Q3 2020 Comfort Systems USA Inc Earnings Call
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Good day and welcome everyone to the quarter three Twentytwenty comfort systems USA earnings Conference call hosted by comfort systems USA. My name is Sheila on the off price if it today.
During the presentation. Your line school remain on listen only you require assistance at any time, just Keystone stay on your telephone and a coordinator will be happy to help you out.
Advice all parties. This conference is being recorded for replay purposes, and now like to handover to Julie Shaeff Chief Accounting Officer. Please proceed.
And Sheila good morning, welcome to comfort systems, USA third quarter earnings call. Our common this morning as well as our press releases contain forward looking statements within the meaning of the private Securities litigation, that's a nice 95.
What we will say today is based on the current plans and expectations of comfort systems USA those.
So the plan [laughter] patients include risks and uncertainties that might cause actual future activities and results of our operations to be materially different from those set forth in our comment.
You can read a more detailed listing and commentary concerning our specific risk factors in our most recent form 10-K and form 10-Q as well as in our press release covering be earning.
A slide presentation has been provided as a companion to our remark.
Presentation is posted on the Investor Relations section of the Companys website, now that comfort systems USA Dot com.
Joining me on the call today are Brian Lane, President and Chief Executive Officer, and Bill George Chief Financial Officer, Brian will open our remarks.
Okay. Thanks, Julie good morning, everyone.
Thank you for joining us on the call today.
We are all Beijing unique challenges now from the global pandemic.
And in the midst of that we appreciate our good performance and solid prospects.
More than anything I am grateful for our employees.
And I want to thank all of them for their commitment and resilience during this difficult time.
Our employees continue to rise to the occasion, I feel gratitude and admiration for them every day.
We are working hard to keep our workforce in our community safe and healthy during cold at 19.
Despite adversity comfort systems, USA achieved a record earnings and impressive cash flow.
We're in the dollar 36 per share this quarter.
Compared to 98 cents per share the same quarter of last year.
This quarter included a 17 cents benefit from a discrete tax item.
This marks the highest quarterly EPS in the history of our company with or without the tax benefit.
Revenues were $714 million for the quarter.
Year to date revenues exceed 2.1 billion.
Through nine months, we had 199 million of free cash flow more than doubled the good results. We achieved in the same timeframe last year.
Our backlog has trended downwards, some this quarter, but we feel good about our prospects and as you can see we continue to increase our dividend.
In a few minutes I will spend some time on how that might affect us next year before I review, our operational results and prospects I want to ask Bill.
Bill to review the details of <unk> financial performance Bill.
Thanks, Brian.
As Brian said, we once again achieved record positive results.
Revenue in the third quarter was 714 million, an increase of 7 million compared to the same quarter last year.
This increase is due to the current year acquisitions of T.A.S. and star both of which contributed to our expanding modular construction.
This increase was offset by a decrease in same store revenue was 6%.
Our mechanical segment was up slightly on a same store basis. So the decrease resulted from lower volume in our electrical services segment due to a combination of very high revenue comparisons in the prior year combined with deferred starts and other delays this year.
Last year, we experienced very high revenues in electrical as we were mobilized uncertain exceptionally large jobs from the second half of 2019 until the middle of this year.
As a result of these factors, we will continue to face tough revenue comparisons in electrical through the first half of next year.
When combined with the air pockets and delays that we're currently experiencing we expect continuing same store revenue headwind through the second quarter of next year, especially in our two largest Texas market.
Gross profit was 147 million for the third quarter of 2023% increase compared to last year.
Gross profit as a percentage of revenue rose to 20.6% in the third quarter of 2020 compared to 20.2% for the third quarter of 2019.
EPS DNA expense was $91 million for the third quarter of 2020 compared to $90 million for the third quarter of 2019.
SDN as a percentage of revenue <unk> remained steady at 12.7% for both quarters on.
On a same store basis, EPS DNA declined $4 million. This.
This decrease was primarily due to cost control measures such as reduction in travel related expenses.
During the third quarter of 2020, we had an increase in tax planning and consulting fees of approximately $2 million, which partially offset other declines.
Our quarter to date effective rate was 14.2% for tax and benefited from R&D credits and energy efficient commercial building deductions that were previously reserved.
During the third quarter, we finalize settlements with the IRS from their examination of our amended federal tax returns for 2014 in 2015.
We currently estimate our effective tax rate for full year, 2020 will be between 22% and 25% which reflects the settlement.
Starting in 2021, we expect our effective tax rate will be between 25, and 30% and if you eliminate the benefits of the settlement our quarterly tax rate this quarter would have been slightly over 28%.
Although 2014 and 2015 are now settled we have opened process is ongoing for the 2016 2017 and 2018 tax years.
And while future benefits are possible, we believe any benefits that arise from those years would most likely be recognizable in 2022 or beyond.
Net income for the third quarter of 2020 was $50 million or $1.36 per share as compared to $36 million or 98 cents per share in 2019.
Earnings per share for the current quarter included 17 cents related to the tax benefit that I previously discussed.
And that benefited net of related tax consulting fees of $2.8 million that were incurred during the quarter.
Even if you completely exclude the tax benefit.
We had a 21% increase in earnings per share.
For the third quarter EBITDA was $72 million, an increase of 8% compared to the 66 million of EBITDA, we reported in the third quarter of last year our.
Our trailing 12 month EBITDA is a record $246 million.
Coming off an extraordinary cash flow in the last quarter, our free cash flow continues to be strong and was 48 million in the current quarter.
On a year to date basis, our free cash flow was $199 million compared to 79 million in 2019.
Our nine month cash flow includes roughly $20 million of benefit that is a direct result of the federal stimulus bill, which allowed us to defer certain payroll tax payments in the second and third quarter.
Our best estimate is that these discrete tax provisions will benefit fourth quarter cash flow by approximately $10 million.
This estimated 30 million of full year 2020 cash flow benefit from these tax provisions will be repaid to the federal government in two week, we'll installments and the fourth quarters of 2021 and 2022.
The phenomenal cash flow. This year has resulted in two important balance sheet accomplishments first.
First we were able to reduce our leverage to less than one turn of trailing 12 month EBITDA about a year or sooner 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 for free cash flow during the quarter and we still managed to reduce our debt levels.
Our trailing 12 month free cash flow was $233 million.
Since the beginning of this year, we have purchased 448000 of our shares at an average price of $41 and 97.
Since we began our repurchase program in 2007, we have bought back over 9 million shares at an average price of $18.89.
What I got from Nancy.
Okay. Thanks Bill.
I am going to spend a few minutes discussing our backlog in markets.
I will also comment on our outlook for full year 2020 and 2021.
Our backlog level at the end of the third quarter of 2020 was 1.43 billion sequentially.
Sequentially, our backlog decreased by $103 million.
Same store backlog compared to one year ago has decreased by $271 million.
Of which a 145 main related to our electrical segment.
Our changes in backlog include the effects of the third quarter seasonality and expected decline in our electrical segment.
But we are also experiencing delays in bookings and in projects starts at certain of our large project company.
Most of our sectors continued to have strong quotation activity, even the sectors were booked where bookings have been delayed.
That is particularly true in our industrial business, which includes technology manufacturing.
Pharmaceuticals, and food processing.
Our industrial revenue has grown to 39% of total revenue in the first nine months of 2020 compared to 31% a year ago.
Institutional markets, which include education healthcare and government.
36% of our revenue.
And that is roughly consistent with what we saw in 2019.
The commercial sector was 25% of our revenue.
With 2020 construction is 79% of our total revenue.
With 48% from construction projects for new buildings.
And 31% from construction projects in existing buildings.
Both of our construction and service businesses achieved record operating income margin.
Services, 21% of our of our revenue year to date with.
With service projects, providing 8% of revenue and pure service, including hourly work, providing 13% of revenue.
Beginning in late March our service business experienced the first and most pronounced negative impacts associated with COVID-19.
Largely as a result of building closes or decisions by customers to limit building access.
However, during this quarter, we saw our service operations at or very near pre pandemic levels with improved profitability.
Fortunately our.
Construction activities continue to be classified as essential services in most markets.
Despite pandemic related challenges, our mechanical segment performed incredibly well during the quarter.
We are grateful for our performance this year and our prospects are much better than we would have expected this past spring.
Finally, im going to take a few minutes and comment on our outlook.
I have never experienced a more uncertain environment.
And frankly, a broad range of all comes up possible in the meat in the intermediate one to two year timeframe.
It is not currently possible to predict with any confidence how the pandemic.
And related government decisions will unfold.
No other pandemic may impact the decisions of our customers.
With that in mind, we are currently seeing both delays and high levels of pipeline activity at the same time, which is unusual.
We expect our full year 2020 results, we'll see again will significantly surpassed our record results in 2019.
Although as Bill mentioned, we are also currently expect.
We expect that same store revenue headwinds, especially in our electrical segment.
We will lead to same store revenue declines in the fourth quarter and through the first half of next year.
Nevertheless, given the range of conditions that we foresee we feel confident of solid profitability and cash flow in 2021.
Although we expect that 2021 earnings will not match, our extraordinary 2020 earnings.
Given uncertainties related to the ongoing pandemic and the evidence of delays in bookings and project starts.
We expect incremental challenges during the first half of 2021, including air pockets in some markets and we are preparing for a broad range of possible economic and capital investment environment in 2021 and in 2022.
Our growth in the industrial segments of technology medical and pharmaceutical give us a good opportunity to cope with any challenges successfully.
We believe that whatever the puts and takes are over the next several quarters.
We have an unmatched workforce and a great and necessary business and.
And that we are very well positioned in geographic markets and industry verticals.
With solid ongoing prospects.
We plan to continue to invest to make the most of these advantages and opportunities.
Thank you once again to our employees for your hard work and dedication and I'll now turn it back over to Sheila for questions. Thank you.
Thank you so much sorry to ask a question to you is key.
And one on your telephone pretend to sign it was truly a question simply key talent UK.
The first question comes from the line of Brent.
And then of D.A. Thanks, Sam.
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Hey, Thank you good morning.
Good morning, Brett how are you.
I'm doing well thanks.
Hey, Brian or Bill I get from that the mechanical margin I mean, they've been really extraordinarily strong this year, you're tracking chalk it up could really good execution.
You had that.
The survey headwind to attract and they are usually pretty good margin.
I guess, how do you how do you feel about sustaining these sorts of levels I guess I'm thinking TEAC gases in the queue.
Chris sustaining these levels.
Country from topline pullback.
Yes, I mean, our goal for us to feel look at it all service made a tremendous recovery in effect, the second or third quarter, which.
Produced the highest margins we've ever receives on other of our service business since kind of comfort started.
And on the construction front, it's which is said to be does Ted.
You know really exceptional execution.
I think we will continue to execute at a high level. The service business is still there.
You know, we did over 20% gross margins in it.
I still see us in a 19% to 20% range Brent as we go forward even on a revenue decline.
I couldn't agree more.
Okay, I mean, that's structurally higher than where you've been in the past. So I mean, that's yes, that's what I was trying to get to kind of normal degree, it's higher than where weve been except for the recent pads.
Right well you look at the last five years, we've been pretty consistently in that 19 to 2021 range Brent pretty consistent.
We do have we do have a lot more industrial right now so some of that is just mix.
And with service coming back and we're talking about mechanical margins.
We felt we felt good about the gross profit margins for mechanical opening up.
Yep.
Okay, and then on the on the electrical side.
You know it sounds like.
Part of that.
Backlog creep lower in May.
Maybe one part market.
One part deliberate I know you guys are now looking to pursue maybe higher value work you know how how quickly do you think you can.
Push these margins backup within that segment that you made a little bit of progress here. This quarter I'm. Just wondering if you think you can continue that.
So you know one thing although it is unfortunate in a sense that are.
Revenue is so our revenue is going down some of that was certainly planned and expected and some of it was simply expected because we had a big bulge on some of our base of the some of the biggest work we ever had performed from the third quarter of last year until about middle of the second quarter. This year.
They had just some giant with jobs, having said that the other side of that the margin side of that even though we'll have lower revenue at that was very that was fee based work and it had very low gross margins sort of as far as an averaging effect goes so actually will get help on the electrical margins just by the change in mix that will give a lot up.
On volume, but we will get some back on rate and electrical and also the service part of electrical went basically the zero in March but has made particularly the low voltage side a terrific come back in the third quarter and continues to gain momentum Brett. So thats clearly I mean, the margins are a lot higher.
Yeah on the electrical service side as well.
Okay maybe.
Maybe one last one I had a bigger picture question you guys are all across the country, where where are you seeing cemetery.
Particular air pockets that you talk about it.
Where are areas where.
The pipeline still looks pretty robust.
You're still seeing pretty good.
Award activity curious, what you're seeing Casa across the country. So so grant does it's Brian I'll give you some pretty broad strokes.
I think you're seeing most of it up a notch in general.
I think you know when the solved we're still seeing a probably a little bit more activity than were seeing up there.
Awesome delays, but I'm getting a little bit more positive feedback.
Net down here, where we are that some of this work is going to go.
Maybe a little sooner that is up not whatever the reasons are.
I think there's a little bit different view between the northeast and the South for sure Bill do you have anything on that no doubt. It is simply more stuff just shut down in the northeast right and to get work started it doesn't just take somebody willing to do it there's things that have to happen you have to have drainage planned or didnt permit.
You have to have.
All sorts of engineering done and soil and so forth with things have been shut.
Shutdown delayed government offices.
It doesn't take much to create these delays.
Because as you know there is a there is a critical path and a lot of things are on the critical path that you're going to build something as complex as a big big building.
So in the northeast, there's a lot more of that the south it's more business as usual from that point of view of at least.
Support.
Got it okay. Thanks, guys I'll pass it on.
Thank you Brett.
Thank you and the next question comes from nine offshore he snapped up at Keybanc capital markets [laughter].
Hi, Jess Thanks for taking my questions and good morning, Sean.
Good morning, guys, and just going back to sort of this delayed bookings and starts dynamic you know we kind of covered the geographic perspective, but you know just curious from an end market perspective and project size you know just how broad based is this.
Uh huh.
Dynamic I guess, you know across end markets.
So where there was at least one example of a big data center that delayed but in general.
I'd say, it's broad based Brian I'd say, it's pretty broad based you know projects over 10 for sure we're seeing delays to smaller projects.
I still pretty much going up shot and the geography go and you've got to go back to the geography Yep Yep.
Gotcha Okay.
Okay.
You know I hate to belabor the point on margins. We as you know we went through that in detail already but just wonder about this sort of unusual dynamic to use to use your words.
Where you've got this really healthy prospect pipeline, but not totally sure on when the work going again.
Yeah, how do you manage through that dynamic and you can do we expect sort of a medium term margin drag as you sort of stay positioned around.
It seems to be no still a really healthy amount of work coming out imminently, yeah, Sean that's a really good question and I I've checked on that in the last few days.
And in a general statement most of the stuff. We're looking at we are holding our margins and we haven't had conversations about a big decrease in that at all you know high and manage it going forward.
It's the same way you manage any any construction activity went to work slows down you have to reduce your costs.
Hopefully, it's temporary but you don't have to manage the labor claim to what the workload is.
You know these guys have done it before we don't have any rookies out there they've all.
You know we do the first time I've seen there's much bidding activity with with delays like this but in terms of.
The fluctuations of cyclicality of it we've all been through this before so with the with the bidding.
Activity there there's no sense that we ship. So we don't have a sense that we should be capitulated bright note yet where.
Something else is going to have to happen for that for that to start.
Okay. All right that's helpful and last one for me is you know the cash flow apparently a bright spot in 2020, you know the balance sheet. It looks like it's ready for another acquisition.
Should we how should we be thinking about capital deployment in the coming quarters.
So I would say absolutely we we paid off a year's worth of EBITDA year sooner than we thought we would so that has to make you more open minded to acquisitions, having said that.
Anything we do will be done with eight kind of conviction because of all the uncertainty went Brian Lane says this is the most uncertainties everything as you might imagine.
That also plays into timing for acquisitions, but.
But there are as you know we talked to companies for years, and sometimes a decade and if the if the company. We have conviction about is ready to sell we're.
We are ready to buy it I think you know so we just you know we don't really do quotas that cover systems right. We.
We buy companies, we think will make us better for decades forever, but if we do find good companies, we will doom Sean.
Okay Gotcha, Okay, guys I appreciate the insight thanks, very much and complements the team on this year to date execution <unk>. Thanks.
Thanks, Sean appreciate it.
Thank you and the next question is from the line of Ottens timeline No Thompson Davis. Please go ahead.
Hey, good morning, guys. Congrats on a on a record quarter, Hey, Adam Thanks, a lot appreciate it Brian.
Brian I'm trying to parse through your comments on the bidding because you said that the.
I think you said the bidding is still strong guest at industry. What are you seeing within the institutional and commercial markets.
It's the two I mean, if he I'm sorry.
So run too much specifics, obviously hotels are pretty quiet at the moment.
Commercial buildings for the most part right people.
People have gone back to use them.
They're pretty slow.
Backlog in education is still.
You pretty good actually still looking at you know some work.
Then of course, you know air quality doesn't go into backlog, but we don't we're doing some work in schools on that front. So.
We're not expecting to see.
The hotels are office buildings in here in the near future Bill do you want to yeah, you don't Meanwhile.
The the the intermediate term prospects for pharma are very good like in the mid Atlantic.
And then food processing food processing, it's always.
As always good.
<unk> manufacturing.
There's really good indication, but you know they are just not finding a piece of paper in starting a you know if you think about it we're facing a lot of uncertainty.
Over the next.
Several weeks and months right. So why would anybody you kind of have to understand why yeah, why somebody would they keep doing work on it but whether they delay in signing a contract it can't be too surprising to anybody right now if you're a hospital for example, you'll find out who's going to run health and human services in the next few weeks that math.
What are your Viropharma, you're going to find out who is running the F.D.A.
One way or another in the next couple of months and they're just why would I dunno tickets understandable.
Okay.
[laughter] I'm not even sure. It's a fair question many anything its more the virus or the election right now [laughter] I'll, let bill answer that one.
Because the <unk> I'm not hitting I didn't get the general.
Level of uncertainty, but I would say.
I'd say, it's equal part.
Yeah, It definitely boat.
Okay.
Now looking for specific guidance, but I mean, what are the ranges of expectations for how the backlog might trend.
So as far as how the backlog might trend.
That is really lumpy like I think.
I think it's going to be hard to be signing we have a very high standards before we will put something into backlog and it's going to be hard for us to get the firm's signatures.
By now and the end of the here I think the real Hal will be EPS by the time the winter is over by the time, we report the first quarter.
Well we.
You know, where we see our backlog stabilize and start to pick up by year end or not so much and as far as revenue goes you know so so.
The big jobs, we had an electrical [noise].
The biggest revenue quarter for the jobs. We have electrical was was the fourth quarter of last year. So electrical you may note. If you look it was up like 30 million I think from the third quarter to the fourth quarter of last year. So we have a really big electrical backlog comparison.
Vast debated by these delays for the fourth quarter, so that's going to make.
Same store revenue over all you know down for sure in the fourth quarter, and then with a bias towards down in the first and second quarter, just because you know that big work isn't there some of that was planned and some of it has.
Does come to pass so I don't I don't know I don't know if that's helpful. But that's what I know.
No. That's very helpful. And then the last one for me.
Bill I wanted to ask on D.N.A., because it came in almost $3 million sequentially.
Just curious on what the puts and takes are for the next few quarters. So [noise]. So there's there's several different kinds of disparate really I think we're talking about amortization right.
There are several different kinds of amortization, there's the stuff that goes through SDMA and that is coming down and then there's the backlog the backlog amortization.
Where our T.A.S. acquisition is the fastest we've ever had it so you've got you now so with Walker you had amortization coming down over about an 18 to 24 month period for their backlog T. I guess, it's because the stuff built in a plant their backlog whatever they have on a given given day at all burns in the next three four or five months.
So that's why you're seeing a big drop the good news is you don't have to wonder about this if you go to page.
I think around page 18, we put a table in that shows.
You know amortization for the coming years. So we show you the amortization.
For the last quarter of this year and then we started the amortization for the next four years and we that's something you're required by the rules to put in once a year, we put we put it in each quarter when were doing when there's craziness going on so you can just go look that up and put it right in your model.
What could change if we do another acquisition there'll be amortization for that acquisition, but if we didnt do another acquisition absent an an.
An unlikely impairments. These kind of assets are very hard to impair even if you want to do that that's math you can just you got it hey, Jay team.
Okay.
Perfect I'll turn it over thanks, guys Alright take here Adam.
Thank you and the next questions from the line of Stephanie NASDAQ. He I'm trying to just please go ahead.
Good morning, Brian So enjoying you guys hear me yeah, we can absolutely fantastic.
Fantastic.
Got you could you took the calls I'll just following up I mean, it seems like a core operations on the mechanical side, you've done really well and kudos to you for doing it.
I'm looking at the acquisitions I think you walked us through a little bit Walker kind of the air pocket and inability to may be filling the pipeline the way they expected it but if I look at T.S. It seems like sequentially were down 50% and here and star Electric I think around 20. So maybe maybe first question you can kind of talk a little bit about.
Not the nature of the business because I thought you talked about it but mid may be specifically on that modular business is there something specific about the type of the business, they're doing or is there something about the end markets that that really created the pockets air pockets for those two.
So.
For Ta, yes, that's the one that mad likely but we've already really told you everything we have about Walker for Ti they.
They had a very very big second quarter revenue wise, we'd like 50 plus million and they've had more like 29 or $30 million in the third quarter. The 50 plus million. So they manufacture things implants in a in a plan and they had a gigantic order going out and they had big equipment deliveries in the second quarter.
Here's the thing about and then in the third quarter. They didnt have those equipment deliveries and I think that they'll probably have another similar quarter in the fourth quarter and it'll pick up next year just based on the order book It will pick up back say, there's good chance it will pick up a lot next year, but at the end of the day, none of that is really impacting our numbers very much because we have what.
Call. It a whip adjustment and we have where where it things that are ongoing on the day, we buy them, we do a make whole so.
It's one of the reasons, we don't talk about it a lot in the script is it's not it's not huge in the quarter. You may have seen for example that we we picked up money through the earn outline a significant three or 4 million I think through the earn out line. This quarter. We gave back a similar amount in the last little while through what's called the whip adjustment.
Line. So that's why we don't mention it because it kind of washes out.
But as far as their prospects we think.
We like the prospects for next year, and so compared to Walker right, where we definitely have an air pocket. Yeah. We don't really we don't really foresee that with <unk> that we'll start to get more benefit from T.A. EPS next year, because as I said, they're amortization was very very heavy.
Early on for the backlog amortization because of how fast their backlog burn.
Okay. So then going keeping that in mind and I'm, assuming similar commentary about star electric would would play in.
If I look at your kind of the broad guidance you gave us the same store sales in December 2020 in the first half of 2021 I think it's a fair question to ask what does the core and mechanical look like so if I was to take the Tia, Yes, and you were looking forward for that core mechanical business kind of what are your expectations. There support this work.
But we were looking at low to mid single digit improvement.
Co bid.
They were flat this quarter mechanical was flat I actually was.
Well I thought it might be down slightly and I think there's a bias towards.
Mechanical being a little bit down for the next two or three quarters, but to say now start I'm, sorry, electrical will be down a lot because it's comparing teddy gigantic quarters, a year ago, a year over year, but as far as mechanical.
I'd say it will round to zero they won't get the growth we were hoping for but I don't see signs of luxury goods or anything.
The electric.
The the reason we put in our script that we have same store.
Revenue declines as electrical.
And I'm really glad to hear that.
Yes, because it sounds it sounds like that you know the core business with the T.H. frac heating plumbing, it's it's doing well and it should give you some confidence in going forward. So so my thought was here and going maybe to the board as well.
If the core business is doing well and the acquisitions are really.
In adjacent cheese, we should save maybe these recent.
Acquisitions, there are somewhat adjacent to your core business may maybe there is a different way to look at them going forward and then really compare them to the cost of your own shares and maybe being more aggressive in stock buybacks because it seems to me that your bar should be a little bit higher for the businesses that are in the Jason sees.
Then making acquisitions in your core business and if that's the case, maybe there's better use of capital.
Looking at your best business, you know that you know your own business and your own shares so were pretty aggressive at buying back shares, but we also when we do these acquisitions, we have a lot of conviction about them. So for example, when we bought he.
Five or six years ago.
And we have the exact same people say you know the exact same argument why you should have been buying shares you're only getting five or $10 million a year from them well for the one I was wondering switching allows core well, we've gotten 10 million a quarter from them. So we but we believe these acquisitions are going to it we're going to be very happy to have a thousand licensed electric.
<unk>.
We might be wrong about that but the other thing is when we buy when we buy our shares.
When we think the share price is good.
We tend to only buy our shares until we start to affect the price we're not a company that wants to build up our stock. So we.
No. That's just a conviction we have we buy our shares.
I don't know, we bought back 9 million shares.
And we will continue to buy shares I understand bill and I think I agree with you I think the acquisitions in your core business, they've done better and you've done but I just question if the bar shouldn't be higher for these adjacent businesses and if that is the case.
I think your perspective changes in a little bit.
Obviously, barring seeing more acquisitions in the HVAC business.
Yes.
Like you said Oh, you like you said you know you your leverage has been lowered substantially and it's kind of come to the question of what do you do with that capital and if there is a lot of acquisitions in the core business I think it's it's obviously easier.
Easier decision to make gotcha.
Gotcha already.
All right, but thank you. Thank you for the results and I know are difficult times out there and I agree with you I think in the next few weeks, we made no more and actually business may look quite interesting yeah.
Yeah fingers crossed alrighty. Thank you all right Dave.
Thank you so much Nemo questions now I'd like tend to Colin I, if it's a fine line for closing remarks.
Alright in closing I want to once again to think all about wonderful employees.
The results our team has accomplished this quarter were truly amazing.
I have never felt better about this company and its future.
We are looking forward to seeing many of you again in person, but in the Meanwhile, please be safe.
Thanks and take care.
Thank you so much and everyone that concludes the call you may now disconnect.
The China.
[noise].
[music].
[music].
Good day and welcome everyone to the quarter three Twentytwenty comfort systems USA earnings Conference call hosted by comfort systems USA. My name is Sheila on the off price if it today during.
During the presentation your lines will remain on listen only if you require assistance at any time, just key styles, there and you telephone and accordingly, we will be happy to help you.
Advisable policies. This conference is being recorded for replay purposes, and now I'd like to hand over to Julie Shaeff, Chief Accounting Officer.
Thanks, Sheila good morning, welcome to comfort systems, USA third quarter earnings call.
Comments this morning, as well as our press releases contain forward looking statements within the meaning of the private Securities litigation, that's a nice 95.
What we will say today is based on the current plans and expectations of comfort systems USA those.
Those plans and expectations include risks and uncertainties that might cause actual future activities and results of our operations to be materially different from those set forth in our comments.
You can read a more detailed listing and commentary concerning our specific risk factors in our most recent form 10-K and form 10-Q as well as in our press release covering these earnings.
By presentation has been provided as a companion to our remark.
Presentation is posted on the Investor Relations section of the company's website now that comfort systems USA Dot com.
Joining me on the call today are Brian Lane, President and Chief Executive Officer, and Bill George Chief Financial Officer, Brian will open our remarks.
Okay. Thanks, Julie good morning, everyone.
Thank you for joining us on the call today.
We are all facing unique challenges now from a global pandemic.
And in the midst of that we appreciate our good performance and solid prospects.
More than anything I am grateful for our employees.
And I want to thank all of them for their commitment and resilience during this difficult time.
Our employees continue to rise to the occasion, I feel gratitude and admiration for them every day.
We are working hard to keep our workforce and our community safe and healthy during cold at night.
Despite adversity comfort systems, USA achieved a record earnings and impressive cash flow.
We earned a $1.36 per share this quarter.
Compared to 98 cents per share the same quarter of last year.
This quarter included a 17 cents benefit from a discrete tax item.
This marks the highest quarterly EPS in the history of our company with or without the tax benefit.
Revenues were $714 million for the quarter.
Year to date revenues exceed 2.1 billion.
Through nine months, we had 199 million of free cash flow more than doubled the good results. We achieved in the same timeframe last year.
Our backlog has trended downward some this quarter, but we feel good about our prospects and as you can see we continue to increase our dividend.
In a few minutes I will spend some time on how that might affect us next year.
Before I review, our operational results and prospects I want that.
Bill to review the details of our financial performance Bill.
Thanks, Brian.
As Brian said, we once again achieved record positive results.
Revenue in the third quarter was $714 million, an increase of 7 million compared to the same quarter last year.
This increase is due to the current year acquisitions of T.A. EPS and start both.
Both of which contributed to our expanding modular construction costs.
This increase was offset by a decrease in same store revenue of 6%.
Our mechanical segment was up slightly on a same store basis.
So the decrease resulted from lower volume in our electrical services segment due to a combination of very high revenue comparisons in the prior year combined with deferred starts and other delays this year.
Last year, we experienced very high revenues in electrical as we were mobilized uncertain exceptionally large jobs from the second half of 2019.
Till the middle of this year.
As a result of these factors, we will continue to face tough revenue comparisons in electrical through the first half of next year.
And combined with the air pockets and delays that we are currently experiencing.
By continuing same store revenue headwinds through the second quarter of next year.
Actually in our two largest Texas market.
Gross profit was $147 million for the third quarter of 2020.
3% increase compared to last year gross.
Gross profit as a percentage of revenue rose to 20.6% in the third quarter of 2020 compared to 20.2% for the third quarter of 2019.
EPS DNA expense was $91 million for the third quarter of 2020 compared to $90 million for the third quarter of 2019.
DNA as a percentage of revenue remained steady at 12.7% for both quarters.
On a same store basis DNA declined $4 million.
Decrease was primarily due to cost control measures such as reduction in travel related expenses.
During the third quarter of 2020, we had an increase in tax planning and consulting fees of approximately.
Currently $2 million, which partially offset other declines.
Our quarter to date effective rate was 14.2% for tax and benefited from R&D credits and energy efficient commercial building deductions that were previously reserved.
During the third quarter, we finalized settlements with the IRS from their examination of our amended federal tax returns for 2014 in 2015.
We currently estimate our effective tax rate for full year, 2020 will be between 22% and 25% which reflects the settlement.
Starting in 2021, we expect our effective tax rate will be between 25, and 30% and if you eliminate the benefits of the settlement our quarterly tax rate this quarter would have been slightly over 28%.
Although 2014 and 2015 are now settled.
You have open process is ongoing for the 2016 2017 and 2018 tax years.
And while future benefits are possible, we believe any benefits that arise from those years would most likely be recognizable in 2022 or beyond.
Net income for the third quarter of 2020 was $50 million or $1.36 per share.
Hard to $36 million or 98 cents per share in 2019.
Earnings per share for the current quarter included 17 cents related to the tax benefit that I previously discussed.
That benefited net of related taxes consulting fees of 2.8 million that were incurred during the quarter.
Even if you completely exclude the tax benefit.
We had a 21% increase in earnings per share.
For the third quarter EBITDA was $72 million, an increase of 8% compared to the 66 million of EBITDA that we reported in the third quarter of last year our.
Our trailing 12 month EBITDA is a record $246 million.
Coming off an extraordinary cash flow in the last quarter, our free cash flow continues to be strong and was 48 million in the current quarter.
On a year to date basis, our free cash flow was $199 million compared to 79 million in 2019.
Our nine month.
Cash flow includes roughly $20 million of benefit that is a direct result of the federal stimulus bill, which allowed us to defer certain payroll tax payments in the second and third quarter.
Our best estimate is that the discrete tax provisions will benefit fourth quarter cash flow by approximately $10 million.
This estimated 30 million of full year 2020 cash flow benefit from these tax provisions will be repaid to the federal government in two equal installments in the fourth quarters of 2021 and 2022.
The phenomenal cash flow. This year has resulted in two important balance sheet accomplishments one.
First we were able to reduce our leverage to less than one turn of trailing 12 month EBITDA about a year sooner 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 for free cash flow during the quarter and we still managed to reduce our debt levels.
Our trailing 12 month free cash flow was $233 million.
Since the beginning of this year, we have purchased 448000 of our shares at an average price of $41.90.
Since we began our repurchase program in 2007, we have bought back over 9 million shares at an average price of $18.89.
But again if necessary.
Okay. Thanks Bill.
I am going to spend a few minutes discussing our backlog in markets.
I will also comment on our outlook for full year 2020 in 2021.
Our backlog level at the end of the third quarter of 2020 was $1.43 billion.
Sequentially, our backlog decreased by $103 million.
Same store backlog compared to one year ago has decreased by $271 million.
Of which 145 million related to our electrical segment.
Our changes in backlog include the effects of the third quarter seasonality and expected decline in our electrical segment.
But we are also experiencing delays in bookings and in project starts at certain of our large project company.
Most of our sectors continued to have strong quotation activity, even the sectors were booked with bookings have been delayed.
That is particularly true in our industrial business, which includes technology manufacturing.
Pharmaceuticals, and food processing.
Our industrial revenue has grown to 39% of total revenue in the first nine months of 2020.
Compared to 31% a year ago.
Institutional markets, which include education health care and the government.
36% of our revenue.
And that is roughly consistent with what we saw in 2019.
The commercial sector was 25% of our revenue.
With 2020 construction is 79% of our total revenue.
With 48% from construction projects for new buildings.
31% from construction projects and existing buildings.
Both of our construction and service businesses achieved record operating income margin.
Services, 21% of our of our revenue year to date.
With service projects, providing 8% of revenue and pure service, including hourly work, providing 13% of revenue.
Beginning in late March service business experienced the first and most pronounced negative impacts.
Associated with COVID-19, largely as a result of building closes or decisions by customers to limit building access.
However, during this quarter, we saw our service operations at or very near pre pandemic levels with improved profitability.
Fortunately our construction activities continued to be classified as essential services in most markets.
Despite pandemic related challenges, our mechanical segment performed incredibly well during the quarter.
We are grateful for our performance this year and our prospects are much better than we would have expected this past spring.
Finally, im going to take a few minutes and comment on our outlook.
I have never experienced a more uncertain environment.
And frankly, a broad range of outcomes up possible in the meat in the intermediate one to two year timeframe.
It is not currently possible to predict with any confidence how the pandemic.
And related government decisions will unfold.
No other pandemic may impact the decisions of our customers.
With that in mind, we are currently seeing both delays and high levels of pipeline activity at the same time, which is unusual.
We expect our full year 2020 results, we'll skip will significantly surpassed our record results in 2019.
Although as Bill mentioned, we are also currently.
Expect that same store revenue headwinds, especially in our electrical segment.
We will lead to same store revenue declines in the fourth quarter and through the first half of next year.
Nevertheless, given the range of conditions that we foresee we feel confident of solid profitability and cash flow in 2021.
Although we expect that 2021 earnings will not match, our extraordinary 2020 earnings.
Given uncertainties related to the ongoing pandemic and the evidence of delays in bookings and project starts.
We expect incremental challenges during the first half of 2021, including air pockets in some markets.
We are preparing for a broad range of possible economic and capital investment environment in 2021 and in 2022.
Our growth in the industrial segments of technology medical and pharmaceutical give us a good opportunity to cope with any challenges successfully.
We believe that whatever the puts and takes are over the next several quarters.
We have an unmatched workforce and a great unnecessary business.
And that we are very well positioned in geographic markets and industry verticals.
With solid ongoing prospects.
We plan to continue to invest to make the most of these advantages and opportunities.
Thank you once again to our employees for your hard work and dedication and I will now turn it back over to Sheila for questions. Thank you.
Thank you so much sorry to ask a question to you is key.
One on your telephone to then decide to literally a question simply key UK.
The first question comes from the line of Brent Thielman of D.A. PSMC.
Hey, Thank you good morning.
Hey, good morning, guys how are you.
I'm doing well thanks.
Hey, Brian or Bill I guess on that the mechanical margin per unit than really extraordinarily strong.
Chuck at chalk it up could really good execution.
We've had that kind of that serve that headwind with TRID and they're usually pretty good margin.
I guess, how do you how do you feel about sustaining the historic levels I guess I'm thinking.
The next issue.
Sustaining these levels.
Entry from topline pullback, yes.
Yes, I mean, our goal for us to feel look at service made a tremendous recovering effect second third quarter, which.
Produced the highest margins we've ever received that other of our service business, it's kind of comfort started.
And on the construction front, it's what you said that we just had.
You know really exceptional execution.
I think we will continue to execute at a high level. The service business is still there.
Yes, we did over 20% gross margins in it.
I still see us in the 19% to 20% range Brent as we go forward deepwater revenue decline.
I couldn't agree more.
Okay, I mean, that's structurally higher than where you've been in the past. So I mean, that's yes, that's what I was trying to get to kind of normal review, it's higher than where weve been except for the recent pads.
Right right.
At the last five years, we've been pretty consistently in that 19 to 2021 range Brent pretty consistent.
We do have we do have a lot more industrial right now so some of that is just a minute.
And with service coming back and we're talking about mechanical margins.
We so we feel good about the gross profit margins for mechanical holding up.
Yes.
Okay, and then on the on the electrical side.
Yes, it sounds like.
Part of that.
Sacroc creep lower in May.
Maybe one part market when.
One part deliberate I know you guys are now looking to pursue maybe higher value work, how how quickly do you think you can.
Push these margins backup within that segment that you made a little bit of progress here. This quarter I'm. Just wondering if you think you can continue that.
So you know one thing, although it's unfortunate in a sense that are rare.
Revenue in so our revenue is going down some of that was certainly planned and expected and some of it was certainly expected because we had a big Bowl John some of our base of the some of the biggest work we ever had performed from the third quarter of last year until about middle of the second quarter. This year.
Just some giant job, having said that the other side of that the margin side of that even though we'll have lower revenue. If that was very that was fee based work and it had very low gross margins soar.
But as far as an averaging effect goes so actually will get help on the electrical margins just by the change in mix that will give a lot up on volume, but we will get some back on rate and electrical and also the service part of electrical what basically the zero in March.
But has made particularly the low voltage side, a terrific come back in the third quarter.
And continues to gain momentum Brett So thats clearly I mean, the margins are a lot higher and the electrical service side as well.
Okay.
Maybe one last one.
Bigger picture question, you guys are all across the country, where where are you seeing some of the parts.
Particular air pockets that you talk about it.
Where are areas where.
The pipeline still looks pretty robust.
You're still seeing pretty good.
Award activity curious, what you're seeing in Casa across the country. So.
So Greg it's Brian I'll give you some pretty broad strokes.
I think you're seeing most of it up in the north in general.
I think when the solved we're still seeing probably a little bit more activity than were seeing up there.
I have some delays, but I'm getting a little bit more positive feedback, but down here, where we are that some of this work is going to go.
Maybe a little soon that is up north whatever the reasons are.
I think there is a little bit different view between the northeast and the south for sure. Though do you have anything on that no doubt that the.
Simply Mark stuff, just shut down in the northeast right and to get work started it doesn't just take somebody willing to do it there's things that have to happen you have to have drainage planned didnt earn.
Permit.
You have to have.
All sorts of engineering.
Oil and so with things have been shut.
Shut down delayed government offices.
It doesn't take much to create these delays.
Because is there.
There is a there is a critical path and a lot of things are on the critical path, if you're going to build something as complex as a big Big building.
So in the northeast, there's a lot more of that the south it's more business as usual from the point of view of at least.
Support.
Got it okay. Thanks, guys I'll pass it on.
Thank you Brett.
Thank you and the next question comes from the line of shortage of Keybanc capital markets.
Yes.
Hi, Jess Thanks for taking my questions Hi, Good morning, Sean.
Hey, guys.
Just going back to sort of this delayed bookings and starts dynamic we kind of covered the geographic perspective, but I was just curious from an end market perspective and project size just how broad based is this.
[music].
So.
Dynamic I guess.
Across end markets.
So where there was at least one example of a big data center that delayed but in general.
I'd say, it's broad based Brian I'd say, it's pretty broad based projects over 10 for sure we're seeing delays to smaller projects.
I still pretty much going up shot and the geography, you got to go back to the geography.
Yes.
Gotcha.
Okay.
I hate to belabor the point on margins, we went through that in detail already but.
Just wonder about this sort of unusual dynamics used to use your words, where you've got this really healthy prospect pipeline.
But not totally sure on when the work going again.
Yes, how do you manage through that dynamic and do we expect sort of medium term margin drag as you sort of stay positioned around.
It seems to be still.
Still a really healthy amount of work coming out imminently.
Sure. That's a really good question and I I've checked on that in the last few days.
And in a general statement most of the stuff. We're looking at we are holding our margins and we havent had conversations about a big decrease in that at all.
Manage it going forward.
Is the same way you manage any any construction activity one of the worst slows down you have to reduce your cost.
Hopefully, it's temporary but you don't have to manage the labor According to what the workload is.
These guys have done it before we don't have any work is out there they have all.
It is the first time I've seen this much bidding activity with with delays like this but in terms of.
The fluctuations of cyclicality of it we've all been through this before so with the width of bidding.
Activity. There there is no sense that we should we don't have a sense that we should be capitulated bright note yet where.
Something else is going to have to happen for that for that to start.
Okay, Alright, Thats helpful and last one from me is the cash flow and clarity of a bright spot in 2020.
The balance sheet looks like it's ready for another acquisition.
How should we how should we be thinking about capital deployment in the coming quarters.
[music].
So I would say absolutely we've we've paid off a year's worth of EBITDA year sooner than we thought we would so that has to make you more open minded to acquisitions, having said that.
Anything we do will be done with a ton of conviction because of all the uncertainty with Brian Lane says. This is the most uncertainty is everything as you might imagine.
That also plays into timing for acquisitions, but.
But there are as you know we talked to companies for years, and sometimes a decade and if the if the company we have conviction about is ready to sell.
We are ready to buy it Dave.
So we just we don't really do quotas that cover systems right. We.
We buy companies, we think will make us better for decades forever, but if we do find good companies, we will do own Sean.
Okay, Gotcha, alright, guys I appreciate the insight thanks, very much and complements the team on this near to the execution very impressive. Thanks.
Thanks, Sean I appreciate it.
Thank you and the next question is from the line of Adnan. This timeline of Thompson Davis. Please go ahead.
Hey, good morning, guys. Congrats on a on a record quarter, Hey, Adam Thanks, a lot appreciate it Brian.
Brian I'm trying to parse through your comments on the bidding because you said that the.
I think you said the bidding is still strong guest at industrial what are you seeing within the institutional and commercial markets.
It's the two I mean if.
Saw run too much specifics, obviously hotels are pretty quiet at the moment.
Commercial buildings for the most part right.
People have gone back to use them.
They are pretty slow.
Backlog in education is still.
We pretty good actually still looking at you know some work.
And of course, you know air quality doesn't go into backlog, but we are doing some work in schools on that front. So.
We're not expecting to see.
The hotels are office buildings in here in the near future Bill do you want to you guys don't Meanwhile.
The the intermediate term prospects for pharma are very good like in the mid Atlantic.
And then food processing food processing is all it is.
Always good.
Under manufacturing.
There is really good indication, but they're just not finding a piece of paper in starting.
If you think about it we're facing a lot of uncertainty.
Over the next.
Several weeks and months right. So why would anybody you kind of have to understand why yes, why somebody would they keep doing work on it but whether they delay of signing a contract it cant be too surprising to anybody right now if you're a hospital for example, you'll find out who's going to run health and human services in the next few weeks that math.
After the Euro Europe pharma, you're going to find out who is running the FDA.
One way or another in the next couple of months and they're just why would I don't think it's understandable.
Okay.
Nick.
Sure. It's a fair question I mean, you think it's more the virus or the election right now I I'll, let bill answer that one.
Because im not hitting its a general.
Level of uncertainty, but I would say.
I'd say, it's equal part.
Yes, it definitely does.
Okay.
Now looking for specific guidance, but I mean, what are the ranges of expectations for how the backlog might trend.
So as far as how the backlog might trend.
That is really lumpy like I think I.
I think it's going to be hard to be signing we have a very high standard before we will put something into backlog and it's going to be hard for us to get the firm's signatures.
By now and the end of the year I think the real tail will be up by the time the winners over by the time, we report the first quarter.
Well we.
Where we see our backlog stabilize and start to pick up by year end or not so much and as far as revenue goes.
So so.
The big jobs, we had an electrical.
The biggest revenue quarter for the jobs. We have electrical was was the fourth quarter of last year. So electrical you may note. If you look it was up like 30 million I think from the third quarter to the fourth quarter of last year. So we have a really big electrical backlog comparison exacerbated by these delays for the fourth quarter, so thats going to make.
[music].
Same store revenue over all.
Down for sure in the fourth quarter, and then with a bias towards down in the first and second quarter just because.
That big work isn't there in some of that was planned and some of it.
She has come to pass so I don't know I don't know if that's helpful, but thats what I know.
No. That's very helpful. And then the last one for me.
Bill I wanted to ask on DNA, because it came in almost $3 million sequentially.
Just curious on what the puts and takes over the next few quarters. So so there's there's several different kinds of it really I think we're talking about amortization right.
There are several different kinds of amortization there is the stuff that goes through SDMA and that is coming down and then there is the backlog the backlog amortization.
For our Ta EPS acquisition is the fastest we've ever had it so you've got you now so with Walker you had amortization coming down over about an 18 to 24 month period for their backlog PTA EPS because the stuff built in a plant their backlog whatever they have on a given day at all burns in the next three or four or five months.
So that's why you're seeing a big drop the good news as you don't have to wonder about this or do you go to page.
I think around page 18, we put a table in that shows.
Amortization for the coming years, So we show you the amortization.
For the last quarter of this year and then we shared the amortization for the next four years and we that's something you're required by the rules to put in once a year, we put we put it in each quarter. When we are doing when theres craziness going on so you can just go look that up and put it right in your model.
Well could change if we do another acquisition there'll be amortization to that acquisition, but if we didnt do another acquisition absent.
An unlikely impairment these kind of assets are very hard to impair even if you want to that Thats math you can just you got it page 18, okay.
Okay.
Perfect ill turn it over thanks, guys Alright take here Adam.
Thank you and the next question's from the line says to me that that Keith Schroeder. Please go ahead.
Good morning, Brian So enjoying can you guys hear me yes.
Absolutely.
Testing.
Got you could you took the calls.
Just following up I mean, it seems like a core operations on the mechanical side, you've done really well and kudos to you for doing it.
Looking at the acquisitions I think you walked us through a little bit Walker kind of the air pocket in.
And ability to maybe filling the pipeline the way they expected it but if I look at tier yes. It seems like sequentially were down 50% and here in Star Electric I think around 20. So maybe maybe first question you can kind of talk a little bit about.
Not the nature of the business because I thought you talked about it but maybe specifically on that modular business is there something specific about the.
The business, they're doing or is there something about the.
The end markets that really created the pockets air pockets for those two.
So.
For Ta that's the one that mad likely but we already really told you everything we have about Walker for Ta.
They had a very very big second quarter revenue wise, we'd like 50 plus million and Theyve had more like 29 or $30 million in the third quarter, the 50 plus million.
So they manufacture things implants, and the plan and they had a gigantic order going out and they had big equipment deliveries in the second quarter, Here's the thing about and then in the third quarter. They didnt have those equipment deliveries and I think that they'll probably to have another similar quarter in the fourth quarter and it will pick up next year just based on the order book.
At a pickup back say, there's good chance that we pick up a lot next year, but at the end of the day, none of that is really impacting our numbers very much because we have what's called a whip adjustment and we have.
Where where it things that are ongoing on the day, we buy them, we do a make whole so.
It's one of the reasons, we don't talk about it a lot in the script is it's not it's not huge in the quarter. You may have seen for example that we we picked up money through the earn out line a significant three or 4 million I think through the Earnout line. This quarter, we gave back a similar amount in the last little while through what's called the whip adjustment line.
So thats why we don't mention it because it kind of washes out.
But as far as their prospects we think.
We like the prospects for next year, so compared to Walker right, where we definitely have an air pocket. We don't really we don't really foresee that with that we'll start to get more benefit from Ta.
Next year, because as I said Theyre amortization was very very heavy.
Early on for the backlog amortization because of how fast their backlog burn.
Okay. So then going keeping that in mind and I am assuming similar commentary about star electric would play in.
If I look at your kind of the broad guidance you gave us the same store sales in December 2020 in the first half of 2021 I think it's a fair question to ask what does the core mechanical look like so if I was to take the tier, yes, and youre looking forward for that core mechanical business kind of what are your expectations there before.
Before code that we were looking at low to mid single digit improvement.
Co bid.
They were flat this quarter mechanical was flat I actually was.
I thought it might be down slightly and I think there is a bias towards.
Mechanical being a little bit down to the next two or three quarters for the site now start I'm, sorry, electrical will be down a lot because it's comparing gigantic quarters, a year ago and year over year, but as far as mechanical.
I'd say it will ground zero they won't get the growth we were hoping for but I don't see signs unless ratios or anything.
The electrical business is down the reason we put in our script that we have same store.
Revenue declines as electrical.
And I'm really glad to hear that.
Yes, because it sounds it sounds like the core.
Our business with DHL back heating and plumbing, it's doing well and it should give you some confidence in going forward. So so my thought was here and going maybe to the board as well.
If the core business is doing well and acquisitions are really.
And adjacent sees we should say maybe these recent.
Acquisitions, there are somewhat adjacent to your core business.
Maybe maybe there is a different way to look at them going forward and then really compare them to the cost of your own shares and maybe being more aggressive in stock buybacks because it seems to me that the.
Your your bar should be a little bit higher for the businesses that are in the Jason season, making acquisitions in your core business and if that's the case, maybe there's better use of capital.
Looking at your best business, you know the best.
On business and your own shares so were pretty aggressive at buying back shares, but we also when we do these acquisitions, we have a lot of conviction about them. So for example, when we bought Eas.
Five or six years ago.
We had the exact same people say the exact same argument why you should have been buying shares are only getting five or $10 million a year from them over the orders are to 11 core well, we've gotten 10 million a quarter from them. So we but we believe these acquisitions are going to it we're going to be very happy to have it though.
And licensed electrician, we might be wrong about that but the other thing is when we buy when we buy our shares.
When we think the share price is good.
We tend to only buy our shares until we start to affect the price we're not a company that wants to build up our stock. So we.
That's just the conviction we have we buy our shares.
I don't know, we bought back 9 million shares.
And we will continue to buy shares and I understand Bill and I think I agree with you I think the acquisitions in your core business, they've done better and you've done but I just question if the bar should it be higher for these adjacent businesses.
If that is the case.
I think your perspective changes a little bit.
Obviously, barring seeing more acquisitions in HVAC business.
Yeah.
And like you said you'd like you said you know your leverage has been lowered substantially and its going to come to the question of what do you do with that capital and if there is a lot of acquisitions in the core business I think it's obviously easier.
Easier decision to make.
Got it already.
All right. Thank you. Thank you for the results and I know are difficult times out there and I agree with you I think in the next few weeks, we may know more and actually business may look quite interesting thing.
Fingers crossed already thank you.
Thank you so much we have no more questions I would like to turn the corner to find lane for closing remarks.
Alright in closing I want once again to thank all of our wonderful employees.
The results our team has accomplished this quarter were truly amazing.
I have never felt better about this company and its future.
We are looking forward to seeing many of you again impressive but in the Meanwhile, please be safe.
Thanks and take care.
Thank you so much and everyone that concludes the call you may now disconnect.
China.