Q3 2021 Comfort Systems USA Inc Earnings Call
[music].
Do anything gentlemen, thank you for standing by and welcome to the third quarter 2021 Conference system USA earnings Conference call. At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session. Just a question. During this session you will need to press. The Star then the one key on you touched on the telephone.
Please be advised that today's conference is being recorded if you would offer assistance. Please press Star then zero.
I would now like turn the conference over to your Speaker host today, Julie <unk> Chief Accounting Officer. Please go ahead.
Thanks, Olivia good morning, welcome to comfort systems, USA third quarter earnings call. Our comments this morning, as well as our press releases contain forward looking statements within the meaning of applicable securities laws and regulation.
What we will say today is based on our current plans and expectations of comfort systems USA 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 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.
Slide presentation has been provided as a companion to our remark. The presentation is posted on the Investor Relations section of the company's website found at comfort systems USA Dot com.
Joining me on the call today are Brian Lane, President and Chief Executive Officer, Trent Mckenna, Chief operating Officer, and Bill George Chief Financial Officer.
Brian will open our remarks.
Okay. Thanks Julie.
Good morning, everyone and thank you for joining us on the call today.
We are happy to report a fantastic third quarter.
We earned adult <unk> 27 per share on revenue of $834 million.
Same store revenue grew by 9% compared to the third quarter of 2020.
His work and bookings are returning as Covid challenges decrease.
Our backlog was over $1 $9 billion this quarter, which is a $217 million same store increase.
This time last year.
Our free cash flow continues to be strong and yesterday, we increased our dividend by 8%.
Our essential workforce continues to perform at.
At an outstanding level, and we are grateful for their strength and perseverance during these challenging times.
During the third quarter, we closed our acquisition of Amtech.
Each focuses on electrical projects and service and Kentucky.
Tennessee and the Carolinas.
And tech brings an exceptional set of capabilities and relationships and our strong reputation and industrial markets such as food processing.
We are thrilled to have them as part of comfort systems USA.
I will discuss our business and outlook in a few minutes, but first I will turn this over to Bill to review our financial performance Bill.
Thanks, Brian and Hello, everyone.
This will be pretty brief revenue for the third quarter of 2021 was $834 million, an increase of $120 million or 17% compared to last year same.
Same store revenue increased by a strong 9% with the remaining increase resulting from our acquisitions of GEC and M. Tec.
Gross profit this quarter was 159 million a $12 million improvement compared to a year ago. While gross profit percentage was 19, 1% this quarter compared to 26% for the third quarter of 2020.
Our gross profit percentage related to our mechanical segment was strong at 21% and margins in the electrical segment have increased significantly compared to last year.
SG&A expense for the quarter was 95 million or 11, 4% of revenue compared to $91 million or 12, 7% of revenue for the third quarter in 2020.
On a same store basis, SG&A SG&A was down approximately $2 million.
Primarily due to tax consulting fees that we incur.
<unk> in the prior year.
Our year to date 2021 tax rate within the expected range of 24, 1%.
Net income for the third quarter of 2021 was $46 million or $1.27 per share.
This compares to net income for the third quarter of 2020 or $50 million or $1.36 per share as last year included a 17th that benefit that resulted when we settled tax audits from past year.
Excluding that discrete item from last year, our earnings per share increased by 7% compared to the record level of a year ago.
For our third quarter EBITDA was up significantly to $82 million, an increase of 15% over the prior year and through nine months, our EBITDA is $188 million.
Free cash flow in the first nine months was 139 million as compared to $199 million in 2020.
The COVID-19 induced work slow down it's a temporary tax benefits created unprecedented cash flow last year our.
Our cash flow this year is robust.
Nine months and we expect continued good cash flow, although we are likely to continue to deploy.
Deploying some net working capital to start new projects in many places and.
In addition, we will be paying the federal government, an extra $16 million of payroll taxes next quarter that would be deferred under the cares Act in 2020.
Ongoing strong cash flow has allowed us to reduce our debt faster than expected, while still actively repurchasing our stock.
Since the beginning of the year.
We have repurchased 346000 shares which is almost 1% of our outstanding shares at an average price of $73.69.
Since we began our repurchase program in 2007, we have bought back over nine 6 million shares at an average price of less than $22.
Brian mentioned that we closed the acquisition of Amtech Amtech is reported in our electrical segment and it is expected to contribute annualized revenues of approximately 175 million to $200 million.
And earnings before interest taxes, depreciation and amortization.
$14 million to 17 billion.
However, because of the amortization expense related to intangibles and the acquisition is not expected to contribute to EPS for the next few quarters.
That's all I have on financials, Brian Alright, Thanks Bill.
I am going to spend a few minutes discussing our backlog and market.
I will also comment on our outlook for the remainder of 2021 and full year 2022.
Backlog at the end of the third quarter of 2021 was $1 94 billion.
On a sequential same store backlog was up slightly which is great, but the end of our third quarter due to the heavy backlog burn this time of year.
Year over year, our backlog is up by over $500 million or 36%.
Same store backlog increased by 19% a broad based increase.
We believe that the impact on activity levels related to COVID-19 have now stabilized.
And we expect to continue seeing good trends in work availability in the coming quarters.
Industrial customers were 43% of total revenue in the first nine months of 2021.
We think this sector, which includes technology life Sciences and food processing.
We will remain strong for US is industrial is heavily represented in new backlog.
As well as in our recent acquisitions.
Institutional markets, which include education healthcare and government are strong and represented 33% of our revenue.
The commercial sector was also doing well.
But without changing mix. It is now a smaller part of our business at about 24% of revenue.
Year to date construction was 77% of our revenue with 46% from construction projects for new buildings.
And 31% from construction projects in existing buildings.
Service was very strong this quarter and our increasing service revenue was 23% of our year to date revenue with.
With service projects, providing 9% of revenue and pure service.
<unk> hourly work, providing 14% of revenue.
Year to date service revenue was up by 11%.
And without continuing strong margins.
Earnings were up by a similar amount.
Service has rebounded as buildings are open.
And profitable small project activity is back.
Overall service continues to be a great source of profit for us.
Finally, our outlook.
Backlog is at record levels.
Project development and planning activities with our customers are continuing.
We are paying more for materials, but so far.
<unk> have cope successfully which with challenges and mark in material availability and cost.
We are closely monitoring material shortages.
And cost and are taking steps to add additional protection on new work.
Vaccine mandates by certain customers have posed challenges and our ability to pursue certain work.
Auto staff or maintain scheduling on work that is subject to such mandates.
So far we have been able to meet our customers' requirements.
However, the occupational safety and Health administration, Osha is drafting an emergency regulation on vaccinations and it is impossible to predict the scope timing and impact of the new regulation on us.
Our our industry around the U S economy.
The underlying trends and customer demands and opportunities are very positive.
And so despite challenges we continue to anticipate solid earnings and cash flow for the remainder of 2021 and.
And we feel that we have good prospects for 2022.
Over the last few years, we completed a series of transformative acquisitions.
Built upon our unbroken history.
Profitability and cash flow to increase our scale deepen.
Deepen our exposure to complex markets.
<unk> industrial technology in pharma.
And expand our recurring service revenue.
Each investment has strengthened and expanded our unmatched nationwide community of skilled workers.
We are also experiencing increasing benefits from our substantial and ongoing investments in training productivity and technology.
These acquisitions and other investments have laid the foundation for the current strong results gives us confidence as we move forward.
Above all we are mindful of the ongoing challenges that our employees across the United States continue to confront and we are deeply grateful for their perseverance.
We are committed to providing our work is in desktop customers with unmatched resources opportunities.
In support.
I will now turn it back over to Olivia for questions. Thank you.
Thank you ladies and gentlemen asked a question you will need your question pardon the one key on your Touchtone telephone.
Did withdraw your question press the pound key.
Standby, while we compile the Q&A roster.
My first question is coming from the line of Sean Eastman with Keybanc. Your line is open.
You there Sean.
Let me check your mute button.
Mhm.
Our next question in queue coming from the line of.
Adam <unk> with Thompson Davis Your line is now open.
Hey, good morning, guys congrats on a great quarter.
Thanks, Adam Good morning, Adam Youre not speechless.
[laughter] and Theres no Echo anymore. There you go.
Okay.
Is it too early to have an outlook on just core non res growth next year.
Core non res.
Yeah, I mean I.
I would say that.
We have a good opportunity to achieve better growth than we've achieved in the last several years I think we would expect.
Mid single digit.
Growth, maybe with a little upside, we just had 9% but that was also a year ago. We had some COVID-19 effect still even though our third quarter last year was surprisingly good.
I think mid single digits, and we're optimistic door going into next year. If you look at.
How much is service has grown.
The strength of our backlog and still there's a lot of opportunities we are looking at two.
2022, we'll be in good shape.
What are you seeing on the M&A front.
So.
We keep saying that we will probably take a pause after we do these deals that are big for us.
I think that that's less likely now there are some people we're talking to who we're very mindful of changes in the capital gains rate. So I think we have we have an opportunity to do some some transaction a transaction or some transactions in the next few months I.
I will say that we're pretty much only doing relationship deals right now people, we've talked to for a long time, who.
Now have an interest maybe it's a good time to sell with tax changes coming were not.
<unk>.
Engaging in processes or bidding for companies, they're very very the very.
Very frothy market for.
For people chasing assets there.
Kind of assets that can be put in an auction and we're not doing that.
Yeah Adam.
That's all our deals and if we continue on what's happened in the last 10 years it will be good for us.
Okay, and then lastly, you had a nice uptick in.
Backlog within electrical.
Can you talk a little bit.
Walker can you talk a little bit about the outlook for Walker.
So.
I'll answer that one.
Walker has.
Done a terrific job this year.
It'll double in margins.
They are in Texas.
And there's plenty of opportunities in Texas, particularly Dallas, San Antonio and now Houston has picked up.
Pretty steadily so I think going forward.
Combination of the backlog and opportunities I think walk is well poised to have a very good end of this year and a good 2022.
Okay. Thanks, guys I'll turn it over alright, thanks, Adam.
Our next question coming from the line of Brent Thielman with D. A Davidson your line is open.
Hey, Thank you good morning.
Greg.
Hey.
The service work it looks like sort of collectively grew 10% this quarter, Brian just wanted to get your thoughts on.
Do you think you can sustain these sort of growth rates in that side of the business going forward.
One thing I would keep in mind remember service was kind of cut shut down a bit in the middle of last year. So this is a combination of a little bit of bounce back.
And really good growth.
Yes, I think.
Brian you've been with US a long time and we've continued yet.
Best in service both on the sales front and execution. So we will continue to grow that business pretty steadily.
Mid single digit a little bit more as we go forward. So that is a real source of strength now that we've consistently getting performance from.
Brian any or bill any thoughts on allocating more capital than you typically have to building out that business or continue as is.
I think we're going to continue as.
So that we make sure that we keep our capability in line with customer expectations, we don't want to disappoint anyone. So we believe slow and steady growth make sure we keep our employees and our customers happy we can deliver a top shelf service to them right. So there's two ways, we deploy capital one is in.
Investments in the existing business.
Don't leave.
Any opportunity to behind to invest in the existing business. It's a very capital light business, but we do buy capital we've really invested in like handheld various technologies and we also.
Really invest in training like we've had we've been on we've just really really been in that training in all parts of our business that may be especially service for years now.
So we don't really there's not a dollar I know or we could invest that we don't invest.
When it comes to acquisitions, we really just buy the best available company and we love It it's definitely a plus if they have a nice service business, but if they can also.
<unk> build complex food plants like amtech, we loved that too we just keep try to keep doing what works and we love complex, we love Great Workforces.
<unk> capabilities geographies, where youre really people have to drive a long way to find somebody who can do what you can do those are the kinds of things we love.
Okay, that's great.
I think that's kind of a follow up to Adam's question, but we talk a lot about the industrial vertical and it's obviously been.
Fantastic for you I just wanted to get a pulse on some of these other markets you're in and I know, they're shrinking as a percentage of the pie, but looking at the sector. This quarter in areas like education, we're down a couple of other verticals in there that were down.
Do you think we'll be in a place in 2022, where some of these areas CMO material turn.
I, just think it down percentage, but they are actually growing in real dollars.
Education has been pretty consistent for us, particularly at the University level as you know.
We've got some <unk> work and I think you'll get some <unk> opportunities as we go on.
Medicals picked up for us.
We got some good growth in our backlog and medical and commercial.
Commercial buildings, it's more on the service then.
Tenant fit all type work so.
Other markets are good slight growth with industrial obviously with the most growth opportunity.
No I agree.
Okay. Just the last one I guess is just on the electrical margins I mean, we've seen some real stability here. This year in terms of growth you've reported there and any thoughts kind of going forward.
So we.
Really statements sustained level, yes. So this is an opportunity for comfort systems right. So.
Walker.
So it had very significant improvement, but keep in mind. We've also bought some really good electrical companies and they are now in that segment and they bring in very very good margins. So it's probably it's unlikely probably that we will get to overall electrical margins that are as high as our overall mix.
Panicle margins on average over long periods of time in part because of the service component is a little bigger and mechanical but I really like our opportunity.
Well, a little bit of improvement out of electrical remember, what Brian said about Walker Walker has got good opportunities.
And that's really true.
And all of our businesses through an electrical and they probably as it is.
Segment, It probably has a little more room to get better yes, Brian.
We're really happy.
With the electrical business and what we see the future of I think that's going to be a really strong element for comfort systems and a long term basis.
Okay, great. Thank you guys alright take care.
NASA reminder, ladies and gentlemen to ask a question. Please press star one.
And our next question coming from the line of Julio Romero with Sidoti Your line is open.
Hey, good morning, Thanks, taking the questions hi, good morning.
I wanted to ask about the order trends they've obviously.
Trended very nicely seen sequential growth for four straight quarters.
How do you expect to see orders trend over the next.
Couple of quarter's end.
Are you at this point kind of turning down any projects.
At all.
Our booking season, usually is the winter and that's not changed so we have I think.
As far as the timing, we'd ever we can't really control when the pieces of paper get finalized.
But over the next six months I think we have the bookings should continue to get better.
The net sort of the net bookings and.
Pricing is good in those bookings we are we are.
We're busy we're picky and also right now there are some places where.
We're.
We're not pursuing work, where there might be a flu vaccine mandate. Although you were hearing more about that 30 days ago than you are now.
But in part we're doing that because we can right.
<unk>.
Yeah, Julio just to.
Follow on that I think the discipline, we're maintaining on the no go go no go what would projects to take I think the operating folks are really doing a terrific job about what opportunities to pursue and maybe once the Passover. So.
I'm really pleased with how that's going.
Got it yet being picky is certainly a good thing.
Yet in this market.
And I guess you mentioned.
Not.
Not being as attractive to areas, where there may be some vaccine mandates.
Are you seeing any other kind of bottlenecks on the on the labor side.
You bet vaccine mandates or for any other bottleneck.
Did you may be seeing.
So there are places certain types of customers, we're talking a lot about vaccine mandates, especially 30 or 60 days ago.
And we are making good progress and seeing more of our workforce docs and aided but.
Our workforce is.
You know they're in a cohort that has lower vaccination rates than the national average and so when we look at work that requires a vaccine. We look at what we have in the way of availability and which of them you don't have what our workforce looks like and we decide whether that's a good project to pursue and we take that also.
We.
Happy to take that into account in our pricing.
As far as other.
Other bottlenecks or bottleneck as always labor rate.
Yeah, it's always labor.
We luckily.
We have we have a lot of folks working here.
Theyre managing across companies as best in class in the market looking for good people. So.
We're managing it like we've done for 50.
50 years by the way just about vaccine mandates.
This is not a comfort systems issue right. This is a United States issue it.
If the federal government when they promulgate those regulations decides to sit down.
Somewhere between 15, and 40% of our blue collar workforce, that's going to have.
That's going to affect the nation comfort systems actually we're well positioned for that 25% of our revenue is in Texas. Our next biggest state is Florida.
So these are we think we're actually well positioned.
The worst case of that compared to anybody you could compare it to do that we know of.
But having said that.
It does feel like its trending towards sort of there are more people getting back to native and theirs.
Customers are sort of looking at different ways of keeping their job site.
Got it so I guess.
Any industry pain points, where everyone's feeling labor tightness Mike.
And some of them play to your advantage competitive.
That also has happened it's happened in the past.
And yes.
We're a good employer, we're a good place to work so well.
We're very attractive to folks out there that.
I wanted to do a mechanical electrical plumbing type work.
Understood Congrats on a nice quarter and best of luck in <unk>. Thank you very much.
Yeah.
And our next question coming from the line of Sean Eastman with Keybanc. Your line is open.
Hi can you guys hear me this time.
Sean.
There we go.
I just wanted to keep you on your toes there.
And just out of curiosity, what do you have a sense for the vaccination rates of comfort systems workforce.
That's really.
Thing about comfort is there isn't a workforce for covers this yeah their workforces in Massachusetts, and Theres Workforces in Florida, and so I would say that overall I'd say, we're definitely above our people think our industry is about 50% back donated in my opinion, where we're above the industry average for that we've done a lot to try to make that happen.
And also.
You know sometimes people don't necessarily they can be vaccinated and not reported right. There are times when youre in a familiar where you don't want to admit that you vaccinated.
Right.
It's hard to measure but in terms of.
Sure, we're making it really easy for folks to get vaccinated.
Working here.
Yep, Okay interesting.
And then higher level one for me.
Over this past quarter, we saw a few of the big Oem's highlight.
These huge addressable market opportunities surrounding <unk>.
Energy efficiency that seems it seems to be in addition to the IQ solutions demand and just considering all of these net zero pledge is coming out of both the private sector and the public sector.
I Wonder if thats something comfort systems is positioning around.
No.
I actually we don't usually talk about huge activities, but.
Archives.
We're in a lot of geographies that.
With the right expertise and capabilities to benefit from some of the trends, but this is driving for example, <unk>.
<unk> vehicles, historically comfort is not involved in the automobile industry, but if you need to build batteries, if you need sort of sophisticated electronics.
A lot of that is right in our wheelhouse and it's right in the geographies that we're in and we're actually like I've been in planning meetings lately just at subsidiaries.
Where they are starting to see opportunities like that with code names on their boards and.
So I do think you know.
Anything that Gibbs.
It gives the United States, a reason to reconfigure things and to redeploy things, where the guys are going to who can help you do that and Sean. This is in theory, we are actually working on a project right now.
So the makeup of electric batteries, so it's real life real work.
Revenue and profit so you put that on top of life Sciences, which are good and then various other types of technology, we're in technology and a lot of this is technology driven.
So we think we are.
We're actually pretty we think there are good in addition to internal air quality. We think there are other good things right in the heart of our complex sort of industrial expertise that are being that have good prospect because of these changes and what's great about our workforce, we're very adaptable to work on.
Multi type facilities, Sean it's a real strength of.
The real strength of ours.
Okay, that's really interesting and I wanted to check in on the modular business as well I mean, I felt like the longer term play there was helping to address.
That's sort of structural labor shortage, obviously that seems to be.
Quite an acute situation right now.
How is that playing out for you guys. I was just wondering maybe on the flip side of that that business could be a little more susceptible to some of the.
Capacity constraints just around.
Shipping and things like that but wanted to check back in on that business yes.
Yes, I would say, we definitely have had to put more money in shipping.
Quotes for shipping a lot of what we sell is.
Some of the biggest step is sort of the buyer ship that.
Also.
It is it's an opportunity.
To improve your labor.
Utilization on certain types of projects, it's 10% of revenue. It was a nice it was very profitable this quarter. It was.
You'd like I might've highlighted how well it did this quarter, but pretty much the whole business did well you've been highlighting everything, but we had a really nice quarter.
Offsite construction in modular and we feel like we're doing a good job beginning to.
<unk>.
Find new customers and help them understand how this can help them, but this is the kind of this is a strategic thing that you do its five year plan is not to quarter plans and we've got some really really good people working together between our two big off site construction things and they've got a good plan for the coming years.
Sure.
Yes.
And that ended a business, we got great leadership locally terrific workforce they are applying technology.
Advanced mentioned welding, what Theyre doing is tremendously exciting to me I love going there.
And I think you'll just keep getting better and better.
Okay. Good.
Good update there and then you guys are clearly posting about the success of the acquisition program here on this call I think rightfully so.
We kind of touched on how.
The program is sort of helps position you guys. In these growth end markets, where you've got these secular drivers but.
To the extent you can comment if you just look back over the last five years or even 10 years I mean, what kind of cash returns have you seen from the acquisition program.
I'm going to let bill answer that that's embarrassing to answer now.
It's been fantastic like these companies.
So we haven't bought a company of any size since 2008 that hasnt met on average the projections. We had the day, we bought it and some of them have exceeded those projections by multiples of what we what we planned on getting when we bought them. They all are they actually do better. They also they help our cash flow much.
More than they help our earnings because theres so much amortization in the first few years.
Yes.
Good morning.
Why.
Okay.
Did we lose you.
Okay.
And I'm showing no further questions at this time I would now like to turn the call back over to Mr. Brian Lynch for any closing remarks, alright. Thank you very much and in closing.
I want to again, thank our hardworking employees. They are doing just a terrific job.
We are glad we'll be seeing many of you again in person soon but in the Meanwhile, please be safe and enjoy the rest of your day and thank you very much.
Thanks, everyone.
Yeah.
Ladies and gentlemen.
For today. Thank you for your participation you may now disconnect.
Okay.
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[music].
[music].
[music].
Good day, ladies and gentlemen, thank you for standing by and welcome to the third quarter 2021 comfort systems USA earnings Conference call. At this time, all participants are in a listen only mode.
The speaker's presentation, there will be a question and answer session. That's a question. During this session you will need to press. The Star then the one key on you touched on telephone.
Please be advised that today's conference is being recorded if you would go to offer assistance. Please press Star then zero.
I'd now like to turn the conference over to your Speaker host today, Julie <unk> Chief Accounting Officer. Please go ahead.
Thanks, Olivia good morning, welcome to comfort systems, USA third quarter earnings call. Our comments this morning, as well as our press releases contain forward looking statements within the meaning of applicable securities laws and regulations.
What we will say today is based on our current plans and expectations of comfort systems USA.
Plans and expectations include risks and uncertainties that might cause actual future activities and results of our operations to be materially different from those who've got more than our comment.
You can read a 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.
A slide presentation has been provided as a companion to our remark. The presentation is posted on the Investor Relations section of the company's website found at comfort systems USA Dot com.
Joining me on the call today are Brian Lane, President and Chief Executive Officer, Twit, Mckenna, Chief operating Officer, and Bill George Chief Financial Officer, Brian will open our remarks.
Okay. Thanks Julie.
Good morning, everyone and thank you for joining us on the call today.
We are happy to report a fantastic third quarter.
We earned adult <unk> 27 per share on revenue of $834 million.
Same store revenue grew by 9% compared to the third quarter of 2020.
As work and bookings are returning as Covid challenges decrease.
Our backlog was over $1 $9 billion this quarter, which is a $217 million same store increase over this time last year.
Our free cash flow continues to be strong and yesterday, we increased our dividend by 8%.
Our essential workforce continues to perform at.
At an outstanding level, and we are grateful for their strength and perseverance during these challenging times.
During the third quarter, we closed our acquisition of Amtech.
Which focuses on electrical projects and service and Kentucky, Tennessee and the Carolinas.
Amtech brings an exceptional set of capabilities and relationships and our strong reputation and industrial markets.
As food processing.
We are thrilled to have them as part of comfort systems USA.
I will discuss our business and outlook in a few minutes, but first I will turn this over to Bill to review our financial performance Bill.
Thanks, Brian and Hello, everyone.
This will be pretty brief revenue for the third quarter of 2021 was $834 million, an increase of $120 million or 17% compared to last year same.
Same store revenue increased by a strong 9% with the remaining increase resulting from our acquisitions of GEC and M. Tec.
Gross profit this quarter was $159 million of $12 million improvement compared to a year ago. While gross profit percentage was 19, 1% this quarter compared to 26% for the third quarter of 2020.
Our gross profit percentage related to our mechanical segment was strong at 21% and margins in the electrical segment have increased significantly compared to last year.
SG&A expense for the quarter was 95 million or 11, 4% of revenue compared to $91 million or 12, 7% of revenue for the third quarter in 2020.
On a same store basis, SG&A SG&A was down approximately $2 million.
Primarily due to tax consulting fees that we incurred in the prior year.
Our year to date 2021 tax rate within the expected range of 24, 1%.
Net income for the third quarter of 2021 was $46 million or $1 27 per share.
This compares to net income for the third quarter of 2020 or $50 million or $1 36 per share as last year included a 17 set benefit that resulted when we settle tax audits from past year <unk>.
Excluding that discrete item from last year, our earnings per share increased by 7% compared to the record level of a year ago.
For our third quarter EBITDA was up significantly to $82 million, an increase of 15% over the prior year and through nine months, our EBITDA is $188 million.
Free cash flow in the first nine months was $139 million as compared to $199 million in 2020.
Covid induced work slowdown is a temporary tax benefits created unprecedented cash flow last year.
Our cash flow this year is robust.
Nine months and we expect continued good cash flow, although we are likely to continue.
Deploying some net working capital to start new projects at many places. In addition, we will be paying the federal government, an extra $16 million of payroll taxes next quarter that would be deferred under the cares Act in 2020.
Ongoing strong cash flow has allowed us to reduce our debt faster than expected, while still actively repurchasing our stock.
Since the beginning of the year, we have repurchased 346000 shares which is almost 1% of our outstanding shares at an average price of $73 69.
Since we began our repurchase program in 2007, we have bought back over nine 6 million shares at an average price of less than $22.
Brian mentioned that we closed the acquisition of Amtech Amtech is reported in our electrical segment and it is expected to contribute annualized revenues of approximately 175 million to $200 million and earnings before interest taxes, depreciation and amortization of 14 million to $17.
However, because of the amortization expense related to intangibles and the acquisition is not expected to contribute to EPS for the next few quarters.
That's all I have on financials Brian.
Alright, Thanks Bill.
I am going to spend a few minutes discussing our backlog and market.
I will also comment on our outlook for the remainder of 2021 and full year 2022.
Backlog at the end of the third quarter of 2021 was 194 billion.
On a sequential same store backlog was up slightly which is great by the end of our third quarter due to the heavy backlog burn this time of the year.
Year over year, our backlog is up by over $500 million or 36%.
Same store backlog increased by 19% a broad based increase.
We believe that the impact on activity levels related to COVID-19 have now stabilized.
And we expect to continue seeing good trends in work availability in the coming quarters.
Industrial customers were 43% of total revenue in the first nine months of 2021.
We think this sector, which includes technology life Sciences, and food processing will remain strong for us.
Industrial is heavily represented in new backlog as.
As well as in our recent acquisitions.
Institutional markets, which include education, healthcare and government strong and represented 33% of our revenue.
The commercial sector was also doing well.
But without changing mix. It is now a smaller part of our business at about 24% of revenue.
Year to date construction was 77% of our revenue with 46% from construction projects for new buildings and.
And 31% from construction projects in existing buildings.
Service was very strong this quarter and our increasing service revenue was 23% of our year to date revenue with.
With service projects, providing 9% of revenue and pure service, including hourly work, providing 14% of revenue.
Year to date service revenue was up by 11% and.
And without continuing strong margins.
This earnings were up by a similar amount.
Service has rebounded as buildings are open and.
And profitable small project activity is back.
Overall service continues to be a great source of profit for us.
Finally, our outlook.
Backlog is at record levels.
Project development and planning activities with our customers are continuing.
We are paying more for materials, but so far our teams have coped successfully.
With challenges and mark in material availability and cost.
We are closely monitoring material shortages.
And cost and are taking steps to add additional protections on new work.
Vaccine mandates by certain customers have posed challenges and our ability to pursue certain work.
Our staff are maintained scheduling on work that is subject to such mandates.
So far we have been able to meet our customers' requirements.
However, the occupational safety and Health administration, Osha is drafting an emergency regulation on vaccinations and it is impossible to predict the scope timing and impact of the new regulation on us.
Our industry or in the U S economy.
The underlying trends and customer demands and opportunities are very positive.
And so despite challenges we continue to anticipate solid earnings and cash flow for the remainder of 2021.
And we feel that we have good prospects for 2022.
Over the.
Last few years, we completed a series of transformative acquisitions.
Built upon our unbroken history.
Profitability and cash flow to increase our scale.
Deepen our exposure to complex markets, including industrial technology in pharma.
And expand our recurring service revenue.
Each investment has strengthened and expanded our unmatched nationwide community of skilled workers.
We are also experiencing increasing benefits from our substantial and ongoing investments in training productivity and technology.
These acquisitions and other investments have laid the foundation for the current strong results gives us confidence as we move forward.
Above all we are mindful of the ongoing challenges that our employees across the United States continue to confront and we are deeply grateful for their perseverance.
We are committed to providing our work is and thus our customers with unmatched resources opportunities and support.
I will now turn it back over to Olivia for questions. Thank you.
Yes.
Thank you, ladies and gentlemen, I'd like to ask a question you will need to harden. The one key on your Touchtone telephone.
To withdraw your question press the pound key.
Please standby, while we compile the Q&A roster.
My first question is coming from the line of Sean Eastman with Keybanc. Your line is open.
You there Sean.
Okay.
<unk>.
Mhm.
Our next question in queue coming from the line up.
Adam <unk> with Thompson Davis Your line is now open.
Hey, good morning, guys congrats on a great quarter.
Thanks, Adam Good morning, Adam Youre not speechless.
Yeah.
And Theres no echo anymore.
Awesome.
Is it too early to have an outlook on just core non res growth next year.
Core non res.
I mean, I would say that we have a good opportunity to achieve better growth than we've achieved in the last several years I think we would expect.
Mid single digit.
Growth, maybe with a little upside, we just had 9%.
That was also a year ago, we had some COVID-19 effects still even though our third quarter last year was surprisingly good.
Mid single digit yes, Adam we're optimistic going into next year, if you look at.
How much services grow.
Strength of our backlog and still there's a lot of opportunities we are looking at two.
2022, we'll be in good shape.
What are you seeing on the M&A front.
So.
We keep saying that we will probably take a pause after we do these deals that are big for us.
And I think that that's less likely now there are some people we're talking to who we're very mindful of changes in the capital gains rates. So I think we have.
We have an opportunity to do some some transaction a transaction or some transactions in the next few months.
I will say that we're pretty much only doing relationship deals right now people, we've talked to for a long time, who.
Now have an interest things maybe it's a good time to sell with tax changes coming were not.
<unk>.
Engaging in processes or bidding for companies that are very very very.
Very frothy market.
For people chasing assets there.
Kind of assets that can be put in an auction and we're not doing that.
Adam as you know Bill that's all our deals and if we continue on what's happened in the last 10 years it will be good for us.
Okay, and then lastly, you had a nice uptick in.
Backlog within electrical.
Can you talk about was that Walker can you talk a little bit about the outlook for Walker.
So.
I'll answer that one.
Walker has.
You've done a terrific job this year basically it'll double in margins there in Texas.
And there's plenty of opportunities in Texas, particularly Dallas, San Antonio and now Houston has picked up.
Pretty steadily so.
Think going forward.
Combination of the backlog and opportunities I think walk is well poised to have a very good end of this year and a good 2022.
Okay. Thanks, guys I'll turn it over alright, thanks, Adam.
Sure.
Our next question coming from the line of Brent <unk> with D. A Davidson your line is open.
Hey, Thank you good morning.
Greg.
Hey.
The service work it looks like sort of collectively grew 10% this quarter, Brian just wanted to get your thoughts on.
Whether you think you can sustain these sort of growth rates in that side of the business going forward.
One thing I would keep in mind remember service was kind of cut shut down a bit in the middle of last year. So this is a combination of a little bit of bounce back.
And really good growth.
Yes, I think.
Brian you've been with US a long time and we've continued to invest in service both on the sales front and execution. So we will continue to grow that business pretty steadily mid.
Mid single digit a little bit more as we go forward. So that is a real source of strength now that we've consistently getting performance from.
Brian any or bill any thoughts on allocating more capital than you typically have to building out that business or continue as is.
I think we're going to continue as it is today.
Make sure that we keep our capability in line with customer expectations, we don't want to disappoint anyone so we believe slow and steady.
Steady growth.
Sure, we keep our employees and our customers happy we can deliver a top shelf service to them right and so and there's two ways. We deploy capital one is investments in the existing business, we don't leave.
Any opportunity to behind to invest in the existing business. It's a very capital light business, but we do buy capital we've really invested in Mike handheld various technologies and we also.
Really invest in training like we've had we've been on we've just really really been in that training in all parts of our business and maybe especially service for years now so.
So we don't really there's not a dollar I know or we could invest that we don't invest.
When it comes to acquisitions, we really just buy the best available company and we love. It. It is definitely a plus if they have a nice service business, but if they can also.
<unk> build complex food plants like amtech, we loved that too we did keep try to keep doing what works and we love complex, we love Great Workforces.
<unk> capabilities geographies, where youre really people have to drive a long way to find somebody who can do what you can do those are the kinds of things we love.
Okay, that's great.
I think it's kind of a follow up to Adam's question, but we talk a lot about the industrial vertical and it's obviously been.
Fantastic for you I just wanted to get a pulse on some of these other markets yearend and I know there is shrinking as a percentage of the pie, but looking at it. This sector. This quarter areas like education, we're down a couple of other verticals in there that were down.
Do you think we'll be in a place in 2022, where some of these areas CMO material turn.
Yes.
Just didn't get down percentage, but they are actually growing in real dollars.
<unk> been pretty consistent for us, particularly at the University level as you know.
We've got some K through 12 work and I think you'll get some IQ opportunities as we go on.
Medical has picked up for us.
We got some good growth in our backlog and medical and <unk>.
Commercial buildings, it's more on the service.
Tenant fit all type work. So the other markets are good slight growth with industrial obviously with the most growth opportunity.
I agree.
Okay and.
The last one I guess is just on the electrical margins and we've seen some real stability here. This year in terms of growth you've reported there.
Any thoughts kind of going forward.
Yes.
It really statements sustained level, yes. So this is an opportunity for comfort systems right. So Walker.
So it has very significant improvement, but keep in mind. We've also bought some really good electrical companies and they are now in that segment and they bring in.
Very good margins. So it's probably it's unlikely probably that we will get to overall electrical margins that are as high as our overall mechanical margins on average over long periods of time in part because of the service component is a little bigger and mechanical.
I really like our opportunity to continue to pull a little bit of improvement out of electrical remember what Brian said about Walker Walker has got good opportunities.
And that's really true.
And all of our businesses through.
Through an electrical and they probably as it as it is.
Segment, It probably has a little more room to get better yes, Brian.
We're really happy.
With the electrical business and what we see the future of I think thats going to be a really strong element for comfort systems on a long term basis.
Okay, great. Thank you guys alright, thank you.
Now as a reminder, ladies and gentlemen to ask a question. Please press star one.
And our next question is coming from the line of William <unk>.
<unk> with Sidoti Your line is open.
Hey, good morning, Thanks, taking the questions.
Morning.
I wanted to ask about the order trends they've obviously.
Trended very nicely seeing sequential growth for four straight quarters.
How do you expect to see orders trend over the next.
Couple of quarters and how are you.
Are you at this point kind of turning down any projects.
At all.
Our booking season, usually is the winter and that has not changed so we have I think.
As far as the timing we'd ever we can't really control when the pieces of paper get finalized but over the next six months I think we have the bookings should continue to get better.
The net sort of the net bookings and.
Pricing is good in those bookings we are we are.
We're busy we're picky and also right now there are some places where.
We're.
We're not pursuing work, where there might be a flu vaccine mandate. Although you were hearing more about that 30 days ago than you are now.
But in part we're doing that because we can right.
<unk>.
Yes, Julio just to follow on that though I think the discipline, we're maintaining on the no go go no go what would projects to take I think the operating folks are really doing a terrific job about what opportunities to pursue and maybe once the Passover. So.
Really pleased with how that's going.
Got it yet being picky is certainly a good thing yes it.
In this market.
And I guess you mentioned.
Not.
Not being attracted to areas, where there may be some vaccine mandates.
Are you seeing any other kind of bottlenecks on the on the labor side.
Vaccine mandates are.
Or any other bottleneck.
Did you may be seeing.
So there are places certain types of customers, we're talking a lot about vaccine mandates, especially 30 or 60 days ago.
And we are making good progress and seeing more of our workforce vaccinated, but our workforces.
They're in a cohort that has lower vaccination rate than the national average and so.
So when we look at work that requires a vaccine we look at what we have in the way of availability in which you don't have what.
What our workforce looks like and we decide whether that's a good project to pursue and we take that also.
Happy to take that into account in our pricing.
As far as.
Other bottlenecks or bottleneck as always labor rate.
Yes, it's always labor Julio and Luckily.
We have a lot of folks working here and managing across companies as best we're constantly in the market looking for good people. So.
We're managing it like we've done for 50 years by the way just about vaccine mandates. This.
This is not a comfort systems issue right. This is a United States issue it.
If the federal government when they promulgate those regulations decides to sit down.
Somewhere between 15% and 40% of our blue collar workforce, that's going to have that's going to.
That's going to affect the nation comfort systems actually we're well positioned for that 25% of our revenue is in Texas. Our next biggest state is Florida.
So these are we think we're actually well positioned.
The worst case of that compared to anybody who could do that we know of.
But having said that.
It does feel like its trending towards sort of there are more people getting back to Nate and theirs.
Customers are sort of looking at different ways of keeping their job sites.
Got it so I guess.
Any industry pain point, where everyone's feeling labor tightness Mike.
And some of them play to your advantage or competitive.
Alastair has happened India that's happened in the past.
And yes, we are.
We're a good employer, we're a good place to work so where.
And we're very attractive to folks out there that.
I wanted to do a mechanical electrical plumbing type work.
Understood Congrats on a nice quarter and best of luck in <unk>. Thank you very much.
And our next question coming from the line of Sean Eastman with Keybanc. Your line is open.
Hi can you guys hear me this time.
Russia.
There we go.
Just wanted to keep you on your toes there.
And just out of curiosity, what do you have a sense for the vaccination rates of comfort systems workforce.
That's really the thing.
Thing about comfort is there isn't a workforce for cover says yeah their workforces in Massachusetts in their Workforces in Florida, and so I would say that overall I would say, we're definitely above our people think our industry is about 50% back donated in my opinion, where we're above the industry average for that we've done a lot to try to make that happen.
And also.
You know sometimes people don't necessarily they can be vaccinated and not reported right. There are times when youre in a familiar where you don't want to admit that you vaccinated.
Right.
It's hard to measure, but in terms of that.
Sure we are making it really easy for folks to get vaccinated.
Working here.
Yep Okay.
Okay interesting.
And and then higher level one for me.
Over this past quarter, we saw a few of the big Oem's highlight.
These huge addressable market opportunities surrounding.
Energy efficiency.
It seems to be an addition to the IQ solutions demand.
And just considering all these net zero pledge is coming out of both the private sector and the public sector I Wonder if thats something comfort systems is positioning around.
You know.
I actually we do.
Usually sort of talk about huge activities, but.
Archive.
And a lot of geographies that.
With the right expertise and capabilities to benefit from some of the trends that this is driving for example electric vehicles. Historically comfort is not involved in the automobile industry, but if you need to build batteries, if you'd need sort of sophisticated electronics and awful lot of that is right in our wheelhouse and it's right in the geographies that.
We are in and were actually like I have been in planning meetings lately just at subsidiaries, where they had are starting to see opportunities like that with code names on their boards and.
So I do think you know anything.
Anything that gives.
Gives the United States, a reason to reconfigure things into redeploy things, where the guys are going to who can help you do that and Sean. This is in theory, we are actually working on a project right now.
The major of electric batteries, so it's real life real work with revenue and profit. So you put that on top of life Sciences, which are good and then various other types of technology, we're in technology and a lot of this is technology driven.
So we think we are.
Actually pretty we think there are good in addition to internal air quality. We think there are other good things right in the heart of our complex sort of industrial expertise that are being that have good prospects because of these changes and what's great about our workforces were very adaptable to work on.
Multi type facilities, Sean it's a real strength.
The real strength of ours.
Okay, that's really interesting and I wanted to check in on the modular business as well I mean, I felt like the longer term play there was helping to address.
That's sort of structural labor shortage, obviously that seems to be.
Quite an acute situation right now.
How is that playing out for you guys. I was just wondering maybe on the flip side of that that business could be a little more susceptible to some of the.
Capacity constraints just around.
Shipping and things like that but wanted to check back in on that business yes.
Yes, I would say, we definitely have had to put more money in shipping.
Quotes for shipping a lot of what we sell is.
Some of the biggest step is sort of the buyer ships.
Also.
It is it's an opportunity to.
To improve your labor.
Utilization on certain types of projects, it's 10% of revenue. It was a nice it was very profitable this quarter. It was.
You'd like I might've highlighted how well it did this quarter, but pretty much the whole business did well you've been highlighting everything, but we had a really nice quarter.
Offsite construction in modular.
We feel like we're doing a good job beginning to.
To.
By new customers and help them understand how this can help them, but this is the kind of this is a strategic thing that you do its five year plan is not to quarter plans and we've got some really really good people working together between our two big Offsite construction things and they've got a good plan for the coming years.
I mean.
Yes.
And that ended a business, we got great leadership locally terrific workforce they are applying technology.
Advancements in welding, what Youre doing is tremendously exciting to me I love going there.
And I think it will just keep getting better and better.
Okay. Good.
Good update there and then you guys are clearly posting about the success of the acquisition program here on this call I think rightfully so.
We kind of touched on how.
The program is sort of position you guys. In these growth end markets, where you've got these secular drivers but.
To the extent you can comment if you just look back over the last five years or even 10 years I mean, what kind of cash returns have you seen from the acquisition program.
I'm going to let bill answer that one that's embarrassing to answer now.
It's been fantastic like these companies we haven't so we haven't bought a company of any size since 2008 that hasnt met on average the projections, we had the day we bought it.
Some of them have exceeded those projections by multiples of what we what we planned on getting when we bought them. They all are they actually do better. They also they help our cash flow much more than they help our earnings because theres. So much amortization in the first few years.
These young companies.
And that's one of the reasons why.
Okay.
If we lose you.
Okay.
And I'm showing no further questions at this time I would now like to turn the call back over to Mr. Brian Lane for any closing remarks, alright. Thank you very much and in closing.
I want to again, thank our hardworking employees. They are doing just a terrific job.
We are glad we'll be seeing many of you again in person soon but in the Meanwhile, please be safe enjoy the rest of your day and thank you very much.
Thanks, everyone.
Yes.
Ladies and gentlemen that does Scott conference for today. Thank you for your participation you may now disconnect.