FirstService Corporation (NASDAQ:FSV) Q2 2022 Earnings Conference Call July 27, 2022 11:00 AM ET
Company Participants
Scott Patterson – Chief Executive Officer
Jeremy Rakusin – Chief Financial Officer
Conference Call Participants
George Doumet – Scotiabank
Frederic Bastien – Raymond James
Stephen Sheldon – William Blair
Stephen MacLeod – BMO Capital
Faiza Alwy – Deutsche Bank
Daryl Young – TD Securities
Operator
Welcome to the Second Quarter Investors Conference Call. Today’s call is being recorded. Legal counsel requires us to advise that the discussion scheduled to take place today may contain forward-looking statements that involve known and unknown risks and uncertainties. Actual results may be materially different from any future results, performance, or achievements contemplated in the forward-looking statements.
Additional information concerning factors that could cause actual results to materially differ from those in the forward-looking statements is contained in the company’s annual information form as filed with the Canadian Securities Administrators and in the company’s Annual Report on Form 40-F as filed with the U.S. Securities and Exchange Commission. As a reminder, today’s call is being recorded. Today is July 27, 2022.
I would like to turn the call over to Chief Executive Officer, Mr. Scott Patterson. Please go ahead, sir.
Scott Patterson
Thank you, Chris. Good morning everyone. Thank you for joining our second quarter conference call. As usual Jeremy Rakusin, our CFO, is on the line with me today. I will start us off with a high level review of our performance and growth drivers and Jeremy will follow with a more detailed look at the financial results. Let me open by saying that we are pleased with the way the second quarter played out for us, particularly the strong organic growth we generated. Our teams continue to battle through a very tough labor environment to drive solid gains.
Total revenues for the quarter were up 12% over the prior year with organic revenue growth at 6%. If we exclude restoration, which was down organically against a tough comparative quarter in 2021, organic growth was over 10%. EBITDA for the quarter was $91.3 million slightly up versus Q2 of 2021, reflecting a margin of 9.8% compared to 10.8% in the prior year. Jeremy will walk you through the year-over-year margin dilution in his prepared comments and provide a look forward.
Looking at divisional revenue, FirstService Residential was up 13% year-over-year with organic growth at 7%. Organic growth was driven by new contract wins, net of losses, leading to higher management fee and labor related revenue. We achieved gains in all our markets with particularly strong growth in the Southeast and Texas. We estimate that price accounted for between 2% and 3% of the quarterly gain. Looking to the back half of the year, we expect to show high single-digit revenue growth, almost all organic as we lap the acquisition date of our Atlantic Pacific tuck-under in the third quarter.
Moving on to FirstService Brands, revenues for the quarter were up 11%, 4% organically. Our home improvement brands led the way with growth of 25%, almost all organic. Sequentially relative to Q1, we were up by over 10%, which is reflective of two things. Our continued success in adding capacity, despite a tough labor market, particularly installation crews and painters, and secondly less COVID related downtime during the second quarter relative to the first when we were hit by Omicron in January. The home improvement market continues to be relatively strong. Average home prices again rose during Q2 and home equity values remain high, which should continue to support renovation spending. Our leads are down year-over-year and sequentially, but still remain at a healthy level and we continue to focus on adding capacity to meet the demand and reduce backlogs. We expect to show strong 20% plus growth and home improvement for the balance of the year.
Turning to our restoration brands. FirstOnSite and Paul Davis, we generated revenues that were down slightly from the prior year and adjusting for acquisitions were down 10% organically. You will remember that we generated $50 million in revenue from the Texas deep freeze in Q2 last year. In the current year quarter, our revenue was broad based geographically and driven more by day to day activity out of our branches rather than by area wide events, where we deploy significant resources and personnel. We did not generate any revenue from named storms or significant regional events this past quarter. If we adjust for the Texas event last year, organic growth was 10%, which we are very pleased with.
Q2 restoration revenues were reflective of our backlog at the end of Q1. Our current backlog is solid, but down modestly from Q1 and from Q2 last year. Last year we entered Q3 with some storm related backlog. And later in the quarter, we generated revenue from hurricane Ida, which hit in late August early September. In total, we booked approximately $30 million from named storms in Q3 last year. Looking forward, we expect Q3 revenues to be modestly down from prior year unless of course we experienced significant storm activity over the next couple of months.
Moving now to Century Fire, where we had a very strong second quarter growing by over 20% organically versus a year ago and up 10% sequentially compared to Q1, the robust growth was driven by sprinkler and alarm installation. The commercial construction market continues to be very strong. The growth in installation revenue was supported by continued momentum in service, inspection and repair activity. We are having great success in converting our new installs into ongoing service work. Century exceeded expectation during the quarter and we expect continued 20% plus growth for the balance of the year. The backlog is at a record level.
Let me now hand over to Jeremy for a more detailed dive into the results.
Jeremy Rakusin
Thank you, Scott, and good morning everyone. As you just heard our financial results for the second quarter performed in line with the expectations we laid out at the end of our prior first quarter. On a consolidated basis, our Q2 results included revenues of $931 million and adjusted EBITDA of $91.3 million, up 12% and 2% respectively, and adjusted EPS of $1.12 down from $1.21 the prior year quarter. Combined with our Q1 results, which were largely similar to the current second quarter, our six months year-to-date consolidated financial performance is as follows.
Revenues of $1.77 billion, an increase of 14% over the $1.54 billion last year, including 8% driven by organic growth, adjusted EBITDA of $153.7 million representing 3% growth over the $149.6 million last year with a margin of 8.7% down from the 9.7% in the prior year period and adjusted EPS at $1.85 relatively flat to the $1.87 per share reported during our same six month 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 release and remain consistent with disclosure in prior periods.
I’ll now walk through our segmented financial highlights for the second quarter. Starting with the FirstService Residential division, we reported revenues of $457 million, a 13% increase over the prior year period. EBITDA for the quarter was $50.5 million, 9% year-over-year increase with an 11% margin down 40 basis points from the 11.4% margin in Q2 of last year. This performance reflects incremental margin improvements sequentially from the previous first quarter when we were down 70 basis points year-over-year. As we have previously indicated, we expect to continue closing the margin gap in the remaining half of the year and realize annual margins for the FirstService Residential division in line or relatively similar to our 2021 full year performance.
Shifting over to our FirstService Brands division, second quarter revenues came in at $473 million 11% increase over the prior year period. We reported EBITDA for the quarter of $43.9 million, a decrease of 9% compared to the prior year period.
Our margin during the quarter was 9.3% down from 11.3% in last year’s Q2.
We have talked in prior quarters about the ongoing inflationary pressures impacting our margin. And in this quarter we saw a particularly strong surge in fuel costs within our service delivery fan fleets that were not covered off given the pricing lag with our jobs. However, the primary driver behind the margin decline was in our restoration operations, where we previously called out the headwinds against last year’s Texas Freeze. That event generated both high margin mitigation jobs and an incremental $50 million in revenue, which drove operating leverage.
Since that time we’ve continued to invest in building out our operating platform, national sales organization, and response teams to better serve our clients, while also completing 10 restoration tuck-under acquisitions over the past year.
This quarter, as Scott mentioned, we were down 10% organically on the top line compared to last year without a similar event to the Freeze, which together with our ongoing investments, resulted in lower restoration margins.
Notwithstanding the near term drag on margins during periods of mild weather patterns, the investments we have made in our restoration operating platform are critical to capitalize on the market opportunity and drive towards becoming a $2 billion revenue service line. We expect to reap the benefits of our ongoing investments and platform integration initiatives over time on both the revenue and earnings lines.
Near term, during the current third quarter, we would typically expect more heightened weather-related activity to occur, which would drive improved, sequential financial performance compared to Q2. However, if weather remains as mild as in the second quarter, we expect a similar contribution in Q3 from our restoration businesses.
Moving on to components of our cash flow, operating cash flow was roughly in line with prior, before the impact of working capital and resulted in $62 million available after working capital requirements. We invested $20 million during the quarter in support of our existing operations and our year-to-date CapEx of $36 million keeps us on track with our full year targeted spending of approximately $85 million.
With no closed tuck-under acquisitions during the quarter, we directed almost $40 million of our free cash flow towards debt pay down and increasing our controlling ownership stakes through selected minority interest buyout. We have continued to make progress in replenishing our acquisition deal pipeline, including dialogue with several potential targets at varying stages of advancement. We would expect to see further transaction activity before closing out the year.
Finally, a look at our balance sheet where our net debt position is $512 million and our leverage as measured by net debt-to-EBITDA sits at 1.5 times. Our liquidity, reflecting total undrawn availability under our revolver and cash on hand, is sizeable at approximately $550 million. We are very well positioned with our conservative capital structure and ample funding sources to use our balance sheet strength and capitalize on opportunities that may present themselves in any type of market environment.
In closing, the market demand fundamentals across our businesses remain healthy, and you have heard Scott walk through the continued strong organic top line growth indicators for each service line to support the consolidated double digit revenue growth for the balance of the year. Our operations have collectively worked hard and demonstrated resiliency to drive profitability in the face of widespread inflationary pressures.
Our FirstService Residential division is right on track with our projection to close its margin gap by year end. Within our FirstService brands portfolio of businesses, our Home Improvement brand and Century Fire Protection have and will continue to drive robust growth on both the top and bottom lines.
Our restoration, operations as mentioned earlier, are dependent on-weather driven activity, which is unpredictable, but typically elevated in the back half of the year. Any meaningful uptick in regional or area wide events during the remainder of 2022 will provide us with greater profitability growth than our year-to-date performance.
That concludes our prepared comments. I would now ask the operator to please open up the call to questions. Thank you.
Question-and-Answer Session
Operator
Thank you. [Operator Instructions] First question comes from George Doumet of Scotiabank. Your line is open.
George Doumet
Yes, good morning guys.
Scott Patterson
Good morning George.
George Doumet
Scott when looking at the brand, it seems your comments already suggest labor markets improving or adding capacity. So I’m just wondering, do we have enough capacity today to service the current demand levels? And can you maybe share with us the quantum of how much the leads are down sequentially or down year-over-year is it expectation out there for software demand or home improvement. So anything you can share there?
Scott Patterson
Right. The leads are down less than 10% over prior year sequentially down a couple of percentage points. But you remember George last year we were in a position where we really couldn’t get to all the incoming leads. So we’re in a much healthier rhythm right now in terms of getting to getting to our leads, converting them, and booking the business and completing the business. And we have a backlog that is still booked too far out, but starting to come down to a point where we’re more comfortable in terms of customer experience.
But I would say that all indicators that we have point to, as I indicated in my comments, 20% plus growth for us through the balance of 2022. And we think it will continue to be very healthy into 2023 at this point. We are continuing to recruit and build out our capacity to try to get that backlog down to where we want it. The labor market remains very difficult, I would say. But we’re having more success, but very incremental. Did I answer all your questions?
George Doumet
No, you did. That’s a really good color. Thank you. And maybe one last one for me, Jeremy I guess reading between the lines, it looks like you expecting margin could be down in brands year-over-year given lack of storm activity. Is that a fair statement? And maybe at resi, it looks like margins are down 50 basis points for the first half of the year. Commentaries for margins to be flat. I’m just wondering, is that a function of just higher fixed price contract renewals? Or is there any upside to that number at all?
Jeremy Rakusin
Yes. So just on brands, yes, any degree of weather activity will help the margins there. And we’ll average them up from where we are this quarter, but if we don’t get any weather, we’re probably more in the realm of margin – the margin area for the current quarter. So restoration is a bit of a swing factor there on the margins and the degree of weather related activity.
On the residential side, it’s a combination of both the pricing and the catching up with the wage inflationary pressure that we’ve talked about that would take time. And then also always looking for greater efficiencies, our markets attack at different ways, staffing models, how we’re serving our clients, efficiencies in the heart of the house in terms of our support roles with the front line and we’ve got open positions. So it’s really a combination of those factors that are going to allow us to drive the margin improvement in the back half and close that gap.
George Doumet
Great. Thanks so much. Okay, good luck.
Scott Patterson
Thank you.
Operator
Thank you. [Operator Instructions] Our next question comes from Frederic Bastien of Raymond James. Your line is open.
Frederic Bastien
Hi, good morning, guys. You’re pointing to high-single digit organic growth for service residential in the second half. How much of that are you expecting to experience from contract price increases?
Scott Patterson
We think it’s going to stay in the same kind of range, Frederic. We’re – we estimate we’re at 2.5%. The balance is from new contract wins. And I think – sorry, go ahead.
Frederic Bastien
No, sorry. Yes, I’ll let you finish.
Scott Patterson
In particular, we’re having success in the Sunbelt and with large scale lifestyle communities that have a complex broad service offering, and these communities generally have over a 100 sighted employees and they’re – their service requirement includes amenities and food and beverage and fitness and wellness. And not many of our competitors are able to compete for these types of communities. The breadth of our offering and our experiences is driving some – driving wins for us over the last year.
Frederic Bastien
Are you seeing any pushback to the price increases that you’re implementing or nothing on your…
Scott Patterson
Yes. I mean, that’s why we’re at 2% or a bit over because we are not getting price increases across the Board. Certainly, we’re not getting as much or enough to cover off our wage inflation. In some cases, we’re getting increases, signing new contracts and getting increases staged over a number of years. In some cases, we’re getting partial coverage or full coverage, but there are many accounts where there are checking the price through RFP.
And so it’s – in many cases, we’re having to make a decision whether we strategically keep that customer or reallocate those resources. And so there’s a balance between margin and organic growth, I would say in this inflationary environment.
Frederic Bastien
So it’s not unlike the – what do you experience? I remember four years or five years ago, you actually went through that exercise and said, listen if we don’t mind losing the lower paying customers, if it means we can reallocate our resources to the best ones. Is that a similar exercise you’re going through?
Scott Patterson
It’s not an exercise. I mean it’s client by client and we’re – and it’s really no different than we’ve experienced – we experience every year due to the price competition. I mean our contracts will go out to bid which creates price tension, and we have to respond and make a decision. And so it – there are just – I would say in this inflationary environment, it’s happening more frequently. It’s not a particular exercise that we’re going through.
Frederic Bastien
Okay. I appreciate the color. Thanks. Scott. Can we go back on the comment you made about M&A. And just wondering if the discussions you’re having are predominantly with on the commercial restoration side, are they pretty evenly distributed across segments here?
Scott Patterson
I would say that the – there’s balance across both divisions but the activity in restoration is still high. Yes.
Frederic Bastien
Is still – there’s still a lot of pressure or competition from private equity here?
Scott Patterson
Definitely there is, I mean this year’s – it’s interesting the first six months, in general, we’re seeing that our – the business performance, financial performance of prospects is down in 2022 versus 2021. And whether it’s inflation or labor issues or in the restoration space due to a lack of weather and many sellers are seeking to be paid on 2021 results. And so there is valuation gap deals are taking longer. But certainly the competition is still there.
Frederic Bastien
Okay. That’s all I have. Thank you very much for your responses.
Scott Patterson
Thanks, Fred.
Operator
Thank you. [Operator Instructions] And our next question will come from Stephen Sheldon of William Blair. Your line is open.
Stephen Sheldon
Thanks and nice job on the quarter guys.
Scott Patterson
Thanks, Steve.
Stephen Sheldon
On free cash flow, it moved back higher this quarter. So for Jeremy, curious how you’re thinking about the potential trend in free cash flow at a high level over the rest of the year?
Jeremy Rakusin
It is a mix of businesses. So each one’s got their own rhythm. There are a lot of moving parts. We should have better free cash flow after the seasonal trough in Q1. I like where we finished off the quarter in terms of operating cash flow and free cash flow conversion as a percent of EBITDA. And on an annual basis when you normalize, we should have 50% free cash flow conversion as a percent of EBITDA maybe mid-40% to 50%. So I see it kind of improving for the balance of the year as best as we can see.
Stephen Sheldon
Great. That’s helpful. Do want to ask a follow-up on the M&A side and if we enter the recession or if we’re in a recession right now, do you think your M&A priorities wouldn’t change at all? For example, I don’t think you’ve done an acquisition on the California Closets side since 2019. So just curious if certain asset types could become more interesting to you in our – in a recessionary environment.
Scott Patterson
Yes, that’s an interesting question, Stephen. I think that, Cal Closets, we have a company-owned strategy there. It really hasn’t changed, but you’re right. We haven’t been active – as active in the last year to 18 months. And the business is doing very well. Our franchisees are doing very well. We’ve indicated to those franchisees, what markets that ultimately we want to own.
And realistically, we will own them at some point, but we’re happy to work with a timeline that makes sense for them. I think in a recessionary environment, if we do see a little bit of headwinds, we probably will be more active on the Cal Closets side. Outside of that, there will probably be more opportunity across the board in a recessionary environment for us. And as Jeremy pointed out, I mean, we have lots of liquidity and are able to move on those opportunities.
Stephen Sheldon
Great to hear. Thank you guys.
Operator
Thank you. And one moment for our next question. Our next question will come from Stephen MacLeod of BMO Capital. Your line is open.
Stephen MacLeod
Great. Thank you. Good morning guys. Good afternoon guys. Good morning.
Scott Patterson,
Good morning.
Stephen MacLeod
I just had a couple of questions here. When you look at the margin impact in both residential and brands in the quarter, is there a way to isolate sort of what – how much of it was due to potentially wage inflation relative to some of the mix impacts that you talked about?
Jeremy Rakusin
Yes, Stephen, I’ll take that. On the brand side, I called out fuel and that would be a new one for us that raised at Fed in Q2 compared to a lot of the other inflationary pressures from wages and other material inputs, which we’ve largely covered off, they’ve been with us for quite some time. So fuel is – was about 25% of the margin compression out of the 200 basis points.
And then the rest on the brand side would be restoration, both the mix headwinds with Texas Freeze plus the investments theme and commentary that I provided. On the residential side, it’s really – I’d say, the margin compression there that we’ve close in the gap on is largely the gap between pricing on our contract and the wage inflation, the themes that we’ve been talking about in prior quarters. And I’d say and salary mix, labor services versus high margin ancillaries would be a third of that component. And then we’re closing the gap between pricing and just finding ways to operate more efficiently with our front line and support teams.
Stephen MacLeod
Okay. That’s a helpful. Thanks, Jeremy. And then just on the outlook for margins. I know brands; I think you’ve done a good job articulating, where you think you’ll end up. But on the residential business, I just wanted to clarify. So I guess, what you’re expecting is you’d close the gap in the back half of the year. And do you expect to sort of finish the year on a flattish basis from a margin perspective year-over-year?
Jeremy Rakusin
Yes. In my prepared comments, we believe we’re going to have closed it by Q4. And there is a decent shot that the full year margin will be in line with last year’s performance. And if not, it’ll be pretty close.
Stephen MacLeod
Okay, great. And then maybe just finally with respect to the storm impacts from last year. Scott, I think you called out $30 million from named storms. Can you just clarify, did all of that fall into Q3 and is it fair to assume that you’d maybe throw like a 10% margin on that to get the EBITDA impact from that storm activity last year?
Scott Patterson
It all fell into Q3. I’ll let Jeremy comment on the margin.
Jeremy Rakusin
The – we need – what’s become apparent is that the extra storm related activity where we get response teams mobilizing, events where we’ve got national teams in place creates higher margins than absent any weather events. So if you’re talking about $30 million of incremental revenue, then it would come in higher than $3 million not going to quantify. And it’s also hard to parse that, but it definitely would come in at a higher margin when you’ve got these arrow wide events.
Stephen MacLeod
Right. Okay. Okay. That’s great. That’s good color. Thanks so much.
Operator
Thank you. One moment for the next question. And our next question comes from Faiza Alwy of Deutsche Bank. Your line is open.
Faiza Alwy
Great. Thank you so much, and good morning. So first I just wanted to touch on the residential business, you mentioned that the backlog is easing. I’m curious if you’re able to quantify like how much backlog impacted revenues this quarter and how much you expect the backlog to contribute to the back half of the year. What I’m really trying to figure out is what the underlying trajectory in the business is, and trying to think about 2023. So really any comments you can share around that would be helpful.
Scott Patterson
Faiza, you’re talking about our home improvement brands.
Faiza Alwy
No, I’m talking about just the residential business.
Scott Patterson
Okay. So we don’t really think about backlog at FirstService Residential, those are all contracts. The comments about backlog where with respect to our restoration brands Century Fire and our home improvement brands, which include California Closets and CertaPro Painters and Pillar To Post and Floor Coverings International. And with the home improvement brands, we – the backlog we’re booked out about three to four months. So the backlog we have – we’re basically booked through the third quarter. But the – all of our key indicators would point to that backlog continuing at a similar level, which would take us through the fourth. And then we’re just looking at sort of more macro indicators to guide us into 2023. And we expect that we’ll see continued healthy performance into the early part of 2023.
Faiza Alwy
Okay. Understood. That’s helpful. Sorry for misunderstanding your comment. Just then on the residential piece, I guess, as we think about the contribution of pricing, it sounds like we should expect pricing to accelerate in the back half of the year. And you’ve talked about some new contract wins. How should we think about that again, into 2023 as well? Like, do you expect pricing to be a contributor into next year as well? And I guess, I’m trying to figure out, like, how many of your contracts at this point, if there’s a way to quantify it or kind of at a pricing level where you’re able to where you are offsetting inflation and how much is left.
Scott Patterson
Yes. I think that the way you want to think about FirstService Residential is that it’s a contractual business. We’re managing these communities as they come up for renewal. And we have one year contracts primarily, but we also have a high number of three-year contracts. When they come up for renewal, we’re negotiating price increases. Many of our new contracts have are much more clear around CPI. So we’re in reasonable shape to continue to get the 2% to 3% that that we’re currently getting and we would expect that to continue into 2023. The reason it is lower than CPI and really has been is that these contracts do come up for negotiation and it is a very price competitive environment.
So is there any more color I can give you anymore?
Faiza Alwy
No. That helps. Very helpful, thank you so much.
Scott Patterson
All right.
Operator
Thank you. [Operator Instructions] And it looks like our next question shall come from Daryl Young of TD Securities. Mr. Young, your line is open.
Daryl Young
Hey, good morning guys.
Scott Patterson
Good morning, Daryl.
Daryl Young
Just with respect to the backlogs and the slight declines you’re seeing or leads down, is there a way to parse out how much of that is because you’ve added more labor and therefore you’re chewing down some of that versus call it demand destruction. It sounds like demand is still quite strong. So I don’t know if there you call inbounds that you measure or whatnot. But is there any metrics you can give us on that sense?
Scott Patterson
The backlog is – had a similar level than it has been still too high. We continue to work, we’re having some success, I would say in bringing it down. But the lead, the decline in leads, we’re not, I mean, we’re taking note of it, but it’s not a concern for us in the sense that it’s still at a very healthy level. And Daryl, I think I said in the previous answer, the leads are off sort of less than 10% year-over-year but they were just simply too high in 2021 with the pent-up demand. And the strong – the strong home equity values that we’re – that we’re driving in home investment.
Daryl Young
Got it. Okay. And then just with respect to FirstService Residential looking in comparison to 2019 pre-pandemic and all the noise and the mix, margins are actually up 40 basis points. Are we now at a point where the mix – the revenue mix is sort of apples-to-apples with 2019 levels and therefore the margin improvement is a function of operating improvements in price or maybe a little color there?
Scott Patterson
Yes. Daryl that’s bang on, the revenue mix has normalized…
[Technical Difficulty]
…the margin improvement is a function of operating improvements in price or maybe a little color there?
Scott Patterson
Yes. Daryl that’s bang on, the revenue mix has normalized in terms of labor and high margin ancillaries, and it is kind of what I said earlier, just operating better, have some open positions, staffing our teams just more efficiently and just finding just more efficiently and just finding a way to better serve our clients effectively. And then of course we’re taking pricing as appropriately to cover off the wage pressures.
Daryl Young
Okay. And then if we were to enter into a period of extended inflationary environment and price pass-troughs in resi, are there any competitive dynamics do you think would play out or I guess said differently can you continue the price pass through at these levels if inflation continues or will do expect an acceleration of pushback from customers, if pricing inflation stayed higher?
Scott Patterson
I think it would, I mean, listen these communities have to be managed and at the end of the day they have to pay for it, pay for management services. And so I think that as the – if the inflationary environment continues it would probably – it would probably be get easier for us. Honestly the price competition won’t necessarily alleviate, but the small Mom-and-Pop competitors will really start to feel the pressure on their cost side of the equation. So it won’t – it won’t get worse. I don’t see that Daryl.
Daryl Young
Okay, great. And then just one last one on the restoration business and the growth investments you’re making; is there a quantum there in terms of how many more quarters or dollar value of investment that’s being made there? It sounds like most of the margin impact in the short-term is more on the year-over-year weather mix, but just curious if that’s something we should be aware of that maybe extends into 2023?
Scott Patterson
Jeremy, you want to cover that?
Jeremy Rakusin
Sure. I mean, it’s a journey Daryl. I mean it’s a multi-year investment process. We talked about various areas of investment, shared services, the support roles, finance, IT, HR, we’re building an enterprise-wide operating platform to support that national brand on the rebranding. And we’re building out our national sales team. So we continue to add and try and win more national accounts and sign-up those master service agreements. And then we need the execution response teams to cover-off that incremental base of accounts that we’re signing up. So it’s sort of like the journey that we went on back several years ago with FirstService Residential where we went through a rebranding and then we built an enterprise-wide platform and we had a lot of cost that went into that.
So multi-year, the margins are down now. We will work to incrementally claw that back, but it’ll take several years. But we’re looking to build a $2 billion company here and sometimes the timing of the area-wide event and a volume of regional events to cover-up that margin will get it – will get it in periods. And then when we’ve got mild weather we’ll be a little softer, but we’re comfortable with, and as I said, these investments are critical to kind of build the size of company we’re targeting to achieve as a market leader.
Daryl Young
Okay. Got it. That that’s great color. Thanks. Thanks guys.
Operator
Thank you. I see no further questions in the queue. I will now like to turn the conference back to Scott Patterson for closing remarks.
Scott Patterson
Thank you, Chris. And thank you everyone for joining the call. Enjoy the rest of your summer and we look forward to talking at the end of Q3.
Operator
Thank you. Ladies and gentlemen this concludes the second quarter earnings conference call. Thank you for your participation and have a nice day.
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