Q2 2021 FirstService Corp Earnings Call
Welcome to the second quarter of Investors' Conference call. Today's call is being recorded legal counsel requires us the advice that the discussion scheduled to take place today may contain forward looking statements that.
Known and unknown risks and uncertainties and.
Actual results may be materially different from any future results performance or achievements contemplated in the forward looking statements.
For information concerning factors that could cause actual results to materially differ from dose and the forward looking statements.
And what is contained in the company's annual information form as filed with the Canadian Securities administrators, and and the company's annual report report on form for it the Dosh F. As filed with the U S Securities and Exchange Commission as a reminder, today's call is being recorded today is July 10 a.
The 7.2021 I would now like to turn the call over to Chief Executive Officer, Mr. Scott Patterson. Please go ahead Sir.
Thank you for water and good.
And everyone.
Welcome to our second quarter conference call. Thank you for joining us today.
And on the line with.
Jeremy Rakuten and together, we will walk you through the quarterly results. We released this morning.
That reflected very strong growth over the second quarter of 2020, which of course was the first quarter materially impacted by the pandemic.
Total revenue for the quarters quarter.
Quarter were up 34% over the prior year with organic revenue growth of 25%.
Organic growth was strong at both divisions and at every material business line really across the board and.
And it reflects 3 main drivers the.
The reopening of seasonal amenities.
Very strong home improvement spending.
And continued work from the Texas deep freeze event in February of this year.
Organic growth was 25% versus the depressed 2020 due to the Covid lockdowns.
<unk> 2019.
<unk> organic growth was 10%.
And that figure does not include first on site, which we did not own at the time.
The organic growth exceeded our expectation and.
And in particular.
Was impressive given the current labor market.
The number of open positions.
We have across the company is unprecedented.
And of definitely limited our capacity and tempered our growth.
The balance of the top line growth for the quarter, 9% was from tuck under acquisitions over the last year and restoration and fire protection and property management.
<unk> EBITDA was up 26% year over year and earnings per share were $1.21 up 41% over the prior year, Jeremy will provide more detail on these metrics in his prepared comments.
And first service residential revenues were up 20% with the organic.
Organic growth at 16% the principal driver of organic growth was the reopening of seasonal pools.
Fitness centers and other amenities and the northeast U S and Canada.
The reopening of accelerated quickly through the quarter and by quarter and approximately 90% of our managed.
The facilities were open and staffed.
We will see some additional reopening and the third quarter and expect to be back close to 100% by year end.
There are a small number of seasonal pools that will not open this year, but the impact is not material to our results.
Manage outside of amenity reopening, we generated solid organic growth driven by contract wins and gains and ancillary services.
Relative to the second quarter of 2019, the first service residential division was up 9% organically.
Looking.
For the balance of the year, we will see some incremental year over year benefit and the third quarter from seasonal amenity reopening and.
And then and the fourth quarter and into 2022, we expect to settle back into a low to mid single digit average organic growth rate and this division.
Moving on the first service brands revenues for the quarter were up by 50% versus 2020.
Driven by strong growth and our home improvement segment and continued strong results from our restoration and brands.
Our home improvement brands, California, closets sort of pro painters.
Forward lore coverings international and pillar to post.
And were up as a group by over 50% versus the prior year quarter.
A period during which much of North America was and locked down.
A more relevant and impressive metric is.
Is the 25% growth for this group rare.
Relative to the second quarter of 2019.
Very strong existing home sales and combination with continuing increases in prices and home equity.
And have further Boyd and already strong home improvement market.
Vaccine Rollouts.
And the release of pent up demand in certain regions has added to the activity levels.
Our brands and benefited from the strong market and leads bookings and completed jaw jobs are at all time highs.
We reported last quarter that are challenged.
Route switch production capacity to meet the demand it remains of significant limiter for us.
But we did make headway during the quarter as evidenced by the sequential revenue increase of 16%.
Relative to our Q1 some of this increase relates to seasonality of much of it is tied to an increase.
<unk> capacity.
We continue to recruit aggressively and believe this will be reflected and a further sequential increase in Q3 for our home improvement brands.
And on a year over year basis for Q3, and Q4, we expect to see growth in excess of 20%.
Our restoration brands first on site and Paul Davis, together were up over 50% relative to Q2 of last year.
First on site is the big driver of Corporately for Us because it is all company owned while Paul Davis is primarily of franchise system.
The organic.
The growth this quarter was the Grand was again driven largely by the deep freeze weather event in February of this year that impacted Texas and Oklahoma.
We carried a significant backlog ended the quarter and completed and booked approximately $50 million of revenue related.
The related to the event.
Organic growth outside of this event was low double digit reflecting continued progress at both first on site and Paul Davis and terms of adding national customers and building the brands.
Our backlog and restaurant.
Cash and remained strong heading into the back half of the year.
But we are up against very strong comparative results for 2020.
You will remember that we secured significant work last year from the Iowa wind storms and Hurricanes Laura.
And across the third and fourth quarter, we generated over 100.
Rest of the rate of revenue from these events.
Certainly our goal is to at least match the 2020 results, which would mean, a very strong growth year for us and restoration.
For that to occur we would again need to generate work from extraordinary weather events.
<unk> fire was up low double digits versus Q2 of 2020 and generally in line with our expectation.
Both the service and installation sides of the business contributed to the quarterly growth.
Backlogs and bid activity remains strong heading into Q3 and we expect.
Expect of solid back half of the year for century fire with similar year over year growth to Q2.
Before I hand off the Jeremy I want to reiterate how pleased we are with the overall results for Q2, and particularly the organic growth.
Generated at each of our service lines.
We continue to focus on building our brands over the long term.
And have confidence that our business model and long term growth prospects remain intact.
Over to you Jeremy.
Thank you Scott and good morning, everyone.
And just heard we reported strong financial results for the second quarter with both significant growth over last year and outperformance relative to our internal expectations.
I will provide a segmented breakdown momentarily, but let me first reiterate our Q2 consolidated results.
As the revenues were $832 million adjusted EBITDA was $89.8 million and adjusted EPS came in at $1.21.
Up, 34%, 26% and 41% respectively.
Combined with our first quarter results.
6 months year to date consolidated financial performance is as follows revenues of $1.5.4 billion.
And increase of 23% over the $1 billion to $6 billion last year.
Adjusted EBITDA of $149.6 million Rep.
Representing 30.
<unk> on and growth over the $115.1 million last year.
With the margin of 9.7% up from the 9.2% and the prior year period.
And adjusted EPS at $1, 87 up 52% versus $1.20.
<unk> <unk> per share reported during our same 6 months period last year.
Our adjustments to operating earnings and GAAP EPS to calculate our adjusted EBITDA and adjusted EPS, respectively have been summarized in this morning's press release and remained consistent with our disclosure and prior periods.
Turning to our segmented financial results highlights for Q2, I'll lead off with our first service residential division.
Second quarter revenues came in at $406 million, a 20% increase over the prior year period.
We were pleased with this year over year.
3 given the comparison to last year's quarter.
Which itself was only down less than 10% in the eye of the pandemic.
EBITDA for the quarter was $46.5 million, a 25% year over year increase with an 11, 4% margin.
Growth up 40 basis points from the 11% margin in Q2 of last year.
The margin improvement benefited once again from higher margin true.
<unk> and disclosures revenue driven by very strong unit re sales within our communities compared to last year.
In the quarter.
This heightened level of home resale activity reflects the continuing theme that started in the second half of 2020.
And so we would not expect any further meaningful margin pickup at first service residential from this ancillary revenue in the.
The second half of this year.
Now onto our first service brands Division and the second quarter, we recorded revenues of $425 million, a 50% increase over the prior year period.
EBITDA for the brand segment during the quarter came.
And that $48.2 million.
34% year over year, and yielding and 11, 3% margin down from the 12, 6% margin and last year's Q2.
There were 2 principal reasons for this margin compression during the quarter.
First.
The back as we indicated with our outlook for this quarter during our prior Q1 call.
And the increased contribution from our restoration operations in the second quarter relative to our home improvement brands diluted the division margin.
And second the margin level reflects the reinvestment.
<unk>, including head count additions for growth.
By most of our brands relative to last years Q2, when aggressive COVID-19 related cost cutting initiatives were incurred.
On a consolidated basis, our EBITDA margin for the second quarter came in.
And at 10, 8% down 70 basis points from the 11, 5% last year.
This margin dilution resulted from higher corporate costs, which totaled $4.8 million this quarter.
$3 million from last year's Q2 when significant.
<unk> pandemic, driven head office compensation and other expense reductions were implemented.
Excluding the impact of these higher corporate costs are combined EBITDA margin from our 2 operating divisions was approximately flat to the prior year quarter.
We also expect to see our full year 2021, consolidated EBITDA margin and up relatively in line to last year's 10% level.
Shifting to our operating cash flow before the impact of working capital changes, we were up 35% for the quarter.
<unk> mirroring our strong revenue and EBITDA growth.
Cash flow from operations after working capital However was down versus Q2.2020 due to a significant working capital swing.
Related to higher accounts receivable balances and first on site.
Site restoration reflective of their strong activity levels, and Texas freeze work.
This quarter's growth investment also contrasts with last year when our efforts were focused around cash preservation and collections and the face of the initial pandemic uncertainty.
With respect to on capital spending just over $15 million was earmarked towards internal growth and support of our operations.
This keeps us on track with our $60 million of full year of Capex target.
And finally under our tuck under acquisition program, we deployed almost 40 million.
During the quarter towards further growth of our first on site platform.
Closing with a review of our balance sheet, we exited the second quarter with net debt at $396 million almost identical to the levels at Q1 and prior year.
Year end.
Paired with our EBITDA growth our leverage as measured by net debt to EBITDA came.
Came in at 1.2 times continuing to tick down from recent quarterly levels.
Clearly our strong free cash flow model continues to reinforce our balance.
Balance sheet strength.
Even as we emerge from the pandemic and reinvest by adding capacity to meet the robust market demand.
Our liquidity, reflecting total undrawn availability under our revolver and cash on hand is also sizable at approximately 5.
$575 million.
Providing us with ample headroom to deploy capital and support of further growth.
And now concludes our prepared comments I would ask the operator to please open up the call to questions and thank you.
And you reminder to the asset.
The question you will need the press star 1 on your telephone to withdraw the question press the thank you.
Once again to ask the question. Please press star 1 on your telephone.
Your first question is from Steven Lockley of BMO capital markets. Your line is now open.
Oh, great. Thank you and good morning.
I see.
Hi, I just had I just had 2 questions here Scott you mentioned in your prepared remarks that.
Restrictions around labor kind of limited your growth and the quarter and I'm. Just we're I'm just curious if youre able to quantify or given.
Gasification as to how much further you think growth would've been had you had the labor to meet the demand.
That's hard to know Steve and we've tried to come at the out a few different ways, but.
And.
I'm not prepared to quantify it are really able to accurately.
Moving into the certainly.
And our home improvement brands, we are.
Booked out farther than we want to meet.
And of our leads and estimates that we can't get to and.
So I think there would have been incremental growth and home improvement and.
And it.
Really the other businesses, it's a similar situation.
And do have more open positions than than we have historically at first service residential some of our communities are temporarily short staffed and those would be.
Our bodies.
But that would be reimbursable. So that's.
Also a temporary and the top line and that business.
Okay. Okay.
Okay I see thank you.
And then maybe secondly.
Scott you gave some a good puts.
And takes around what your Q2 expectations are and the first service brands business or sorry back half expectations.
Just around the home improvement restoration and century fire and.
And I'm, just wondering how that stacks up on a on a segment.
The segment basis, just when you when.
And when you think about all the moving parts around those those 3 major business drivers.
I don't have that in front of me Jeremy.
Sure Yeah, Yeah, Steve stronger and Q3 versus Q4.
But yeah, and I think the aggregate pieces and suffice.
I think you could wait wait the <unk>.
Scott's commentary more towards Q3 versus Q4, and Q4 is somewhat dependent on.
And what happens.
And restoration.
In terms of storm activity.
Okay. Okay. That's helpful.
Thanks, guys and I'll get back in queue.
Your next question is from Stephen Sheldon with William Blair. Your line is open.
Good morning. Thanks.
And just wanted to ask a little bit more I guess about the home improvement brands and I think you would talk some about potentially turning away from businesses.
And if you don't want of long gap between the booking and the installation for the customer, especially I think and businesses like California Closets. So just wanted to ask it sounds like that has that continued and as you look across your businesses have you seen any signs that the hiring and challenges could be alleviated at all.
I don't know that.
Proactively turning away business, Steven but we have limited our marketing spend so as not to amply.
Amplify our capacity issue.
I'd put it that way.
We as I as I mentioned, we're not getting to some leads were not able.
And we provide estimates for all prospective customers.
And we are booking jobs too far out so.
And that impairs the the brand experience and Thats something were working very hard to rectify.
Through communication with the customer and and.
The 2 really.
Proactively managing those those relationships.
We are making headway and improving our pace of recruiting I would say.
Largely because we've invested in it and we've added resources we've generally.
The increase.
And our efforts around recruiting and consistently really over the.
The last 6 or 9 months.
So were making headway and we as I mentioned I think we expect to see.
Sequential improvement, particularly in home improvement.
And the third quarter as of.
Christophe of adding capacity.
But I'm not sure that the market is getting any easier.
The easier or opening up at all in terms of in terms of labor I don't know if that answers your question, but.
No that's helpful.
I appreciate that.
And then as a follow up.
For the corporate.
Results Spencer's I think the the the picked up here just a little bit this quarter to just under 5 million on an adjusted basis.
Just wanted to ask if we should expect us to kind of be on new baseline to growth from moving forward and I think this is the highest of the ban or are there any unusual items in there this quarter to call out that may have driven some of that increase.
David Jeremy.
Yes, I mean compared to last year's Q2, we had <unk>.
Significant salary cuts and other head office.
The expense reductions, but this.
This quarter would have reflected.
Normalization, we accrue.
Corporate order for our bonus accruals, so they would've been a catch up versus Q1, as we see visibility for the balance of the year. We've added a couple of additional <unk>.
<unk> at <unk>.
And our head office as well I'd say of mid teens.
For the year mid teens million dollars of.
And of head office of corporate cost.
Of course is a good number to go going forward. We've also had FX the stronger Canadian dollar would have also amplified maybe versus looking back a couple of years strong Canadian dollar and converted to U S dollars would have an impact as well.
Got it thank you.
Your next question is from Matt Logan of RBC capital markets. Your line is now open.
Thank you and good morning.
Good morning.
Maybe following up on the labor market and some of the challenges you're facing there.
And we think about the the margin do.
Do you find that youre able to offset some or all of the rising labor costs with higher prices.
Whereas the simply just the fact that you can't get the labor at all.
Okay.
We are experiencing some wage inflation and certainly to date.
And as evidenced by.
Bye bye the margin as you saw and the release, we have been able to.
To offset that.
But maybe I'll pass it over to Jeremy who has been digging into the the.
The wages across the company and I'll, let him and amplify.
Yes sure.
Thanks Scott.
Scott.
Said ability to preserve margin, thus far and again I think is reflected in our results, but it is evolving.
As we speak some pockets seeing more wage inflation than others and it does vary by service line by role of position and by market and.
And.
And first service residential.
<unk>, we have a lot of cost plus contracts, so our ability to pass that through directly.
It does give us.
And good cover.
And then at some of our other.
Brands, particularly in home improvement.
In terms of wage inflation around.
And our installer crews of painting crews.
Our ability to pass on along in terms of pricing our jobs.
Has been good thus far and solar on a little bit more of a lag and so it's not a direct pass through.
And again, we keep a close eye on this we're monitoring closely.
And it's continuing to evolve, but so far so good.
And maybe turning to your capital allocation and target leverage.
Should we be thinking of a tuck under acquisitions for the potential for larger M&A with leverage now down and kind of below 1 turn range.
Really the go.
Go ahead Scott.
I was just going to say it doesn't.
It doesn't impact us.
In terms of accelerating activity.
We have of pipeline, we have of process, we have of rhythm and.
Yeah.
I want to ensure that we always have the capacity to.
And to continue to drive our M&A program, Jeremy I'll, let you add to it.
Yeah, Matt I was going to make a similar point.
So the leverage doesn't do drive how aggressive we get on M&A, it's sort of.
A result of it.
But if we grow acquisitions at mid single digits.
The chance of are we we may have some very modest annual deleveraging and.
And then it's something in terms of what we do with capital deployment after.
And we just acquisition spend we revisit with the board.
And Scott and I make our recommendations, but I don't think we're at that point now acquisition spend and size of acquisitions again can be episodic and can change from quarter to quarter and I think we still got ample opportunities.
With our pipeline.
And when we take a step back and look at the M&A environment.
Are you seeing elevated acquisition multiple of those or maybe just some color in terms of what youre seeing on the ground for residential restoration and home improvement.
It's very active and general the market.
And.
More activity and restoration and fire protection for us.
Due to the active.
Consolidation and presence of many private equity buyers frankly.
Certainly multiples are are increasing.
We historically have.
Focused on.
Expanding our footprint with the with smaller acquisitions and so the impact at that level is not as significant as it is as you get to that.
The larger companies, but.
Certainly, we're seeing multiples increase across the board.
And.
And then maybe 1 last house keeping question here for me in terms of the storm related activity and the large loss revenues would.
Would the EBIT margin be consistent with prior quarters at around 10%.
Yes on those incremental revenues.
Yes.
Excellent I appreciate the commentary.
Gentlemen, I will turn the call back.
Thanks, Matt.
Your next question and from Frederic Bastien of Raymond James Your line is now open.
Hi, guys and.
And if we strip out the impact of weather related events.
Thank you for commercial restoration.
Asian activities can maintain a high single digit organic growth and the foreseeable future through market share gains and.
Just.
Spansion of your services.
We do Frederic we do we've certainly seen that to date.
This past quarter, we grew organically.
<unk>.
Over 10%.
We're investing aggressively and our sales team and we are driving.
The new national accounts.
We're also believe we're increasing the wallet share of our existing accounts and.
And we've had some success with <unk>.
Leveraging the.
Expertise and relationships from our tuck under acquisitions across.
Across our footprint and a great example is.
The health care expertise set at Roland.
And.
It's been a year since.
Since we completed that deal and we've had considerable success expanding.
<unk>, our health care vertical and the last 12 months.
And we're seeing that and a very healthy backlog heading into the back back half of the year. So.
The quarter to quarter, the storms will cause some fluctuation, but we do believe.
There will be.
Betty and solid organic growth underlying that.
Great and can you comment on sort of the rebranding efforts and how how of that.
Has gone and whether it's also driven strong incremental traffic.
I mean, it's we're very happy with the.
And the way the rebranding of has gone and honestly feels like we've been first on site for a few years now.
It's totally entrenched and internally and we believe gaining considerable traction.
Externally the 1 the 1 area we've seen.
Early gains is.
<unk> cross border and extending national relationships that we have and the U S.
Or Canada to becoming North American relationships, and and certainly 1 brand and 1 messages is helping make that happen.
Great good to hear.
Changing gears I was a little surprised to see tuck in acquisitions contribute as much as they did for them.
To the first service residential growth my math suggests that they would've added anywhere from 13 to 14 million Bucks of revenue.
But you don't really pressed.
<unk> released you are tuck in acquisitions anymore on the on the first service residential side. So I was wondering if you could provide a bit more color on that.
Sure Jeremy.
Sure.
Firstly I would say we're selective in what we press release.
We did press release of the first service residential property.
The management business in New York City, Maduro, but theres, some ancillary service providers.
And that we acquire that are small and because there is.
And the ancillary category, whether thats pool or.
Pool management pool maintenance and fitness.
The 1.
And 1 offs like that and there are small we don't tend to press release, and so that would have probably plugged the difference between.
The disclosed mid for release and and our.
Net acquisition growth.
Got you okay. Thanks.
And my apologies I missed I missed how much incremental restoration.
And and work you've got relative to the deep freeze.
And just reminding me $50 million.
Okay Awesome. Thank you great results.
Your next question is from Daryl Young of TD Securities. Your line is now open.
Good morning, guys good morning.
Question around and the restoration side and I guess, just as we head into the back half of the year and as you alluded to the hope would be the to stay flat at the minimum.
How should we think about some of the extreme weather events that are happening right now across North America and in terms.
Fire versus.
Named storms for you.
For business, and which ones would be the biggest contribution just if you could kind of rank required versus wind and the hurricanes.
And our wind and water damage generally generate more revenue.
Of opportunities for us, particularly with our.
The strong footprint on the east coast and and the Midwest.
As we build out continue to build out our footprint on the west coast wildfires will become a bigger part of our business.
But in general the.
The.
The work required around wind and water.
For exceeds the work required around why.
While the wildfire damage of it I would say.
Okay, Great and then.
Just on some of the tuck under acquisitions of it and thinking.
Excellent.
You seem to be targeting much more specialized restoration and talk vendors.
Is there any specific verticals I mean, you've got the healthcare with Golan.
Are there any and specific other verticals that you'd like to be and and restoration that are more niche maybe.
I would.
And we're targeting.
Strategically.
Increase our footprint and so Maxim and the New York City was very important for us because we did not have a presence.
And New York City and to properly serve our national accounts, we needed a.
<unk>.
Say of presence and Max and has brought us that <unk>.
So I would say, it's more about footprint and.
And.
And then the particular verticals and and specialties within the within our company are also.
Interesting and we take that into account.
And they can kind of help drive growth certainly.
As you roll and hedge for us.
We're not targeting any niche services.
At this point.
Okay great.
And then just 1 last 1.
I think last quarter you mentioned.
And the potential side that.
Some of the disruption of Covid is constant and some board level of turnover.
And just curious if that's if you've seen any margin pressure or any.
And the dynamics that are shaping up as you kind of more turnover on the property management contracts.
On the rest of them.
Yes, I mentioned last quarter that we were seeing an increase and board turnover, which generally leads or can lead to an RFP.
And I would say that is proving out we certainly saw an increase and the number of opportunities sales opportunities and Q2.
And that continues into Q3, but on the flip side, we have more of our communities growth.
To bid.
And we normally see.
The.
And when when.
Communities go out to bid.
It.
Does attract price competition so.
Would impact our margin over time.
I don't think it will be material.
The.
And unless it continues and I think what we're going to see is it will we will see this settle down.
I believe.
That sales will be they will be up this year, but our retention will be up a little bit of our turnover of accounts will be up a little bit as well.
Net net.
And we still think we're going to settle into that low to mid single digit organic growth rate as we get into 2022.
Perfect, Okay, great great quarter guys. Thanks.
Your next question is from George <unk> of Scotiabank. Your line is now open.
Yes. Good morning, guys, just a follow up from the Mark the most commercially and on the higher condo and HOA turnover.
I'm, just wondering if and when you when you layer.
And that and what's kind of the ongoing on a shortage of labor.
Do you think will maybe come still being able to hold that kind of a low to mid.
The 90% retention rates that we've had on the path.
You see the Scott and maybe slipping a little bit more for virtual period of time there.
No no we will be able to hold it.
And we always have its off maybe a point of.
This year, but still and the $93.90 for range.
We don't see that as being an issue.
Okay, great and.
And maybe for Jeremy just on that 25% organic growth number that you guys.
It produced in the quarter how.
How much of that was pricing.
How much of that was volume and maybe just general comments on pricing, which areas of the business are you guys pushing harder on that.
Yes. It was we got many different service lines, George So hard to dissect pricing at first service.
<unk> residential is always modest price competitive spoken about that.
And we're getting good pricing again to accommodate cost increases and the home improvement business.
But of out of that 25% I would.
Most of it's volume.
Gotcha.
Okay.
And the would you like to give any give any comment on looking forward how much do you guys kind of.
Where you see pricing going on.
And maybe the percentages on the next couple of quarters.
Dawn of percentages I think it's really about trying to cover off any cost increases and as I mentioned earlier.
Interest residential we have a big component that's cost plus so that just.
Gets matched.
And then the other the other business lines, particularly and the brands division will be a function of us.
I was just trying to preserve margin.
The visa B any labor.
First on the increases and in some instances very small or material cost increases.
Okay, and just 1 last 1 for me Jeremy on the on the working capital obviously, a pretty pronounced Dragons is kind of the restoration activity is high.
Can you talk to and maybe where you see that number of kind of shaking out of the back half of the year and for the year.
Labour card to look at it on a quarterly basis I've said on an annual basis, 1 of and a half percent usage of working capital as a percentage of revenues is a good rule of thumb now it's going to I think you've got to look at multiyear averages.
We of the weather related business that can really.
Move that working capital usage, we've got cutoff times around heavy labor business and payroll timing. So you got to look at it of multiyear.
The annual basis, and 1.5% usage on on revenue. So you got a $3 billion of business. We're in the order of $45 million.
$50 million.
Of working capital usage, but over the longer measurement periods and just quarterly.
Okay. That's great thanks, guys great quarter.
Thank you.
Your next question is from Scott Thompson of CIBC. Your line is now open.
Thank you and good morning, gentlemen, just a couple of questions first on the home improvement business and so are you concerned about moderating growth.
On the Covid related increases.
I think it will moderate Scott.
And just.
As you know there is a certain level of pent up demand I think that we're experiencing right now.
And it will moderate going into 2022, but.
The home and the home improvement market in general is so strong existing home sales higher home equity that will continue to price.
By the tailwind.
Through 2022, we believe.
Okay, Thanks and the.
Just a question on the impact of inflationary pressures on the residential contracts.
Particular labor.
2.
Do you see an impact there or are there sufficient.
And provide a rate escalators that will cover off.
Jeremy.
Yes, Scott of cost plus contract roughly 30 ish percent of of our division revenues. So that's directly covers us off and then we've got.
And on a property.
Management contracts and anything else, that's recurring contractual nature of its more than a year would have CPI type price escalators built into them.
Okay. Thanks, I'll turn it over thank you.
Yeah.
No more questions and please continue sir.
Thank you Brenda and.
Thank you everyone for joining us this morning.
We look forward to continued strong results from our next report.
Towards the end of October and thank you.
Ladies and gentlemen, this concludes today's this.
This concludes the second quarter of investors.
The French call. Thank you for your participation have a nice day.
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