Q2 2020 Comfort Systems USA Inc Earnings Call
[music].
Hi, everyone welcome to the Q2 trench Trenching comfort systems USA Holdings Conference call post about she was chief Chief Accounting Officer.
My name is Steve no money.
During the presentation your line should remain on national.
Sure the clients just inside each on teach Keystone Sheen Wachovia.
And of course in nature.
Hi show policies. This conference is being recorded for replay purposes.
I'd like to handle that situation.
Thanks, Steve Good morning, welcome to comfort systems, USA second quarter earnings call. Our common morning, well the press releases contain forward looking statement within the meaning of the private securities litigation that that 1995.
Say today, if they want a current plans and expectations.
USA.
Well I haven't expectations include risks and uncertainties that might cause actual future activity.
All of our operation to be materially different from those set forth in our comments.
You can read in more detail this thing and commentary concerning our [laughter] back there in our most recent form 10-K and form 10-Q, as well that are definitely covering these arnie.
Well I presentation has been provided at the companion to our remarks.
The presentation is posted on the Investor Relations section of the company's website that a comfort systems USA Dot com.
Joining me on holiday or Brian Lane, President and Chief Executive Officer, and Bill George Chief Financial Officer, Brian will open Aramark.
Alright, Thanks Julie.
Good morning, everyone and thank you for joining S. Mccall today.
More than ever.
I want to start this call bison Sealy banking, all about comfort systems USA employees.
Yeah work and commitment.
And especially the car would get resilient during this global pandemic.
That's all of you know these a challenging times.
But our employees are rising to the occasion and I feel gratitude and admiration for them every day.
We continue to focus on keeping our employees in our community safe.
We employ C D C N Osha guidelines to.
To ensure a workforce and our community is kept safe and healthy during cold at 19.
And we are taking many other actions.
[noise] in local markets, we have implemented the majors, we feel our best suited to local circumstances.
Such as segmented work so.
Yeah, I get started time.
Temperature and [laughter] symptoms screening.
Disinfecting equipment and work areas.
The thing.
And the wearing a protective faith and no crucial protective equipment.
We operate and north market [laughter] dozens of state.
And our leadership at each location, it's conforming to the matches that are required locally.
And seeking the path that will work best to keep our people safe and well.
That is a true straight company [laughter].
And the mix of these challenges.
Comfort systems USA achieved great earnings an extraordinary cash flow this quarter.
When the dollar eight per share this quarter compared to 65 cents per share in the same quarter last year.
The dollar eight earnings per share. This quarter is the highest quarterly E. P S and the history of our company.
Revenues were four this was $743 million compared to 650 million in the prior year.
Despite revenue headwinds in service, we grew 2% on a same store basis.
Our cash flow was truly unprecedented.
As we had over $135 million of free cash flow this quarter.
And through six months, we are more than 130 million ahead of the same period in 2019.
Cobiz 19 began impacting our business and the second half a much.
Service business experienced the first and most pronounced negative impact.
Largely because of building quotas and decisions by customers to limit building access.
As of the ended the second quarter. The majority of our service operations have returned to normal activity and functioning.
Meanwhile, our construction activities overall continued unabated, although individual jobs have experienced ever temporary closure intra tillman from time to time as a result, the positive tests Cobiz 19 of work is at various sites.
[noise]. Despite these productivity challenges local leadership project management, and especially our field work is.
We have extraordinarily I've been extraordinarily effective exceeding our highest expectations.
Our backlog as of June Thirtyth, 2020 was 1.53 billion.
We maintained a very strong backlog. Despite a sequential same store a decrease of 133 man or 8% since March 31st 2020.
This decrease is primarily composed of seasonal variation.
Plus approximately 60 million of projects that we removed from backlog as a result of adverse effects relating to the endeavor.
The majority of the project, we removed from backlog will likely be completed however, we chose to remove any project that has been pause.
Are they expected to be pause if there was no specified resumption date.
T.A.S. energy, which we acquired on April 1st is off to a great stop.
With T. I guess now a part of Compass systems USA.
And when considered in connection with our existing capabilities that yeah, Yes, and North Carolina.
Now have unmatched capability to complete.
Complex modular and off site construction of M.P. assemblies, and the growing modular construction industry.
A modular construction, our crane is particularly strong in the technology medical and pharmaceutical industries.
This combination allows us to cross sell out capabilities to our existing customer base at all of our location.
And augment our already strong industrial segment, which has increased to 40% total revenue and so far this year.
I will discuss our business outlook in more detail on a few minutes, but first let me turn this call over the builds we view the details of our financial performance Bill Thanks, Brian and a lot of performance. It was our results were.
Remarkable this quarter and every asset.
Revenue in the second quarter was 743 million, an increase of 93 million or 14% compared to the same quarter last year.
Increase is primarily due to the recent acquisition, but yes and start both of which contribute to our expanding modular construction off but.
Same store revenues were up 2% for the quarter and 4% for the first six months of 2020.
The fact that we achieved an overall increase in same store revenue. It notable because our service revenues declined by 8 million year over year, the second quarter.
Due to the effects of cobot related closures, especially.
Right.
Gross profit was 146 million for the second quarter at 2020.
Increase of 26 million or 21% compared to the second quarter of 29 chain.
Gross profit as a percentage of revenue was 19.6%.
Second quarter 2020, compared to 18.5% for the second quarter of 2019.
Strong margin on our mechanical construction work this quarter more than offset the lower margins that we experienced that ours.
Electrical segment.
Our electrical segment. In addition to their large project mix mix and lower service component continues to experience more than their share specific project challenges, including the impact of cobot 19 on productivity.
Certain purchase adjustments that impact our gross margin.
With larger projects and less service, our electrical segment also lowers our DNA percentage.
As to what extent was 85 million second quarter, 2020, which roughly matches the prior year. Despite the fact that we've added two new operations in the interim.
On a same store basis SDMA declined by 4.7 billion.
Today as a percentage of revenue with 11.4% in the current quarter compared to 13% in the second quarter 2000 20000 2019.
We continue to benefit from SDN de leverage largely due to the electrical segment, which requires lower levels of energy and what you today as well as a reduction in certain expenses such as travel resulting from actions we've taken in light of code at night.
You May have also noted that we also experienced an $8 million sequential decline in essence today, which is not a usual pattern for us from the first for the second quarter.
The decline was caused by a combination of the cost control measures I just described.
Also resulted from the fact that the March quarter included 4.6 million a bad debt expense.
NSG today that related to cope.
We did not take any additional accruals this quarter.
Our year to date effective tax rate was 27.6%, which is right in the middle of our expected range, which compares to 23.9% than a year ago period, when I read benefited from discrete items.
Net income for the second quarter of 2020 was a record 39 million or $1.80 per share.
Compared to 24 million or 65 cents per share in 2019.
The 6% increase in earnings per share is particularly impressive as it was achieved despite uncovered 19 related challenges.
Our trailing 12 month earnings per share is $3.46 a.
A new record for a 12 month period.
For our second quarter EBITDA was 79 billion, an increase of more than 50% as compared to the $50 million of EBITDA that we reported in the second quarter last year.
Our trailing 12 month EBITDA is 241 million a record for comfort systems USA by a substantial margin.
Cash flow for the quarter was really extraordinary our free cash flow was 136 million compared to 19 million in the second quarter 2019.
Our cash flow includes 19 million a benefit that as a direct result of the federal stimulus Bill, which allowed us to the first certain payroll an income tax payments in the second quarter.
Approximately 8 million of this benefit has already been repaid in July our best estimate is that these discrete tax provisions will benefit our third quarter cash flow by a net two to 3 million and will benefit fourth quarter cash flow by 10 to 11 million.
The 30 to 35 million of cash flow Bennett said that we expect overall from these tax provision will really be repaid to the federal government and the fourth quarters of 2021 2022.
Also had some benefit this quarter from a temporary this investment in working capital as our workforce dipped in April and May. However, we believe that much of that benefit has been reabsorbed by the end of June.
Even considering these two items.
Fantastic level of free cash flow in a single quarter.
Back the extraordinary cash flow this quarter resulted in two remarkable balance sheet accomplishment.
First we were able to reduce our leverage to less than one turn of trailing 12 months EBITDA much earlier than we had anticipated.
Second during the second quarter of 2020, we funded our second largest acquisition ever. However, we were able to fund that acquisition entirely from free cash flow during the quarter and we still managed to reduce our debt level.
Our trailing 12 month free cash flow is $251 million and that represents the highest 12 month free cash flow that we have ever achieved.
During the first six months of 2020, we have purchased 290000 of our shares at an average price of $37 and 91 said.
Since we began our repurchase program, we have bought back nearly 9 million shares at an average price of $18 a 36 cents.
Got it right.
All right. Thanks Bill.
I'm going to spend a few minutes discussing our backlog in markets.
I will also comment on our outlook for full year 2020.
Our backlog level is strong and at the end of the second quarter 2020 was 1.3 billion.
During the second quarter of 2020, we move that we'd be moved approximately 60 million of incomplete projects from backlog give you as a result.
Adverse effects relating to the pandemic.
Majority of the project, we remove will likely be completed however, we chose to remove any project.
He has been pause or is expected to be pause.
There is no specified resumption date.
Same store backlog compared to one year ago decreased by 56 million.
But that is more than accounted for by the planned and expected decrease at Walker.
Without Walker.
Year over year backlog is actually up by approximately 15 million on the same store basis.
Sequentially of same store backlog decreased by 133 million.
This decrease is primarily composed of seasonal variation.
Move up certain projects related to co bid.
And the decline in our electrical segment.
Most sectors have remained strong.
Particular strength and industrial.
Our industrial revenue has grown to 40% of total revenue in the first half 2020.
Institutional markets, which include education healthcare and government.
36% of our revenue, which is consistent with what we start in 2019.
The commercial sector was 24% of our revenue.
But the actually with the acquisition of Ta and style electric.
We expect to continue to grow our off site construction business, particularly in the technology medical and pharmaceutical industries.
But 2020 construction is 80% of our total revenue.
With 50% from construction projects the new buildings.
30% from construction projects an existing buildings.
Service is 20% of our revenue year to date.
With service projects, providing 8% of revenue and pure service, including our only work providing 12% of revenue.
Beginning in late March service business experienced the first and most pronounced negative impacts.
Associated with Covance 19.
Largely as a result, the building closures decisions by customers.
To limit building access.
This led to a decline in service revenues of 12% in the second quarter 2020.
All related to service calls maintenance and monitoring.
Our project revenues in service this quarter.
Year over year.
Overall service profit as measured in dollars with roughly the same because we had higher margins on the work that was performed.
Although our construction activities have been classified as essential services.
In most markets, we have had certain jobs temporarily closed due to government action decision by on is.
Our upon positive test the co bid 19 of work is at various sites.
We all we have also had some delays and the award of New work and we have been informed of instances of delayed stops.
These factors create more uncertain uncertainty than usual.
And we believe that we could experience potential air pockets in future periods.
In addition, we have implemented safety precautions and other co bid 19 related guidelines.
That have added cost or inefficiency as we work to cure to create a safer environment for our team have been in our communities.
Even with those challenges on mechanical construction projects performed incredibly well during the quarter.
Finally, our outlook.
It is not currently possible to quantify the potential impact was second half of the year on 2021, because we do not know how the endemic and related government decisions will unfold.
No other pandemic may impact the decisions about customers.
Assuming that that the pandemic does not materially worse than the economic outlook about markets.
We currently believe that we can achieve full year 2020 results.
That are at least comparable to our record results in 2019.
We feel that we are well prepared to confront the challenges associated with this pin debit.
And we believe that our investments in service and.
And our growth in the industrial segments uptick mall technology medical and pharmaceutical.
Given the good opportunity to cope with these challenges successfully.
We are pleased.
With our prospects.
But giving uncertainties related to the ongoing pandemic, we continue to prepare for a wide range of economic circumstances over the coming quarters.
We have a great workforce.
And we feel confident that we will continue to make the most of the up at journeys in our marketplaces.
Thank you once again to our employees for their hard work and dedication I'll now turn it back over to Steve for questions. Thank you.
Thank you ladies and gentlemen.
Question answer session will now begin.
If you wish to ask your question, please keep style and welcome Tony.
If we decide to withdraw your question Sim Teekays style.
All questions will be ounces can deal with received and you'll be it's always going to ask your question.
If you wish to ask your question please keep stall.
On your Saudi called.
First question.
From the line haul Joe Mondillo.
All of Sidoti and company. Please go ahead.
Hi, guys good morning.
Good morning, Joe.
Could you help us understand how your monthly bookings of new work progress.
Through the second quarter and into the month of July where almost done with through ISO.
Okay.
Well so there were very few bookings in April.
And may although.
They are rarely are right in the rising spring quarter right. When the heavy work is getting started last year was an exception we had a remarkable.
Second quarter booking season.
By June.
We got we actually had more bookings unusual and at June Aldo.
And just to make catch up and in July we continue to book.
A lot of medium size work there is the big work, we havent had any big booking but.
We will we wouldn't expect those until late this year.
And Joe a lot behind that as general contractors were busy as we were in the second quarter. So they started opening up opportunities as we go into the back half of the third in the fourth quarter is when you see most of that activity.
So when you compare because there's a seasonal aspect to these the four month period that we're talking about when you when you compare year over year would you say.
April was the worst year over year decline.
And maybe May stabilized and then you started seeing that year over year decline lessen in June and July.
Yes, with one caveat like a month this such as are the bookings are so lumpy in a month is such a short timeframe that is a little it's a little hard to even talk about trends and month, but I would say factually that is pretty much actually true.
Okay.
And.
I was I wanted to ask about.
The co bid related.
Fit that you potentially could see where what are you hearing.
I know you saw a little bit of work in the second quarter.
Are you expecting an acceleration of co bid Paul benefit type projects, starting in the third quarter any information you can provide in terms of how big of an opportunity. This is the timing of it.
That would be helpful. Because I know a lot of people are thinking about that.
Thats, a pretty wide range, Joe you can imagine on the construction fries right, we're pretty optimistic as I, probably said four times in my script about pharmaceutical opportunity that we think is going to be comments. We've already had a few now we're working on.
For a number of customers.
And I think that will continue hopefully as they get closer to a vaccine and some other therapeutics let's.
Let's hope and pray for that.
The service front.
You get a lot of conversation about quality.
So we are seeing a lot of opportunities in a lot of buildings.
Also launched about how to improve.
Yes, the here in the building from a whole host of options that are out there. So we're working with our customers closely but what is the best solution for them. So I think this is going to keep picking up pace, particularly.
On the construction fun as they get closer to some kind of medical solution to this.
Yes, we had opportunity we have to an opportunity this quarter, where we had mobilized three companies simultaneously to meet a cobot related timeframe.
Hey, good money on that but not material to the results in the quarter.
I'm most excited about the secular sort of underlying.
Aspects of this.
I think that.
There will be a lot more investment in some of the sectors that we are best.
I think this has to reinforce.
Reassuring trend over that in the coming years.
And I also think said.
In the service side.
We have had some some sales of things people wanting to do quickly to address workplace safety, but.
When I talk to people in our controls and service companies, especially.
Sounds good more sophisticated offerings, we have their most excited about the meetings they've been able to get with people that they couldn't get too and the path.
And.
The idea that people are going to include these considerations as a much more permanent consideration.
At some level in the coming years.
But overall the services we provide.
Crucial to.
Anybody that's working at home or in a building.
Right and just a follow up on the service aspect of the potential opportunities related to air quality.
Do you have a sense of sort of timing is this sort of a more of an immediate thing schools are opening hopefully going to try to open up in the fall is this an immediate opportunity or is this more of a maybe a 2021.
Kind of more of an opportunity do you have a sense of that when you talk to your businesses anecdotal story no anecdotally I was talking to one of our best guys.
He said when they went in and gave their first presentation. They were selling a lot of analysis you go sell in that will come back into that kind of analysis.
Through this the onto in the morning, and then measured in the evening and it this year to change the good predictor of how much air exchange there isn't how much people are breathing each other's there.
The control company have.
A lot of really interesting products, but one of things. He said it was interesting was they put a slide that they realize they needed to put a slide at the front of their deck that said things you can do today as he said today with me with people and they all that great sure. We'll hire you to do with Daddy I'd like to Rigel PL for something today now having said that.
You know comfort systems is a big company I don't think that really materially changes our earnings outlook is a nice positive factor there are lots of very good positive factors.
Brad.
Right now, but I think I really do think the more important thing. This does is it puts these considerations front and center.
I believe really on a go forward basis and that.
We are the best we believe were the best there as of this stuff.
And really only a few companies around can match us for what we can deploy.
We have to help us and Joe we've done a number of these projects already.
Service as I said a script.
The call out work was down but our service project work was the same in some of its related to that so.
We're bidding a lot this level opportunities out there were also doing so.
Okay.
Just last question for me.
DNA.
It's sort of hard to figure out what sort of normal and given the.
The challenges that you did see in Twoq you outside of all the positive aspects of it and then also.
So I'm wondering what your sort of your normalized SDMA.
Quarterly run rate would be at this point.
I think thats really hard to know right now right. There were math there were very important savings from covert right travel stopped we took we had some people for a month or two.
Take voluntary pay cut we had.
Cuts that were made in the face of severe concern about just how complete the stoppages that the government with whereas was forcing would be.
And so.
I think it's very hard to say, but I would say.
Our SDMA in the next 18 or 24 months will be lower than it would have been but I don't I could throughout it all I think I think he's right Joe were.
As you as you know.
We move very quickly and cost we need to.
In my own modeling.
Question for me.
So relative to pre Covance.
And accounting for Ti.
You would still expect best DNA to be sort of lower than pre covance.
I think so I think that it's bound to be I mean people.
There are things you're investing in that you just have to.
You have to focus for little bit Theres people going through a lot.
That's what Jeff focused on.
Okay.
All right well thanks for taking my questions appreciate all right Joe take yet.
Your next question comes from the line of Britain's Selman.
David Please go ahead.
Hey, Thanks, Good morning, Hey, Braylon Brent.
Hey, Brian or bill on the $60 billion.
I have delayed work, what what end markets.
Was that attributable to or was there anything that you there.
More than half was hotels.
Slightly over.
Just to exactly what you think it's the commercial stuff impacted I don't think there's any exception there was one cancellation and a bunch of stuff stopped on stuff that was lot of that we've already started yet.
There were pauses that we've already started the ones we took out of backlog.
Our ones that haven't yet Saturday for restart.
Okay, Great and then the electrical margins given some sense.
When we can think about margins improving there could we see that in the second half in some of this legacy work is.
Rolling off and as you guys kind of.
Yes on dwindling down the backlog now I'm, just trying to get a sense is.
When when does start to bounce back yes, My best estimate is that they'll start to roll back I mean keep in mind.
Just on a net profit that cash flow. They are meeting what we expected need but I do think theres upside in the second half for electrical segment margins.
Yes, Brian just walk is a really good company.
Yes.
Okay, that's great.
Bill this might be for you right billings in excess tonnage nice kind of net contributor to cash flow in the first six months, just wondering what's driving that you're collecting more payments or at least from customers just any color on that.
So we took a hard look we went out we went to obviously when we saw this cash flow right, which developed over the course of the quarter, we really thought okay, we need to dig into and figure out what that is.
We think.
That's the biggest parts of it other than the specifics I just gave you which may be account for a third of as those individual issues.
The third of the improvement I guess will be a by way of putting it.
I would say that.
A lot we think it's more a catch up then approval from the future and obviously if you get this month cash flow in a quarter you're doing both right. This much this is Adam.
This would have been a great year for us.
Really any here there's never been here this that for this quarter, what they've done a great year breadth and that much let that in the second quarter, but in general I don't think we're in any particular I think the trend under the trends there.
About what I expect to see continue.
Our guys are just very good and.
The new companies, we've added or so.
Really are as good or better than we are on average at that though.
Got it okay thats not thanks guys.
Your next question from the line of Kathleen gaining from Thompson Davis. Please go ahead.
The quarter you guys good morning, Hey, Kevin.
Okay.
I wanted to touch on PS first.
When you guys first bought it was 170 to 190.
The 50 550 856 in the corner.
What do you see how do you see kind of doing the rest of year since.
The original organic revenue forecast was like.
Yes, and so they had a big they had a big revenue quarter, which you can tease out like you did.
Just buyout just by 10% right above and their revenues by any of our companies are lumpy. They had a couple of really active programs and deliveries in the quarter.
We were able to cover really just a massive amount of.
Amortization because their backlog is a purchase order based backlog it turns much more quickly. So they're amortization on backlog was extraordinarily proud load is like I think more than half of it in the first quarter burn.
They still managed to make enough money to fully cover everything.
Every one of the those and they weren't neutral which is really an amazing accomplishment. It when you look at how much of the intangible they ate up versus the rest of the year goes they will not revenue.
Nearly as heavily in the third or fourth quarter day, right now really good prospects for a big revenue year next year, but.
You know that's my best estimate.
Not worse.
Yes.
[music].
Next thing I gather the on margins there was good good execution in the quarter.
Typically there is a seasonal increase going into Q3, d. tendency to holding or.
Thanks service.
Just in general the gross margin you're talking about Kevin.
Yes, yes, I mean I got to tell you will be drilled the debt that we can match that good third quarter that.
The results at 19.6%, we're executing anish extremely high level of field.
And service had all time high profitability as a percentage.
Some of the like maintenance work that we do and service.
Was missing so that averaged out the margins interestingly enough some of that will come back we'll make net dollars on it but it Wouldnt service would have a hard time I think matching that percentage in the third quarter, but overall, we think about very good margins than the third quarter.
We'll be close to it.
His best guess, but that's a debt is it really strong number though yes.
Already said, hey, great, but there's never been more uncertainty right. We have very very good underlying.
Indication as you obviously, we just put in a record quarter, but they're really in my whole dynamic comfort I've never seen the thing that combination of.
Sort of strong.
Underlying indication, but uncertainty but.
They are just not within your control.
Yes.
And.
Another follow them.
When you're thinking about I know.
The only halfway through the year, but when you think about 21.
This year potentially shaping up to be better than 18, any thoughts on 21 shaping up.
To shape of being better than 20.
With 21.
This is too early to tell Kevin to give you anything meaningful we don't we think we'll make a lot of money in 20.
Will it be up against a monster comparable right.
So.
And newly Cobot right I mean, you want to give me assumptions about vaccines and elections and government.
Visions and.
No.
Yes.
The real world right.
I guess for final ones.
As far as interest.
You guys relatively pay that down pretty quickly on the CBS.
How does that kind of translates to as well.
Okay.
What do you mean, the cash flow later in the air or what.
Turning since it's been just looking at the model.
Interest expense is way down because we have less a lot less data and lower interest rates right.
LIBOR is down and we have LIBOR based borrowing so I.
I don't see why our interest expense in the second quarter was much lower than expected and I would think it would continue at the same level at month LIBOR.
Hi networks. Thank you.
Good day.
Your next question is from the line has shown Eastman.
Capital markets.
Please go ahead.
Hi, gentlemen, complements to the comfort team this quarter.
Well done.
Thanks, Sean.
My pleasure. So you guys typically don't provide earnings guidance and since you had this time Im just going to you about at the middle Bad I mean.
You know just based on what you guys have done in the first half.
Yes, 2020 full year earnings are comparable to 29 team that implies dipping down 20% year over year in the second half and I understand the uncertainty in the backdrop, but I guess.
Helpful. If you can frame how that is in the range of possible outcomes.
Just given how strong the first half August our I'll start by pointing out that we said at least comparable.
So whatever range. There is we think that you know.
At the low end of it would be similar to last year and then it's hard to tell.
We feel very good about our ability to make money inflow cash for the rest of the year.
We had very strong third and fourth quarter comparable to last year.
I don't know brand load.
Got it right now is still very busy right now I mean, we checked with everybody last week I wish still.
We still blowing and going in the field for sure.
So.
Now we'll see.
Got it okay.
And then.
I know 2021 discussion is but.
Just be helpful. The maybe dig in on the Big swing factors you guys see as you plan for next year I mean.
Just as we ponder. This question on whether you guys are able to grow the topline next year in a sense.
What are those swing factors that maybe some bigger industrial opportunities.
The timing on some stuff like that is that it may be getting some traction on this module or cross sell dynamic.
Yeah, what are your thoughts there.
So the number one thing would be we have.
Large projects that we expect will book later this year that are for customers who.
Signs of slowing down, but those have to book as expected later in the year that would be the number one what you're talking about revenue.
You know, we're at a backlog our backlog.
If you look at that backlog chart in our slides.
Our backlog is up vastly compared to two or three years ago were booked farther out than we on the average usually are even on an uneven us even if you.
Control for the acquisitions, our backlog is really very strong compared to anything I've seen and 22 years. So we have to be pretty optimistic about that.
That gives us a great opportunity to continue to make a lot of money.
Then you got to face your comparable and I, just think theres so much uncertainty.
You got to put a big range around what could happen next year, what I don't and a lot about things that happen breadth to not do.
Very well by historical standards.
Then the question do we do very well by the unbelievable standards at right now that the how's that the tough comparable and I'm not I'm, not saying, yes, or no I just I.
I don't know very uncertain.
Got it well that's helpful and.
Terms and that's why they have you guys don't let Jay as yes.
As you know you know yes.
Just great pretending like we know.
[laughter].
So.
I guess as we think about those bookings later in the year.
In particular end markets driver for some of the bigger stuff that yes.
We are trying to think about what we need to be tracking here as we move through these all the industrials and it's all the industrials.
As it pharma data its food.
[music].
Somehow.
Maybe it's higher plan or fiber optic or whatever is out there and then I think healthcare is an interesting swing factor for later next year I don't think healthcare to swing factor for later this year, but I do think healthcare is an interesting story. The one advantage we have with healthcare is this an awful for so long that we have very low expectations.
But I do think at some point, it's hard for me to imagine that five years from now.
In conclusion, we come to from co that is that we need less healthcare.
I don't think the baby boomers are getting younger.
Okay.
Timing on that the question I think.
I think at the hydraulic process.
That that can't be resistance.
Got it and that's interesting and last one from you guys just.
I understand.
Hi, Walker in sort of facing.
You know a bit of more challenge.
Operating environment that the mechanical business I just wanted to understand.
That electrical versus mechanical operating environment, and you know exactly why that's been a bit of a drag.
It's not so it is somewhat electrical versus mechanic on the service side electrical is lesser jets. So it can get for something like the pandemic and slow service down for electrical more and so walkers service division had a much greater proportionate hit them there that our mechanical service divisions overall.
But the real difference with Walker as they do big complex.
Again, a work and.
We.
It's pretty comparable to our other companies that do that right. It's not like it is hard right now you have 200 people.
Ill.
Building something with masks silence staggered works shifts and.
You know there covance valve and section get cleaned out for eight days and guys have to go home for 14 days than you guys are in a war, but it's not just if anybody who is doing there kind of work isn't that war and frankly, they're doing an amazing job not just them all of our companies that are doing that it is unbelievable what they are.
Accomplishing it is really extraordinary.
Just shows how the really I think what you should take from this quarter is this is a really really good company. We do things that people really really need our collaboration is getting better and better all the time and.
No the underlying secular trend.
Really favor the USA.
Reashure again complex construction, we think I'd like got chances Sean.
[laughter].
Great guys well.
Congrats again on a job well done this quarter. Thanks for the time.
Take care of yourself.
Your next question comes from the high enough.
Hi, Tom Fleet regions Bank. Please go ahead.
Hi, guys good.
Thanks for all that.
And.
You could provide maybe a little bit color.
What you're seeing as far as repair and replacement and trend in second quarter, and then what you're looking at what you're expecting.
I'll call, Chris I mean.
The repair and replacement business as.
It really picked up particularly in school systems, we've done a lot of that work come right out of March when the let the kids at a school.
So having a really good summer.
We're still seeing a lot of opportunities.
Regardless of the inequality in quality has given us a lot more opportunities, but I think will be strong on the service project retrofit business right to the ended the year.
Okay, that's great.
And then.
What your.
Well, you're expecting received from cash flow perspective.
The.
Are you expecting generally.
Kind of continued momentum.
In the first half where are you.
Are you thinking.
There might be a little bit more.
Pressure on your cash.
So I like our chances of having substantial positive free cash flow.
Overtime.
We will cash flow our after tax earnings.
We ever don't actually you should.
Well, our stock in anybody else who doesn't.
So when we have a quarter, where we cash flow substantially more than our after tax earnings that quarter.
You know that means there will be other quarters, where we don't print money. So there is you know we will be will probably be a little bit of give back. We're also temporarily in a period, where the federal government, giving us a little bit of a benefit I went over that but in the scale of copper system is a factor it's not a driver.
So, but I think we I think we still have good cash flow prospects for the rest of the year, but I don't think theres another blowout quarter because.
That's what the quarter to end up quarters, when it comes to cash flow.
Right right I mean.
Many of these companies are.
Scaling back on that.
Having strong quarters.
And.
I am curious.
Backing team.
Honestly.
Honestly I'm going to say, it's I think about it.
I think.
Rising revenues.
And my own free cash flows the best scenario for us because that means people are getting back we're getting guys back out I'd like to see our head count go up.
By 100.
Each of the next two quarters of that happens that there's a little investment in working capital. So ironically.
A little girl.
I'm not sure I'd be rooting for giant free cash flow for the rest of your I'd, rather river work to do and monies needing to spend a little money to get out and Chuck do ahead.
But we're going to be fine, we're going to be by cash flows never in 22 years, we've never had negative cash flow.
Sure.
Good morning.
Yes.
Certainly.
Very strong cash flow generators and thanks for the color.
Thanks.
Your next question comes from the line.
Monte Carlo.
<unk> company. Please go ahead.
Hi, guys. Thanks for taking my follow up question first I was just wondering on the tax rate, it's been a little higher than past years.
What is your Ah viewpoint on the tax rate going forward.
So we announced range was very big this year 25 to 30, where were 27.6 in the first quarter and 27.6 in the second quarter last couple of years last year. This quarter. We were 23.9, we picked up some benefit from some what's called 179, Indeed, we did some energy.
Energy retrofit, where we got credits transferred to us under federal laws and we just havent had that so far this year I don't expect much of that later this year people are really not in the mindset to be interestingly enough energy efficiency and air quality.
All right across purposes, right. The really the way that you get energy efficiency as you use the same air over and over and the way that you get air quality as you've done better outside you bring in fresh air and pool. It. So I don't know if we're going to see a lot of I'd say the than 27 and a half fish 20. It you know I think we're I think we're stuck at this rate for the rest of the year.
You know unless we achieved some other tax planning goal or something but some of that pretty well, we have some of that going on but it's pretty long term.
Okay and then on your education market I was just curious on what how you're thinking about that.
Market given the fact that maybe you know good percentage of schools at least in the very beginning in the school year will not be.
Back in the school.
Is that a negative is that maybe I'll actually a positive as they.
Work on the systems in the schools or how do you. How are you thinking about the overall education market that you plan. So far it's been a positive for us both said.
The key to K through 12 level at the kids getting out early Joe.
We've been in NIM and some school systems are doing extra work since they do not have people in the building.
Universities, we're still very busy so our backlog on the education fronts second highest so.
It's good for the foreseeable future.
So so I imagine a lot of the stuff that you had in backlog was.
They were able to take the opportunity with the kids out of the school to sort of pull that forward and really get a lot of the work done by how does when you look at new work or bookings in that space.
I know some of these universities are.
Havent think about.
Tuitions and.
The K 212, obviously is affected by state municipal budgets.
So so when you look at bookings and the outlook going forward, how how do you think about that.
Bookings education, so far very strong Joe.
They still going to take care of the systems of the have any schools with the kids you run them or not.
Okay.
All right I think that doesn't mean, thanks for taking the follow up questions. Appreciate it good luck hi, Joe Thank you.
There are no further questions I'll now turn the call back over to Brian Lane for closing remarks.
All right in closing I want to thank you.
Again.
Mazin resilient and committed employees, we're very fortunate.
The results I'd team accomplished this quarter would truly amazing.
We are looking forward hopefully to see any one again in person sometime in the near future reading, but in the meantime, everyone. Please be safe and well thanks and enjoy the rest is some yes, hey, there.
Thank you got can seem to conference call for today you may now disconnect. Thank you for joining how does that he could today.
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Yes.
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