Q2 2023 Comfort Systems USA Inc Earnings Call
[music].
Okay.
Yeah.
Thank you for standing by and welcome to the Q2 2023 comfort systems USA earnings Conference call. At this time, all participants are in a listen only mode.
After the Speakers' presentation there'll be a question and answer session to ask a question at that time. Please press star one on your telephone.
Please be advised today's call is being recorded.
Like to turn the call over to Julie shape, Chief Accounting Officer. Please go ahead.
Thanks, Valerie good morning, welcome to comfort systems, Usa's second quarter 2023 earnings call our comments a day as well as our press releases contain forward looking statements within the meaning of the applicable security laws and regulations. What we will say today is based upon our current plans and expectations of comfort systems.
U S a.
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 are 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 trip Mckenna, Chief Operating Officer, and Bill George Chief Financial Officer, Brian will open our remarks.
Alright, Thank you Julie.
Good morning, everyone and thank you for joining us on the call today.
We had another great quarter.
Our teams delivered remarkable execution and we are.
Grateful for their dedication, especially in this very hot weather.
We have never had a stronger demand environment and we are carefully selecting work that has good margins.
And good working conditions for our valuable people.
We earned $1 93 per share this quarter compared to $1 17, a year ago.
Current quarter revenue was $1 3 billion.
With same store growth of 24%.
Selecting strong ongoing demand in our markets.
Our mechanical operations continued to perform at high levels and electrical segments margins increased significantly.
This quarter includes continued growth and solid performance in our modular business.
And service has maintained its upward trajectory.
Additionally.
Backlog continues to track at unprecedented levels. Despite a strong revenue for the quarter.
Backlog is $4 $2 billion, which is one 4 billion higher than it was at the same time last year.
Our strong execution and favorable favorable payment terms on new work helped us helped us achieve $100 million of cash flow in the second quarter.
Today, we also increased our quarterly dividend by two five cents to $2 five per share.
Which reflects our continuing strong cash flow and our commitment to reward our shareholders.
I will discuss our business outlook in a few minutes, but first I will turn this call over to Bill to review our financial performance built.
Thanks, Brian we had an amazing quarter with 24% same store revenue growth higher margins SG&A leverage over $100 million of cash flow and our EBITDA increased by a remarkable 45% compared to last year.
Specifically revenue.
Revenue for the second quarter of 2023 was $1 3 billion in.
An increase of 27% or 278 million compared to last year.
Our mechanical segment revenue increased by $199 million or 26% and it continues to benefit from growth in our modular business.
Our electrical segment increased by an even larger 33% to $321 million.
Combined same store revenue increased by 24%.
$247 million as we continue to benefit from strong demand and some pass through effects of inflation.
We are facing tougher revenue comparables in the second half of the year.
Currently estimate that revenue growth in the second half will be in the high single to low double digits.
Currently expect that percentage revenue growth for the full year.
Is likely to be in the high teens.
Gross profit was $228 million for the second quarter of $53 million improvement compared to last year.
Our gross profit percentage improved to 17, 6% this quarter compared to 17, 2% for the second quarter of 2022, driven by improved electrical margins.
Quarterly gross profit percentage in our mechanical segment was the same this year and last year at 17, 8%.
Margins in our electrical segment rose in the quarter to 17.0%.
As compared to 15, 1% in Q2 2022.
It's hard to predict how margins will unfold for the remainder of 2023 in light of material cost variability and increasing modular and our mix. However, we remain optimistic that margins in 2023, we will continue to trend at or slightly above the margins we achieved in 2022.
SG&A expense for the quarter was $136 million or 10, 5% of revenue compared to $119 million or 11, 7% of revenue for the second quarter in 2022.
On a same store basis, SG&A was up approximately $14 million due to inflation and ongoing investments to support our much higher activity levels, but the growth in our SG&A costs was considerably slower than our growth in revenue.
<unk> it is.
Exceptionally good SG&A leverage this quarter as compared to last year.
Our operating income increased from last year by 62% to $92 million, our operating income percentage improved to seven 1% this quarter from five 6% for the second quarter of 2022.
As electrical margins to increase and as we had great SG&A leverage.
We still expect interest expense in 2023% increase from 2022. However, so far this year are higher interest payments were partially and temporarily offset by interest income related to a favorable legal outcome in the first quarter as well as extremely strong cash flow in the first half of the year.
Yes.
Our year to date tax rate of 16, 1%.
<unk>, an incremental benefit of $6 million or <unk> 15 cents.
From a conforming adjustment for the R&D tax credit of which eight related to 2022.
If congress restores immediate deductibility of research expenditures and resent. This conforming adjustment, we will have to reverse that <unk> income statement gain in the period that this occurs.
Although many individual items have affected our tax rate lately, we estimate that our normalized tax rate for us is approximately 20% to 22%.
After considering all these factors net income for the second quarter of 2023 was $69 million or $1 93 per share and this compares to net income for the second quarter of 2022 of $42 million or $1 17 per share.
EBITDA increased from $77 million in the second quarter of last year to $112 million this quarter.
An increase of 45%.
Free cash flow for the first six months of 2023 was a remarkable $213 million.
What it would take a few minutes to discuss four factors that are impacting our cash flow and have helped us achieve much higher cash flow than net income.
But which will also create more variability than usual in our cash flow results over the next few quarters.
Two of the factories have been helping cash flow in two of the factors are creating cash flow headwinds.
The first positive driver is very straightforward.
We are achieving profitability.
Fantastic and we're able to obtain fair and favorable payment terms across our book of business.
The second positive factor, helping our cash flow is the fact that we received large advance payments in the first half of 2023 and in late 2022 for some modular projects as a result of our commitment to add capacity.
We also currently have some customer cash relating to large and ongoing equipment purchases.
Although we continue to benefit from these advanced payments.
Benefit will normalize as project costs are incurred.
We estimate that the advanced payments received in late 2022, and the first six months of 2023 currently aggregate to $175 million to $200 million.
So in other words, we currently have around $200 million of cash that we have not.
As these early collections normalized a substantial portion of this money will be reduced from ongoing cash flow because we already have the money.
The first negative factor affecting our cash flow is the extra taxes, we are paying as a result of the deferral of tax deductions for research expenditures. So far this year, we have dispersed approximately $80 million in tax payments that would not have been made.
Under the prior regulation.
Unless congress acts to restore current deductibility.
Expect to make additional tax payments during the last six months of 2023.
To $60 million as the deductible of those business cost is spread over the next five years.
The fourth and final factor impacting our cash flow is temporarily heightened capital expenditures as we build out 1 million square feet of new modular capacity and as we purchase more vehicles as a result of reduced vehicle availability during COVID-19 year.
Year to date, we have $39 million of net capital expenditures double what we spent in the same period. The prior year and we expect this higher expenditure level will continue in the second half of 2023.
So during the first half of this year. The two positive factors I just described overwhelmed the two negative factors.
However, as those advanced payments amortize into a more normal cadence and as we fund our equipment commitments free cash flow might be lower than you might otherwise expect over the next few quarters.
Our debt was lower at quarter end as our substantial free cash flow allowed us to reduce our debt by 109 million since year end. In addition to funding the purchase of <unk> in the first quarter.
We also continue to purchase our shares acquiring 53000 shares at an average price of $126 89.
In the first half of the year and adding to the over 10 million shares we've repurchased since 2007.
Finally, as Brian noted, we implemented another meaningful dividend increase this quarter, that's all I had.
Alright, Thanks Bill.
I am going to spend a few minutes discussing our business and outlook.
Our backlog at the end of the second quarter was $4 2 billion.
Since last year at this time, our same store backlog has increased $1 4 billion around 50% with increases in our traditional mechanical and electrical business.
And substantial new bookings and our off site construction operations.
Our sequential backlog decreased by $259 million.
With most of that reflecting the good progress we are making on the pre bookings.
Our modular business.
Excluding modular backlog was roughly flat despite a heavy mid year burn rates.
Our revenue mix continues to trend towards industrial work and industrial customers were 52% of our total revenue in the first half of 2023.
Data centers life Sciences, food processing and.
And other manufacturing such as chip plants and battery are major drivers of new prospects in backlog.
Technology, which is included in industrial was 20% of our revenue in the first six months of 2023.
Abstention increase from 12% in the prior year.
Institutional markets, which include education healthcare and government.
Are also strong and represent 28% of our revenue.
The commercial sector is active.
Without changing mix. It is now a smaller part of our business.
About 20% of revenue and.
And commercial is disproportionately service revenue.
Year to date construction was 80% of our revenue.
With projects for new buildings at 53%.
While existing building construction was 27%.
Service revenue increased by 16% year to date compared to last year.
Service was 20% of our total revenues.
With service projects, providing 9% of total revenue.
And pure service, including hourly work, providing a 11% of revenue.
In both service and construction, we are encouraging and supporting our customers as they seek to improve the efficiency and sustainability of their businesses buildings and operations and we are committed to being good members of.
The diverse communities we serve.
Comfort systems is thriving because of our best in class people and superb execution. Thanks.
Thanks to them and then in light of the enduring need for the unique skills and capabilities, we feel confident in our prospects for <unk>.
Continued growth and strong profitability in 2023.
Our number one priority remains to preserve and grow the best workforce in our industry.
We are grateful for their and your trust.
I want to end by thanking our over 15000 employees for their hard work and dedication.
I'll now turn it back over to Valerie for questions. Thank you.
Thank you again, ladies and gentlemen, if you'd like to ask a question. Please press star one on your telephone again to ask a question. Please press star One line one moment for your first question.
Our first question comes from Sean Eastman of Keybanc. Your line is open.
Hi team, thanks for taking my questions and nice quarter.
Thanks Scott.
I wanted to.
I wanted to just dive into the backlog trend a little bit. It's very helpful to know that excluding modular which had the big pre bookings dynamic the backlog is pretty flat and thats actually pretty bullish in a heavy burden quarter I think thats very helpful.
But perhaps you could comment on.
The just the overall bid activity.
Proposal dialogue.
Thats trended maybe since the start of the year.
Yes.
Perhaps give you guys an opportunity to set an expectation on how this modular burn and how optically the backlog might trend over the balance of the year.
Alright, Sean This is Brian I'll go first and then I'll, let bill comment a little bit more in modular as you noted.
And we noted or not.
Formal awards that we.
We had big preorders.
And we are we are burning.
And through that work right now.
The opportunities in the markets is still very robust.
And as you know, we're a little bit different now we do have bigger projects, it's going to be lumpier.
It might have some quantity acquired pluses and minuses, but the overall trend that we're seeing from a demand environment is still very good.
We are still making sure we're looking for good work with good margins in it.
Really in our wheelhouse so.
We're still very optimistic and feel very good about the position that we're in so I'll just talk about modular for a second.
Modular.
The differences are.
Our entire book of business is doing amazingly well.
But at the margin the interesting things Youll see in the quarter are heavily driven by modular so modular booked $800 million of work in a week in December that additional pre bookings in January and now they are burning that they're building those.
That equipment and keeping in mind, the new million square feet of space hasn't even come online yet so that'll burn quicker they have a very very good order flow.
They are evaluating how much more of that work they can take.
It's also really affected our cash because when we took those big pre bookings we have the right to.
Some of that works not even until 'twenty four but we had the right to build a notable portion of it and be paid that immediately that was part of them inducing us to add that capacity. So it's added some lumpiness.
But as Brian said, we've never had stronger demand characteristics in our business that we're experiencing right now.
I think thats all very helpful.
Just as we think through the go forward.
Growth potential on top line.
We have a few different moving parts to consider.
Inflation abating, we've got tight capacity.
But then we also have this massive backlog growth.
Trend.
So I am just trying to piece all of those together.
Is there any way you can help us think through those.
What a good way to think about kind of next year's organic revenue potential could be.
How much visibility you have on on.
What that would look like into next year at this point.
So you sort of nailed.
The bigger than usual variability in there, especially.
The price of the of the revenue that's a pass through generally a pass through for us like materials and equipment, so, but if we sort of assume that away and say, we can assume that away and say listen we're not.
But we're not going to assume deflation in that area, but we're going to see much much less normal inflation, meaning next to no inflation I still think our we would expect to be have higher revenues for sure. In 24, then in 'twenty three just in light of our backlog and our pipeline and the demand.
That is going to to a certain extent be held back by.
Our guys like we have a fantastic workforce.
They have been working very hard for a few years human beings can only do so much.
Growing our workforce, but we play a long game at comfort.
Growth in positive cash flow for 20 years, and we're not going to we're trying to take work thats favorable to our guys that has favorable locations that has have reasonable gcs, who don't run a miserable project our focus right now is build.
And preserve that workforce.
And the long term the things we need to do in the long term to do that or what is what's going to really benefit our shareholders, having said that the demand is so great.
It's almost irresistible.
Okay, and then last one for me is it's nice to see the revenue outlook being taken up taken up for 2023.
But you guys are standing by this gross margin at or near 2022 levels.
So.
I guess I was just curious to me because we are running above 2022 levels in the first half and I can't really think of a reason why we should be down year over year gross margin in the second half, but maybe you're telling me, perhaps there's a tough comp on margins as well in the second half.
But one thing just to correct. What you said, we actually said in our prepared remarks that we expect it to trend at or above slightly above the margins that alright.
Yes.
And how far above.
That's a lot of work between here and when we know that but.
Sean.
Thanks, Thanks for helping US correct that also when we were performing at a very high level right now in the field.
We couldnt ask for more than we get from these folks right now.
Okay great.
It's going great execution is good and where we're looking at least a little bit better than we would've thought before our margins. In addition to that the stronger revenue outlook. So.
Thanks for clarifying.
I'll turn it over there thanks, a lot team.
Thanks, Sean.
Thank you one moment please.
Yes.
Our next question comes from the line of Julio Romero of Sidoti Your line is open.
Thanks, Hey, good morning, guys.
Good morning Julio.
I wanted to talk about the SG&A leverage youre seeing in the model, it's really impressive.
How do you what's going on there and how do you expect SG&A to.
As a percentage of sales to trend for the remainder of the year.
So we're optimistic that we can hold it at the levels that we had at the first half which of course are unprecedented for us as a percent of revenue our SG&A has never been lower.
Part of what's driving that is.
Service as a percent even though service has grown every single quarter since you've long before you are an analyst and our service profits have grown they just arent growing as fast as construction and construction has lower SG&A.
It's really impressive if you think about that SG&A leverage people think Oh, you control your costs, but in reality.
All we really did was held our gross margins as we grew.
And didn't add as much cost and that we certainly hope to continue to do that but.
Our goal is to just hold these levels. We're at now the risk to gross to the SG&A as a percent of revenue would be that revenue, let's say, there's some deflation in some of the big equipment, which is selling for a lot more today than it sold for 1235 and 10 years ago.
The way you want to look at it here's the thing, though if that happens our gross margins should go up right because.
No.
Our materials as a percent of cost of goods sold or like in the 40% mid low low mid 40 digit range, 43%, 42%, 44% and historically there are about a third of our costs. So if they go down even a little bit.
That you'd see our SG&A tick up a little bit you ought to see our gross margins to make up for possibly more than make up for that so just it's a hard moment to predict that because theres that big elephant in the room.
Of the.
Cost pass through us.
Yes, no that totally makes sense about the service business.
Not growing to the extent of the construction business and that affects the SG&A.
I really appreciate that.
Explanation there.
Maybe you could talk about the service business the trends Youre seeing there.
And.
I guess.
Could service, maybe outgrow construction in 2024, just given the tough comps that construction would have.
So.
Brian .
At service in General we've tripled over the last 10 years doubled over the last five will continue to get good solid growth.
But it's slow incremental growth, that's very consistent and service.
For it to outpace construction in 2023 2024, I don't believe that will happen I think it will still grow but this construction market is still very strong this year and next year.
So we will get more growth out of construction that we rolled out of service.
Okay, Great and then just last one for me is just.
Maybe talk about.
Artificial intelligence is kind of driving any newer activity within data centers lately.
And is it just the hyper scaler or are there others out there.
At the moment.
So there was an already big demand for data centers.
Gone up a lot. So the answer is of course, yes, it's absolutely it's not just driving.
The number of projects is driving the value of the projects. These these new servers can burn.
Three four times hotter.
And Thats what were in the cooling business. So it's really.
No.
It's really advantageous for us.
So the electrical demand is in the same range.
Two to four times more requirements. So is this.
More work for us to do in each of these buildings Julio.
The other thing that happens is the buildings become even more technically complex and hard to execute which pushes people towards us right. Because we have the big workforces the very very capable.
No.
Are much less likely to think cheap and cheerful right now.
Got it.
Thanks, so much for taking the questions and I'll hop back into queue.
Alright, Thanks Neal.
Yes.
Thank you one moment please.
Our next question comes from the line of Joshua Chan.
Of UBS your line is open.
Hi, Good morning, Brian Bill and Joe Congrats on a great quarter.
Alright, Thanks, Josh good morning.
Good morning.
I wanted to ask about the.
The project outlook I guess basically projects that are even beyond your backlog, what youre seeing across the different end markets work.
Worked at possibly comparing to bid on.
So it's still never been better right now there is more work were turning away work. That's why we were able to be picky about trying to find work that's good for our met our people and.
It's never been better.
The amount of demand you already.
You have where over 50% industrial right. So on the technology side, you have data center demand that really taken another leg up from already a strong positioning and then you've got totally new sources of demand where we are.
<unk> deployed very heavily on two of the largest silicon manufacturer projects in the United States battery is starting to roll revenue through more.
And then you've got.
Really good manufacturing <unk> got really good pharma you got it's just extraordinary.
Offshoring offshoring hurt us for 15 or 20 years.
And re shoring feels like it's got legs right now.
Okay. That's good to hear you and thanks for the color there and then on the on the modular business could you remind us when the million square foot capacity comes online and kind of your timeline of completing the large order and when you might be able to assume newer orders in the modular side.
Thank you.
So we may have some production in that space by the end of the third quarter, but if so.
One of the two new stages, if so it won't even be detectable by the middle of the fourth quarter, we should have at least some production in both of the new big buildings.
We are still.
Our prospects for additional bookings and modular like every other part of our business that they have never been better we have.
Conversation right now we have orders we could take that we are waiting to make sure. We can execute on what we have quite honestly.
Josh on the larger projects is all about the time that you could have one one in the middle of June right, that's going to come into July . So on the lives of work tightening is different than it is on the smaller work with just quickly what are the bigger ones take a little bit longer.
That makes a lot of sense. Thank you for the color.
In the second half.
Alright, thank you.
Thank you one moment please.
Our next question comes from the line of Brent Thielman of D. A Davidson your line is open.
Hey, Thanks, good morning.
I guess, Brian or Bill could you just maybe talk about some of the discussions youre, having with customers on the modular side are there similar order opportunities out there like you saw kind of late 2022 that that might be additive.
Over the course of the next 12 plus months.
So we can only talk to certain amount about that ray but.
Our single largest customer that we've done work with since really before we bought really either of the two companies that do modular for us. So just one case more than 10 years.
We're looking at ways to adapt their scope. So that we can do more for them and also leave good work for contractors, we have new orders that.
We're in design on for a new major customer.
And quite honestly.
We're in conversations we've been visited by others, but it frankly.
We are capacity constrained for the foreseeable future.
And we're going to the people who've been been good to US forever, we have to take care of them and give them make sure we give them what they need because they treat us well.
We're absolutely out there developing.
Really for all of these especially on the datacenter side for all of these people.
All of the above strategy, they want to build modular they want to build.
<unk> Bill.
Doing it all theyre doing theyre doing for that what we're doing for hiring people is everything we can think of.
It's amazing how many opportunities are out there just in the state of Texas spread.
Got it.
Maybe just sticking with modular how much of an impact.
It sounds like it's ramped up a lot here, maybe in the quarter first half.
What kind of impact is that having on your margins and mechanical.
Okay.
So their margins are slightly lower than the average of our mechanical margins there.
Margins.
<unk> dollar per.
Per dollar spent on labor are as good or better right. They use a less skilled.
On average less.
<unk> scale, but not as scaled is.
Journeyman out in the field.
Labor for us, but no I mean, the average our margins down as far as how much it's in the tens of basis points. Because there is still as big as they are the rest of comfort still or.
So the business right.
Yes.
Okay.
I guess lastly, bill I mean.
$6 in free cash flow through the first half cut all the comments about the moving pieces attached to that.
I think youre, telling us don't don't expect a repeat of that but is it.
Feasible that you could still do it because second half of the year it tends to be.
Pretty strong cash generation for your store could speak.
So.
It would take a new pre booking.
To maintain this it would take and most likely.
If that were to come it would not come in time for us to collect the money. We literally have $200 million. We haven't earned that has a lot of money and it's only good news right. The fact that we have those relationships with our customers and they understand.
The kind of risks, we take for them, but you can't earn the same money twice so.
We just.
Like we just want to be perfectly clear with people about what's happening right. We made it clear to people when they got the pre bookings that that was going to be lumpy and there'd be a quarter or two where.
There'll be some some normalization of that and we want to make it clear that all of this advanced cash we're getting asked to normalize over time, we still have.
You can collect money early but you can't collect it twice.
Great.
Just last one.
Maybe you could talk about the implications of that.
Heat waves you all experienced.
Experienced where youre at.
That seems like it hit a lot of the markets that you have operations and what's that mean to the company.
Yes.
As you can imagine it is hot and a lot of places.
From a work perspective, right, 100% utilization if not more.
If anybody living in these places tried to give some of that come to your house. So we don't it's very difficult, but the implication for US really is the health and safety of our workers.
Making sure.
<unk> seen hydrated.
Regulating new work.
Because it is down.
Down here in the south.
It is really high so we can really just plenty of work for them to do you just want to make sure that we take care of them for the long term. That's the bigger implication is plenty of work out there that's not that's not the problem.
Yes.
Got you Brian is that driving outsized.
Contributions from service as well.
Yes services fully utilized fully capacity.
Working weekends you just you just got to make sure you take him. So you don't run them into the ground.
Some of these folks who arent moves down in Texas, you're probably talking 120, <unk> hundred 30 degrees on those Rus same in Arizona. So you just got to be careful how much work for them and what the conditions.
But it is driving a lot of work.
A lot of repair work et cetera, as you would imagine.
Sure.
Yeah understood. Okay. Thanks, guys.
Thanks.
Thank you one moment please.
Our next question comes from the line of Adam Palmer.
Thompson Davis your line is open.
Hey, guys great quarter.
Thanks, Hey, I just wanted to confirm.
The revenue targets that you gave us those were organic right that they do not include <unk>.
One.
Yes, they're organic.
I will go to.
Fantastic company, but.
Vintage wise, whether they give us 30 million bucks in the quarter, so, but those are organic but it's a rounding error.
<unk>.
And then.
I was hoping you could comment on 2020 for revenue.
You guys kind of brought it up in terms of having some visibility and just playing around with the model last night, I don't really know where to set that as a start.
So I expect 2020 for revenue will be larger than 2023 revenue I think if you keep the margins close to the same you can count on some growth.
If you don't show growth you should expect our margins to get higher. So the problem is it's not an independent variable right because it changes it really the operative part of it is mix, yes, I mean, we already have a significant amount of work for 2024 already.
So we're looking at 2025 in some cases so.
We're feeling good about 2024th.
July for sure.
Okay Bill.
I guess, if you're if you have the opinion that.
The revenue growth is going to decelerate.
And then you get a little bit more optimistic about margins.
100%.
Got you.
And then what do we do have capex going forward when does this.
And I thought it was one modular facility, you said too, but when does it stop constructing.
So it's 400000 plus square feet in North Carolina, and 600000, plus square feet in Texas.
The money for.
For those build outs should be substantially fully funded by the end of the year I think vehicle.
Catch up actually is.
Really got a long way to go. So if we were we are bigger now, but I would say, we're two years from getting back to our traditional level of Capex that you know, we'll probably get halfway back there next year will be down sort of halfway back to normal. So it's doubled now maybe from its long term trends, it's 150% of its long term.
Trends next year, and it's back to normal by the following year. That's obviously, just a guess but keep.
Keep in mind Capex is so small for us right, where such an asset light business that it's not going to drive your model on the cash side.
Thanks.
Perfect and then just.
Lastly.
The does the margin profile of the business changed at all.
As as the revenue shifts more to modular.
Thinking over multiple years.
So the gross margin.
Yes, I would say if you were to if you were just to freeze everything and say, hey, freeze everything but double modular what you would see as materials as a percent of cost of goods sold will be higher.
And you would see gross margins would be lower than this and SG&A would be lower.
And we'd make a lot we've made.
One thing that one way at a lot of money, yes, we make a lot of money.
One way to look at one way to look at the productivity of modular people get concerned that it has slightly lower gross margin and the reality is the margin per.
Per dollar of labor.
Is as good or better than anything we have and think about that because it's pretty damn good and the rest of our business right. So you just you have to.
These are not the same businesses they have different characteristics cost characteristics. There is a lot of materials steel.
Chillers.
Generators.
Going into those things we're building in those plans.
Okay.
Good color, thanks, guys alright.
Alright take care Adam.
Thank you I'm showing no further questions at this time I'd like to turn the call back over to Brian Lane for any closing remarks.
Thank you Valerie and clothing I want once again to thank all of our amazing employees hope everybody. It takes care of themselves out there and.
The body else I hope you have a great rest of your summer and we look forward to seeing you soon thank you.
Thank you ladies and gentlemen, this does conclude today's conference. Thank you Alex.
You may now disconnect have a great day.
Okay.
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Okay.
Okay.
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