Q4 2024 Comfort Systems USA Inc Earnings Call
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Good day, and thank you for standing by welcome.
Welcome to the fourth quarter 2020 for comfort systems USA earnings Conference call. At this time, all participants are in listen only mode.
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Speaker Change: To hand, the conference over to your first speaker today Julie shape.
Speaker Change: The accounting officer. Please go ahead.
Speaker Change: Thanks, Marvin and good morning, welcome to comfort systems, Usa's fourth quarter and full year 2024 earnings call.
Speaker Change: 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 upon our current plans and expectations of comfort systems USA those plans and expectations include risks and uncertainties that might cause actual future.
Speaker Change: Activities and results of our operations to be materially different from those in these comments.
Speaker Change: You can read a detailed listing and commentary concerning our specific risk factors in our most recent Form 10-K as well as in our press release covering these earnings.
Speaker Change: Slide presentation, that's provided as a companion to our remarks and it's posted on the Investor Relations section of the company's website found at comfort systems USA Dot com.
Julie Shape: 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, alright. Thanks, Julie good morning, and thank you for joining our call today.
Julie Shape: Last night, we reported record annual and fourth quarter earnings and exceptional cash flow. Thanks to excellent execution by asset by a superb teams across the United States.
Julie Shape: Same store revenue growth for the fourth quarter was 22%.
Julie Shape: Margins were amazing.
Julie Shape: We earned $4.09 per share this quarter.
Julie Shape: 60% from last year.
Julie Shape: $14 60 per share for the year compared to $9 91 through 2023.
Julie Shape: Backlog at the end of the year due to a new all time high of $6 billion.
Julie Shape: Backlog is broadly based and we continue to experience strength across virtually all sectors, including.
Julie Shape: Including persistent strong demand for my technology customers.
Julie Shape: Thanks to strong fourth quarter bookings, we began 2025 with same store growth in both sequential and year over year backlog.
Julie Shape: 2020 for operating cash flow was $849 million.
Julie Shape: A strong foundation for continued investment.
Julie Shape: And our ongoing cash flow stress is indicative.
Julie Shape: Strong underlying trends in our execution customer relationships and prospects.
Julie Shape: We recently acquired companies continued to surpass our expectations.
Julie Shape: We are pleased to announce that in January we added century contractors as our newest partner company.
Century is an outstanding well established mechanical contractor based in Charlotte North Carolina.
Julie Shape: And we expect they will earn about $90 million of revenue this year.
Julie Shape: We also announced a quarterly dividend increase of <unk> 40 per share.
Julie Shape: This increase reflects our strong cash flow and share repurchases. It shows our commitment to reward our shareholders.
Julie Shape: I will discuss our business outlook at a few minutes, but first I will turn this call over to Bill to review our financial performance Bill. Thanks.
Bill George: Thanks, Brian results are fantastic this quarter capping a great year.
Bill George: Revenue for the fourth quarter of 2024 increased by 38% compared to last year to one 9 billion.
Bill George: Full year revenue for 2024 was $7 billion, an increase of 35% compared to 2023.
Bill George: For the full year, our mechanical segment revenue increased by 40% helped by acquisitions modular expansion and substantial organic construction and service growth.
Bill George: Electrical segment revenue increased by 19%.
Bill George: Full year same store revenue increased by 23% or $1 2 billion.
Bill George: We will face a tough comparable in 2025 and our best estimate is the same store revenue will continue to rise in 2025, most likely by high single digit percentage growth.
Bill George: Gross profit was $434 million for the fourth quarter of 2020 for a $154 million improvement compared to a year ago. Our gross profit percentage grew to 23, 2% this quarter compared to 26% for the fourth quarter of 2023.
Bill George: The quarterly gross profit percentage in our electrical segment improved to 26, 1% this year compared to 22, 9% last year.
Bill George: Margins in our mechanical segment also increased in the quarter to 22, 4% compared to 19, 8% in the fourth quarter of 2023.
Bill George: Full year gross profit increased by $486 million and our annual gross profit margin was 21% as compared to 19% in 2023 or.
Bill George: Our electrical margin was 24, 1% for 2024, while mechanical was 22%.
Bill George: As we look to 2025, we are optimistic that gross profit margins will continue to be in the strong range as we have achieved in comparable quarters last year.
Bill George: SG&A expense in the fourth quarter was $208 million or 11, 1% of revenue compared to $160 million or 11, 8% of revenue in the same quarter of 2023.
Bill George: For the full year SG&A expense as a percentage of revenue was 10, 4% down from 11.0% in 2023.
Bill George: For the full year and on a same store basis.
Speaker Change: <unk> was up $117 million.
Due to ongoing investments to support our much higher activity levels.
Speaker Change: Quarterly operating income increased from $120 million in the fourth quarter of 2000 $23 million to $226 million for the fourth quarter of 2024 and 88% increase.
Speaker Change: Thanks to the jump in gross profit margins and favorable SG&A leverage our operating income percentage increased to 12, 1%. This year from eight 9% in the prior year for the full year, our operating income was $749 million and we achieved a remarkable operating income percentage.
Speaker Change: A 10, 7%.
Speaker Change: Our 2024 tax rate was 21, 6%.
Speaker Change: We estimate that our tax rate in 2025 will be approximately 22% to 23%.
Speaker Change: After considering all these factors net income for the fourth quarter of 2024 was $146 million or $4 <unk> per share.
Speaker Change: This is a 60% improvement in quarterly earnings per share from last year.
Speaker Change: Our full year earnings per share for 2024 were $14 60 compared to $9 one per share in the prior year. So our annual EPS is up by over 60%.
Speaker Change: EBITDA increased by 85% to $261 million this quarter from $141 million in the fourth quarter of 2023.
Speaker Change: Same store EBITDA increased by over 50%.
Speaker Change: Full year 2024, EBITDA was $892 million and EBITDA margin was 12, 7%, reflecting great execution by our teams and strong demand in our markets.
Speaker Change: Full year free cash flow for 2024, it was a remarkable $744 million.
Speaker Change: We continue to benefit from the advance payments and operating cash flow again far exceeded our earnings by $327 million on a trailing 12 month basis. So we are again well ahead of earnings and collecting our cash. In addition, our cash flow for the second half of 2024 was lifted by approximately 80.
Speaker Change: Million of tax payments that we were allowed to defer until February of 2025 due to hurricane barrel.
Speaker Change: That catch up payment has now been made and will reduce first quarter cash flow.
Speaker Change: Capital expenditures in 2020 for $111 million or a little over one 5% of revenue and we continue to invest in our operations and purchased vehicles to support our service business.
Speaker Change: We increased our investment in share repurchases this year and returned $58 million to shareholders in 2024 by buying over 177000 shares at an average price of $329.
Speaker Change: Since its start our share purchase program has retired over 10 4 million shares at an average price of $31 41.
Speaker Change: And paid our shareholders more than $320 million.
Speaker Change: That's all I've got Brian Alright, Thanks Bill.
Speaker Change: I am going to discuss our business and outlook.
Speaker Change: Backlog at the end of the fourth quarter was 6 billion a same.
Speaker Change: Same store increase in both sequential and year over year backlog.
Speaker Change: Fourth quarter bookings were strong, especially in the technology sector.
Speaker Change: And sequential backlog was up $300 million.
Speaker Change: Since last year, our backlog has increased by $800 million of 16%.
Speaker Change: On a same store basis our.
Speaker Change: Backlog is now up by $400 million, 909% higher.
Speaker Change: And at this time last year.
Speaker Change: Our overall backlog is broadly based and especially robust in our industrial sector.
Speaker Change: We are carefully selecting work.
Speaker Change: That is good margins with good working conditions for our valuable workforce.
Our revenue mix continues to trend towards the industrial sector.
Speaker Change: With this sector accounting for over 60%, 60% of our volume in 2024.
Speaker Change: And continues to be a major driver of pipeline and backlog.
Speaker Change: Technology, which we include in industrial.
Speaker Change: And which includes data set is and chip fab with 33% of our revenue.
Speaker Change: A substantial increase from 21% in the prior year.
Speaker Change: And advanced Technology technology is now the largest component of our revenue.
Speaker Change: Institutional markets, including education healthcare and government.
Speaker Change: <unk> strong and represent 24% of our revenue the.
Speaker Change: The commercial sector is active as well and now accounts for about 16% of revenue.
Speaker Change: Most of our service revenue is for commercial customers. So our commercial construction business is now relatively small.
Speaker Change: Construction accounted for 84% of our revenue with projects for new buildings, representing 56%.
Speaker Change: The existing building construction, 28%.
Speaker Change: Project pipelines remain at unprecedented levels.
Speaker Change: We include modulate new building construction and year to date modular was 17% of our revenue.
Speaker Change: Service revenue was up 8% this year on an absolute basis.
Speaker Change: With faster growth in construction service is now 16% of total revenue.
Speaker Change: Our overall service business achieved a record $1 $1 billion in revenue for 2024 and service continues to be a growing and reliable source of profit and cash flow.
Speaker Change: With reckitt broad based backlog healthy.
Healthy pipelines persistent demand in advanced technology, onshoring, and especially our unmatched workforce.
Speaker Change: We expect continuing strong results in 2025.
Speaker Change: I want to close by thanking our over 18000 employees for their hard work and dedication.
Speaker Change: Our success is a direct result of the people that serve our customers every single day.
Marvin: I will now turn it back over to Marvin for questions. Thank you.
Marvin: Thank you at this time, we will conduct a question and answer session. As a reminder to ask a question you will need to press star one on your telephone and wait for your name to be announced to withdraw your.
Marvin: Your question. Please press star one again.
Marvin: Please standby, we're compile the Q&A roster.
Marvin: And our first question comes from the line of Brent Thielman of D. A Davidson your line is now open.
Brent Thielman: Hey, Thanks, good morning, Congrats on a great finish to the year.
Speaker Change: Thanks, Brett.
Speaker Change: I guess, Brian or Bill I mean, I think your comments on your ability to kind of sustain these elevated margin levels in 2025 is pretty notable.
Speaker Change: I'm just wondering is that a function of the terms that you continue to see come in on New awards is it that the schedules you see laid out for 2025 across the different territories, just wanting to understand.
Speaker Change: As you that confidence around that just given such strong margins by historical standards.
Speaker Change: Yes, yes for sure Brett So as you know Brian you've been around this business a long time, it's a host of things and it starts with.
Good project selection working for.
Speaker Change: Good customers.
Speaker Change: Leading on.
Speaker Change: Doing a great job of estimating and evaluating the risk of the projects that we're looking at and right now there's just a lot of work out there that's in our wheelhouse sweet spots. So we're doing a really good job of executing it.
Speaker Change: But it all comes down to it.
Speaker Change: Folks in the field that are actually doing the work with tools in their hands and we are very fortunate to have the workforce we do.
Speaker Change: And the care they take without customers. So it's a combination of a lot of things that have gone to.
Speaker Change: Drive margins and we have to do all of them well, which we're doing right now.
Speaker Change: Yes, okay.
Speaker Change: And then on modular I mean, just taking the year to date, 17% of revenue I mean, it looks like the business is up roughly 50% in 2024 could you just talk about your ability to continue to see growth in modular 2025, I know theres limitations in terms of the capacity, but I just wanted to get a handle.
Speaker Change: Around how you're thinking of that in the 2025.
Speaker Change: Alright.
Speaker Change: Brian We had a big Bang increase.
Speaker Change: In 'twenty three based on some giant orders and reassurances that we got in 2022, we continue to grow that but now.
Speaker Change: When we add space will add 200000 square feet, and we will put a lot more focus on productivity.
Speaker Change: Automation so we.
Speaker Change: Really see that continuing to grow.
Speaker Change: Just gradually in <unk>.
Speaker Change: Our guys are so good it.
Speaker Change: Really.
Speaker Change: Providing a great product to the customer.
Speaker Change: And really.
Speaker Change: Really helping not just with you don't just have to build it you have to help them design it and I think we're just excellent at that and I.
Speaker Change: Really.
Speaker Change: We stand in all of our guys, but I think youll, just continue to see sort of incremental growth.
Speaker Change: Okay, and Bill I mean, with the focus on productivity automation, presumably that could put some upward pressure on margins in that in that particular area is that fair.
Speaker Change: I think it's supportive of margins. These guys are getting really good margin.
Speaker Change: They have big sophisticated customers, so I wouldn't necessarily predict I think.
Speaker Change: Space will grow faster than comfort as a whole so it will be supportive of those growth projections same store growth projections. We just gave but I think our margin guidance for that would be the same as our margin guidance for the rest of the business, which is overall, we can't believe the margins that they achieved in 'twenty four but we.
Speaker Change: We really see every we have every reason to think they will do it again in 'twenty five.
Speaker Change: Got it last one if I could build I mean, the capex stepped up here in the fourth quarter, maybe maybe it's associated with modular or something else just.
Speaker Change: What that was related to and thoughts on Capex in 2025.
Speaker Change: So dollars of Capex.
Speaker Change: They're up they're up.
Speaker Change: If you look fourth quarter to fourth quarter. They are still down as a percent of revenue they're up sequentially, but that's almost always going to happen from the big volumes of the third quarter. So as a percentage. They are up sequentially I will say our first use of every dollar we get our very first use is to reinvest in the business, where where it can help us be a.
Speaker Change: Better company and serve our customers better. We also occasionally nowadays will buy the buildings that are that we run our businesses from Opportunistically just because they are often in a medium sized town and they are pretty special buildings, and we need we're really investing in those buildings and frequently the most logical way to do that is just simply.
Speaker Change: By the building from the landlord so sometimes youll see I think we will probably by a couple of our buildings this year, where in some conversations that will probably lead to that.
Speaker Change: So I think our backlog I mean, I think our Capex will stay at about the same percentage next year this year.
Speaker Change: Okay.
Speaker Change: Okay, great I'll get back in queue.
Speaker Change: Thank you our next question.
Speaker Change: Our next question comes from the line of Adam <unk>.
<unk> of Thompson Davis Your line is now open.
Speaker Change: Hey, good morning, guys. Congrats on a great Q4.
Speaker Change: Alright, Thanks, Adam.
Speaker Change: I wanted to start on the <unk>.
Speaker Change: Persistent strong demand from technology customers can you give us a little more color on that and.
Speaker Change: Maybe just some anecdotes what youre seeing from the current bidding environment.
Speaker Change: Yes.
Bill George: I'll go first and then bill can add onto it but.
Speaker Change: Probably a lot of concern couple of months ago would it released but right now we're seeing.
Bill George: Heavy activity, particularly on the data center front.
Speaker Change: Been no letup on demand, what they want us to build.
Speaker Change: In fact, they've let us know that they want to make sure that we're still all in on building in which we are.
Speaker Change: So we see no let up at all.
Speaker Change: On that front.
Speaker Change: One of the things people forget is that.
Speaker Change: The amounts that have been announced by the hyper scaler in particular are vastly higher than anything any year, that's ever happened in the past and probably not possible to start with so even if there is a pullback that to pull back to a lower amount that's still impossible and the timeframes that theyre talking about.
Speaker Change: And.
Speaker Change: It's definitely the case with the people, we build datacenters score that if theyre going to slow down and they don't know it yet.
Speaker Change: Okay.
Speaker Change: Helpful and then.
Speaker Change: Yeah.
Speaker Change: Yes.
Speaker Change: To what extent are you guys getting or do you have visibility.
Speaker Change: You say into 2026.
Speaker Change: But compared to any other time, you would have asked that question more than usual alright.
Speaker Change: It's actually we have more book backlog going into 2026 than we've ever had a comfort systems.
Speaker Change: 2026 is still a year away, it's still a ways away.
Speaker Change: Great.
Speaker Change: We've never had we've never had as much visibility as we've had we've never been as fully sold for.
Speaker Change: For the coming year and into the next year as we are now and really the project sizes are very big so they can frequently be multi year. The one thing that happened is the starts are lumpy right.
Speaker Change: And you've been you've followed us for so long you know that but as of right now frequently when it when it start has delayed its like a relief for our subsidiary because they've got so much going on there.
Speaker Change: Turning to kind of count on some of those starts being delayed but Adam. It's also great for our workforce that they see it as we're coming into 2026 and see how much work. There is out there because we have a lot of work during this year. So it's usually a good sign for the folks in the field too.
Bill George: And then just quickly bill how big is that Q1 tax payment.
Bill George: So we paid we paid $80 million that should have been paid last year. So if your ZIP code was in the federally declared disaster area. They basically gave you relief. So that you didn't need to make your quarterly estimated tax payments for the third and fourth quarter of 2024 with no panel.
Bill George: To your interest and on behalf of our shareholders. We took advantage of that and so we paid $80 million a week or two ago that should have been paid last year, and we will still be making a tax payment this quarter, our normal estimated tax payment for our very high profits right now so that's literally.
Bill George: Shifting of $80 million of cash flow from this year to last year and also in the first quarter. We have some acquisition. Some acquisition related payments were these acquisitions are doing so well that when we pay out some of their earn outs and staff. Once you. Once you. Once you are the payoffs that you make on earn outs.
Go above the amounts that you estimated.
Bill George: When you accrued for the earn outs they start to go through operating cash flow.
Bill George: It is self funding because by definition they earned more money.
Bill George: But it does change it does change the characteristics of the cash flow. So we think we'll have great cash flow this year, but especially the first quarter. There is some displacement some temporal displacement for some of the payments all of which were really to the benefit of our shareholders but.
Bill George: They were all kind of at the same direction. So.
Bill George: Perfect. Good luck in Q1.
Bill George: Thanks.
Bill George: Thank you one moment for our next question.
Speaker Change: Our next question comes from the line of Julio Romero of Sidoti and company. Your line is now open.
Hey, good morning, guys.
Speaker Change: Earlier this morning.
Speaker Change: Yes.
Speaker Change: Just thinking about the modular offering.
Speaker Change: Obviously, a lot of concern about.
Speaker Change: The data center demand that you're seeing but can you maybe just give us a refresher on the other end markets that currently comprise your modular mix aside from data centers and maybe if they don't.
Speaker Change: If they're not served by modular now there could be served in the future.
Speaker Change: So historically, our modular business like when we bought it in 2011 and for the first many years. It was really focused towards pharmaceutical pharmaceutical builds I'd always had the data center component to it.
Speaker Change: As the data center stuff grew.
Speaker Change: Essentially the data center.
Speaker Change: Some really big and good customers came to us and said, we watch pretty much your whole capacity.
Speaker Change: We talked to them about the terms that we would need in the cooperation we would need to give that to them. So we've given they probably have 80 90 versus incentive if not more of our capacity. We do continue now we're much bigger. So we continue to reserve, 10%, a chunk of more than 10% of our capacity for their customers who.
Speaker Change: <unk> grew to rely on us and other verticals and keeping in mind that 10%, it's 10% of a number that has grown fivefold right. So it's still a big number.
Speaker Change: We think this modular construction would be useful in all kinds of well we know it would be in all kinds of verticals.
Speaker Change: But it's just such a good match right now for data center and the demand for data center is so big and really the people who are building data centers.
Speaker Change: I think people kind of ask is is this going to be the way people build data centers. The reality is for the foreseeable future. The way that we're going to build data centers as every way it's possible to build a data center there really.
Speaker Change: Taking all of the above approach.
Speaker Change: I don't know we think there is obviously, we're doing that much work.
Speaker Change: Something we don't see or expect happens, which is data centers slows down or stops weed.
Speaker Change: We'd have to replace that work and there would be there would be an adjustment period, yes.
Speaker Change: And then if a hospitals as well, but with the very beginning of module application in construction in this country. This will have a long long runway.
Speaker Change: Which is it's a great solution.
Speaker Change: In construction labor et cetera risk, it's a terrific solution. There is amazing applications like in telecoms here and Theres, just a lot of places where.
Speaker Change: It would be what is the capacity is out there right.
Speaker Change: Hey, what's that modular is like a very very small fraction of 1% of what could be done modular.
Speaker Change: Yeah, no a great very helpful color and were definitely in early stages there.
Speaker Change: You said this also data center is not just a very modular but you also do some stick built.
Speaker Change: Work for data center as well can you maybe just talk about demand trends on that side.
Speaker Change: Yeah.
Speaker Change: Extremely robust he is talking about Texas alone is one example.
We're turning down we actually turning down work will full up.
Speaker Change: Great opportunities in Mississippi.
Speaker Change: I could go on and on but there is.
Speaker Change: Plenty of opportunities for our regular build that we're doing as well.
Speaker Change: The work we do in data center Thats non modular is almost the same amount of revenue as we do modular.
Speaker Change: I think about it.
Speaker Change: It's a <unk>.
Speaker Change: Big.
Speaker Change: It's a big set of opportunities for us.
Speaker Change: Really helpful. And then one more for me is just you talked about this century contractors acquisition you made.
Speaker Change: Here in the first quarter the.
Speaker Change: Location seems to be pretty close to your Aaas facility is there any kind of synergy with that facility any any modular component or benefit to century contractors.
Speaker Change: So they've got a wonderful capability and complex pipe and Thats, a really really good fit for stuff, we already do but really it's a really good fit for where if you were if you were to like look at we have five or six businesses sort of within 100 miles of there that are doing industrial work if you'd have.
Speaker Change: If I could have one more of something a little unified could have more capability in one big it would've been on what these guys do so we're optimistic that this will be a really really great member of that ecosystem and they're already off to a great start.
Speaker Change: Yes.
Speaker Change: Great. Thanks, very much guys.
Speaker Change: Thanks.
Speaker Change: Thank you one moment for our next question.
Speaker Change: Our next question comes from the line of Josh Chan of UBS. Your line is now open.
Josh Chan: Hi, Good morning, guys, congrats on a great quarter.
Speaker Change: Thanks, Josh.
Speaker Change: Hi, yes.
Speaker Change: I know that the gross margin is usually fairly strong in Q4, but could you just kind of help us contextualize.
The magnitude of strength in this Q4's gross margin was there anything unusual any closeout benefits anything like that.
Speaker Change: Brian did you think we have good gross margins.
Yes.
Speaker Change: Interesting.
Speaker Change: Good question, because we saw the number two we took we look twice.
Speaker Change: It comes back to we'll get really good work and we're really really getting superb execution I can't.
Speaker Change: Really the quality of work we're getting.
Speaker Change: We're getting out in the field.
Speaker Change: We are looking for work we're really good at really helps it really helps your margin so and honestly there really wasn't any light.
Speaker Change: Particular, our small handful of special Closeouts that drove a bunch of that it was really broad based.
Speaker Change: It's not.
Speaker Change: We've reached a point now where this so first of all you have modular those projects are built in a month or two right and so much of the industrial goes year round that.
Speaker Change: Closeouts become kind of.
Speaker Change: Every quarter, but never more than usual I could that could be that good.
Speaker Change: Here and there there might be a quarter, where there's one or two special Closeouts. This was just broad based strength.
Speaker Change: Revenue running through at Great margins.
Speaker Change: Josh our service business continues to grow.
Speaker Change: Did it being one of last year. If you look at the back ended up quarter, where you get significant tepid change got really cold in parts of the country.
Speaker Change: It really accelerates your service callout work et cetera. So.
Speaker Change: That helps your margins as well.
Speaker Change: And Thats a fair point, yeah, that's really encouraging thank you.
Speaker Change: And then on the.
Speaker Change: I guess, you're a people based business. So could you talk about the progress behind hiring people and the training of apprentices. How do you feel that's going relative to your demand outlook.
Speaker Change: Well, yes.
Speaker Change: The organization is doing a terrific job, bringing folks in here constantly recruiting.
Speaker Change: We got outstanding training programs from skilled trades, all the way up to leadership training.
Speaker Change: Training going on every week in this organization.
Speaker Change: The companies that we brought in the eight years ago.
Speaker Change: Kodiak.
Speaker Change: For example has access to a lot of temporary labor, that's really helped us manage our peak decent valleys.
Speaker Change: Given us outstanding talent so.
Speaker Change: The recruiting efforts constant nonstop, we've got a lot of recruiters throughout the country.
Speaker Change: That will that will never stop and training.
Speaker Change: Totally 100% committed to training.
Speaker Change: That's something that we'll never slowdown on.
Speaker Change: Okay, that's great and maybe I can ask one last one how does the M&A pipeline look and how do you expect that to kind of contributor through the year. Thank you.
Speaker Change: So I would say.
Speaker Change: The M&A pipeline is very healthy.
Speaker Change: But we are coming off of years, where we did really last year. We did our biggest deal ever we did three two really notable deals and another great deal. So we.
Speaker Change: Our.
Speaker Change: Optimistic that we can just continue to keep doing what we've been doing.
Speaker Change: In any given year, we will do more or less based on conviction and availability of the one thing we won't ever do is rush or try to fill a quota, but right now things are good.
Speaker Change: Okay, that's great to hear and congrats again for the third quarter.
Speaker Change: Thanks.
Speaker Change: Thank you one moment for our next question.
Speaker Change: Thanks.
Speaker Change: Our next question comes from the line of Brian Brophy of Stifel. Your line is now open.
Brian Brophy: Thanks, Good morning, everybody. Thanks for taking the question congrats on a very nice quarter.
Speaker Change: Wanted to ask on the bulk of.
Speaker Change: Yeah.
Speaker Change: Thank you wanted to ask on some of the comments around same store sales growth for 2025, you mentioned high single digit range. It sounds like a little bit of a change from some of your comments last quarter can you just give us a sense for what changed versus what you were mentioning.
Speaker Change: And it's it's just math is what it is.
Speaker Change: We did not expect to roll through quite the revenue that we did in the fourth quarter. When we give guidance on our revenue as it comes out from an organic process planning process, we do where we get so so the number is as big as ever it's just that that same number.
Speaker Change: It is not as percentage bigger as much percentage bigger has the bigger number that we came up with in the fourth quarter that made the full year bigger in the fourth quarter. So.
Speaker Change: Just yes.
Speaker Change: There's plenty of work out there.
Speaker Change: Such a big revenue number in the fourth quarter.
Speaker Change: Understood. That's helpful and then when I look at the implied mechanical orders those were down a little bit.
Speaker Change: Versus a year ago does that have to do with anything regarding the timing of modular orders or is there anything else that's driving that thanks.
Speaker Change: Sounds like you are smarter about that than I am.
Speaker Change: I would say that we don't we are not seeing were seeing we got really good modular orders in the fourth quarter, but we did not get the gigantic modular orders. We got in particular in December of 'twenty, two and also in December of 2023, but we had net up bookings in the.
Speaker Change: Plants full and it's booked full longer than it's ever been it's a bigger play out.
Speaker Change: There doesn't seem to be a slowdown, but there is not a step change sort of increase like we had.
Brian Brophy: Brian I know you are relatively new to us, but what's really important here is that whenever we look at work we're going to take is that manpower loading curves make sure. We do not take too much work that we can't execute at a high level because margins profit and cash flow really important. So we spend a lot of time about what we can handle.
Speaker Change: And when the work is coming.
Speaker Change: There is no consideration or element in our backlog number.
Speaker Change: Theyre not being work to do there is we.
Speaker Change: <unk>.
Speaker Change: The double our backlog in the next.
Speaker Change: 100, 105 days, if we just started taking saying, yes to more work we could we could take a lot of work we couldn't do it if our goal is simply to increase our backlog.
Understood, Yes, that's really helpful.
Speaker Change: And then I guess one other one.
Speaker Change: We've been getting a lot of questions on inferencing data centers versus training data centers would that potentially needs for power cooling needs can you talk about some of the differences in terms of electrical and mechanical intensity between some of these different types of data centers and then just broadly when youre looking at your data center activity builds today.
Speaker Change: How much is more cloud based data centers versus AI data centers today. Thanks.
Speaker Change: So I'll give a little bit of color about that but I'm not really not an expert right.
Speaker Change: No data centers, so here's some really clear things Theres No data center, we're building today.
Speaker Change: It's not more dense than if we were building that same footprint, one three or five years ago. They are bringing in way more copper way more electricity theyre trying to put more compute power into all data centers. The true AI data centers are barely even starting they will probably have a.
Speaker Change: Smaller footprint based on just what smart people that covered tell me they will have unbelievable power draws but the blackboard chips only started actually being delivered a few months ago. The first ones have gotten into servers. Most of them are scheduled to be delivered next year and the year after right.
Speaker Change: So that is really in its infancy, the true billed for.
Speaker Change: Everything that was on the block everything that was being built.
Speaker Change: Redesign work was done to increase the density of it.
Speaker Change: You talk to our guys as much as they could but I don't think we've really started to a material extent I don't think we've started building the true AI data centers I think that's yet to come.
Speaker Change: I think because of that it's still being figured out.
Speaker Change: Yes.
Speaker Change: Understood and then last one.
Speaker Change: For me here.
Speaker Change: <unk> seen any changes in terms of <unk>.
Speaker Change: Contract terms today versus a year ago I would assume they are essentially the same or better and how should we think about that impacting margins and free cash flow conversion this year.
Speaker Change: So we are we are getting great payment terms, but we were already getting great payment terms of year end two years ago and honestly.
Speaker Change: That's a constant trade off right, we don't really need money sooner if youre if you.
Speaker Change: If you need if you're.
Speaker Change: Somebody that has all the money in the World and you are.
Speaker Change: Wide range of payment terms will accept.
Speaker Change: Generally speaking they are just very generous payment terms right now as far as the underlying contractual provisions as you can imagine at a time when we're this busy that affords us the opportunity to say no to things. So at the margin. We're doing some of that there are gcs, who have very unreasonable forms I think thats affecting their ability to.
Speaker Change: Subcontract actually I know they may not know it but I know, it's affecting their ability to get subcontractors and not just with us but.
Speaker Change: <unk>.
Speaker Change: Ultimately the forms that are used in this business have been around for a long time and almost more important than the words that are in them is like there is a standard of practice and if you do work over and over with the same people that you Trust.
Speaker Change: That's the most important thing I would rather have average terms with a great long term partner, then better a better contract with people I don't know.
Speaker Change: Understood very helpful. I'll pass it on thank you.
Speaker Change: Thanks.
Speaker Change: Thank you one moment for our next question.
Our next question comes from the line of Alex Dwyer of Keybanc capital markets. Your line is now open.
Hey, guys. Good morning, Thanks, Thanks for taking my questions.
Speaker Change: Alex and Ani.
Speaker Change: Hi, So I wanted to come back to the.
Speaker Change: The margin guidance and the flat and 25 versus <unk> 24, and just kind of walk through the biggest risks.
Speaker Change: And what could drive to the upside here, whether it's like a pricing execution closeout.
Speaker Change: Cost inflation or is there anything different about the project environment that can make it harder to execute this year.
Speaker Change: And share resources. It just seems like there's just such a great gross margin story with modular improving efficiencies and <unk>.
Speaker Change: And the supply demand imbalance and I think there is a good amount of this acquisition amortization that rolls off.
Speaker Change: Just any thoughts on why margins couldn't actually expand this year versus last year.
Speaker Change: But we would never say that they could it I think our hesitation to predict that they would.
Speaker Change: We just printed margins that were a company never done before in a couple of hundred basis points higher than we would've thought were possible a year ago. This stuff happens in the real world and we literally we don't know how much it's going to rain.
Speaker Change: We don't know how other people around US you can't you can't put wires and a wall that hasn't been built yet so.
Speaker Change: We think that the environment is really good we think that the people. We work with are doing a great job of taking the right amount of work.
Speaker Change: Really.
Speaker Change: I don't know.
Speaker Change: Honestly, it's hard for us to say, we can maintain our margin as high as we've had but we look at each other we all look at each other in the eye and said.
Speaker Change: Really I wouldn't bet against our guys, they're going to keep doing this but it's not there's not a lot of science to it we'll go for it.
Speaker Change: Okay got it that's helpful and then.
Speaker Change: I just wanted to ask about how you think the trend in backlog could play out this year.
Speaker Change: Orderly and Mike should we expect a similar cadence to 2025 were.
Speaker Change: <unk> and <unk> are easier to achieve net bookings in the quarter and then.
Speaker Change: It could be tough again this year to sequentially grow the backlog.
Speaker Change: Through those heavy.
Heavy summer quarters.
Speaker Change: Yes, so Brian and I were looking at a schedule. This morning, where our backlog jumped up two years ago in 2022, the burn was half two years ago in the fourth quarter. What it was in this quarter. So part of what you have going on is we have obtained such a high level and we're so busy.
Speaker Change: And.
Speaker Change: There is a finite amount of sort of human capital rate hours that can be worked and not kill people.
Speaker Change: So our backlog.
Speaker Change: No.
Speaker Change: I would take the over on it and.
In general over time on average, but I just think.
Speaker Change: The doubling kind of crazy ups aren't there as far as the seasonality.
Speaker Change: You ran comfort or a company like US 10 for over 10 years.
Speaker Change: Eight of the 10 years youre going to see more net backlog bookings in the first and fourth quarter and eight of the 10 years youre going to see proportionately less more burn. It's just the way it is because of what times base mass weather.
Speaker Change: So I think it's nothing has really changed I think anybody who is.
Watching our backlog and looking for signs of a slowdown.
Speaker Change: Should would be better off listening to us because as I am.
Speaker Change: As we said there's so much work, we're turning away that there really is no people look at our backlog are they worried about whether we will have work.
Speaker Change: And that if you were if you're us.
Speaker Change: Looking at what we when we talk to somebody who does the backlog for our big electrical in Texas that is so far from the world they're living in and the way, they're thinking that you wouldn't believe it.
Speaker Change: Yes.
Bill George: Okay got it thanks Bill then.
Speaker Change: I guess my last question I, just wanted to kind of.
Bill George: Ask about your mix of business within.
Bill George: The manufacturing portion of your revenue in.
Bill George: Like as we think about that mix last year versus whats in the backlog and plan for 2025 is there any is there any shift in those like sub end markets between life Sciences chips in food beverage and.
Speaker Change: And then Mike if we got tariffs in addition to the reassuring.
Bill George: And the chips that funding like how do you think that.
Bill George: Ranges, you're your slate of opportunities going forward at all.
Bill George: Could it change the mix of new construction versus retrofit projects there.
Bill George: Does it not really change that much.
Yes in terms of the.
Bill George: First part of it the mix is pretty consistent where we were last year with pharma health care.
Bill George: We've got a few solar in there, but we have.
Bill George: We.
Bill George: Consume.
Bill George: Product usage in there like you get a Lego and job going so theres a lot of.
Bill George: Mix of manufacturing, but I think it's going to increase.
Bill George: These tabs stick around that we will be doing.
Bill George: It feels like onshoring is real.
Bill George: Yes, I mean thats really at the beginning so there is there is.
Bill George: Push there's definitely a way sort of a current towards industrial but then.
Bill George: People didn't quit putting mayonnaise on their sandwiches and people still want to feed their dogs dog food and they still.
Bill George: And even in the data center World people sit here and look at the new compute stuff, but people are still taking pictures and streaming right. It's not as if.
Bill George: There are new incremental sources of demand.
Bill George: I can't think of one that displaced an already existing source of demand and that's why yes.
Bill George: Thats why youre seeing some of the extraordinary.
Bill George: Outcomes that you're seeing is.
Bill George: And then you put that on top of the fact that over the course of the financial crisis and the all the way back to 911, and then of course Covid. There was a lot of supply disruption right. So you have unprecedented demand after 20 years of Underinvestment in supply and we're all scrambling to catch up.
Speaker Change: Thanks, guys I'll turn it over there.
Bill George: Alright. Thanks.
Speaker Change: Thank you for next question.
Speaker Change: Our next question comes from the line of could you Richie.
Speaker Change: Ritchie Capital Group. Your line is now open.
Speaker Change: Good morning, Good morning, Thanks for taking my question.
Speaker Change: And I hope you can stomach another pipeline question.
Speaker Change: But with the.
Speaker Change: Recent volatility around the AI space.
Speaker Change: With the introduction of <unk> and other headlines.
Speaker Change: Clear that the market seems to think that our view comfort systems almost is like an AI type stock and I'm wondering if you feel like that characterization is fair.
Speaker Change: I understand that the comment about impossible demand in the data is finished data center space, but.
Speaker Change: How do you make decisions about taking on more work in that sector versus other opportunities is it simply the highest margin per man hour and so you take all you can or is there an approach to balancing the backlog portfolio.
Speaker Change: So two things I'd say, one so comfort is 30, so we're 63% industrial have that 33% as advanced technology and of that a little over two thirds is data center. So comfort is not a data center company rate than 20 low.
Speaker Change: A low 20% of our revenue is data center, and but having said that.
Speaker Change: The reality is how we how we we picked jobs gross profit per hour worked or really per $100 of labor right because not all labor is the same is the ultimate measure of how attractive a project is from the point of view of sort of profitability and spreadsheet considerations, but to.
Speaker Change: For most of our people there is a prequalification process. They go through where they stay will this be a good job for my workers is there is there good parking does this GC run a good job in.
Speaker Change: Keep the field from being muddy because it ultimately our workers we've had them for decades some of them for multi generate our multi generational, but they can get they can leave us and get a job.
Speaker Change: Instantly and so.
Our number one consideration honestly is okay.
Speaker Change: Or is this a good job for our people are the people they know going to be on it that they like to go to lunch with us it with people, we know treat people well. The number two consideration is who are we doing the work for the owner and especially the intermediaries like the GC and the other people on the job are they good people that we can trust because we can afford to be picky right now.
Speaker Change: And then the third consideration is what's the gross profit sort of per hour worked or for the labor that we're that we're we're limited by and that we're giving up for them and the good news is those three considerations are not independent almost always the best answered a number one and two will be the best answer to three so the world.
Speaker Change: We're living in is so different than what somebody sitting buying and selling stocks based on their guesses about AI that it's very hard for us to really even answer that question.
Speaker Change: That curve is where mechanical electrical contractors, so our skills with their pipe fitters sheet metal guys Plumbers electricians.
Speaker Change: We can work in any type of building that you want to build so it's easily transferable, it's not some specialist skill that can only work in one industry.
Speaker Change: At the end of the day, we are getting what the market is.
Speaker Change: Dictates is available.
Speaker Change: Yes, I was actually surprised.
Speaker Change: By it as well, but it's really maybe take a step back and think okay well.
Speaker Change: If there was something like a deep sea.
Speaker Change: Change the fundamentals of the fundamental equation for AI and data centers and so I was just in.
Speaker Change: It may be curious.
Speaker Change: How insulated.
Speaker Change: You are about the shift in spending patterns related to the Hyperscale <unk>.
Speaker Change: Trees don't grow to the Sky maybe.
Speaker Change: At this time is it really is different but.
Speaker Change: Is the demand that would replace that as it already there or would you have to.
Speaker Change: Go out and do some work if there was a big shift.
Speaker Change: The core before.
Speaker Change: Before the words artificial intelligence had been mentioned on any conference call.
Speaker Change: On any for any public company in America. There was not an electrician in America that was described in around for something to do.
Speaker Change: So.
Speaker Change: The demands there obviously.
Speaker Change: Demand becomes frenzied the pricing gets better there is so so of course addition.
Speaker Change: Anybody who took economics 10 basic economics.
Speaker Change: Supply and demand affect the outcomes and if demand wanes, we don't really have a problem. We've been cash flow positive every single year, we've ever existed right. We've earned money every single year, we've ever existed some of those years were really bad years right. They were after the year. After 911 there were.
Speaker Change: The worst year of Covid, the financial crisis devastated nonresidential building right in and at some point.
Speaker Change: It's really not a question that we can be a good company and earn money, but obviously.
Speaker Change: We should be worth more if you think.
Speaker Change: If you think reassuring is real.
Speaker Change: Ensuring as real we're worth more if you think people actually.
Speaker Change: We're going to need data centers, where where it's more the last thing I want to say about the data center stuff is our whole experience has been and we've been building data centers.
Speaker Change: Oh, five or six or experiences when they find a way to do with less or when they find a way to.
Speaker Change: To make more they just want more they don't say, okay, well, we have enough compute.
Speaker Change: <unk> line under that.
Speaker Change: Move onto staring at our logo you know what I mean.
Speaker Change: Thing is they want more and if they find a way to get more guests what they want after that more.
As a land grab right.
Speaker Change: Yes, that's great. Thank you. Thank you for that.
Speaker Change: Last comment is I really appreciate your loyalty.
Speaker Change: To your employees, it's something that we have.
Speaker Change: Always admired about comfort systems, and just how you fight for your employees. So.
Speaker Change: Congratulations on that and congratulations on the quarter.
Speaker Change: Thank you. Thank you.
Speaker Change: Thank you I'm showing no further questions at this time I would now like to turn it back to Brian Lane for closing remarks.
Brian Lane: In closing I really want to thank our amazing employees again were.
Speaker Change: Very grateful to you.
Thank you everyone for joining the call today.
Speaker Change: We are very excited about the opportunities we are facing in 2025 and look forward to the year hope everyone has a great weekend and thanks once again.
Thank you for your participation in today's conference. This does conclude the program you may now disconnect.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: [music].
Speaker Change: Okay.
Speaker Change: Okay.