Q3 2024 Comfort Systems USA Inc Earnings Call

Okay.

Operator: Good day and thank you for standing by.

Speaker Change: Good day and thank you for standing by welcome to the third quarter 2024 Conference systems 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 to ask a question. During the session you will need to press star one on your telephone.

Operator: Welcome to the third quarter 2024 Comfort Systems USA earnings conference call. At this time, all participants are in a listen-only mode.

Operator: After the speaker's presentation, there will be a question and answer session. To ask a question during this session, you will need to press star 11 on your telephone. You will then hear an automated message advising you your hand is raised. To withdraw your question, please press star 11 again.

Speaker Change: And then here an automated message about the new year.

Speaker Change: Having just raised to withdraw your question. Please press star one again please.

Operator: Please be advised that today's conference is being recorded.

Speaker Change: Please be advised that today's conference is being recorded I would now like to hand, the conference over to your speaker today, Julie <unk> Chief Accounting Officer. Please go ahead.

Michelle: I would now like to hand the conference over to your speaker today, Julie Shaeff, Chief Accounting Officer. Please go ahead.

Julie Shaeff: Thanks, Michelle.

Julie Shaeff: Good morning. Welcome to Comfort Systems USA's third quarter 2024 earnings call. Our comments today, as well as our press releases, contain forward looking statements within the meaning of the applicable securities laws and regulations. What we will say today is based on the 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.

Julie: Thanks, Michele good morning, welcome to comfort systems, Usa's third quarter 2024 earnings call.

Julie: Comments today as well as our press releases contain forward looking statements within the meaning of the applicable securities laws and regulations. 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 opera.

Julie: Our ratios 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.

Julie Shaeff: A slide presentation is provided as a companion to our remarks and is posted on the investor relations section of the company's website found at ComfortSystemsUSA.com.

Slide presentation is provided as a companion to our remarks and is posted on the Investor Relations section of the company's website found at comfort systems USA Dot Com Jos.

Michelle: 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.

Speaker Change: 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.

Brian Lane: Brian will open our remarks. Okay, thanks, Julie. Good morning, everyone, and thank you for joining our call. Today we are reporting record earnings and extraordinary cash flow as our teams continue great execution for our customers. We earned $4.09 per share this quarter, up 40% from last year. Our electrical segment achieved unprecedented mods. and Mechanical Migrants continue to be strong. Our operating income is 50% higher than even our strong third quarter last year. Backlog continues far above last year as bookings were strong, even though we burned through work at a record pace. Same store, quarterly revenue was higher by 18%, and revenue was up 23% year-to-date.

Okay. Thanks Julie.

Brian Lane: Good morning, everyone and thank you for joining our call.

Brian Lane: Today, we are reporting record earnings and extraordinary cash flow.

Brian Lane: As our teams continued great execution for our customers.

Brian Lane: We earned $4.09 per share this quarter.

40% from last year.

Brian Lane: Our electrical segment achieved unprecedented margins.

Brian Lane: And mechanical margins continue to be strong.

Brian Lane: Operating income is 50% higher than even our strong third quarter last year.

Brian Lane: Backlog continues far above last year as bookings were strong even though we brought through work at a record pace.

Same store quarterly revenue was higher by 18%.

Brian Lane: Revenue was up 23% year to date.

Brian Lane: Entering the fourth quarter, same store backlog is 21% higher than it was at this time last year, and we are experiencing exceptional strength in our pipeline. We are in the fortunate position of being able to choose the work we take. Given these strong conditions and the confidence we have in our unmatched workforce, we expect continued strong results in the fourth quarter and in 2025. Cash flow surpassed any previous quarter and that extraordinary cash flow is both a great base for continued investment and a clear indicator of strong underlying trends in our execution, customer relationships, and prospects.

During the fourth quarter same store backlog is 21% higher than it was at this time last year and we are experiencing exceptional strength in our pipelines.

Speaker Change: Well, yeah. It was a fortunate position of being able to choose the work we take.

Speaker Change: Given these strong conditions and the confidence we have in our unmatched workforce. We expect continued strong results in the fourth quarter and in 2025.

Speaker Change: Cash flow surpassed any previous quarter.

Speaker Change: Net extraordinary cash flow is both a great base for continued investment in it.

Speaker Change: Clear indicator of strong underlying trends in our execution costs.

Speaker Change: Customer relationships and the prospects.

Brian Lane: We also increased our quarterly dividend by $0.05 to $0.35 per share. This increase reflects our continuing strong cash flow and our commitment to reward our shareholders.

Speaker Change: We also increased our quarterly dividend by five.

Speaker Change: The 35 cents per share.

Speaker Change: This increase reflects our continuing strong cash flow and our.

Commitment to reward our shareholders.

Brian Lane: I will discuss our business and outlook in a few minutes, but first I will turn this call over to Bill to review our financial performance.

I will discuss our business and outlook in a few minutes, but first I will turn this call over to Bill to review our financial performance Bill.

Bill George: Bill? Thanks, Brian.

Bill George: Good morning, everyone. Our third quarter results are remarkable with quarterly EPS exceeding $4 per share for the first time ever. Margins continued to improve and we had further SG&A leverage, and we enjoyed over $300 million in operating cash flow. This quarter, we also achieved $238 million in quarterly EBITDA, a 53% increase over this quarter last year. Our newest companies continue to exceed expectations. quarter revenue was $1.8 billion, an increase of $434 million, or 32% compared to last year. Our mechanical segment revenue increased by 39%, benefiting from recent acquisitions, modular expansion, and substantial organic construction and service growth.

Thanks, Brian Good morning, everyone. Our third quarter results are remarkable with quarterly EPS exceeding $4 per share for the first time ever.

Margins continue to improve and we had further SG&A leverage and we enjoyed over $300 million in operating cash flow.

Speaker Change: This quarter, we also achieved $238 million in quarterly EBITDA.

Speaker Change: <unk>, 3% increase over this quarter last year.

Speaker Change: Our newest companies continued to exceed expectations.

Speaker Change: Third quarter revenue was $1 8 billion, an increase of $434 million or 32% compared to last year.

Speaker Change: Our mechanical segment revenue increased by 39% benefiting from recent acquisitions modular expansion and substantial organic construction and service growth <unk>.

Bill George: Electrical segment revenue increased by 8%, and overall, same store revenue increased by 18%, or $241 million, with the remaining $193 million increase resulting from acquisitions. Through nine months, our same store revenue has grown by 23% from the same period last year. We are facing tougher revenue comparables in the next few quarters, and currently we estimate that our fourth quarter of 2024 revenue increase will be comparable to this quarter. We also expect revenue will continue to rise in 2025, most likely by high single or low double digit percentage growth. Gross profit was $382 million for the third quarter of 2024, a $104 million improvement compared to a year ago.

Speaker Change: Electrical segment revenue increased by 8% and overall same store revenue increased by 18% or $241 million with the remaining $193 million increase resulting from acquisitions.

Speaker Change: Through nine months, our same store revenue has grown by 23% from the same period last year.

Speaker Change: We are facing tougher revenue comparables in the next few quarters.

Speaker Change: Currently we estimate that our fourth quarter of 2024 revenue increase will be comparable to this quarter.

Speaker Change: Also we expect revenue will continue to rise in 2025, most likely by high single or low double digit percentage growth.

Speaker Change: Gross profit was 382 million for the third quarter of 2020 for a $104 million improvement compared to a year ago.

Bill George: Our gross profit percentage grew to 21.1% this quarter, compared to 20.1% for the third quarter of 2023. Quarterly gross profit percentage in our electrical segment increased to 23.9% this year, compared to 19.4% last year, and margins in our mechanical segment were roughly flat at 20.3%. EBITDA increased by over 50% to $238 million this quarter from a strong $156 million in the third quarter of 2023. Same store EBITDA increased by over 30%. And even without recent acquisitions, our EBITDA exceeded 200 million. EBITDA margin for the first nine months is 12.2%, a result of excellent execution by our workforce and strong demand in the markets we serve.

Speaker Change: Our gross profit percentage grew to 21, 1% this quarter compared to 21% for the third quarter of 2023.

Quarterly gross profit percentage in our electrical segment increased to 23, 9% this year compared to 19, 4% last year and margins in our mechanical segment were roughly flat at 23%.

Speaker Change: EBITDA increased by over 50% to $238 million this quarter from a strong $156 million in the third quarter of 2023.

Same store EBITDA increased by over 30% and even without recent acquisitions, our EBITDA exceeded $200 million.

EBITDA margin for the first nine months was 12, 2% a result of excellent execution by our workforce and strong demand in the markets we serve.

Bill George: Trailing 12-month EBITDA exceeds $770 million. Margins are at all-time high levels and giving ongoing strong demand. We expect that our EBITDA margins for the remainder of 2024 and into 2025 will continue in the strong ranges we have achieved over the last several quarters. SG&A expense for the quarter was $180 million, or 9.9% of revenue, compared to $143 million, or 10.4% of revenue in the third quarter of 2023. The investments that we have made, including investments through SG&A, are paying off. Our operating income increased from $135 million in the third quarter of 2023 to $203 million for the third quarter of 2024, an increase of 50 percent.

Speaker Change: Trailing 12 month EBITDA exceeds $770 million.

Speaker Change: Margins are at all time high levels.

Speaker Change: Ongoing strong demand, we expect that our EBITDA margins for the remainder of 2024 and into 2025, we will continue and the strong ranges we've achieved over the last several quarters.

Speaker Change: SG&A expense for the quarter was $180 million or nine 9% of revenue compared to $143 million or 10, 4% of revenue in the third quarter of 2023.

Speaker Change: The investments that we have made including investments through SG&A are paying off.

Speaker Change: Our operating income increased from $135 million in the third quarter of 2000 $23 million to $203 million for the third quarter of 2024, an increase of 50%.

Bill George: With improved gross profit margins and favorable SG&A leverage, our operating income percentage increased to 11.2% this quarter from 9.8% in the prior year. Through nine months, we achieved a noteworthy operating income percentage of 10.1%. Our year-to-date tax rate was 21.6%. We estimate that the full year 2024 tax rate will be in the 21 to 22% range. After considering all these factors, net income for the third quarter of 2024 was $146 million, or $4.09 per share, and that's a 39% improvement from last year. free cash flow for the first nine months of 2024 was $572 million.

Speaker Change: With improved gross profit margins and favorable SG&A leverage our operating income percentage increased to 11, 2% this quarter from nine 8% in the prior year.

Speaker Change: Through nine months, we achieved a noteworthy operating income percentage of 10, 1%.

Speaker Change: Our year to date tax rate was 21, 6%, we estimate that the full year 2024 tax rate will be in the 21% to 22% range.

Speaker Change: After considering all these factors net income for the third quarter of 2024 was $146 million or $4 90 per share.

Speaker Change: Thats, a 39% improvement from last year.

Speaker Change: Free cash flow for the first nine months of 2024 was $572 million, we continue to benefit from advanced payments as operating cash flow continues to exceed our earnings by about $340 million on a trailing 12 month basis. So we are well ahead of earnings and collecting our cash.

Bill George: We continue to benefit from advanced payments as operating cash flow continues to exceed our earnings by about $340 million on a trailing 12 month basis. So we are well ahead of earnings in collecting our cash. We increased the pace of our share repurchases in the third quarter and have now returned 42 million to shareholders in 2024 by retiring over 130,000 shares. As we began the year, our cash balances exceeded our total debt by $161 million. With our remarkable cash flow, and even after our share repurchases and funding hundreds of millions of dollars to purchase two great new companies, our cash now exceeds debt by $347 million.

Speaker Change: We increased the pace of our share repurchases in the third quarter and have now returned $42 million to shareholders in 2024 by retiring over 130000 shares.

Speaker Change: As we began the year our cash balance has exceeded our total debt by $161 million.

Speaker Change: With a remarkable cash flow and even after our share repurchases and funding hundreds of millions of dollars to purchase two great. New companies are cash now exceeds that by $347 million.

Brian Lane: That's what I've got, Brad. All right. Thanks a lot, Bill.

Speaker Change: That's what I've got Brian Alright, Thanks, a lot bill.

Brian Lane: I am going to discuss our business at Outlook. backlog at the end of the third quarter was $5.7 billion. a large year-over-year increase and a modest sequential decline. Since last year, our backlog has increased by 1.4 billion, or 32%. On a same-store basis, our backlog is now $900 million higher than it was this time last year. We are entering the fourth quarter of 2024 with 21% more same-store backlog despite a strong revenue growth. Our revenue mix continues to trend towards data centers. Kit Fabrication, Battery Plants, Life Science, and Food. Industrial customers accounted for 60% of total revenue in the nine months of 2024.

Brian Lane: I am going to discuss our business outlook.

Brian Lane: Backlog at the end of the third quarter was $5 7 billion.

Brian: Large year over year increase and a modest sequential decline.

Since last year, our backlog has increased by one 4 billion or 30.

Brian: 32%.

Brian: On a same store basis, our backlog is now $900 million higher than it was this time last year.

Brian: We are entering the fourth quarter of 2024 with 21% more same store backlog, despite a strong revenue growth.

Brian: Our revenue mix continues to trend towards data centers.

Brian: Chip fabrication battery plants life science and food.

Brian: Industrial customers accounted for 60% of total revenue in the nine months of 2024.

Brian Lane: and they are major drivers of pipeline and backlog. Technology, which is included in industrial, was 32% of our revenue, a substantial increase from 21% in the prior year. Institutional markets, which include education, health care, and government, are also strong and represent 23% of our revenue.

Brian: And they are major drivers of pipeline in backlog.

Brian: Technology, which is included in industrial was 32% of our revenue.

Brian: Substantial increase from 21% in the prior year.

Brian: Institutional markets, which include education healthcare and government.

Brian: Were also strong and represent 23% of our revenue.

Brian Lane: The commercial sector is at. But it is smaller, but it is a smaller part of our business at about 17% of revenue. Most of our service revenue is for commercial customers, so the share of our construction revenue that is commercial is now relatively small. Construction accounted for 84% of our revenue, with projects for new buildings representing 57%. and the existing building construction, 27%.

Brian: The commercial sector is active.

Brian: But it is smaller but it is a smaller part of our business at about 17% of revenue.

Most of our service revenue is for commercial customers. So the share of our construction revenue that is commercial is now relatively small.

Brian: Construction accounted for 84% of our revenue with projects for new buildings, representing 57%.

Brian: And the existing building construction, 27%.

Brian Lane: Project pipelines remain at unprecedented high level. We include modular and new building construction and year-to-date modular with 17% of our revenue. Service revenue was up 7% this quarter and with 16% of total revenue. Service is a reliable source of profit and cash flow and is on track to exceed $1 billion in revenue for 2024. As noted earlier, we are entering the fourth quarter with a backlog that is 21 percent higher on a same store basis than at this time last year. And we have a superb team working hard for our customers every single day. Thanks to the dedication and hard work of our employees across the country, we are positive about our ongoing project.

Brian: Pipelines remain at unprecedented high levels.

Brian: We had include modular and new building construction and year to date modular was 17% of our revenue.

Brian: Service revenue was up 7% this quarter.

Brian: 16% of total revenue.

Brian: Service is a reliable source of profit and cash flow.

Brian: And it is on track to exceed $1 billion in revenue for 2024.

As noted earlier, we are entering the fourth quarter with a backlog that is 21% higher on a same store basis than at this time last year.

Brian: And then we have a superb team working hard for our customers every single day.

Brian: Thanks to the dedication and hard work of our employees across the country.

Brian: Positive about our ongoing projects.

Brian Lane: I want to close by thanking our over 18,000 employees for their hard work and dedication.

Brian: I want to close by thanking our over 18000 employees for their hard work and dedication.

Michelle: I'll now turn it back over to Michelle for questions. Thank you. As a reminder to ask a question, please press star one one on your telephone. Please wait for your name to be announced. To withdraw your question, please press star one one again. One moment for our first question.

Speaker Change: I'll now turn it back over to Michelle for questions. Thank you.

Michelle: Thank you as a reminder to ask a question. Please press star one on your telephone.

Speaker Change: For your name to be announced.

Speaker Change: Your question. Please press Star one again, one moment for our first question.

Yes.

Adam Thalhimer: Our first question is going to come from the line of Adam Thalhimer with Thompson Davis. Your line is open, please go ahead.

Speaker Change: Our first question is going to come from the line of Adam <unk> with Thompson Davis. Your line is open. Please go ahead.

Brian Lane: Hey, good morning guys. Congrats on another strong quarter. All right, Adam. Thanks. Good morning.

Adam: Hey, good morning, guys congrats on another strong quarter.

Speaker Change: Alright, thanks, good morning.

Brian Lane: So you guys typically burn backlog in the summer, build it in the winter. I'm curious if you think we could hit a new record backlog over the next couple of quarters. be surprised if one of the next two quarters that doesn't happen. You know, there's really the demand we could we could book so much work if we could, you know, if we were willing to and could take it. So the challenge for us right now is having really disciplined project selection.

So you guys typically.

Speaker Change: Burn backlog in the summer build it in the winter I am curious if you think we could hit a new record backlog over the next couple of quarters.

Speaker Change: I'd be surprised if one of the next two quarters that doesn't happen.

Speaker Change: There is really the demand.

Speaker Change: We could book so much work if we could if we were willing to and could take it. So the challenge for US right now is having really disciplined project selection.

Brian Lane: Yeah, you know, Adam, to follow up on that, it's coast to coast. So we're seeing a lot of good opportunities still, you know, with no let up in sight. So we're pretty confident going forward into 2025.

Speaker Change: Yes, the follow up on its coast to coast. So we're seeing a lot of good opportunities still.

Speaker Change: With no let up in sight, so we're pretty confident going forward into 2025.

Brian Lane: And then Brian wanted to ask you about. Your comment on electrical barge. which I think you said unprecedented. I'm curious... Where do you think those shake out long term? Is there like a specific project that's driving the really high margins this year? Or if you think that that group, you know, this is just what they can achieve over time? Well, you know, first things first, our electrical companies. I just don't a superb job and the work they're finding the markets are good. But as always, it comes down to execution, usually, and we're just executing at a really high level.

Speaker Change: Okay, and then Brian wanted to ask you about.

Speaker Change: Your comment on electrical margins.

Brian Lane: Which I think you said unprecedented I am curious.

Speaker Change: Where you think the shake out long term is there like a specific project that's driving that really high margins. This year or if you think that that group. This is just what they can achieve over time.

Well, yes.

Speaker Change: First things first our electrical companies.

Speaker Change: I, just don't have a superb job and the work defining the market is good.

Speaker Change: But as always it comes down to execution, usually and we're just executing at a really high level. We are really fortunate to have the companies we have in the markets. They are in.

Brian Lane: We are really fortunate to have the companies we have in the markets they are in. Those margins, as we said, are unprecedented. But I would think at least for a while. The characteristics are still good for the margins to stay strong, but they're really performing at a very high level. It is very impressive, and it's each one of our electrical companies, Adam. Thanks for noticing. Great.

Speaker Change: Those margins is as we said are unprecedented.

Speaker Change: But I would think at least for a while.

Speaker Change: The characteristics are still good for the margins to stay strong but.

Speaker Change: They are really produce performing at a very high level. It is very impressive and it's.

Speaker Change: And as each one of our electrical companies Adam Thanks for noticing great.

Adam Thalhimer: Okay, I'll turn it over. Thanks, guys. All right. Thanks, Adam.

Speaker Change: Alright, Okay, I'll turn it over thanks guys.

Speaker Change: Alright, Thanks, Adam.

Operator: Thank you.

Speaker Change: Thank you.

Alex Dreyer: Our next question is going to come from the line of Alex Dreyer with KeyBank Capital Markets.

Speaker Change: Okay.

Speaker Change: Our next question is going to come from the line of.

Alexandra <unk> with Keybanc capital markets. Your line is open. Please go ahead.

Alex Dreyer: Your line is open. Please go ahead.

Alex Dreyer: Good morning, Brian, Bill, Trent and Julie. Thanks for taking my questions. Morning, Alex. Good morning.

Alexandra: Good morning, Brian Bill Clinton, Julie Thanks for taking my questions.

Speaker Change: Good morning, Alex Good morning, so.

Brian Lane: I guess first question on modular. I know the last expansion kind of came with more automation and higher roofs and I think this is a big focus for the team to drive efficiencies. Can you just kind of expand on what exactly you're working on in these efficiency initiatives next year for modular? Is this mainly happening in Houston or is it in Greensboro or is it kind of spread across both? It's 100% both in Texas and North Carolina. We're building up quite a fleet of robots. They are doing a really, you know, they're reconfiguring even incremental new space with bigger cranes, really changing.

Speaker Change: I guess first question on modular I know the last expansion kind of came with more automation and higher roofs then.

Speaker Change: I think this is the big focus for the team to drive efficiencies can you just kind of expand on what exactly youre working on.

Efficiency initiatives next year for modular.

Mainly happening in Houston or is it in greensborough or is it kind of spread across both.

Speaker Change: So it's 100% both in Texas and North Carolina.

Speaker Change: We're building up quite a fleet of robots.

Speaker Change: They are doing are really they are reconfiguring.

Speaker Change: Even even incremental new space with bigger cranes.

Speaker Change: Really changing.

Brian Lane: the workflows in ways that we think are advantageous that the new space allows us to change. We have a new customer in Modular that is starting to get really order quite a bit of product. And that's given us an opportunity to sort of both design something and sort of design the way we manufacture it, having learned a lot of lessons. And obviously, we're working with our existing customers to do the same thing. So our goal is to just get better and better and I wouldn't you know, I wouldn't bet against our guys. Got it. That's very interesting.

Speaker Change: The workflows and ways that we think are advantageous that the new space allows us to to change with the new <unk>, we have a new customer and modularity that is starting to get really order quite a bit of product and that's given us an opportunity to sort of both design something and sort of designed the way we manufacture it.

Speaker Change: Having learned a lot of lessons and obviously, we're working with our existing customers to do the same thing. So our goal is to just get better and better.

Speaker Change: And I wouldn't I wouldn't bet against our guys.

Speaker Change: Got it that's very interesting.

Brian Lane: And then there's a lot of talk about liquid cooling in the industry, which I guess is going to be needed in addition to air cooling for these new data centers coming up. I know you guys have a lot of experience installing liquid cooling systems already, but is there anything that changes going forward when we get to these new AI data center builds as liquid cooling is increasingly implemented in these projects? Just any thoughts there would be helpful. You know, the density of the new stuff is amazing. Like just the like, when you look at the, like the, the big pipe welds in the shop, there are far more connections up and down the pipe because you're putting more chillers per, you know, sort of per building per.

Speaker Change: And then there's a lot of talk about liquid cooling in the industry, which I guess is going to be needed inhibition to air cooling for these new data centers coming up.

Speaker Change: I know you guys have a lot of experience installing liquid cooling systems already.

Speaker Change: But is there anything that changes going forward when we get to these new AI data center builds.

Speaker Change: We'd cooling.

Speaker Change: It is increasingly implemented in these projects just any thoughts there would be helpful.

Speaker Change: The density of the new stuff is amazing like just like when you look at the like the big pipe.

Speaker Change: <unk> and the shop, there are far more connections.

Speaker Change: Up and down the pipe because youre, putting more chillers per.

Speaker Change: <unk> sort of per building per <unk>.

Brian Lane: It's just, it's density. Things are having to be designed really with an eye towards reducing distances because the amount of copper that's going in is just so expensive that things, in the past where you'd say, oh, it's okay for this to be 90 feet from that, now you want it to be 15 feet from that because you're gonna have 10x as much copper in between the two spots. So it's really been changing. You know, liquid cooling is just, the heat transfer happening in liquid is primarily what we've always done. We've never really been a source for air-cooled, the kind of air-cooled rooftop data centers that people build because we have more of a pipe-fitting expertise.

Speaker Change: Square foot and.

It's just it's density things are happening to be designed really with an eye towards reducing distances because the amount of copper that's going in.

Speaker Change: It's just so expensive that things in the past, where you'd say oh, it's okay for this to be 90 feet from that now you want it to be 15 feet from that because youre going to have 10 times as much copper in between the two spots. So it's really been challenging liquid cooling is just.

The heat transfer happening in liquid is primarily what we've always done we've never really been.

A source for air cooled, the kind of air cooled rooftop datacenters that people build.

Speaker Change: We have more of a pipe pipe fitting.

Brian Lane: But it's definitely, I don't think any of the new data centers that are being built for any hyperscalers or anybody who's interested in AI are air-cooled. And then inside of liquid cooling, you know, now it's just how close can you get the heat transfer to where the heat is being shed off of the chip. And it's kind of an all-of-the-above strategy, right? We used to think it was exciting when we could bring the liquid up under the racks, and then it was exciting when we brought it into the racks, and now you bring it into the box, and they're designing chips for there to be contact, to cool liquid, not direct, but near-direct contact.

Speaker Change: Expertise, but it's definitely I don't think any of the new data centers that are being built for the for any hyperscale or is <unk>.

Speaker Change: Anybody who is interested in AI are air cooled and then inside of liquid cooling.

Speaker Change: Now it is just how close can you get the heat transfer to where the heat is being set off of the chip and it's kind of an all of the above strategy right. We used to think it was exciting when we could bring the liquid up under the racks and then it was exciting when we bought at the end of the rack and now you bring it into the box and there are theyre designing chips for there to be contact cooled liquid.

Speaker Change: It's not direct but near direct contact.

Brian Lane: Just about every way of doing it, people are, other than immersion, which I think is still a challenge, I think every way of doing it, people are just employing an all-of-the-above strategy. And the good news for us is... no matter how you do it, you got to have the cooling, right? And to do that, you have to have pipes and chillers and electrical switchgear. So, I don't know. It's a great trend for us.

Speaker Change: Just about every every way of doing it.

Speaker Change: People are other than immersion, which I think is still a challenge I think every way of doing it.

Speaker Change: People are just deploying in all of the above strategy and the good news for us is.

Speaker Change: No matter how you do it you got to get you got to have the cooling right.

Speaker Change: And due to that you have to have pipes and chillers in electrical.

Speaker Change: Switch gear so.

Speaker Change: I don't know its a great trend for us and the demand for data center stuff.

Alex Dreyer: And the demand for data center stuff, I mean, it's really becoming more than talk. Like, there's data centers now in states that it never occurred to us that there would ever be data centers in. So, the demand there is really extraordinary. Thank you.

Speaker Change: It's really becoming more than talk like Theres data data centers now in states that we never it never occurred to us that they would ever be data centers and so the demand there is really extraordinary.

Operator: I'll turn it over here. All right. Thanks.

Speaker Change: Thank you I'll turn it over here.

Speaker Change: Alright. Thanks.

Operator: Thank you. One moment for our next question.

Speaker Change: Thank you one moment for our next question.

Julio Romero: Our next question comes from the line of Julio Romero with Sidotian Company. Your line is open. Please go ahead.

Speaker Change: Our next question comes from the line of Julio Romero with Sidoti <unk> Company. Your line is open. Please go ahead.

Julio Romero: Thanks.

Julio Romero: Hey, good morning, everyone. Hey, good morning. So, I appreciate you guys providing preliminary sales thoughts for 2025 of the high single-digit to low double-digit percentage growth. Just wanted to get your thoughts on what it would take for margins to continue to expand, you know, with the conditions that are allowing you to execute and achieve, these high margins have to kind of sustain, would they have to get better? Just any thoughts there. Well, you know, you know, if you look at the margins we got, I probably have said this every quarter for the last few, there are record levels for us.

Julio Romero: Hey, Julio Thanks, Hey, good morning, everyone.

Good morning.

Julio Romero: So I appreciate you guys, providing preliminary sales thoughts for 2025 of the high single digit to low double digit percentage growth.

Julio Romero: Just wanted to get your thoughts on what it would take for margins to continue to.

Julio Romero: Expand with the conditions that are allowing you to execute and achieve these high margin tap to kind of sustain what they have to get better just any thoughts there.

Alright.

Speaker Change: If you look at the margins, we got I, probably have said does every quarter for the last few.

Speaker Change: They were record levels for us.

Brian Lane: It's a combination of pricing, as always. You know, executing and we're executing, you know, really at a high level, but it's a, but it's a long process to get these margins, right? Starts with developing the workforce we have. applying technology and innovation that works for us and we get a great team that Trent's leading. on those efforts. and using things such as BIM, prefabrication, et cetera, and then managing the risk that we have in our projects, which we spend a lot of time training our people on. So the results is, you know, one number we talk about here, but it's a lot of work that goes into it.

Speaker Change: A combination of pricing as always.

Speaker Change: Executing we're executing really at a high level, but it's but it's a long process to get these margins right starts with developing the workforce we have.

Speaker Change: Applying technology and innovation that works for us and we get a great team that trends leading.

Speaker Change: On those efforts.

Speaker Change: And using things such as Bim, prefabrication et cetera, and then managing that risk we have enough projects, which we spend a lot of time training our people on so the.

Speaker Change: The results.

We talk about here, but it's a lot of work that goes into it and we will probably stay around this ballpark is why I think as the market state is good and we continue to stay focused on our execution.

Brian Lane: And we will probably stay around this ballpark as long, I think, as the market state is good, and we continue to stay focused on our execution. Okay, and you mentioned, you know, mitigating risk, and project selection is a big part of that. You're in a position where you can kind of afford to be picky.

Speaker Change: Okay.

Speaker Change: <unk>.

Speaker Change: You mentioned.

Speaker Change: Mitigating risk and project selection is a big part of that.

Speaker Change: We're in a position where you can kind of afford to be picky.

Brian Lane: Just if you could speak to what factors within projects help them rise to the top of your selection list. Well, you know, if you look at any contract, it's when you have too much work is when, you know, you get in trouble, not too little. So, no, we're really looking at work in locations around the offices that we have usually for a customer we worked at for a long time. We know it's work we've done for a while and we're good at. It lets you stay and those key metrics is others. But if you keep yourself in that wheelhouse, usually work out pretty well on a long term basis.

If you could speak to what factors within <unk>.

Speaker Change: Projects help them rise to the top of your selection list.

Well, if you look at any contract.

Speaker Change: We have too much work is when you get in trouble not too little so we're really looking at work.

Speaker Change: The locations.

Speaker Change: Around the offices that we have usually for a customer we work that for a long time, we know them.

Speaker Change: It's work we've done for a while and we're good at.

Speaker Change: As long as you stay in those key metrics is others, but.

If you keep yourself in that wheelhouse, usually work out pretty well on a long term basis, I mean, I think an interesting major consideration for a lot of our our business development people and really our leadership at the field level right. Now is what jobs will be good for the people right because does it have is the locate.

Brian Lane: Yeah, I mean, I think an interesting major consideration for a lot of our business development people and really our leadership at the field level right now is what jobs will be good for the people, right? Because does it have, is the location good for our people? Does it have a GC that runs a good job? And does it make people's lives miserable? Is there parking? Is there a place to get lunch? Are the other contractors on the job people that we work with frequently? Because our people know them and it's a better world, better life for them to be around the people that they know.

Speaker Change: And good for our people does it have a GC that runs a good job and does it make people's lives miserable as their parking is there a place to get lunch or the other are the other contractors on the job people that where we work with frequently because our our people know them and there is a better world better life for them to be around the people that they know.

Brian Lane: And then, of course, hugely important. Are these existing customers who have been good to us in the past and who we can be good to now and we can succeed with based on a history, a track record? And then finally, what is the amount of gross profit sort of for the amount of labor that we have to commit, right? Ultimately, people used to talk about gross profit per hour work. Sometimes now you think more in terms of gross profit per $100 of labor, but I think that's where we look for profitability. It's not really gross profit percentage because not all jobs have the same amount of the same cost of goods sold, the same mix of material and things that go through them.

Speaker Change: And then of course hugely important.

Speaker Change: Are these existing customers, who have been good to us in the past and who we can be good to know and we can succeed and succeed with based on our history and track record and then finally, what is what is the amount of gross profit sort of for the amount of labor that we have to commit right are ultimately.

Speaker Change: We use PBS to talk about gross profit per hour worked.

Speaker Change: Sometimes now you think more in terms of gross profit per $100 of labor, but I think that's where we that's where we look for profitability. It's not really gross profit percentage because not all jobs have the same amount of the same cost of goods sold the same mix of material and things that go through them in.

Brian Lane: So I think, you know, it's people first. Partner second, profit third, but they're not independent variables. They're highly dependent variables. And the ones that are best for for any of the three are probably best for the other two. And, you know, wholly on top of all this, you've got to make sure we can do it safely, you know, and protect the health and welfare of our folks that are doing the job. So we spend a lot of time, you know, focused on, obviously, projects, acquiring them and executing. Understood. Appreciate the caller. I'll pass it on.

Speaker Change: So I think.

Speaker Change: It's people first.

Speaker Change: Partners second profit third, but theyre not independent variables. They are highly dependent variables and the ones that are best.

Speaker Change: For any of the three are probably best for the other two.

Speaker Change: Holy on top of all this you got to make sure we can do it safely.

Speaker Change: Our health and welfare of our folks that are doing the job. So we spend a lot of time.

Speaker Change: We're focused on obviously projects acquire them and execute them.

Speaker Change: Understood I appreciate the color I'll pass it on.

Operator: All right, thanks.

Speaker Change: Alright. Thanks.

Operator: One moment.

Speaker Change: Yeah.

Josh Chan: Our next question is going to come from the line of Josh Chan with UBS. Your line is open.

Speaker Change: And one moment.

Our next question is going to come from the line of Josh Chan with UBS. Your line is open. Please go ahead.

Josh Chan: Please go ahead. Hi, good morning, Brian, Trent, and Bill, Julie. Maybe sticking with a question on the field.

Josh Chan: Hi, Good morning, Brian trend Bill Julie.

Josh Chan: Maybe sticking with a question on the skilled hi, good morning, everybody.

Brian Lane: Hi, good morning, Brian. The last couple of years, you've done a great job kind of driving productivity gains in the field. I know that, you know, everybody's been really busy. So could you just talk to your ability to kind of further drive, you know, field productivity and how you feel about that going forward? You know, I'll say, I think a big source of, so we're really being helped by technology. One really salient way that technology helps is, as your drawings get better, your performance gets better, your opportunity to prefabricate things, even to maybe modularize things at various levels gets better, but frankly, really good drawings allow you to avoid rework.

Josh Chan: In the last couple of years, you've done a great job kind of driving productivity gains in the field I know that everybody has been really busy. So could you just talk to your ability to kind of further drive.

Josh Chan: Field productivity and how you feel about that going forward.

Speaker Change: I'll say I think a big source of it. So we are really being helped by technology, one really salient way. This technology helps us as you can.

Speaker Change: Drawings get better performance.

Speaker Change: Our performance gets better your opportunity to pre fabricate things, even though may be modularized things in at various levels gets better, but frankly really good drawings allow you didn't avoid rework. The other thing that I think is really gratifying and amazing.

Brian Lane: The other thing that I think is really gratifying and amazing at Comfort is our ability to keep people in a place and at a time when they can continuously work in a productive way. So utilization is really the magic key to. to outcome, to financial outcomes for us, and having people on jobs where they can be productive because it's a well-run job, but also having the ability to level load the work you do. And one of the things that is really helping us with that is our companies working together. So, if a job has an air pocket, or if a job, if there's a good opportunity, our company's ability to share workforce can really help us level load.

Speaker Change: <unk> is our ability to keep people in a place and at a time when they can continuously work in a productive way. So utilization is really the magic key to.

Speaker Change: To outcome to financial outcomes for us and.

Speaker Change: Having people on jobs, where they can be productive because it's a well rotten job, but also having the ability to level load. The work you do and one of the things that is really helping us with that as our companies working together. So if a job has an air pocket or if a job.

Speaker Change: There's a good opportunity with our company's ability to share workforce.

Can really help us level load in and utilization isn't and frankly, just when you're busy your opportunity DAP high levels of like utilization effectiveness per hour worked is just it's really good.

Brian Lane: And, and utilization is, and frankly, just when you're busy, your opportunity to have high levels of, like, utilization, effectiveness per hour worked is just, it's really good. You know, Josh, one thing I, you know, I talked about Trent and his team a minute ago. One thing that group is really helping us with is that there's a lot of technologies rolling through construction right now. Their ability to filter them and see which ones we can apply in the field to make us more efficient, productive, and safe.

Speaker Change: Josh one thing I talked about <unk> and his team a minute ago.

Speaker Change: One thing that group is really helping us with is that there's a lot of technologies rolling through construction right now.

Speaker Change: Their ability to filter and see which ones. We can apply in the field to make us more efficient productive and safe.

Brian Lane: has been a huge help to us and they've done a just continue to an outstanding job you know helping helping out folks on job sites and in service calls in particular so I really want to tip my hat to those folks they're doing a hell of a job for us. Thank you.

Speaker Change: There's been a huge help to us they've done it just continues to do an outstanding job.

Speaker Change: But helping out folks on job sites and in service calls in particular, so I really want to tip my hat to those folks who are doing a hell of a job for us.

Josh Chan: That's really a great color.

Okay. Thank you that's really great color.

Bill George: Bill, you mentioned the balance sheet. And obviously, you guys have done really good with M&A over time. Could you just talk to the uses of cash from here, especially when pre-cash flow generation has been stronger than historical? So we did, I noted that we picked up our share repurchases in the third quarter. You know, that's a combination of really fantastic cash flow and a lot of confidence about our prospects going forward. I think our first use of cash is always going to be great companies, but in a really disciplined way. And so far, you know, whenever we've had cash, we've been able to find great opportunities to bring additional workforce people.

Speaker Change: Bill you mentioned the balance sheet.

You guys have done.

Speaker Change: Really good with M&A over over time can you just talk to the uses of cash from here, especially when free cash flow generation has been stronger than historical thank you.

So we did I noted that we picked up our share repurchases in the third quarter. That's a combination of really fantastic cash flow and a lot of confidence about our prospects going forward.

Speaker Change: I think our first use of cash is always going to be great.

Speaker Change: Great companies, but in a really disciplined way and so far.

Speaker Change: Whenever we've had cash we've been able to find great opportunities to bring additional workforce people bid.

Bill George: Businesses, customer relationships into the, into Comfort Systems, which is a really great place to be a contractor.

Speaker Change: Businesses customer relationships.

Speaker Change: Into the.

Speaker Change: Comfort systems, which is a really great place to be a contractor.

Bill George: Great, thank you for the color and good luck for the rest of the year. Great, thank you.

Speaker Change: Great. Thank you for the color and good luck for the rest of the year.

Speaker Change: Great. Thank you.

Operator: Thank you and one moment for our next question.

Thank you one moment for our next question.

Brent Thielman: And our next question comes from the line of Brent Thielman with D.A. Davison.

Speaker Change: And our next question comes from the line of Brent Thielman with D. A Davidson. Your line is open. Please go ahead.

Brent Thielman: Your line is open. Please go ahead.

Brian Lane: Hi, thanks. Good morning. Briar, Bill, I guess when I go through the different end markets, the manufacturing vertical was sort of the one that I guess of real size and then taking a step back relative to last year and maybe even next to the second quarter. And what are you seeing in that area in particular? Is it your view, this is just sort of timing related, anything to say around the opportunity pipeline and that vertical? So for the as far as opportunity goes, the opportunity is very strong, especially in food and Frankly, pharma is very, very strong.

Speaker Change: Hi, Thanks, good morning.

Brent Thielman: Brian or Bill I guess, when I go through the different end markets that the menu back manufacturing vertical.

Brent Thielman: The one I guess, if rail size and then taken a step back relative to last year and maybe even next in the second quarter.

Brent Thielman: What are you seeing in that area in particular is it.

Brent Thielman: This is just sort of timing related anything to say around the opportunity pipeline in that vertical.

Speaker Change: So as far as opportunity goes the opportunity is very strong, especially in food.

Speaker Change: And.

Speaker Change: Frankly.

Brian Lane: I will say what the trend you saw this year was really a movement towards a choice being made to move toward some data center work by a couple of our largest industrial subsidiaries because it was the best work available and that was their best opportunity to, you know, give their guys good work to work on and make and make the most money. So that's, we could, we could switch to manufacturing. Our guys get to pick and choose right now. So when you see movements between those major segments, it's a, it's a, it's a reflection of choices that are being made.

Speaker Change: Pharma is very very strong I will say the <unk>.

Speaker Change: And you saw this year was really a movement towards.

Speaker Change: A choice being made to move towards some data center work by a couple of our largest industrial subsidiaries because it was the best work available.

Speaker Change: And that was their best opportunity to give their guys. Good work to work on and make and make the most money sorry.

Speaker Change: We could we could switch to manufacture our guys get to pick and choose right now so when you see movements between those major segments.

It's a reflection of choices that are being made.

Brian Lane: And, you know, customers that are sort of. giving us terms that we find to be attractive. Okay, and I think you guys have sort of a level of visibility, especially on some of these larger, kind of multi-phase projects where maybe you don't have a signed award, but... is sort of in the seat for future phases. Can you talk around that? Is that partially what's given you the confidence to say this demand environment isn't really fading? Is it something else? Yeah, Brent, absolutely right on the money. And even before that, right, in terms of us assisting general contractors and customers when they're looking at jobs in the early phase.

Customers that are.

Speaker Change: Sort of.

Speaker Change: Giving us the terms of that.

Speaker Change: <unk>.

Speaker Change: We find to be attractive.

Speaker Change: Okay.

Speaker Change: Thank you guys had sort of a level.

Actually on some of these larger kind of multi phase projects, where maybe you don't have assigned award but.

Youre sort of in that.

Speaker Change: For future phases.

Speaker Change: Can you talk around that is that partially what's giving you the confidence to service. This demand environment isn't really fading as it did something else.

Yes, Brendan absolutely right on the money.

Speaker Change: And even before that right in terms of bus assisting general contractors and customers when they're looking at jobs nearly phase.

Brian Lane: you know down to award and a lot of these projects get awarded in phases now right maybe five percent ten percent twenty percent that goes into backlog at that you know at that pace so you're right on the money and that's why You know, we're really upbeat about next year because we, you know, we know it's in our pipeline, quote, unquote, it's in our soft backlog. And, you know, we're in good shape right now. Yeah, and we're in, we're in budget meetings right now, including this week, and the percentage of our work that's negotiated is much higher right now.

Speaker Change: Down to award there are a lot of these projects get awarded in phases, now alright, maybe 5%, 10%, 20% that goes into backlog at that.

Speaker Change: That pace. So you are right on the money and that's why.

Speaker Change: We're really upbeat about next year, because we know what's in our pipeline clinical isn't a soft backlog.

Speaker Change: We're in good shape right now.

We are in budget meetings, right now, including this week and.

Speaker Change: The percentage of our work that's negotiated is much higher right now.

Brian Lane: It's always been high and it's higher than ever. And so some of that, you know, there's a lead time. They release you to do a certain amount of work early on because you're just one company working with another company. There aren't other factors involved. So there's not necessarily as much of an award moment. There's just moments when the scope gets to where it needs to go and you sign a piece of paper that meets our financial accounting rules definition of backlog. But there is there really is plenty of work to do. Thank you. That's helpful.

It's always been high and it's higher than ever and so some of that.

Speaker Change: There is a lead time they release you to do a certain amount of work early on because it's just that you just won one company working with another company there aren't other factors involved so theres not necessarily as much of an award moment, there's just moments when the scope gets to where it needs to go and you sign.

Speaker Change: A piece of paper that meets our financial accounting rules definition of backlog, but there is there really is plenty of work to do.

Speaker Change: <unk>.

Yes, that's helpful.

Bill George: I guess just on the cash flow, I mean, obviously, it's really extraordinary here. Are the terms that you're getting, I guess, under these new contracts confined to Thank you. So there is certainly, for example, we've talked about how in modular there are upfront payments sometimes for work that won't be performed, you know, right now until 2026. That's, that's considerable, but I would say in virtually all of our businesses, we, because when you have the ability to pick and choose work, you pick and choose based on pricing, based on the things I talked about relating to your people earlier, but payment terms are important, right?

Speaker Change: I guess just.

Speaker Change: On the cash flow obviously.

Extraordinary here.

Speaker Change: Or are the terms that you are getting I guess under these new contracts confined to.

Particular group of customers or are you really able that.

Speaker Change: Negotiate favorable terms across the board I'd just be curious around that.

But without it. So there is certainly for example, we've talked about how in modular there are upfront payments, sometimes for work that won't be performed.

Speaker Change: Now until 2026.

Speaker Change: Thats considerable but I would say in virtually all of our businesses.

Speaker Change: When you when you have the ability to pick and choose work you pick and choose based on pricing based on the things I talked about relating to your people earlier, but payment terms are important right every contract has a schedule of values and.

Bill George: Every contract has a schedule of values and sometimes there are, you know, large. Customers who would rather give you better payment terms if they can, you know, then give you even more money in profit. I don't know. And at some point there are trade offs there. But without a doubt, this is true. By the way, this has been true forever in the construction industry. Whenever you have You're in a position to have bargaining power, your cash flows get better because you get better schedules of values, of course, right? Everything's traded. The other thing, Bill, I know you've been asking, yeah, go ahead.

Speaker Change: Sometimes there are large.

Speaker Change: Customers, who would rather give you better payment terms if they can.

Speaker Change: Then gives you even more money in profit I don't know and at some point there are tradeoffs, there, but without a doubt. This is true by the way. This has been true forever in the construction industry whenever you have.

Speaker Change: Youre in a position to have bargaining power youre cash flow is getting better because you get better schedule. The values of course right everything is traded.

Speaker Change: The other thing.

Speaker Change: Yes.

Bill George: The other thing I'll say is customers and I this is in, you know, Brian has a quote in the sentence in the press release that alludes to this. Customers are just more willing to pay you when they're interested in not just making sure you finish the current job, but that you take the next job from them. And you'd be surprised. you know, how much of an effect that can have. And I know you're adamant that this can't continue on forever. But if you looked at the contracts. You're signing today. I mean, are those terms as favorable as they were 12 months ago, such that you could still continue to see this sort of precast conversion?

Speaker Change: Okay.

The other thing I'll say is customers and this is Brian.

Brian Lane: Brian is a quote in the sentence in the press release that alludes to this customers are just more willing to pay you. When they are interested in not just making sure. You finished the current job, but you take the next job from them and you'd be surprised.

Brian Lane: How much of an effect that can have.

Brian Lane: And I know Youre adamant.

Brian Lane: This can't continue on forever, but.

Brian Lane: If you looked at the contracts youre signing today.

Terms as favorable as they were 12 months ago, such that you could still continue to see this sort of free cash conversion.

Bill George: So, we're not signing any work today that's worse than the work we've signed last year. And as far as how long this goes, there's two answers to that question. There's the immediate, what do you actually see, know about, has holes being dug in the ground? That's never been better. That's really, really good, right? We have more visibility than we've ever had. There's never been a time when in October of 2024, we would have been talking about having work in 2026. This is new for us. But also, you know, the underlying, it is very plausible that the things that are being built, like the chip fabrication factories and the data centers, and the pharma, which is just starting, it is very, very plausible to me that that has many, many years to run.

Speaker Change: So we're not signing anywhere today, that's worse than the work, we have signed where site last year.

Speaker Change: And as far as how long. This goes theres two answers to that question. There is the immediate what do you actually see know about <unk>.

Speaker Change: <unk> holds being dug in the ground that's never been better that's really really good right. We have more visibility than we've ever had there has never been a time when in October of 2024, we would've been talking about having work in 2026. This is this is new for us but also.

The underlying it is very it is very possible that the things that are being built like the chip fabrication factories in the data centers and the pharma, which is just starting it is very very plausible to me that that has many many years to run.

Brian Lane: And some of this new business is incremental. It's not as if, just because we've decided in the United States, even before the CHIPS Act, that we needed to build a bunch of chip fabrication, it's not as if the things Comfort Systems USA was building before stopped. It's not as if people stopped putting mayonnaise on their sandwiches and stopped feeding their dogs pet food and stopped needing hospitals. The baby boomers are still aging. So, these are all incremental sources of demand. And, you know, after 15 years of headwind from offshoring. Having the United States be such a favorable destination for capital is really helpful if what you do for a living is deploy and form capital.

Speaker Change: And.

Speaker Change: Some of this new business is incremental it's not as if it isn't it's not as if just because we've decided in the United States, even before the chips Act that we needed to build a bunch of chip fabrication, it's not as if the things comfort systems USA was building before stopped its not as if people stop putting mayonnaise on their sandwiches and stopped.

Speaker Change: Beating there.

Dogs pet food and stop needing hospitals, the baby boomers are still aging. So this is these are all incremental sources of demand and after 15 years of headwind from offshoring.

Speaker Change: Having the United States be such a favorable destination for capital is really helpful. If youre if what you do for a living is deploy in form capital.

Brent Thielman: Excellent. Sorry, just last question.

Excellent sorry, just last question again, I know you've wanted to take some time to absorb the Senate transaction looks like that's going really well among the others you've done.

Bill George: Again, I know you've wanted to take some time to absorb the summit transaction. Looks like that's going really well, among the others you've done. Obviously, can't time when deals happen, but maybe more a question just around that, given the strength of the industry, your own business, the multiples you're seeing out there for potential transactions dramatically changed from maybe what you've talked about in the past? You know, multiples, people talk about multiples, but a far, far more potent variable when you're thinking about what you're paying for something is what you're multiplying by. So what the reliable source of cash flow that you're buying will be, what the earnings of what you're buying will be.

Speaker Change: Obviously, you can't time when deals happen, but maybe more a question just around that.

Speaker Change: The strength of the industry your own business the multiples youre seeing out there for potential transactions dramatically changed from maybe what you've talked about in the past.

Speaker Change: Multiples people people talk about multiples.

Speaker Change: Far far more potent variable when you are thinking about what you are paying for something as what youre multiplying by so what the reliable source of cash flow that you are buying will be what the earnings are what youre buying will be.

Bill George: I think that multiples are very, very strong when you compare them, or there are people who are willing to pay a lot, a high multiple for certain things, if you look at a multiyear trailing average. But I think ultimately, the people who sell to us, the ones that we want to buy, they really understand the nature of our business. And so far, I think, you know, so far, we've been able to get deals at what we think are the same very, very reasonable multiples of what the future of these businesses look like. That's why I think we're good at acquisitions.

I think that multiples are very very strong when you when you compare them are there.

Who are willing to pay a lot.

Speaker Change: A high multiple for certain things if you look at a multi year trailing average, but I think ultimately the people who sell to us the ones that we want to buy they really understand the nature of our business and so far.

Speaker Change: I think so.

Speaker Change: So far we've been able to get.

Speaker Change: Deals at what we think are the same very very reasonable multiples of what the future of these businesses look like that's.

That's why I think we're good at acquisitions I think we have a really really really really good insight into the businesses, we're buying and what they are really worth and so certain businesses.

Bill George: I think we have a really, really, really, really good insight into the businesses we're buying and what they're really worth. And so certain businesses, you know, it's one of the reasons we've been moving towards these industrial complex. I think we just really believe that they have an embedded advantage that's very valuable right now. So I know that was not a very... You know, that didn't answer your question on the basis you wanted it, but it answered your question on the basis that I think is the most important way to think about it. I think pricing is very reasonable, especially when you consider a lot of people who look at pricing trends over 10 or 12 years in our industry, they forget that corporate tax rates dropped not that long ago.

Speaker Change: One of the reasons, we've been moving towards these industrial complex.

Speaker Change: Companies for a long time I think we just really believe that they have an embedded advantage. That's very very valuable right. Now so I know that was not a very.

Speaker Change: That didn't answer your question on the basis you wanted it but it answered your question on the basis that I think is the most important way to think about it I.

Speaker Change: I think pricing is very reasonable, especially when you consider a lot of people who look at pricing trends over 10, or 12 years in our industry. They forget that corporate tax rates dropped not that long ago and so when you buy these companies youre getting a whole different amount of free cash flow than you were getting when you, but you used to be.

Bill George: And so when you buy these companies, you're getting a whole different amount of free cash flow than you were getting. It used to be if we bought a company, we got to keep 60 cents of every dollar they earned. Today, because they give us tax-deductible goodwill, our acquired companies have a lower effective tax rate than our existing business. We're keeping well over 80 cents of every dollar. So if you break all of that together, I think pricing is pretty good, and I think you're seeing that in sort of the value accretion that these wonderful companies have been able to accomplish for us.

Speaker Change: If we bought a company we got to keep 60 cents of every dollar they earned.

Speaker Change: Day, because they give us tax to go back to go good deductible goodwill our acquired companies have a lower effective tax rate than our existing business, we're keeping well over 80 cents of every dollar. So if you break all of that together I think pricing is pretty good and I think youre seeing that in sort of the value accretion that.

Speaker Change: These wonderful companies have been able to accomplish for us.

Brent Thielman: I appreciate all the context. Best of luck. Thanks, guys.

Speaker Change: Alright, I appreciate all the context.

Speaker Change: Best of luck thanks, guys.

Speaker Change: Sure.

Adam Thalhimer: Thank you and one moment for our next question. And we have a follow up question from the line of Adam Thalhimer with Thompson Davis.

Speaker Change: Thank you and one moment for our next question.

Speaker Change: And we have a follow up question from the line of Adam <unk> with Thompson Davis. Your line is open. Please go ahead.

Adam Thalhimer: Your line is open. Please go ahead.

Brian Lane: Oh, thanks, guys. I was just curious on... The data centers, the total addressable market for Comfort.

Speaker Change: Thanks, guys.

Adam: Just curious on.

Speaker Change: The data centers, the total addressable market for comfort.

Brian Lane: You know, as these guys start talking about one, all the way up to five gigawatt data centers, as the data center gets bigger, does that increase your TAM? So every data center that we build today. has way more content for us. The dollars for the same, you know, for the same sort of piece of land are much, much higher. As far as the addressable market, I don't really think there is an addressable market in the sense that, oh, there's X out there to be done. I think that what is out there to be done in the area of data centers is what can be done.

Speaker Change: As these guys can start talking about one although we have to five gigawatt data centers. The data center gets bigger does it does that increase your Tam.

Speaker Change: So every data center that we build today.

Speaker Change: Has way more content for us the dollars for the same for the same sort of piece of land are much much higher as far as the addressable market I don't really think there is an addressable market in the sense that there is X out there to be done I think that what is out there to be done in the area of data data centers is what can be done.

Brian Lane: And what can be done will be less than they're hoping to do. But they'll size that they're going to build as much as they can.

Speaker Change: And what can be done will be less than they are hoping to do.

Speaker Change: But they'll size, they're going to build as much as they can.

Brian Lane: It's a it's it's it's it's it's sort of think about it like chip speed. There is not an amount of compute they want and then they'd be done. There's not a size of a data lake that they want. And then they'll just be happy and done. They there's two things they want. They want as much compute and as much data as they can get. And they want to make very certain. that the other people that they compete with don't have more than they do.

Speaker Change: It's.

Speaker Change: It's sort of think about it like chip speed.

Speaker Change: There is not an amount of compute they want and then they would be done and there is not a size of a data lake that they want and then they will just be happy and done.

Speaker Change: Two things they want they want as much compute and as much data as they can get and they want to make very certain.

Speaker Change: That the other people they compete with don't have more than they do.

Adam Thalhimer: Okay, the other question I think... Oh, I've been getting his on... I'm still getting questions on uses of cash, you know, if you... because you guys are at a record amount of net cash. Just curious if that makes buybacks more attractive. We are definitely prepared to buy shares. on dips. We always have been, and we buy pretty, you know, we started for the first time ever, like this quarter, we increased our share buyback in the third quarter without a dip. Now, it then went up by more, so we ended up getting a ton of shares at, you know, in the low 300s, and it looked like a good deal.

Speaker Change: Okay.

Speaker Change: Other questions.

Speaker Change: I've been getting is on.

Speaker Change: I'm still getting a question on uses of cash.

Speaker Change: Because you guys are at a record amount of net cat M. I, just curious if that makes buybacks more attractive.

Speaker Change: We are definitely prepared to buy shares.

Speaker Change: On dips, we always have been.

Speaker Change: We buy we buy period.

Speaker Change: For the first time ever like this quarter, we increased our share buyback in the third quarter without a dip now they've been went up by more so we ended up getting a ton of shares at below.

Speaker Change: A low three hundreds and it looked like a good deal, but when we were buying them we were.

Adam Thalhimer: But when we were buying them, we were buying them at all-time highs. So we have a lot of confidence that you know, that we have an ability to run a good business for some years to come. And we have to divvy it a little bit this quarter, too, 5 cents. But it's not going to use the free cash flow, no. No, but I'm just trying to help you out, Adam, with your notes. I appreciate that. I think I'm all set. I'm going to get it out quickly.

Speaker Change: <unk> them at all at all time highs. So we have a we.

Speaker Change: We have a lot of confidence.

Speaker Change: You know that we have an ability to run a good business for some years to come we have the dividend a little bit this quarter to 5%.

Speaker Change: Yes.

Speaker Change: But it is not going to use the free cash flow.

Speaker Change: But I'm just trying to help you out at and what are your notes.

Speaker Change: I appreciate that I think I'm, all set I mean, I get it out quickly.

Bill George: Have a good weekend. Every year we, yeah. Take care, bro. Oh no, go ahead, Bill. I didn't want to interrupt you. Oh yeah, yeah. We thought you had a half a foot out the door. So every year, every year we, every year we know that we have cash and we have... The goal to deploy it into companies that we have conviction have fantastic workforces. So far, we've succeeded. I think our pipeline is very good, mainly because Comfort's reputation as a place to be is very good. So I like our chances of deploying that cash, but I will say, like some of our competitors or some of our comparables, if we don't find stuff that we have conviction around, We won't do deals.

Speaker Change: Okay.

Speaker Change: Have a good weekend every year, yes.

Thank you Gabriel.

Speaker Change: Oh No go ahead, Bill I don't want to interrupt it.

Speaker Change: We thought you had put out the door. So every year every year. We every year, we know that we have cash and we have.

Speaker Change: We haven't.

Speaker Change: Yes.

The goal to deploy it into companies that we have conviction are fantastic fantastic Workforces.

Speaker Change: So far we've succeeded I think our pipeline is very good mainly because comfort reputation as a place to be is very good. So I like our chances of deploying that cash, but I will say like some of our competitors or some of our comparables. If if we don't find stuff that we have conviction around.

Bill George: We will not be hurried. We won't do deals that we don't have belief in.

Speaker Change: We won't do deals we will not be hurried, we wont do deals that we don't have belief in.

Bill George: So I'm optimistic, but I will say discipline first. I look forward to seeing what you do this winter. Thank you.

Speaker Change:

Speaker Change: So I'm optimistic, but I will say disciplined first.

Speaker Change: I look forward to seeing you should do this winter.

Operator: All right. See ya.

Operator: Thank you. One moment for our next question.

Speaker Change: Alright.

Speaker Change: Thank you one moment for our next question.

Josh Chan: Our next question is a follow-up question from the line of Josh Chan with UBS. Your line is open.

Speaker Change: Our next question is a follow up question from the line of Josh Chan with UBS. Your line is open. Please go ahead.

Bill George: Please go ahead. Hey guys, just a quick clarifying question. When you guys say margins stay around current levels, it's still within the context that there's seasonality to your margins and Q3 and possibly Q2 is usually the high quarter and Q1, Q4 are lower. Is that a fair characterization, at least on the EBITDA level? Yeah, and it's especially true for Q1s. Our Q1s are notably lower than our other three quarters. The other three, it is absolutely the case. You know, 18 out of 20 years, Q4 is going to go down from Q3. But 20 out of 20 years, Q1 margins are going to be lower because of just the volumes, the opportunity for that utilization I was talking about.

Josh Chan: Hey, guys just a quick clarifying question. When you guys say margins stay around current levels, it's still within the context that there is seasonality to your margins in Q3, and possibly Q2 is usually the high quarter. In Q1 Q4 are lower or is that is that is that a fair characterization that based on the EBITDA level.

Speaker Change: Yes, and it's especially true for Q1, our Q1s are notably lower than our other three quarters. The other three it is absolutely the case.

Speaker Change: 18 out of 20 years Q4 is going to go down from Q3, but 20 out of 20 years Q1 margins are going to be lower because of just the volumes the opportunity for that utilization I was talking about we don't in the summer. We have we have more service and service pushes up your gross profit margins as the highest growth.

Bill George: In the summer, we have more service, and service pushes up your gross profit margins. It has the highest gross profit margins in our business. So there's a bunch of things that keep it being, you know, less seasonal than it used to be, but for sure still seasonal. That makes a lot of sense.

Speaker Change: Profit margins in our business. So there is a bunch of things that keep it being.

Speaker Change: Less than US then a less seasonal than it used to be but for sure still seasonal.

Speaker Change: Right that makes a lot of sense, thanks for clarifying that bill.

Bill George: Thanks for clarifying that, Bill.

Operator: Have a good weekend, guys.

Speaker Change: Hey, guys.

Operator: Thank you.

Brian Lane: I would now like to hand the conference back over to Brian Lane for any closing remarks. Okay, in closing, I really want to thank all our employees again. Our folks continue to deliver for our customers with a good quality product that we do safely and efficiently. As you can tell, we're very excited, closing out the year and optimistic about 2025. Thanks, everyone, for joining our call. Hope you all have a wonderful weekend and look forward to seeing you soon. Thank you.

Speaker Change: Thank you.

Speaker Change: Thank you I would now like to hand, the conference back over to Brian Lane for any closing remarks.

Brian Lane: Okay in closing I really want to thank all our employees again.

Brian Lane: <unk> continued to deliver for our customers with a good quality product, we do safely and efficiently.

Brian Lane: As you can tell we're very excited closing out the year and optimistic about 2025.

Thanks, everyone for joining our call hope you all have a wonderful weekend it looks forward to seeing you soon thank you.

Operator: This concludes today's conference call. Thank you for participating, and you may now disconnect. Everyone, have a great day.

Speaker Change: This concludes today's conference call. Thank you for participating and you may now disconnect everyone have a great day.

Speaker Change: Okay.

Speaker Change: [music].

Speaker Change: Okay.

Speaker Change: Okay.

Speaker Change: [music].

Speaker Change: Okay.

Speaker Change: Mhm.

Speaker Change: Okay.

Speaker Change: [music].

Speaker Change: Uh huh.

Speaker Change: Yes.

Speaker Change: Yes.

Speaker Change: Okay.

Speaker Change: Okay.

Speaker Change: [music].