FirstService Corp

NASDAQ:FSV

Earnings Call Transcript 2019-Q2

[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 24, 2019. I would like to turn the call over to Chief Executive Officer, Mr. Scott Patterson. Please go ahead, sir.

[D. Scott Patterson]

Thank you, Erica. Good morning. Welcome, ladies and gentlemen, to our second quarter conference call. Thank you for joining us today. With me is our CFO, Jeremy Rakusin. This morning, we announced another very strong quarter reflecting double-digit top and bottom line growth driven largely by solid organic growth across the company, strong contribution from tuck-under acquisitions over the last year and margin improvement at FirstService Residential. Those were the 3 principal drivers. The results build on our strong first quarter and give us confidence as we head into the back half of the year. I will spend the next few minutes taking you through some of our operating highlights for the quarter, and then Jeremy will follow with the financial review.Consolidated revenues for the quarter were up 16% with organic growth coming in at about 6.5%. EBITDA was up 14% with margins down slightly. Margin improvement at FirstService Residential was offset by margin dilution at FirstService Brands, a similar scene to our -- a similar theme to our first quarter, and Jeremy will walk you through the detail in his prepared comments. Earnings per share were up 30% over the prior year. At FirstService Residential, our revenues grew 13% with organic growth accounting for half, the same level as Q1. Organic growth was relatively broad-based geographically but with particular strength in Florida, our largest market; and the west region, California, Nevada and Arizona, also large markets for us. The growth was driven by new contract wins in these markets supported by high retention of existing accounts. Organic growth for the division was enhanced by strong contribution from our seasonal pool and amenity management services. Top line also benefited from the addition of 4 tuck-unders over the last year that I referenced in our last call. These additions enhanced our market share in Atlanta, Nashville, Charleston and Chicago. The revenue growth for the quarter also included a gross-up adjustment relating to the acquired operations in Chicago. Jeremy will provide more detail on this accounting adjustment in a minute.Turning now to FirstService Brands. We reported very strong revenue growth of 21% with organic growth at 6% and the balance from a number of acquisitions closed over the last 12 months, in property restoration, at California Closets and under Century Fire. The 6% organic growth at Brands reflected a mix of results. We generated strong double-digit growth at California Closets and Floor Coverings International. That was supported by solid single-digit growth at CertaPro Painters, Century Fire and Pillar To Post Home Inspection. This momentum was partially offset by year-over-year revenue declines at Paul Davis Restoration due to reduced activity levels at our company-owned operations and with Paul Davis National in particular. We were engaged with several large jobs in the prior year quarter that were not replicated this year. We expect similarly tough comparisons over the next couple of quarters as we were very busy in the back half of 2018 with Hurricanes Michael and Florence and the California wildfires. While most of our brands in this division benefit from a strong economy and a strong housing market in particular, our restoration operations are agnostic to economic swings and more dependent on weather patterns. As a result, there is less predictability, and we will have up-and-down quarters and years with this part of our business. The attraction for us is the long-term opportunity, which we believe is significant. The restoration market has been steadily growing due to the increasing frequency of weather events, the growing installed base of commercial and residential properties and the increasing cost of mitigation and reconstruction. It is a huge market and very fragmented, similar to our other markets. And similar to our other markets, there is significant running room for growth. I say all this to segue into our big highlight for the quarter, which was the acquisition of Global Restoration Holdings, the second largest commercial and large loss property restoration firm in North America. We are very excited about this move. We've been focused on expanding our presence in commercial and large loss for a couple of years now. This acquisition significantly increases our scale and capability and accelerates the execution of our strategy in this area by several years. The company operates out of 60 regional offices throughout North America under 2 highly recognized brands: Interstate Restoration in the U.S. and FirstOnSite Restoration in Canada. They provide end-to-end restoration solutions to blue-chip national clients, which include large, multi-location commercial customers, property owners, property managers and insurance companies. Our go-forward strategy with Global will be to expand our geographic footprint through organic growth and tuck-under acquisitions, to enhance our service capability with existing customers and position ourselves to secure additional national contracts.Global is very complementary to our existing Paul Davis franchise and company-owned operations, which is a leading player in the residential segment of the industry. So we have the #2 company in residential of Paul Davis and the #2 company in commercial, large loss with Global, and we are in a position today to provide full-service restoration across every customer segment in the industry. Global and Paul Davis have already started to collaborate and work together in the best interest of our customers with both brands. On that note, I will hand off to Jeremy for a closer review of our financial report.

[Jeremy Alan Rakusin, Chief Financial Officer]

Thank you, Scott. As you've just heard, FirstService reported strong consolidated second quarter financial results. For the quarter, revenues were $574 million. Adjusted EBITDA was $65 million, and adjusted EPS came in at $1.12, up 16%, 14% and 30%, respectively. This performance largely mirrors the first quarter, and so our 6 months year-to-date consolidated financial results line up in similar strong fashion with revenues of $1.06 billion, an increase of 15% over the $922 million last year; with 7% organic growth and the balance from recent tuck-under acquisitions; adjusted EBITDA of $94.2 million representing 14% growth over the $82.5 million last year with a margin of 8.9% slightly lower than the 9% in the prior year period; and adjusted EPS at $1.45, up 32% versus $1.10 per share reported during our same 6-month period last year.Our adjustments to the operating earnings and GAAP EPS to calculate our adjusted EBITDA and adjusted EPS, respectively, have been summarized in this morning's press release and are consistent with approach and disclosure in prior periods. Turning now to our segmented financial results. I'll lead off with the FirstService Residential division. Second quarter revenues were $370 million, a 13% increase over the prior year period. The very strong top line growth resulted from a combination of 3 factors. First and foremost, organic growth, as Scott mentioned, contributed roughly half of the revenue increase and was robust across the operations with particular strength in our pool and amenity management services during the seasonal period. Second, we benefited from strong contribution of recent acquisitions. And lastly, in connection specifically with the onboarding of the Chicago property management businesses acquired early this year and converting their financials in accordance with ours under U.S. GAAP, we realized some revenue gross-up related to sited staff payroll within those operations. The financial impact of this revenue gross-up is approximately $15 million in increased annual revenue, contributing roughly 1.5% to the division's overall top line growth for the quarter but with no impact to our EBITDA.During the second quarter, EBITDA for the FirstService Residential division came in at $39.2 million, a 17% year-over-year increase with a 10.6% margin, up 40 basis points over the 10.2% margin in Q2 of last year. This margin expansion was largely driven by the strength in our seasonal pool and amenity platform, which I noted earlier. Now shifting over to our FirstService Brands division, where for the second quarter we recorded revenues of $203.5 million, a 21% increase over the prior year period. EBITDA for the Brands segment during the quarter came in at $28.4 million, up 7% year-over-year and yielding a 14% margin, lower than the 15.8% margin in last year's second quarter. As with our first quarter earlier this year, weak performance at our Paul Davis company-owned operations resulting from lower activity levels was the primary contributor to both the softer organic growth and the lower profitability in margin within the Brands division.Collectively, our businesses across both divisions also generated strong cash flow. For the second quarter, operating cash flow after working capital changes grew 11% over the prior year period to $43 million after normalizing for the onetime impact of settlement of our Founder and Chairman's long-term incentive arrangement during the quarter. For the 6 months year-to-date, the year-over-year performance is even stronger with $69 million of operating cash flow, again normalized, up 45% versus this $48 million for the prior year period. The second quarter was also quite active on the investment front. We closed on the large and strategically significant acquisition of Global Restoration for $505 million, and Scott previously highlighted the merits and opportunities around this transaction. We also deployed an additional $15 million towards our more typical tuck-under acquisition program in support of our existing service lines. At the same time, we have further streamlined and focused our existing operations by divesting 2 smaller noncore businesses by aggregate sale proceeds of approximately $15 million during the quarter, the first being our Florida- and Arizona-based landscaping operations in the Residential division, and the second being our national accounts' commercial painting operations in the Brands division. Our management teams can now focus even further on our businesses, which have scale, command leadership positions and can tap into significant growth opportunities.Finally, we incurred $11.5 million in capital expenditures during the period, similar to the amount spent in the first quarter and tracking right in line with our full year target of $45 million in maintenance CapEx previously provided. We are notching up our expected 2019 CapEx amount now to $50 million to account for the recent acquisition of Global Restoration and other acquisition-related investments.That leads us to our balance sheet. We're on the heels of closing our large Global Restoration acquisition just before quarter end. Our net debt at June 30 increased to $835 million. We appreciate the support of our banking syndicate partners in stepping up and funding the Global transaction. As a result, our leverage as measured by net debt to EBITDA including credit for acquired EBITDA stood at 3.2x. While our leverage has meaningfully increased, our existing liquidity is approaching $200 million of total undrawn availability under our credit facility and cash on hand, 30% higher than mid-last year. So we currently have good financial flexibility, which is important given the active acquisition pipeline across our service lines. We remain mindful to ensure that we have the ability to allocate capital in support of growth of each of our businesses. Our operations also generate strong and steady cash flow providing us with confidence that our balance sheet can naturally deleverage over time. Finally, to take stock of where we sit at the midpoint of 2019, our year-to-date results put us on track to deliver the 10%-plus annual revenue growth we established at the outset of the year, excluding the significant contribution of the Global acquisition to come in the back half of the year. Our formula for half organic growth, the balance from typical tuck-under acquisitions on the base business, remains intact with the addition of Global further fueling our growth. Our model is primarily top line growth-driven, and so as we have previously indicated, we expect our consolidated margins to remain largely in line with our prior year. We are very pleased with our overall results to date, and our outlook across our operations remains positive for the balance of the year. That concludes our prepared comments. I would please ask the operator to open up the call to questions. Thank you.

[Operator]

[Operator Instructions] Your first question comes from the line of Stephen Sheldon with William Blair.

[Stephen Hardy Sheldon, Analyst]

First in residential. Seems like this is the third quarter in a row with some modest organic revenue growth acceleration, and some of that was the revenue gross-up in the quarter. But just with the pace of contract wins and the potential for continued benefit in the third quarter, I'd imagine from the seasonal services, pool and amenities, are you more optimistic about organic growth in this business in the second half of the year and potentially heading into 2020?

[D. Scott Patterson]

It should continue in the second half at a level that is a bit higher than what we've seen historically. It has been -- as you suggested, it's been higher in Q1 and Q2, and a lot of that is driven from strong sales in the back half of last year. Sales have been quite robust the last 2 to 3 years. And the subtle differences, we've ticked up retention rates. This is a simple business model, really. It's a contractual revenue with growth driven by contract wins, net of losses. And if we can impact either of those levers, we move the needle on growth. And in the first half of the year, we've tweaked up our retention rate, particularly in some of our larger markets, Florida, California, Nevada, Arizona, Vancouver, have been very strong for us. So it should carry into the back half of this year, and we certainly hope to maintain it.

[Stephen Hardy Sheldon, Analyst]

That's helpful. Any sense of where retention currently sits? I know you've talked about maybe 93% to 96% over time. Where is retention currently at?

[D. Scott Patterson]

It's in the 95% range, and that's an area where we're comfortable, and we want to settle in that. So it's mid-90s.

[Stephen Hardy Sheldon, Analyst]

Okay. That's helpful. And then on the other side of the business, how are you thinking about the growth opportunities for the combined restoration business over the next few quarters? Given some of the recent events, hurricanes, flooding in the south, I know you have continued tough comps. But could it -- at least a modestly better environment to see improvement in the company-owned Paul Davis operations in particular and a good environment for continued growth at Global Restoration?

[D. Scott Patterson]

Well, the next couple of quarters -- we had storm activity in the last half of last year, so it will be tough to -- on a same-store basis to match. But we may have storms this year, so it's hard to say. But if -- based on what we see today, our same-store sales will be down from the prior year. On a go-forward basis or longer term, we love where we are. We love our position with Paul Davis and with Global. This is a market that's growing, and we have a very strong position in it. But as I suggested in my prepared comments, we will have some volatility from quarter-to-quarter, year-to-year.

[Operator]

And your next question comes from the line of Stephen MacLeod with BMO Capital Markets.

[Stephen MacLeod, Analyst]

I just wanted to circle around on the margin expectation. You've sort of talked about consolidated margins remaining largely in line with 2019. I know part of that is because of the sort of tough comps on the PDR business. But can you just talk a little bit about what you expect in the back half for, I guess, both FirstService Residential and FirstService Brands and how that ties to your full year consolidated expectation?

[Jeremy Alan Rakusin, Chief Financial Officer]

Yes. I think residential, obviously, we've had good margin improvement in the first half of the year. I think our best estimate for the back half of the year is for it to be flatter, minimal margin expansion, if any. I mentioned during the latter half of last year in one of our prior calls that margin improvement will not be something that happens every quarter. So we may even have a quarter or 2 where margins decline year-over-year, but the picture for that side of the business is to have margins on an annual basis holding or slightly improved. And yes, our estimate again, given where we sit here to date, is that, that trend should hold for the full year, the same margins as last year or slightly better, maybe not on an -- on every quarter basis. As for brands, again a lot of moving parts in that business, as we've said before. The longer-term trend for that business, and it's no different for this year, is that a low double-digit annual EBITDA margin. And I can't tell you whether it's going to be at the same level as last year. It's 13% or a little bit lower. There's a lot of mixed aspects to it, the layering in of Global. But we're comfortable saying that margins will remain in the low double digits on an annual basis and don't as much focus on the quarterly moves of -- on that side of the business.

[Stephen MacLeod, Analyst]

Right. Okay. Okay. That's helpful. And I just wanted to circle around here on restoration as well. So Scott, you mentioned that so far, you have seen some synergy activity or collaboration between PDR and the Global business. Can you talk a little bit about what that's entailed in the early days of you owning that business?

[D. Scott Patterson]

Right. Well, the opportunity is for Global to leverage the Paul Davis network. They have about 25 branches in the U.S. Paul Davis has north of 300, and Global currently uses third-party vendors to respond to and serve their customers for smaller, less complex restoration jobs in areas where Global doesn't have an operation. The large, more complex work is handled by Global, but Paul Davis can serve -- fill out that vendor network. And it's an opportunity to increase the revenues at Paul Davis to enhance the Paul Davis brand, both the franchisees and the Paul Davis-owned operations. And then on the -- and we're starting to see some of that, by the way. We're starting to pilot that. And on the flip side, Paul Davis with their 350 operations can serve as a lead generation source for large loss, commercial work. The principal focus of Paul Davis is residential and light commercial, so work that they otherwise would not be able to perform.

[Stephen MacLeod, Analyst]

Okay. And would there ever be any opportunity for Paul Davis to sort of skew upwards towards -- more towards that large loss, commercial work from what they currently do?

[D. Scott Patterson]

I think that the Paul Davis focus will continue on, on residential and light commercial. That's certainly their sweet spot. We will look to expand the global footprint so that we are in a better position to take on more large loss work.

[Stephen MacLeod, Analyst]

Okay. That's helpful. And then just one more for me on the top line. Just turning back to the FirstService Residential business. The acquisition contribution has trended quite sort of higher than what I had expected in the first half of the year, and I'm just curious. I know some of that is because some strength from businesses you bought that are not as seasonal as the base business. But would you expect that run rate to continue in the back of the year, to some of that seasonal strength sort of fall off as you roll into Q3 and Q4?

[D. Scott Patterson]

The timing of some of our deals in the fourth quarter, Jeremy?

[Jeremy Alan Rakusin, Chief Financial Officer]

Yes, I mean, Steve, there were some acquisitions that we did late Q4, a couple in -- on the property management side in the South, in Atlanta and Carolinas and the Chicago business. Those are going to cycle through. We've done a couple on the amenity side. So it's not so much seasonal and not -- the acquisition growth is going to be decent for the back half of the year. And within that overall 13% growth number, that's not part of the organic piece, that extra 1.5% contribution from the payroll sited gross-up that I -- the revenue gross-up that I cited in my prepared comments.

[D. Scott Patterson]

So we lap the acquisitions in Q1 next year.

[Jeremy Alan Rakusin, Chief Financial Officer]

Yes.

[D. Scott Patterson]

Okay.

[Stephen MacLeod, Analyst]

Oh, I see. And so just to clarify, so that one -- that gross-up is not in your organic sales number?

[Jeremy Alan Rakusin, Chief Financial Officer]

Correct.

[Operator]

Your next question comes from the line of George Doumet with Scotiabank.

[George Doumet, Analyst]

I'd like to focus on the restoration segment for a minute. I understand we only have 1 to 2 weeks of GRH in the numbers. But can you maybe talk a little bit about how that business fared in the quarter given its corporate and large loss mix? I'm just trying to get a sense of how margins could look like in a kind of low activity versus more of a high activity quarter.

[D. Scott Patterson]

I'll give you a sort of a summary overview, George. They -- I would -- they are tracking generally with their prior year numbers that we reported in our first press release, but we have not dug in to the -- to their first half results other than through our due diligence. And so we've partnered with -- what is it? What was our closing date, May 23?

[Jeremy Alan Rakusin, Chief Financial Officer]

Yes, basically 5 working days of activity in that.

[D. Scott Patterson]

Right. So the margin -- I mean there is a -- it's a little different than our Paul Davis-owned network in a sense that Global uses this vendor network to perform some of their work. And so there is a buffer on their margin as capacity utilization moves up and down that we don't have with our Paul Davis-owned network. I don't know if that helps.

[George Doumet, Analyst]

Okay. Maybe just kind of looking at the Restoration business as a whole. It feels like we're under-indexed in California, and that seems to be kind of the epicenter of the activity lately. Just wondering what our efforts could be and maybe scaling up that region. Also wondering if -- potentially, if we were to kind of relocate resources to that area, should we think of that as kind of a lower margin activity?

[D. Scott Patterson]

Well, certainly, historically, if you look at a heat map, insured losses are very heavily weighted towards the eastern half of the U.S. That's where weather events occur, and that's where there -- certainly a much higher percentage of commercial real estate is. The California wildfires in the last few years certainly brought attention to that area. We do have a number of branches in California in the Pacific Northwest, so I think we have adequate representation. It is an area of interest for us, and we expect to focus on some tuck-unders and greenfield starts. But we -- certainly, our expectation is that our growth will come in the eastern half of the U.S. in the coming years.

[George Doumet, Analyst]

Okay. That's helpful. And just one last one, if I may. It's more of a clarification. I think as it relates to your margin outlook for the year, you guys are calling flat. I'm just wondering, is that organic margins? Or is that kind of margins including GRH?

[Jeremy Alan Rakusin, Chief Financial Officer]

It's including everything.

[Operator]

Your next question comes from Frederic Bastien with Raymond James.

[Frederic Bastien, MD & Equity Research Analyst]

I'm going to ask another question on Global Restoration, if I may. Scott, you highlighted a couple of interesting revenue synergies with Paul Davis, but I was wondering how you operate them on a go-forward basis. Do you see any benefit from consolidating parts of the businesses? Or is the idea to let them run free as they are?

[D. Scott Patterson]

No. They're focused on different markets and different customers, Paul Davis on national insurance carriers that it served the residential market, and Global primarily on national, commercial, multi-location customers such as hotel chains, retail chains. Global also services national insurance companies but with a focus on commercial. So there, they will have discrete strategies but will work together in the interest of their customer base. And Paul Davis National, in particular, will collaborate with Global. Paul Davis National historically has called on national insurance companies and large commercial accounts to distribute work to the franchise network, and they will collaborate very closely with Global and combine efforts really on a go-forward basis.

[Frederic Bastien, MD & Equity Research Analyst]

Okay. But it's not a cost savings exercise at all, where you're really looking at top line growth as a result of this?

[D. Scott Patterson]

Yes. Yes.

[Frederic Bastien, MD & Equity Research Analyst]

Okay. And then so that in your Q1 remarks, you had signaled some continued softness in the Paul Davis Restoration company-owned stores. How did they actually perform versus your own expectations? I mean was it anywhere different from what you saw a couple of months ago?

[D. Scott Patterson]

No. I would say it was generally spot on. We had some visibility, and the big variable becomes if there's a storm activity, which there wasn't any significant storm activity in our footprint.

[Frederic Bastien, MD & Equity Research Analyst]

And the variance you experienced at the company-owned level versus the franchise, is that entirely due to Paul Davis National?

[D. Scott Patterson]

Yes.

[Frederic Bastien, MD & Equity Research Analyst]

Okay. Great. And just want to make sure your -- I mean, you tweaked up your retention rates at FirstService Res. Hasn't been detrimental to margins, which is quite encouraging. So was it fair to say you're kind of comfortable with sort of the mix of business and current agreements you have in place?

[D. Scott Patterson]

Yes. We're sort of in a rhythm now, I would say. And again, 2 levers, sales and retention, and they do tweak up and down, and it can drive the organic growth up a point, down a point.

[Operator]

Your next question comes from Marc Riddick with Sidoti.

[Marc Frye Riddick, Business and Consumer Services Analyst]

Wanted to see if you could give us a bit of an update on the acquisition pipeline. You kind of touched on it a little bit earlier in your prepared remarks but wanted to get a sense of maybe where things stand and maybe what you're seeing particularly on the brands side, and then I have a quick follow-up on residential.

[D. Scott Patterson]

Okay. The pipeline has been very consistent really the last 3 or 4 years with the -- since Century Fire came on with our core strategies, fire and restoration, Cal Closets and then on the residential side. The one difference now is that we do have a new platform with Global. And certainly, we were very focused on the commercial, large loss space in terms of tuck-unders. But the Global team was also. So we do have a combined effort moving forward, which we'll probably see the pipeline tick up or it has ticked up, I guess, in terms of activity, and then it'll settle in. But there's probably a little bit more activity right now. I would add that it's very competitive in that space. There is a great deal of private equity interest, and so the competition is intense.

[Marc Frye Riddick, Business and Consumer Services Analyst]

Okay. That's very helpful. And then just a follow-up on the residential side. Certainly, obviously, the retention rate was fantastic. I wanted to get a sense of -- maybe you could give some commentary on pricing environment, and there doesn't seem to be -- there doesn't appear to be very much pushback on pricing, but I wanted to get your views on sort of where you are there on pricing execution as well as maybe what your goals are going forward there.

[D. Scott Patterson]

Well, there's really no change. I think I've mentioned in the past, it's really a function of the market structure. There are hundred, thousands of small competitors that need to compete with us on price, and so it is a price-competitive market, and we're not really in a position to price lead. But rather, we look for opportunities where we can differentiate ourselves on service, and those are the larger communities, the high-rise environment that require greater staff, different kinds of staff, different kinds of services. And there are fewer companies that are able to deliver that kind of service. But the -- still, still very, very price competitive, and we expect it always will be.

[Marc Frye Riddick, Business and Consumer Services Analyst]

And then I guess one more follow-up, top of my mind. I wondered if you could give a quick update on -- we've talked in the past about the labor squeeze, and maybe there's been commentary in the past about prioritization about certain jobs and what have you. I was wondering if you could give us a bit of an update as to maybe how you're progressing there and maybe what you're seeing compared to maybe earlier this year.

[D. Scott Patterson]

Yes. Again, again, no change really. A tight labor market. We continue to get better at recruiting and retaining staff. And our growth -- organic growth reflects that. We're able to bring on people as we bring on contracts and execute. But the labor market is as tight as it was earlier in the year, if that's what your question is.

[Operator]

Your next question comes from Matt Logan with RBC Capital.

[Matt Logan, Senior Associate]

Following up on the Global Restoration acquisition. While it's still early days, could you give us a little bit of color on how the integration is going, whether that's people or systems? And maybe talk a little bit about how we should measure success for the acquisition over the next 12 to 24 months given some of the potential for volatility and in terms of weather and earnings.

[D. Scott Patterson]

Well, I would describe it as onboarding as opposed to integration. This is a team, a separate platform. It's a very strong team. They have their own systems. We have spent a considerable amount of time with them to onboard and ensure that they understand our requirements as a public company and what we need in terms of reporting, and then from an operating perspective, fully understanding their KPIs and how they manage the business and generally how we will work together. In terms of measuring success, that's based on our ability to grow this business and both organically and through tuck-under acquisition, which is our strategy. We have an opportunity to be a leader in this business, and it's a big, big market. There is a lot of running room and measure us on our ability to capitalize on that opportunity.

[Matt Logan, Senior Associate]

That's great color. And I guess in terms of the top 3 priorities for the Global Restoration business, would that be expanding the geographic footprint? Would that be kind of levering the Paul Davis network? I mean how should we kind of think about the goalpost for -- in that regard?

[D. Scott Patterson]

The expanding the network, the geographic footprint and securing incremental national accounts, I think, are 2 top line drivers for us. And then below that it's some of the collaborating with Paul Davis and work in terms of building out their systems and that sort of thing.

[Matt Logan, Senior Associate]

Appreciate that. And maybe just changing gears to follow up on Marc's question. How should we be thinking about the trade-offs between delevering the balance sheet and other acquisitions that might be in the pipeline?

[Jeremy Alan Rakusin, Chief Financial Officer]

Capital structure and acquisitions?

[Matt Logan, Senior Associate]

Yes.

[Jeremy Alan Rakusin, Chief Financial Officer]

So yes, I mentioned the $200 million of liquidity, which we've got revolver and cash on hand to do our typical tuck-unders. We're going to -- we do have an active pipeline, as Scott mentioned as well, with a little bit of an uptick with Global, and we're going to keep a close eye on that. And our leverage will come down over time with the cash flow generation of our businesses. We could just -- going to make sure that we've got enough capacity and capital to allocate to all of our businesses. We don't want to miss a beat, lose stride with any of the acquisition strategies that are meant organic growth across all of our service lines. So we're not going to let that be a hindrance, and we'll keep our pulse on the balance sheet in the next couple of quarters and see where we're at.

[Operator]

At this time, there are no further questions.

[D. Scott Patterson]

Okay. Thank you, Erika. And thank you, everyone, again for joining us today. We look forward to third quarter, end of October call.

[Operator]

Ladies and gentlemen, this concludes the second quarter investors conference call. Thank you for your participation, and have a nice day.