FirstService Corporation (FSV) Q2 2021 Earnings Call Transcript

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FirstService Corporation (FSV -0.44%)
Q2 2021 Earnings Call
Jul 27, 2021, 11:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

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 US Securities and Exchange Commission. As a reminder, today's call is being recorded. Today is July 27, 2021. I would now like to turn the call over to Chief Executive Officer, Mr. Scott Patterson. Please go ahead, sir.

D. Scott Patterson -- President and Chief Executive Officer

Thank you, Brenna [Phonetic], and good morning, everyone. Welcome to our second quarter conference call. Thank you for joining us today. I'm on the line with Jeremy Rakusin, 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 were up 34% over the prior year, with organic revenue growth at 25%. Organic growth was strong at both divisions and at every material business line, really across the board and it reflects three main drivers. 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 a depressed 2020 due to the COVID lockdowns versus 2019 organic growth was 10%, and that figure does not include FirstOnSite, which we did not own at that time. The organic growth exceeded our expectation, and in particular, was impressive given the current labor market.

The number of open positions we have across the company is unprecedented and it 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 in restoration, fire protection and property management. 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.

At FirstService Residential, revenues were up 20% with organic growth at 16%. The principal driver of organic growth was the reopening of seasonal pools, fitness centers and other amenities in the Northeast U.S. and Canada. The reopening accelerated quickly through the quarter and by quarter end, approximately 90% of our managed facilities were open and staffed. We will see some additional reopening in 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.

Outside of amenity reopening, we generated solid organic growth, driven by contract wins and gains in ancillary services. Relative to the second quarter of 2019, the FirstService Residential division was up 9% organically. Looking forward to the balance of the year, we will see some incremental year-over-year benefit in the third quarter from seasonal amenity reopening and then in the fourth quarter and into 2022, we expect to settle back into a low-to-mid single digit average organic growth rate in this division.

Moving on to FirstService Brands, revenues for the quarter were up by 50% versus 2020, driven by strong growth in our home improvement segment and continued strong results from our Restoration Brands. Our home improvement brands, California Closets, CertaPro Painters, Floor coverings International and Pillar To Post were up as a group by over 50% versus the prior year quarter. A period during which much of North America was in lockdown. A more relevant and impressive metric is the 25% growth for this group relative to the second quarter of 2019. Very strong existing home sales in combination with continuing increases in prices and home equity have further buoyed an 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 have benefited from the strong market and leads bookings and completed jobs are at all time high. We reported last quarter that our challenge was production capacity to meet the demand. It remains a 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, but much of it is tied to an increase in production capacity. We continue to recruit aggressively and believe this will be reflected in 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 FirstOnSite and Paul Davis together were up over 50% relative to Q2 of last year. FirstOnSite is the big driver corporately for us, because it is all company owned, while Paul Davis is primarily a franchise system. The organic growth this quarter was a grant. It 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 into the quarter and completed and booked approximately $50 million of revenue related to the event. Organic growth outside of this event was low double-digit, reflecting continued progress at both FirstOnSite and Paul Davis in terms of adding national customers and building the brands.

Our backlog in restoration remains strong heading into the back half of the year. But we are up against very strong comparative results in 2020. You will remember that we secured significant work last year from the Iowa wind storms and Hurricane Laura. And across the third and fourth quarter, we generated over $100 million 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 in restoration. For that to occur, we would again need to generate work from extraordinary weather events.

Century 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 a solid back half of the year for Century Fire with similar year-over-year growth to Q2.

Before I hand off to Jeremy, I want to reiterate how pleased we are with the overall results for Q2 and particularly the organic growth we 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.

Jeremy Rakusin -- Chief Financial Officer

Thank you, Scott, and good morning, everyone. As you 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 segmental break down momentarily. But let me first reiterate our Q2 consolidated results.

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, our six months year-to-date consolidated financial performance is as follows. Revenues of $1.54 billion, an increase of 23% over the $1.26 billion last year. Adjusted EBITDA of $149.6 million, representing 30% growth over the $115.1 million last year, with a margin of 9.7%, up from the 9.2% in the prior year period. And Adjusted EPS at $1.87, up 52% versus $1.23 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 press release and remain consistent with our disclosure in prior periods.

Turning to our segmented financial highlights for Q2, I'll lead off with our FirstService 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 growth 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, up 40 basis points from the 11% margin in Q2 of last year. The margin improvement benefited once again from higher margin transfers and disclosures revenue, driven by very strong unit resales within our communities compared to last year's second quarter. This heightened level of home resale activity reflects a continuing theme that started in the second half of 2020, and so we would not expect any further meaningful margin pickup at FirstService Residential from this ancillary revenue in the back half of this year.

Now onto our FirstService Brands division. In the second quarter, we recorded revenues of $425 million, a 50% increase over the prior year period. EBITDA for the Brands segment during the quarter came in at $48.2 million, up 34% year-over-year and yielding an 11.3% margin down from the 12.6% margin in last year's Q2. There were two principle reasons for this margin compression during the quarter. First, as we indicated with our outlook for this quarter during our prior Q1 call, 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 reinvestment, including headcount additions for growth by most of our brands relative to last year's Q2 when aggressive COVID-related cost cutting initiatives were incurred.

On a consolidated basis, our EBITDA margin for the second quarter came in the 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, up $3 million from last year's Q2 when significant pandemic-driven head office compensation and other expense reductions were implemented. Excluding the impact of these higher corporate costs, our combined EBITDA margin from our two operating divisions was approximately flat to the prior year quarter. We also expect to see our full year 2021 consolidated EBITDA margin end 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, 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 FirstOnSite 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 in the face of the initial pandemic uncertainty. With respect to our capital spending, just over $15 million was earmarked toward internal growth in support of our operations. This keeps us on track with our $60 million full year capex target. And finally, under our tuck-under acquisition program, we deployed almost $40 million during the quarter toward further growth of our FirstOnSite 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 end. Paired with our EBITDA growth, our leverage as measured by net debt to EBITDA 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 sheet strength even as we emerge from the pandemic and reinvest by adding capacity to meet robust market demand. Our liquidity reflecting total undrawn availability under our revolver and cash on hand is also sizable at approximately $575 million, providing us with ample headroom to deploy capital in support of further growth.

That now concludes our prepared comments. I would ask the operator to please open up the call to questions and thank you.

Questions and Answers:

Operator

[Operator Instructions] Your first question is from Stephen MacLeod of BMO Capital Markets. Your line is now open.

Stephen MacLeod -- BMO Capital Markets -- Analyst

Oh, great, thank you. Good morning, guys.

D. Scott Patterson -- President and Chief Executive Officer

Hi, Steve.

Stephen MacLeod -- BMO Capital Markets -- Analyst

Hi. I just had -- Just had two questions here. Scott, you mentioned in your prepared remarks that restrictions around labor kind of limited your growth in the quarter. And I'm just curious if you're able to quantify or give an indication as to how much further you think growth would have been had you had the labor to meet the demand?

D. Scott Patterson -- President and Chief Executive Officer

You know that's hard to know. Stephen, we've tried to come at that a few different ways, but I'm not prepared to quantify, really able to accurately. But certainly in our home improvement brands we are booked out farther than we want to be and there are leads and estimates that we can't get to. And so I think there would have been incremental growth in home improvement and it -- really the other businesses, it's similar situation. We do have more open positions than we have historically at FirstService Residential. Some of our communities are temporarily short staffed and those would be bodies that would be reimbursable. So that's also tempering the topline in that business.

Stephen MacLeod -- BMO Capital Markets -- Analyst

Okay. Okay. But it's. Okay, OK, I see. Thank you. And then maybe secondly, in your slide you gave some good puts and takes around what your Q2 expectations are in the FirstService Brands business or sorry, back half expectations just around the home improvement Restoration and Century Fire. And I'm just wondering how that stacks up on a segment -- total segment basis just when you -- when you think about all the moving parts around those three major business drivers.

D. Scott Patterson -- President and Chief Executive Officer

I don't have that in front of me. Jeremy, you have a sense.

Jeremy Rakusin -- Chief Financial Officer

Yeah, Steve, stronger in Q3 versus Q4. But, I think the aggregate pieces suffice. I think you could wait the Scott's commentary more toward Q3 versus Q4. And Q4 is somewhat dependent on what happens in Restoration in terms of storm activity.

Stephen MacLeod -- BMO Capital Markets -- Analyst

Okay, OK, that's helpful. Thanks, guys. I'll get back in queue.

Operator

Your next question is from Stephen Sheldon of William Blair. Your line is open.

Stephen Sheldon -- William Blair & Co -- Analyst

Good morning. Thanks. I just wanted to ask a little bit more, I guess, about the home improvement brands. I think you talked some about potentially turning away some businesses you don't want a long gap between the booking and the installation for the customer, especially I think in businesses like California Closets. So just wanted to ask, it sounds like -- has that continued? And as you look across your businesses, have you seen any signs that the hiring challenges could be alleviating at all?

D. Scott Patterson -- President and Chief Executive Officer

I don't know that we're proactively turning away business, Steven. But we have limited our marketing spend so as not to amplify our capacity issue. I would put it that way. We, as I mentioned, we're not getting to some leads, we're not able to provide estimates for all prospective customers and we're booking jobs too far out. So it's -- that impairs the brand experience and that's something we're working very hard to rectify through communication with the customer and really proactively managing those relationships.

We are making headway and improving our pace of recruiting I would say largely because we've invested in it, we've added resources, we've generally increased our efforts around recruiting consistently really over the last six to nine months. So we're making headway and as I mentioned, I think we expect to see sequential improvement particularly in home improvement in the third quarter as a result of adding capacity, but I'm not sure that the market is getting any easier or opening up at all in terms of labor. I don't know if that answers your question.

Stephen MacLeod -- BMO Capital Markets -- Analyst

No, that's helpful. I appreciate that. And then as a follow-up, corporate expenses I think picked up here just a little bit this quarter to just under $5 million on an adjusted basis. I just wanted to ask if we should expect this to kind of be a new baseline to grow from moving forward because I think this is the highest that's it's been. Are there any, I guess, unusual items in there this quarter to call out that may have driven some of that increase?

Jeremy Rakusin -- Chief Financial Officer

Steve. It's Jeremy. Yeah, I mean compared to last year's Q2, we had significant salary cuts and other head office expense reductions, but this quarter would have reflected normalization we accrue every quarter for bonus accruals. So they would have been a catch-up versus Q1 as we see visibility for the balance of the year. We've added a couple of additional resources at our head office as well.

I'd say a mid-teens for the year, mid-teens million dollars of head office or corporate costs 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 converted to U.S. dollars would have an impact as well.

Stephen MacLeod -- BMO Capital Markets -- Analyst

Got it. Thank you.

Operator

Your next question is from Matt Logan of RBC Capital Markets. Your line is now open.

Matt Logan -- RBC Capital Markets -- Analyst

Thank you and good morning.

D. Scott Patterson -- President and Chief Executive Officer

Good morning.

Matt Logan -- RBC Capital Markets -- Analyst

Maybe following-up on the labor market and some of the challenges you're facing there. When we think about the margin, do you find that you are able to offset some or all of the rising labor costs with higher prices or is this simply just the fact that you can't get the labor at all?

D. Scott Patterson -- President and Chief Executive Officer

We are experiencing some wage inflation and certainly to date as evidenced by the margins you saw in the release. We have been able to offset that, but maybe, I'll pass it over to Jeremy, he's been digging into the wages across the company and let him amplify.

Jeremy Rakusin -- Chief Financial Officer

Yeah, sure. Thanks, Scott. As Scott said, ability to preserve margins thus far, again, I think is reflected in our results, but it is evolving as we speak. Some pockets seeing more wage inflation than others. It does vary by service line, by role or position and by market and at FirstService Residential, we have a lot of cost plus contracts. So our ability to pass that through directly does give us good cover.

And then at some of our other brands, particularly in home improvement in terms of wage inflation around our installer crews or painting crews, our ability to pass along in terms of pricing our jobs has been good thus far, It's on a little bit more of a lag. So it's not a direct pass through, but again, we keep a close eye on this. We're monitoring closely and it's continuing to evolve, but so far so good.

Matt Logan -- RBC Capital Markets -- Analyst

And maybe turning to your capital allocation and target leverage, how should we be thinking about tuck-under acquisitions or the potential for larger M&A with leverage now down in kind of the low 1 turn range?

D. Scott Patterson -- President and Chief Executive Officer

You know really --

Jeremy Rakusin -- Chief Financial Officer

Go ahead, Scott.

D. Scott Patterson -- President and Chief Executive Officer

I was just going to say it doesn't impact us in terms of accelerating activity. We have a pipeline, we have a process, we have a rhythm and we just want to ensure that we always have the capacity to continue to drive our M&A program. Jeremy, I'll let you add to it.

Jeremy Rakusin -- Chief Financial Officer

Yeah, Matt, I was going to make a similar point so that our leverage doesn't deprive 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 chances are we may have some very modest annual deleveraging and then it's something in terms of what we do with capital deployment after our acquisition spend. We revisited 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.

Matt Logan -- RBC Capital Markets -- Analyst

And maybe just take a step back and look at the M&A environment, are you seeing elevated acquisition multiples or maybe just some color in terms of what you're seeing on the ground for residential restoration and home improvement?

D. Scott Patterson -- President and Chief Executive Officer

It's very active in general the market, more activity in restoration and fire protection for us due to the active consolidation and presence of many private equity buyers frankly. Certainly multiples are increasing. We historically have focused on expanding our footprint with smaller acquisitions and so the impact at that level is not as significant as it is as you get to the larger companies, but certainly we're seeing multiples increase across the board.

Matt Logan -- RBC Capital Markets -- Analyst

And maybe one last housekeeping question here for me, in terms of the storm-related activity and the large loss revenues, would the EBITDA margins be consistent with prior quarters at around 10%? on those incremental revenues.

Jeremy Rakusin -- Chief Financial Officer

Yes.

Matt Logan -- RBC Capital Markets -- Analyst

Excellent. Appreciate the commentary, gentlemen. I will turn the call back.

Jeremy Rakusin -- Chief Financial Officer

Thanks, Matt.

Operator

Your next question is from Frederic Bastien of Raymond James. Your line is now open.

Frederic Bastien -- Raymond James -- Analyst

Hi guys. If we strip out the impact of weather-related events, do you think your commercial restoration activities can maintain a high-single digit organic growth in the foreseeable future through market share gains and just expansion of your services?

D. Scott Patterson -- President and Chief Executive Officer

We do Frederic, we do. We've certainly seen that to date. This past quarter, we grew organically at over 10%. We're investing aggressively in our sales team and we are driving new national accounts. We also believe we're increasing the wallet share of our existing accounts and we've had some success with leveraging the expertise and relationships from our tuck-under acquisitions across our footprint. A great example is the healthcare expertise at Roland.

It's been a year since we completed that deal and we've had considerable success expanding our healthcare vertical in the last 12 months and we're seeing that in a very healthy backlog heading into the back half of the year. So you know, quarter to quarter, the storms will cause some fluctuation, but we do believe there will be steady and solid organic growth underlying that.

Frederic Bastien -- Raymond James -- Analyst

Great and can you comment on sort of the rebranding efforts and how that has gone and whether it's also driven general incremental traffic?

D. Scott Patterson -- President and Chief Executive Officer

I mean it's -- we're very happy with the way the rebranding has gone. It honestly feels like we've been first on site for a few years now. It's totally entrenched internally and we believe gaining considerable traction externally. The one area we've seen early gains is cross-border and extending national relationships that we have in the U.S. or Canada to becoming North American relationships and certainly one brand and one message is helping make that happen.

Frederic Bastien -- Raymond James -- Analyst

Great, good to hear. Changing gears, I was a little surprised to see tuck-in acquisitions contribute as much as they did to FirstService Residential's growth. My math suggests that they would have added anywhere from $13 million to $14 million of revenue, but you don't really press release your tuck-in acquisitions anymore on the FirstService Residential side. So I was wondering if you could provide a bit more color on that.

D. Scott Patterson -- President and Chief Executive Officer

Jeremy, you answer that.

Jeremy Rakusin -- Chief Financial Officer

Yes. First, I'd say we were selective in what we press release. We did press release the FirstService Residential Property Management business in New York City Midboro, but there is some ancillary service providers that we acquire that are small and because they are in the ancillary category whether that's pool or pool management, pool maintenance, fitness, if they are one-offs like that and they are small, we don't tend to press release them. So that would have probably plugged the difference between the disclosed Midboro release and our net acquisition growth.

Frederic Bastien -- Raymond James -- Analyst

Got you. Okay, thanks. And my apologies, I missed how much incremental restoration work you got relative to the decrease [Phonetic]. Would you mind just reminding me?

Jeremy Rakusin -- Chief Financial Officer

$50 million.

Frederic Bastien -- Raymond James -- Analyst

Okay, awesome. Thank you. Great results.

Operator

Your next question is from Daryl Young of TD Securities. Your line is now open.

Daryl Young -- TD Securities -- Analyst

Good morning, guys.

D. Scott Patterson -- President and Chief Executive Officer

Good morning.

Daryl Young -- TD Securities -- Analyst

Question around the restoration side and I guess just as we head into the back half of the year as you alluded to, the hope would be to stay flat at a minimum. How should we think about some of the extreme weather events that are happening right now across North America in terms of fire versus named storms for your business and which ones would be the biggest contribution. Just if you kind of rank through fire versus wind and hurricanes?

D. Scott Patterson -- President and Chief Executive Officer

Wind and water damage generally generate more revenue opportunities for us particularly with our strong footprint on the East Coast and in 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 work required around wind and water far exceeds the work required around wildfire damage I would say.

Daryl Young -- TD Securities -- Analyst

Okay, great. And then just on some of the tuck-under acquisitions, I'm thinking Maxim's. You seem to be targeting much more specialized restoration tuck-unders. Is there any specific verticals. I mean, you've got the healthcare with Roland. Are there any specific other verticals that you'd like to be in restoration that are more niche maybe?

D. Scott Patterson -- President and Chief Executive Officer

I would say we're targeting to strategically increase our footprint and so Maxim's in New York City was very important for us because we did not have a presence in New York City and to properly serve our national accounts, we needed a significant presence and Maxim's brought us to that. So I would say it's more about footprint and then the particular verticals and specialties within a company are also interesting and we take that into account and they can help drive growth certainly as Roland has for us. We're not targeting any niche services at this point.

Daryl Young -- TD Securities -- Analyst

Okay, great. And then just one last one. I think last quarter you mentioned on the residential side that some of the disruption of COVID has caused some Board level turnover and just curious if that's -- if you've seen any margin pressure or any competitive dynamics that are shaping up as you have more turnover of property management contracts.

D. Scott Patterson -- President and Chief Executive Officer

Yeah, I mentioned last quarter that we were seeing an increase in board turnover, which generally leads or can lead to an RFP and I would say that is proving out. We certainly saw an increase in the number of opportunities -- sales opportunities in Q2 and that continues into Q3, but on the flip side, we had more of our communities go out to bid than we normally see. When communities go out to bid, it does attract price competition.

So that would impact our margin over time. I don't think it will be material unless it continues. And I think what we're going to see is, we will see this settle down. I believe our sales will be -- they will be up this year but our retention will be up a little bit, our turnover of accounts will be up a little bit as well. Net-net, we still think we're going to settle into that low-to-mid single digit organic growth rate as we get into 2022.

Daryl Young -- TD Securities -- Analyst

Perfect. Okay, great quarter guys. Thanks.

Operator

Your next question is from George Doumet of Scotiabank. Your line is now open.

George Doumet -- Scotiabank -- Analyst

Yeah, good morning, guys. Just a follow-up to last question on the higher condo and HOA turnover. I'm just wondering when you layer that in with kind of the ongoing shortage of labor, do you think we'll maybe still be able to hold that kind of low-to-mid 90% retention rate that we had in the past or you see us, Scott, maybe slipping a little bit lower for a short period of time there?

D. Scott Patterson -- President and Chief Executive Officer

No, no, we'll be able to hold it. I mean we always have. It's off maybe a point this year, but still in the 93%, 94% range. We don't see that as being an issue.

George Doumet -- Scotiabank -- Analyst

Okay, great. And maybe for Jeremy just on that 25% organic growth number that you guys produced in the quarter, 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?

Jeremy Rakusin -- Chief Financial Officer

Yeah, we've got many different service lines, George. So hard to dissect. Pricing at FirstService Residential is always modest, price competitive, we've spoken about that. We're getting good pricing again to accommodate cost increases in the home improvement business, but out of that 25%, most of its volume predominantly volume.

George Doumet -- Scotiabank -- Analyst

Okay and would you or can you give any comment looking forward how much you guys kind of where you see pricing going maybe through the percentages for the next couple of quarters?

Jeremy Rakusin -- Chief Financial Officer

I don't have percentages. I think it's really about trying to cover off any cost increases and as I mentioned earlier at FirstService Residential, we have a big component that's cost plus. So that just gets matched. And then the other business lines, particularly in the brands division will be a function of us just trying to preserve margin vis-a-vis any labor cost increases and in some instances very small material cost increases.

George Doumet -- Scotiabank -- Analyst

Okay and just one last one for me, Jeremy. On the working capital, obviously, a pretty pronounced drag as kind of restoration activity is high. Can you talk to maybe where you see that number kind of shaking out in the back half of the year and for the year?

Jeremy Rakusin -- Chief Financial Officer

Hard to look at it on a quarterly basis. I've said on an annual basis, 1.5% usage of working capital as a percent of revenues is a good growth. Now it's going to, I think you got to look at multi-year averages. We have the weather-related business that can really move that working capital usage. We've got cut off times around heavy labor business and payroll timing. So you got to look at it at a multi-year annual basis and 1.5% usage on revenues. So if you've got a $3 billion business, we're in the order of $45 million-ish, $50 million of working capital usage, but over a longer measurement period than just quarterly.

George Doumet -- Scotiabank -- Analyst

That's great, thanks guys, great quarter.

Jeremy Rakusin -- Chief Financial Officer

Thank you.

Operator

Your next question is from Scott Fromson of CIBC. Your line is now open.

Scott Fromson -- CIBC -- Analyst

Thank you and good morning gentlemen. Just a couple of questions. First, on the home improvement businesses, are you concerned about moderating growth following these COVID related increases?

D. Scott Patterson -- President and Chief Executive Officer

I think it will moderate, Scott, 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 improvement market in general is so strong, existing home sales higher home equity, that will continue to provide tailwinds through 2022 we believe.

Scott Fromson -- CIBC -- Analyst

Okay, thanks. And just a question on the impact of inflationary pressures on residential contracts particularly labor. Do you see an impact there or are there sufficient rate escalators that will cover off?

D. Scott Patterson -- President and Chief Executive Officer

Jeremy?

Jeremy Rakusin -- Chief Financial Officer

Yes, Scott, cost plus contracts roughly 30%-ish of our division revenues. So that directly covers us off and then we've got on our property management contract and anything else that's recurring contractual nature that's more than a year would have CPI-type price escalators built into them.

Scott Fromson -- CIBC -- Analyst

Okay, thanks. I'll turn it over. Thank you.

Operator

No more questions, please continue, Sir.

D. Scott Patterson -- President and Chief Executive Officer

Thank you, Brenna [Phonetic] and thank you everyone for joining us this morning. We look forward to continued strong results in our next report toward the end of October. Thank you.

Operator

[Operator Closing Remarks]

Duration: 44 minutes

Call participants:

D. Scott Patterson -- President and Chief Executive Officer

Jeremy Rakusin -- Chief Financial Officer

Stephen MacLeod -- BMO Capital Markets -- Analyst

Stephen Sheldon -- William Blair & Co -- Analyst

Matt Logan -- RBC Capital Markets -- Analyst

Frederic Bastien -- Raymond James -- Analyst

Daryl Young -- TD Securities -- Analyst

George Doumet -- Scotiabank -- Analyst

Scott Fromson -- CIBC -- Analyst

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