both development and maintenance geographically versus having independent leaders in the past.
We had mentioned in the past, if you do the quick math, Bob, roughly about 7% of new development work becomes the opportunity for maintenance. So we'll just use $800 million last year roughly of development that we did, that should create about a $56 million opportunity for new maintenance revenue. In the past, we said we converted less than 10% of that. I'm pleased to say it's now up to mid-teens. We made progress as we exited the year to get momentum entering this year. We are far from the 70% that I believe is very, very realistic. But I would tell you, the momentum is really when you see the branches communicating and working together.
And here's the exciting part. A lot of our maintenance branches now see opportunities that they're turning over to our development brands to make sure that we're getting that for new development work. Our development group had an amazing year last year, the growth that they showed and we're predicting another strong year as we enter 2025. We -- like I said, this business is about taking care of customers and when we do development, we have to keep men's a BrightView customer and do the maintenance work.
But Brett, do you want to add anything?
No, I would just echo how exciting is to see that conversion grow even small incremental amounts. And think about the opportunity ahead at that $50 million to $60 million opportunity set that development kicks off into maintenance work. And the great thing about it, development had such a great year and probably benefited one of the most in the business from moving to a One BrightView culture and operating together and working together as 1 business in 2024. But the backlog remains very strong for '25, and we can even be a bit more selective now in development as we pursue new opportunities to make sure those opportunities kick off the right potential maintenance contracts in the end of the day.
So we feel very bullish on the development business and what next year can bring in '25, as you can see in our guide. And that would just create more opportunities to continue to increase this conversion rate as we operate more effectively as One BrightView.
Our next question will come from Tim Mulrooney with William Blair.
Dale, Brett, I've got a couple of quick questions here. The first one is on your maintenance land business. It looks like the core maintenance land growth was down about 1% in the fourth quarter, but obviously, that's better than what we saw in the third quarter and then the second quarter and the first quarter, we're seeing nice progress here. Curious how you're thinking about the trajectory of that growth as you move through fiscal 2025?
Yes. Great. Good question, Tim. I think it's worth noting that steady progress has happened from the unwinding as we started to eliminate our BES business and get people focused on taking care of our core customers that we can self-perform the work. Now Brett will walk through a little bit of the details in a second, but that's underpinned by that 200 basis point improvement that we're seeing in customer retention.
We still have some work to do to eliminate some of the challenges that we had. Customers will spend more ancillary money with you as they build up trust in you. So the deeper we can get into 2025, the more we anticipate growth. My focus is to make sure as we exit 2025, we are going to be on a trajectory that creates mid-single-digit land growth. We are committed to land growth this year. We have a plan to get it done, and we're going to find a way to drive that. But Brett, maybe you can add a little more on the financial side.
No. I mean the credit goes to the 20,000 dedicated employees out there every day taking care of our customers, right? That's what drove the 200 basis point increase in customer retention, which really has been the first increase we've seen as a public company since going public in '18. So really positive that customer retention is starting to improve. And you think about the impact that has, Tim, and the timing on organic growth, we saw about a year ago coming out of Q1. We saw that our core organic business shrink about 4%. And then Q2, Q3 has run about 3% each quarter, right? So we saw 4% go to 3%. And you mentioned it already, Q4 is at 1% shrink.
So still a shrink, but we're seeing that trend start to shift tremendously in the right direction. And as you think about Q1 and Q2 of this year, we're not providing quarterly guidance. We still have some noise in stepping over our BES unwind in the first 2 quarters. We still have some noise with selling U.S. [ lands ] to the end of Q1 next year. But that core trend, which is going from negative is starting to really turn the corner in Q1, Q2, and Dale said it best. By the time we get to the second half of this year, we expect our core land organic to be growing and then we'll be exiting the year at '25 and '26 on a much better pace.
Tim, real quick, I just want to add, i just want to remind everybody, a year ago when I got in share, our customer retention was at all-time low levels. The progress we've seen with that 200 basis point improvement is the first improvement in any year since the company went public. So yes, that creates some ancillary challenges. But that momentum that we felt this year and will continue into 2025 is why we are so confident that we're going to drive this business with land growth, and we're going to be in a much better spot as we get into 2026.
Our next question will come from Greg Palm with Craig-Hallum.
I guess, officially, congrats on the breakout EBITDA here, but also just congrats on a really sort of successful time so far in the first year. So kudos to you and the team there. I want to dig into land growth a little bit more. And I'm not sure if you can kind of rank order the various levers, whether it's kind of the development conversion, the customer retention, but maybe expand on that a little bit in terms of how you see that playing out this year, but also thinking about route density and maybe new customer growth as well and kind of where we are on that kind of strategic focus as well.
Yes. Good question. We know all the levers that we have to pull to drive land growth. Ancillary is one of them, and that's going to come as we continue to drive that customer retention number up as we go through 2025. That 200 basis point improvement, we continue to see that as an opportunity for us to work through in 2025. and see improvement.
So long term, the business when we went public, we had stated before, our customer retention was roughly 85%, and we exited last year below 80%. So we have a long way to go, but here's the exciting part. 85% should not be our goal. We are going to find a way to continue to make sure our customers feel all the value that we're going to put place on them so we can get that number closer or even above 90%. We have branches above 90%, and those are the branches we're seeing grow. Obviously, the development conversion that we spoke about a minute ago is another lever we can pull. We've talked in the past, and I mentioned about how important communication is. Our customers don't leave us because of price. In an inflationary environment, we always have a little bit of an opportunity to get a little price to help us grow.
Our customers leave us because we didn't do what we said we were going to do, and we didn't tell them what's going on when there's an issue with weather. So those are all in our control. So between those 3 items, and we are putting a focus on new salespeople to get more people on the street. We've done a great job cutting overhead in this business to rightsize the business support that we need to help our branches and now we're going to fund more salespeople to go out there and help us get new accounts. We have so many levers that we are pulling right now. That's why I'm so confident we are going to return to land growth in this business in 2025.
Yes, Greg, I would just add, you can sense the excitement on this side of the table here. I mean, we are better positioned than ever to get back into our land growth and leverage our operating structure we have today. We reduced SG&A in 2024 by almost $40 million, which, in turn, we're reinvesting back into the business, back into our frontline employees, back into new equipment with mowers and trucks. And if you think about where our position as a company, we have a balance sheet now that can support all the initiatives we're looking to do to drive growth, including investing in our sales force and sales technology.
So we're better positioned than ever than to execute these strategies. And I think we've got a balance sheet that absolutely can support that. And just, you think about this year, I had 1 more point on this. We spent the most capital we've ever spent as a company in 2024, almost $130 million of gross capital. And if you look at our guide for 2025, we're going to do it again. So we have to continue to stay focused on the right priorities, taking care of our employees, getting them the right safety, giving them the right equipment to service our customers. We continue to do that. Everything Dale mentioned around customer retention, driving ancillary development conversions, et cetera, that will all come to fruition. So we're better positioned ever to do that. And I think that's just an important point to note. That's why we set such excitement on this side of the table.
Yes. Makes sense. I appreciate that color. And I just kind of on the growth outlook, how does M&A fold into that. I'm just curious if your sense around time line has changed at all in the last few months? And maybe give us a little bit of flavor of kind of what type of acquisitions you're looking at? What's kind of the top of the list in terms of priorities?
So we don't have anything built into the guide for M&A. So any M&A we do will be accretive to the guidance that we placed out last night. So where we're focused and -- this is the exciting part. We paused M&A 12 months ago when I joined, but we're ready. We've got a balance sheet that's ready. We have teams of people in the field that are ready, and they're starting to earn the right in many markets to ask for us to help supplement their business. And you heard me say, our new playbook is going to be drastically different than some of the M&A we did in the past. We're going to integrate them fast. We're going to get them to be part of One BrightView. We're going to make them part of this business, and we're going to help those businesses to grow.
So short term, where do I think, Greg, we're going to focus on? I love specialty businesses. I love to make sure we can do things like tree care, like irrigation, like fertilization, even some type of aquatics in some markets where we can do pond maintenance for large HOAs. Those businesses, I feel we could buy a smaller business and help grow it through our existing maintenance business. The other opportunity we'll look at is if we have markets we don't operate in today with maintenance land, we'll look at buying businesses in those markets and figuring all the way that we can grow our business and grow to support customers that are national.
What we probably won't be buying right now, and you saw our guide, we reduced snow guide because we want to go off realistic snow numbers and not count on 30-year average. So we won't be focused on businesses. They're primarily focused in snow maintenance or probably short term with the great success we're having and getting maintenance to work with development, buying new development businesses because if we feed those guys with capital, they're growing that business, great.
But Brett, do you want to add anything?
I think, well said. We're better positioned than we've ever been. We're ready. We have operators that are ready with a balance sheet that can support. So we are in a great position when the right opportunity comes up, we'll be ready to execute.
Our next question will come from George Tong with Goldman Sachs.
You're assuming $160 million to $200 million of snow revenue in fiscal 2025, you just mentioned you're not assuming a return to long-term averages, but can you elaborate more on the assumptions underlying your snow forecast?
Yes. Great question, George. So when I joined the company a year ago, there's always the opportunity to estimate how much snow you're going to get. It's tough because if you look at the 30-year averages and you look at what we forecasted last year, we had anticipated snow coming in between $210 million and $270 million or at $240 million midpoint based on the book of business we had. Unfortunately, snow came in at $221 million of revenue for the year. The good news is the previous year, it came in at $209 million. So instead of using a 30-year average, we've said we're going to use a much more realistic 2 years average to come up with a number.
Now we had talked in the past about unwinding our BES aggregator business. They had some snow that we were also looking at eliminating so roughly about $25 million of the reduction is to eliminate that BES business. So if you think about it, George, think like $215 million minus $25 million, that gets you to the high end or just above the midpoint of that range. And then the other focus we have is we want to make sure we provide our customers who use us for land all year around care. If customers come to us, they don't want to use us for land and their request is just to have us do time and material or per occurrence type billing, we don't want to take those risks. Snow is roughly 6% to 7% of our overall revenue. It cannot be the reason why we disappoint our investors on an annual basis.
So the guide today, George, is much, much more realistic to what we feel is the low end of snow. And then if we do more snow than that, for some reason, we get back to those 30-year averages, it will just be upside for all of our investors. Brett, do you want to add anything?
Yes. I would just add, George, going on the days where we use snow as an excuse. You saw that in 2024. Snow came in at the very low end of our original guidance range, and we still held and delivered the midpoint of our guide every step of the way throughout the year. And I think, as I mentioned earlier in the call, just doing what we said we're going to do. We are not using snow as an excuse. And I think you saw that in '24. And '25 is, again, much more realistic on a 2-year average. You take a 2-year average of $215 million. We stepped down $25 million or so for BES. And then you look at how we're trying to move customers from more of a variable rate contract to a fixed rate contract. So you take all those things into account, you land right at the midpoint of our guidance.
But we feel really good about the strategy in this business. And if it's not a little more like they all said, we should have a little bit of upside, but we're not going to go back to some [ 1995 ] average and how much is snow, we're staying much more relevant and realistic.
Got it. That's helpful. And then you had a strong development growth of 6.7% in fiscal 2024 and you're guiding to development growth of 3% to 6% in fiscal 2025. Can you talk about the puts and takes behind your assumption of growth deceleration in your development business in the year ahead?
Yes. I'll just say at a high level, George. There's huge demand. Our backlog for our development business right now, most of our branches are sold out into 2026. So we feel great about the backlog. I'm not sure our growth was about 6.7% last year and at the top end of our range, we're 6%. And obviously, we don't want anybody anchoring on the midpoint when we go through this process and just thinking that we're not going to grow at the top end. We feel great about the development business. We have huge demand and the more we take care of those customers from the start of the project in development to ongoing maintenance, the more those customers are going to see a value using BrightView.
But Brett, I'll let you add anything.
George, [indiscernible] development had a fantastic year. You talked about some of the changes that Dallas implemented under One BrightView, breaking down silos, operating together, working as one. I would say development benefited by far the most in 2024 from moving to a One BrightView strategy and kudos to the team. I mean they had a fantastic year. Development in 2024, essentially from a margin perspective is right back to pre-pandemic pre-hyperinflation margin levels. all-time high margins in development. So kudos to that team, just a fantastic year.
2025 setting up to have another year of growth. A lot of factors go into development, whether it's timing, weather, pushes, polls, et cetera. But they will grow in development for sure. And the beauty of it is now with that business just operating so well. We can be a little bit more selective as we really look for those projects where development to spend their time on, that will convert to long-term maintenance opportunities. So we are in this virtuous cycle as we think here today. And we have a lot of credit for the development in 2024 results, and we expect a lot to come in 2025.
Our next question will come from Stephanie Moore with Jefferies.
This is Harold Antor on for Stephanie Moore. I guess just given the CapEx, the $50 million CapEx expected to be paid, I guess, how should we think about the cadence of cash flow or free cash flow throughout the year?
So yes, Harold, first of all, send our congratulations to Stephanie and her baby, and we hope everything is going there, and thanks for joining the call. So first, I want to comment, I'll let Brett talk about the cadence. I want to make sure everybody realizes we spent more gross capital when you add in that $51 million that we didn't pay for that we will be paying for here in Q1 to 2024 than any year in the history of the company. I've said from day 1, I believe there's a fleet strategy, and we are implementing that. We brought in a new head of fleet. We are working with our branches. We're making sure we are upgrading that fleet. That is critical to making sure it represents our brand. So we made great progress last year, and I know there's some noise in timing. So let me let Brett comment on that. But I'm so proud of the team for how much fleet we were able to get as we went through 2024.
Great question. Look, I think there is a timing difference here in our financials and hopefully, we lay it out pretty clear in the slide deck. But if you look at really free cash flow this year at $145 million, we benefited from favorable negotiations with our fleet vendor, where we received fleet in 2024, but we'll pay for that fleet in 2025. This happens pretty much every year, but given the enhanced fleet strategy, we felt important to call out a number of this side since it was very significant.
So if you think about our free cash flow, Harold, $145 million this year, normalized from the [ 50 of timing ], it's right around $95 million. If you take our midpoint of our guide next year at 50, again, add back the timing that's going to happen in '25. That's about $100 million. So the last 2 years of free cash flow are right around $95 million to $100 million. Great news is the last 3 years of free cash flow conversion is right around 30% when you think about our conversion, which is leaps and bounds ahead of where we were in 2022, when we have free cash flow conversion of almost 0.
So fantastic progress on the balance sheet. We feel great about cash flow. And we're going to continue, like Dale said, to invest in our fleet, invest in our equipment and take care of our employees, who in turn take care of our customers. Our balance sheet, Harold, is in the best shape it's ever been as a company. Our debt is almost 50% of where it was in 2022, 50% lower. Our leverage is greater than 50% lower. We've more than halved our leverage ratio. Our CapEx, all while doing those 2 things is double, right? We're spending more in our equipment to refresh that strategy, and we still have over $600 million of liquidity to reinvest back in the business. So we feel fantastic about where cash flow came in this year. Again, normalizing for that timing difference. We feel great about where it's going to come in next year. and still investing and executing on our fleet strategy.
Our next question will come from Jeffrey Stevenson with Loop Capital.
Congrats on the strong results this year. So [indiscernible] expecting another 60 to 100 basis points of maintenance margin expansion in fiscal '25. And is this being largely driven by an expected to return to positive revenue growth related to your One BrightView strategy? Or is there anything else that you would call out driving the stronger margin performance next year?
Look, I think it's a combination of multiple things. growth organically is always the biggest lever, Jeff. If we can push more volume through our existing branches with our existing team members, that's always going to be the best business for us to grow. As you know, route density is something we are very focused on with our branches, making sure we're optimizing our ability to service customers effectively. So I think growth is a big part of it, but don't underestimate that ancillary revenue and that customer retention. The more we continue to improve customer retention, the better our relationships are with customers, the more they're going to be willing to spend on additional services. We've got to get away from having customers asking us questions about service and engaging on us on how to beautify their properties. So the more we spend servicing customers, the more customer retention goes up, the better off we're going to be.
But Brett, do you want to add anything?
Yes, Jeff, I think a lot is underpinned by growth and we're better positioned today than we've ever been from an operating leverage perspective. Our SG&A on a TTM basis is down almost 100 basis points. So if you think about the size and scale advantages of BrightView and being able to use that operating leverage as an advantage as we grow dropping significant margin to the bottom line. I think that's a big piece of it. But there's a lot of factors that go into, we're going to reinvest in the business. We're going to make sure we're taking care of our frontline employees. We're going to reinvest in the sales force. We've got some investments we're going to make this year, too, but all that's incorporated into our guide. And we're getting back to where we went public.
It was 2018, we went public at about 12.5% margins. Dale said, I think his first month in the chair 2 or 3 years, we'll be back there, while it's 2 years. And if we hit this guy, we'll essentially be back there at the end of '25. So we feel great about the progress the company is making and huge excitement in 2025.
No, that's great to hear. And then have you seen sequential improvement in ancillary maintenance demand as we move through the back half of the year from the increased customer retention rates and then benefits from commodity base deflation as well with previously delayed projects moving forward? And then also as we look into next year, are you expecting any benefit from the cleanup efforts related to the recent hurricanes? And would that be incremental to your guidance?
Yes. Yes, great question. First and foremost, our employees are safe, and our hearts are out for all the people affected by the named storms that occurred almost back to back across the state of Florida. And the first one, obviously, all the way up into the Carolinas. So we didn't build much into our guide. We had got some early indication with the first storm of some opportunities. But I would tell you, Jeff, as soon as we started quote and work, all of a sudden that second storm came in and it caused even more damage, which created even more clean up for us to do.
So a lot of our customers asked us to come out and requote. So we do see an opportunity for us to continue to see upside in that. And I think Brett can comment on the trend that we've seen because it ties to what we're seeing in that core business shrinkage. But we are seeing, as we improve retention, customers requesting more and more ancillary work. But Brett, I'll let you comment.
Yes, Jeff, I'll comment again on this. I mean I think it's important just to drive home this point that the trend in the underlying core organic land business is really starting to turn the corner. Q1 of last year, we shrunk 4%. Q2, Q3 shrunk 3%. And I think Tim mentioned earlier, Q4 shrunk about 1%. So 4 went to 3 went to 1 and you look at kind of Q1, Q2, we got some noise to step over in BES and lawns, but we expect that 1 to shrink in Q1 in the quarter and get something closer to flat, closer to flat in Q2. Keep in mind, it's only about 1/3 of our land business happens in the first half of the year. But at the time we get to Q3, Q4, really the bulk of our land business, that's when we expect that trend to turn the corner, and just continue to focus on taking care of our employees who take care of our customers, driving that customer retention, investing in our sales force, focused on development conversions.
We know the levers, as Dale mentioned earlier, we do that. We feel very confident that come Q3, Q4, we'll see that land growth engine starting to take off.
[Operator Instructions] And at this time, I'm showing no further questions. I'd like to turn the call back over to Mr. Asplund for closing remarks.
Thank you, operator. I'll close by reiterating that we have a growing level of confidence regarding the initiatives we have in place and the impact they will have on revenue growth and the broader transformation of BrightView. On February 19, we will share additional details during an Investor Day in New York City to elaborate on this as well as look at some long-term outlook.
In closing, our objectives are clear, and we remain committed to becoming One BrightView, growing profitably and creating meaningful shareholder value. Thank you, operator. And with that said, you can now end the call.
Thank you. This does conclude the BrightView Fourth Quarter and Full Year 2024 Earnings Call. Please disconnect your line at this time, and have a wonderful day.