Q1 2025 Comfort Systems USA Inc Earnings Call
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Bye-bye.
Speaker Change: Thank you for standing by and welcome to Comfort Systems USA's first quarter 2025 earnings conference call
At this time, all participants are in a listen-only mode
Speaker Change: After the speaker presentation, there will be a question and answer session. To ask a question during the session you will need to press star 11 on your telephone to remove yourself from the queue you may press star 11 again. I would now like to hand the call over to Julie Shaeff, Chief Accounting Officer, please go ahead.
Julie Shaeff: Thanks, Latisse. Good morning. Welcome to Comfort Systems USA's first quarter 2025 earnings call. Our comments today, as well as our press releases, contain board-looking statements within the meaning of the applicable securities laws and regulations.
Julie Shaeff: What we will say today is based upon the current plans and expectations of Comfort Systems USA. So those plans and expectations include risk and uncertainties that might cause actual future activities and results of our operations to be materially different from those in our comments.
Julie Shaeff: You can read a detailed listing and commentary concerning our specific risk factors in our most recent Form 10K and Form 10Q, 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 at a company's website found at ComfortSystemsUSA.com
Brian Lane: Joining me on the call today are Brian Lane, President and Chief Executive Officer, Bill George, Chief Financial Officer, and Trent McKenna, Chief Operating Officer. Brian , we'll open our remarks.
Brian Lane: We are reporting earnings per share that exceed every past quarter.
Brian Lane: A remarkable accomplishment given that the first quarter is historically, our seasonally weakest period.
Brian Lane: These results reflect a promising start to 2025.
Brian Lane: Same store revenue growth for the first quarter was 15%.
Brian Lane: Our margins are strong.
Brian Lane: Earned $4 75 per share this quarter.
Brian Lane: Up more than 75% from last year.
Brian Lane: Backlog at the end of the quarter grew to a new high of nearly $7 billion.
Brian Lane: We continue to experienced broad based strength.
Brian Lane: Including persistent strong demand from our tech customers.
Brian Lane: Thanks to strong first quarter bookings, we are going into the second quarter of 2025.
Brian Lane: With same store growth in both sequential and year over year backlog.
Brian Lane: We continue to be disciplined with our capital allocation strategy.
Brian Lane: As previously announced we added century contract as our newest partner company in January of this year.
Brian Lane: Century excellence mechanical contractor based in Charlotte North Carolina.
Brian Lane: And we expect they will earn about $90 million of revenue this year.
Brian Lane: We also announced another increase to our quarterly dividend by five to <unk> 45 per share and we continue to purchase our shares.
Brian Lane: These actions reflect our commitment to reward our shareholders, while maintaining a strong balance sheet.
Against the backdrop of these strong results. We are of course deeply aware of what is happening with tariffs and our economy.
Brian Lane: Preparing for a wide range of possible conditions.
Brian Lane: If tariffs and other policy changes hurt the economy.
Brian Lane: EMEA construction more expensive that will impact our customers and that would in turn impact us.
Brian Lane: Most of these things we cannot control.
Brian Lane: So we are focused on project execution recruiting and retaining the best Labor force in the industry and selecting the best projects for our valuable workforce.
Brian Lane: We feel fortunate to have the markets focus customers and geographies that we're in.
Brian Lane: Although events developing quickly.
Brian Lane: Demand for large and complex complex projects is ongoing.
With record broad based backlog persistent demand and advanced technology onshore.
Brian Lane: Onshoring trends.
Brian Lane: And especially thanks to our amazing people we.
Brian Lane: We expect continuing strong results in 2025.
Brian Lane: And we are optimistic for continuing success into 2026.
Brian Lane: Trac will discuss our business outlook in a few minutes, but first I will turn this call over to Bill to review our financial performance built thanks, Brian. Good morning, everyone. This quarter was a really great start to 2025.
Brian Lane: So revenue for the first quarter was $1 8 billion, an increase of 19% compared to last year same store revenue increased by 15% or $237 million with the remaining $57 million increase resulting from acquisitions are.
Speaker Change: Our revenue increased in both segments with an increase of 22% in our electrical segment, while our mechanical segment revenue increased by 18% both segments benefited from strong demand, particularly in the technology sector. We.
Speaker Change: We faced high Comparables for the remainder of 2025 and our estimate is the same store revenue will increase for full year 2025 by high single digit percentage growth.
Speaker Change: Gross profit was $403 million for the first quarter of 2025 or $106 million improvement compared to a year ago.
Speaker Change: Our gross profit percentage grew to 22.0% this quarter compared to 19, 3% for the first quarter of 2024.
Speaker Change: Quarterly gross profit percentage in our electrical segment improved to 23.0% this year compared to 22, 6% last year.
Speaker Change: Margins in our mechanical segment grew by over 3% to.
Speaker Change: The 21, 7% compared to 18, 4% in the first quarter of 2024.
Speaker Change: We currently expect the gross profit margins will continue in the strong ranges that we have achieved in the last several quarters.
Speaker Change: SG&A expense for the quarter was $195 million compared to $163 million in the same quarter of 2020 for SG&A expense as a percentage of revenue was consistent at 10, 6% for both periods.
Speaker Change: We continue to invest in training and technology to provide our workforce with the best tools to meet the demands of complex projects needed by our customers.
Speaker Change: Our operating income increased by 54% from last year from $135 million in the first quarter of 2000 $24 million to $209 million for the first quarter of 2025.
Speaker Change: With improved gross profit margins, our operating income percentage increased from eight 8% to 11, 4%.
Speaker Change: A truly remarkable performance in the first quarter.
Speaker Change: Our quarter to date effective tax rate was 18, 6% compared to 21, 7% in 2024.
Speaker Change: Our effective tax rate this quarter was lower due to interest we received on a delayed refunds by the IRS associated with our 2022 federal tax return.
Speaker Change: We received the $118 million refund in April 2025, including $11 million of interest. Excluding this item our effective tax rate would have been approximately 23% in the current quarter and we expect our tax rate for the last three quarters of 2025 to continue in the 23% range.
Speaker Change: With a full year effective rate a bit lower due to the discrete benefit recorded this quarter.
Speaker Change: After considering all these factors net income for the first quarter of 2025 was 169 million or $4 75 per share and that compares to net income for the first quarter of 2024 of $96 million or $2 69 per share.
Speaker Change: Per share earnings include a benefit of <unk> 25 per share related to the interest on our tax refund, which was previously discussed.
Speaker Change: EBITDA increased by 43% to $243 million this quarter from $170 million in the first quarter of 2024, reflecting great execution by our teams and strong demand in our markets and our EBITDA for the 12 months ending with the first quarter is 900.
Speaker Change: $65 million.
Speaker Change: Our free cash flow was negative $109 million in the first quarter free cash flow has two large discrete impacts this quarter from a major turnaround of advanced customer payments and a catch up tax payment that we had deferred from last year.
Brian Lane: As Brian mentioned this quarter, we experienced much of the long awaited cash flow turnaround.
Brian Lane: As we have been discussing for several quarters, our operating cash flow has benefited from advanced payments from customers in our modular operations much of that effect abated this quarter.
Brian Lane: In addition to the turnaround of most of our advanced customer payments in the first quarter, we made a federal tax payment of approximately $80 million. This quarter that would normally have been paid in the second half of last year.
Brian Lane: That was because we were able to defer that payment due to hurricane barrel, which was a federally declared disaster in Houston during 2024.
Brian Lane: We also funded significant earn out payments for acquisitions approximately $80 million in the first quarter of 2025 and $34 million of those payments were required to be reflected as a reduction to operating cash flow.
Brian Lane: Given the magnitude of these three reductions to cash flow that is the turnaround for advanced purchases, our hurricane deferred payments and earn out funding. The fact that our cash flow netted to only 109 million negative.
Brian Lane: Signifies remarkably strong underlying cash flow this quarter we.
Brian Lane: We also purchased more shares than usual in the first quarter and although it did not affect our cash flow share repurchases. This quarter. We're also a notable use of cash as we returned $92 million to shareholders by buying over 264000 shares.
Finally, this quarter, we funded the century acquisition that Brian talked about so with all of these uses of cash.
Brian Lane: In other factors affecting our cash we believe that ending the quarter with net cash of over 130 million together with our strong prospects for ongoing cash flow.
Brian Lane: <unk> us in a remarkably strong position to continue to invest in our business to grow and to continue to reward our shareholders and this quarter's balance sheet performance strengthens our optimism about our ongoing prospects.
Brian Lane: That's what I got.
Speaker Change: Thanks Bill.
Speaker Change: Brian has asked me to comment on our business operations and provide an assessment of our outlook.
Speaker Change: Backlog at the end of the first quarter was a record $6 9 billion.
Speaker Change: Same store increase in both sequential and year over year backlog.
Speaker Change: Same store sequential backlog was up $848 million or 14%.
Speaker Change: On a same store year over year backlog was up $930 million or 16%.
Speaker Change: First quarter bookings were especially strong in the technology sector.
Speaker Change: Our companies are collaborating more than ever before to deliver superior mechanical and electrical solutions for our customers.
Speaker Change: Our revenue mix continues to trend towards the industrial sector with this sector accounting for 62% of our volume in the first quarter.
Speaker Change: Industrial continues to be a major driver of pipeline and backlog.
Speaker Change: Technology, which we report in industrial and which includes data centers and chip fab was 37% of our total revenue.
Speaker Change: Substantial increase from 30% in the prior year.
Speaker Change: Advanced technology is currently the largest component of our overall revenue.
Speaker Change: Institutional markets, including education healthcare and government are also strong and represent 24% of our revenue.
Speaker Change: The commercial sector now accounts for about 14% of revenue and most of our commercial sector revenue flows through our service activities.
Speaker Change: Construction accounted for 85% of our revenue with projects for new buildings, representing 58% and existing building construction, 27%.
Speaker Change: Overall modular revenue in the first quarter was 19% of our total revenue and we now have over two 5 million square feet of production and storage space for our module of our operations.
Speaker Change: We include May include modular and new building construction, because we consider it offsite construction on.
Speaker Change: Our modular projects average well over $20 million.
Speaker Change: Service revenue was up 10% this year on an absolute basis, but with faster growth in construction services now 15% of total revenue.
Speaker Change: Service profitability was strong this quarter and service continues to be a growing and reliable source of profit and cash flow.
Speaker Change: Before I turn the call over for questions I want to join Brian and Bill and thanking our over 19000 employees for their hard work and dedication.
Speaker Change: France systems success is a direct result of the people that serve our customers every single day.
Lee: We are now going to turn this call back to Lee Chief for questions. Thank you.
Lee: Thank you as a reminder to ask a question you will need to press star one on your telephone to remove yourself from the queue. You May press Star one again, please standby, while we compile the Q&A roster.
Lee: Yeah.
Lee: Our first question.
Speaker Change: Comes from the line of Alex Dwyer of Keybanc capital markets. Your question. Please Alex.
Alex Dwyer: Hey, Brian Bill trend and Julie Thanks for taking my questions here.
Speaker Change: Thank you.
Speaker Change: Yes.
Speaker Change: So I just wanted to start and ask about the untapped revenue and in.
Speaker Change: And margin guidance, especially in light.
Speaker Change: Of the strongest start to the year end and the backlog growth kind of Reaccelerate reaccelerate at this corner.
Speaker Change: The intact guidance implies.
Speaker Change: Celebration through the rest of the year and I know you guys tend to be conservative with your guidance then.
Speaker Change: And you did mentioned the additional macro uncertainty.
Speaker Change: So I just wanted to learn a little bit more about the thought process and guidance and if you can talk a little bit about that.
Speaker Change: Alright.
Speaker Change: I don't think anything has changed from the point of view of our prospects the way, we're experiencing our prospects the way that we're seeing.
Speaker Change: Demand develop in our markets. However.
Speaker Change: We had already mentioned that last year, we had an increasingly tough comparables as the year progressed, especially in the third and fourth quarters. So the reason that we stuck with the high single digit growth for revenue was just because we have some much higher comparables that will be.
Speaker Change: Based on year over year later this year as far as margins go we've been at very high margins.
Speaker Change: We really believe will stay at those high margins, we just printed sort of all time high margins. So we can't say Oh, that's the new minimum, but we're we feel very very good about our ability to.
Speaker Change: Continue to.
Alex Dwyer: Perform and make good margins, yes. So Alex we are we're getting we're getting good pricing really superior execution in the field. So I think those bills.
Speaker Change: Bill is right. We can keep those margins I think will sign up for them.
Speaker Change: Yes, Okay got it. Thank you and then I guess staying on the margins.
Can you just talk a little bit about how your contracts are structured in the event of a potential cost inflation or.
Speaker Change: Apply chain challenges, how well protected you are and how quickly you can pass these on to customers because I think last time and Covid. There was there was some margin pressure in the business.
Speaker Change: I was just wondering what we should expect this time around to help manage a all you think this could be in and what lessons were learned enough time.
Speaker Change: Yes, so I'll take that Alex.
Speaker Change: We're pricing and supply chain, it's a <unk>.
Speaker Change: Day to day kind of hand to hand combat.
Speaker Change: And for our teams they are very good at it down. This is what they do this has been experienced in our project managers and teams are very very good at extracting.
Speaker Change: The most possible value out of what the supply chain gets it right obviously with tariffs.
Speaker Change: Uncertain time, and our teams are having to manage to that.
Speaker Change: I like our chances were very good with regard to our contractual risk and.
Speaker Change: Getting proactively involved at the local level with our suppliers with our customer making sure that we're <unk>.
Speaker Change: Really distinguishing ourselves from our competition also when you think about most of our competition. They don't have the scale or heft that we have with regard to these issues and they certainly don't have the ability to collaborate across <unk>.
Speaker Change: Companies to provide information about supply chain changes so all in tariffs or uncertain right. It's a hard it's a hard environment to predict but I like the chances for our team to be success, our teams to be successful in.
Speaker Change: In any environment.
Speaker Change: Alex you mentioned.
Speaker Change: We've been through this before we do have a lot of experiences.
Speaker Change: Went through Covid in particular.
Speaker Change: So we get paid to manager.
Speaker Change: The challenges in the business and we'll do that.
Speaker Change: Thank you guys I'll turn it over here.
Speaker Change: Thank you. Our next question comes from the line of Julio Romero of Sidoti <unk> Company. Please go ahead.
Speaker Change: Thanks, Hey, good morning, everybody.
Speaker Change: Maybe just staying on the <unk>.
Speaker Change: Last question here and thinking about all the uncertainties, we have trade uncertainty tariff uncertainty, but we also touched last quarter on the data center Capex uncertainty.
Speaker Change: So maybe if you guys could maybe rank order the uncertainties out there for us in terms of order of magnitude and how youre viewing them internally.
Bill: Alright, so so I'll, let bill do that one.
Speaker Change: Yeah.
Speaker Change: Yeah, so as far as as far as the.
Speaker Change: The cost pressure.
Speaker Change: That.
Speaker Change: During COVID-19, we didn't really experience any cost pressure, we had a quarter or two that was down that was mostly down because things being shut down like the city of Austin shut down the state of Michigan shut everything down for a period of time, you couldn't even go because hospitals, but in general our margins performed extraordinarily well.
Speaker Change: Service, if anything had a little bit of margin compression and about the first nine months to 12 months after.
Speaker Change: After Covid really hit construction was killing it and then the next year they were both killing it. So we really feel good about our history of facing what we think were tougher.
Speaker Change: Concerns at that point I don't know if its going to get tougher a lot tougher from here, but that was a much more dire situation with Shaw as far as tariff uncertainty and demand in.
Speaker Change: Demand for technology.
Speaker Change: I would say that.
Speaker Change: In the week before a call like this we talk to the people who do the most work in our company with our customers who buy services in those areas.
Speaker Change: There is no sign of a let up.
Speaker Change: Demand for electricians, and Pipefitters and plumbers to help build datacenters and frankly lots of other things that doesn't mean, it's not going to happen and I know, we'll get asked about this over and over but there is no sign of it and if you cast the smartest people in our business.
Speaker Change: About the demand for compute for data lakes and capacity.
Speaker Change: There was a level of demand that couldn't possibly be met before.
Speaker Change: Before the tariffs were announced and we don't really think that that's changed.
Speaker Change: Change Hasnt changed.
Speaker Change: Okay.
Speaker Change: Okay, great that is helpful. So it sounds like.
Speaker Change: Your experience during the Covid years helps you be more comfortable with.
Speaker Change: Inflationary impacts and then also.
Speaker Change: Youre not seeing.
Speaker Change: A level of demand destruction as of this moment.
Speaker Change: Maybe if you could speak to what Youre hearing from your customers and your suppliers as to what their biggest uncertainties are and how that could affect comfort systems.
Speaker Change: So I'll talk about our suppliers for a minute and then maybe try to Brian to talk about our customers does that kind of just did but from our suppliers. There are you'll see like a four 6% increase from this or that.
Speaker Change: Supplier, we have thousands right, but we are we have hundreds that are very important some of them have done some price increases the truth is they do 4% to 6% price increases.
Speaker Change: All the time, so it's hard to tease out what's tariff related certainly.
Speaker Change: And business to date tariffs is a great excuse to raise your prices.
Speaker Change: I don't know I don't I don't think we are detecting a whole lot of change there.
Speaker Change: We are buying one of the things that happened coming out of Covid is our guys got way way more aggressive about locking in stuff a year or two in advance mostly because of availability right not just price I will say that there is a general feeling right now that we are going ahead and purchasing stuff that we know.
Speaker Change: We're going to need.
Speaker Change: Maybe not trying to negotiate for as long, but I don't know that theres anything happening now that.
Speaker Change: Is there going to be places, where we pay a little more for something then we would have yes will that be detectable in our numbers so far.
Speaker Change: One thing that we really have going for us at comfort systems is.
Speaker Change: We're a large specialty contractor some of these are larger projects the customers.
Speaker Change: Need someone with a strong balance sheet.
Speaker Change: <unk> deep and once we have that there's only a few of us in the country that can handle these larger jobs.
Speaker Change: So we're really in good shape.
Speaker Change: Satisfy our customers.
Climate some of this larger more complex work is as we said in the script.
Speaker Change: So we're really good positioned and if you look at this on sharing opportunity that.
Speaker Change: It might be coming forward, we are in a great geographic locations to handle that and we have the depth of the skill set to do it as well so I really like our position right now with what the work that's out there.
Speaker Change: Great. So just to sum it up it sounds like your scale and your experience in prior periods are the key Differentiators. This time around is that fair absolutely yeah, absolutely Julio.
Speaker Change: Okay, great. Thanks for all the color guys I'll pass it on.
Speaker Change: Thanks.
Speaker Change: Thank you.
Speaker Change: Question comes from the line of Josh Chan of UBS. Your line is open Josh.
Brian Downtrend: Hi, Good morning, Brian Downtrend, Julian Congrats on a good quarter.
Speaker Change: Alright, Thanks, Josh.
Speaker Change: Hi.
Speaker Change: I guess.
Speaker Change: Could you talk about the project bidding pipeline data demand continues to be strong maybe talk about what help add to the backlog.
Speaker Change: Quarter and then also.
Speaker Change: Have you.
Speaker Change: <unk> been continuing to add to that.
Speaker Change: Backlog in orders since the tariff announcement.
Speaker Change: Yes.
Speaker Change: Yes.
Speaker Change: What contributed to our backlog this quarter was just broad based bookings across.
Speaker Change: The majority of our companies. So we had just strength across the entire business and bookings and that was driven largely by what we talked about.
Speaker Change: On the script, which was advanced tech and Dev.
Speaker Change: <unk> bookings.
Speaker Change: In our pipeline, we continue to see really really good visibility out into the field.
Speaker Change: A lot of these projects are large the things that are in our pipeline are large projects being planned they have long timelines.
Speaker Change: We find out about them well before the ground gets broken on the site. So a lot of that is in our pipeline right now we can see it as visibility wise. So we're comfortable in saying that we continue as Bill said earlier, we continue to see strength with our customers. They are continuing to move forward with their plans.
Speaker Change: So that's what we're seeing I just wanted to add on one sector manufacturing in the industrial gets a lot of attention, but health care.
Speaker Change: It's now up to 10% of our.
Speaker Change: Business, but the actual dollars have increased so I'm really optimistic look at the aging population we have.
Speaker Change: Health care is going to be a pretty consistently growing opportunity for us.
Brian Downtrend: Great. Thank you, Brian and trend.
Brian Downtrend: I guess, maybe a question on your backlog trajectory just kind of clarify that that typical pattern. Here. Obviously you had a good sequential ramp in backlog in Q1, how do you expect backlog to trend through the year through the summer quarters.
Brian Downtrend: So if.
Brian Downtrend: If you were to go back and look at comfort systems over 10, or 20 years, you would see that we are more likely to build backlog in the fourth and first quarter and more likely to net burn backlog in the second and third quarter and there is one reason for that is revenues Theres more revenue you are burning more of the backlog in the second and third quarter.
Brian Downtrend: But also.
Brian Downtrend: For whatever reason people tend to commit to bookings and just get the paperwork done over the winter.
Brian Downtrend: In our industry, historically, and Thats actually I I would've just expected that to be true in modular at least for the last three or four years, it's been more true and modular than in the other parts of the business.
Brian Downtrend: So we.
Brian Downtrend: I don't know, whether our backlog will be up at the end of the second or third quarter. I know our pipeline is really strong and I don't think it would change my view of comfort.
Brian Downtrend: Unless we are start to tell you something different than that we've got all the work we can do and we expect to continue to have all the work we can possibly do.
Brian Downtrend: And.
Brian Downtrend: I don't know.
Brian Downtrend: Yes.
Speaker Change: Said it earlier, we just don't really see a lot of.
Brian Downtrend: A lot of free time for electricians, who want to work in the near term.
Speaker Change: Yes, yes that makes a lot of sense, maybe I can ask a quick follow up so I.
Speaker Change: I think bill you mentioned that comps are tougher in the second half.
Speaker Change: But I think last year in Q2 was also a really strong quarter. So I guess, how are you thinking about the relative toughness of all of the comps that youre going to face the rest of the year. Thank you.
Speaker Change: So we're comfortable with we're certainly comfortable with the margin comps revenue is pretty lumpy for us to even at this scale, it's gotten less lumpy over the years, because we just have so many more projects.
Speaker Change: But revenues.
Speaker Change: <unk> call, we feel much more careful much more comfortable predicting that for the rest of the year than we do for any individual quarter.
Speaker Change: I think that sort of high single digit.
Speaker Change: Is very achievable.
Speaker Change: I will say this we are.
Speaker Change: Full we have plenty of work to do.
Speaker Change: And there is no shortage of opportunities so we will be busy.
Speaker Change: Great. Thanks for the color guys and good luck in the rest of the year.
Speaker Change: Alright, thank you.
Speaker Change: Thank you. Our next question comes from the line of Brent Thielman of D. A Davidson <unk> company. Please go ahead Brent.
Brent Thielman: Hey, Thanks, good morning, guys.
Speaker Change: Good morning, I guess.
Speaker Change: Yes, just on the disaggregation of the different end markets.
Speaker Change: The manufacturing sector was down in the first quarter is that does that.
Speaker Change: More a consequence of just focusing your resources to these other end markets or.
Speaker Change: Why would you see that just given the strength you've been seeing there.
Speaker Change: So the reality is and I don't blame people. They think of these different markets as sort of these independent things and we sell what's available but realistically our guys are picking the work that they choose to take and then picking it based on what's going to be good for their people, where they have a history.
Speaker Change: With customers that have treated them well over time and based on the gross margin gross profit per hour gross profit dollars that they can get per hour that they go dedicate to that work. So when you see movement between sectors.
Speaker Change: Especially at a time like this it's almost always just our guys pick different.
Speaker Change: They got lowered more into the tech stuff, because that's where they have the best opportunities I don't think there is any concern right now about demand and manufacturing.
Speaker Change: And Brent as you know when you get these bigger jobs, you're going to be lumpy. So you could win a manufacturing job tomorrow and it will be lumpy in the second quarter. So some of that stat, but it's about new bookings, especially the bookings actually going into the end of this year the fourth quarter of last year, where we're in manufacturing for sure.
Speaker Change: Pharma some of it's just timing.
Speaker Change: Got it.
Speaker Change: The manufacturing side, we're likely to ramp up moving forward.
Speaker Change: Well, it's going to on an absolute dollar basis.
Speaker Change: We have the opportunity to do more whether our guys will choose to do more.
Speaker Change: I said that makes you do something else I do think the opportunities there and I also really think.
Speaker Change: I really think.
Speaker Change: I really think we will actually.
Brian Lane: Once once some of the bookings we did in the fourth quarter of last year start to revenue for real later in this year Youll see a little more of that we're not concerned about the manufacturing opportunities Brian.
Speaker Change: Yes, okay.
Speaker Change: Yes, that's what I was looking for.
There's been a lot.
Speaker Change: <unk> had some of the public Oems on the HVAC side.
Speaker Change: Recently, I guess I wanted to ask you guys on mechanical have you.
Speaker Change: <unk> seen any impact early this year just related to the whole HVAC refrigerant transition does it have any impact on your <unk>.
Speaker Change: Activity or bookings positive or negative I know, it's temporary but I'm just trying to understand how that implicate your business.
Yeah, No. We're not we have been impacted at all Brent I think you are right. It's mostly for the Oems at this point, there's not much of that equipment with that refrigerant.
Speaker Change: We'd be servicing so.
Speaker Change: Has it impacted us and I don't think it has gone up.
Speaker Change: Okay would it help you going forward Brian.
Speaker Change: No I don't think it'll be.
Speaker Change: Neutral I don't think so.
Speaker Change: Okay. Okay.
Speaker Change: And then just last one was just on the balance sheet I mean, it sounds like youre going to be building cash back up here pretty quickly in the coming quarters Bill.
Speaker Change: But when you think about just the scale of the backlog the overall pipeline. It sounds pretty good is there is there a minimum level of cash you want to keep on the balance sheet as we go forward.
Speaker Change: So if I had my choice I would have no cash on the balance sheet I would have no debt and I would have no cash, but I'm just if I'm just being honest so absolutely there is no minimum.
Speaker Change: Having said that we probably are going to build cash.
Speaker Change: Later as this year progresses, we have.
Speaker Change: Certainly in conversations about acquisitions, but I think we've mentioned this before kind of we're kind of a broken record on this we are in a mindset right now only doing deals where we have a very high level of conviction because we've done so much lately. So many big ones that really it's going great, but but we never pass up really these companies we buy we.
Speaker Change: Buy them when they are ready to sell their people we know they are great companies.
Speaker Change: It's hard to predict but I view it.
Speaker Change: Made the guests I guess cash will build a little bit as we go through this year I also.
Speaker Change: Ive to tell me, how our stock price trends, we just spent $92 million in the first quarter.
On shares because we thought we were able to buy our shares at 12 times trailing.
Speaker Change: Trailing EBITDA and we thought that is a fantastic use of our capital because we get more of our modular and we get more of our manufacture you know what I mean, so a lot of that last year that we are we are very open minded to buying shares if people want.
What day value comfort at prices that we do acquisitions that we love our own companies mature we love our business. So we think we have an amazing business.
Speaker Change: Alright. Thanks.
Speaker Change: Thanks, guys I'll pass it on.
Speaker Change: Thanks Brent.
Speaker Change: Thank you.
Speaker Change: Our next question comes from the line, Brian Brophy of Stifel. Please go ahead Brian.
Brian Brophy: Thanks, Good morning, everybody congrats on a very nice quarter.
Speaker Change: Thank you.
Speaker Change: Yes, I wanted to ask on SG&A leverage historically, its been kind of a portion of margin expansion for you guys that slowed a little bit this quarter.
Speaker Change: Just curious how you're thinking about SG&A SG&A leverage for this year.
So I'm Super happy about this because it was 10, 6% last year and it was 10, 6%. This year. So we were exactly right for once and what we told you guys.
Speaker Change: I think we are I think we I think SG&A leverage.
Speaker Change: Has run its course at least from this point of view, we were getting three.
Speaker Change: 3.5 every couple of quarters really big SG&A leverage it's certainly possible, we continue to get SG&A leverage, but it's not going to be we're not going to be moving whole percentage points, most likely I mean, I hope I'm wrong.
Speaker Change: But at the end of the day I would not look to SG&A leverage as a big source of incremental sort of net income.
Speaker Change: Because we've got so much already and the reality is theres always.
Speaker Change: Where we're investing in SG&A because we want this is a great business and we want to grow right.
Speaker Change: So.
Speaker Change: I'd say, yes.
Speaker Change: Understood.
Speaker Change: That's helpful and then just one more on the.
Speaker Change: Working capital unwind that you guys saw in the quarter with that large customer was that the full $300 million that you guys have talked about in the past that got unwound here or is there more to that.
Speaker Change: Point down the road.
Speaker Change: I guess are there any other large cash items, we should be thinking about.
Speaker Change: For the rest of the year.
Speaker Change: I'm glad you asked so we had we had some mid 200 and something million that went to one customer and that was two thirds three quarters of the out of balance we have with them is it going to go to zero I don't know that so I think it will go to zero. So we think that that is substantially past.
Speaker Change: If there is more and there probably is what probably theres, probably another $100 million more to go to that customer maybe a little more.
Speaker Change: One or two other customers, but it's mainly one customer.
Speaker Change: However, we happen to get you may have noticed we happen to get $107 million tax payment. During April I mentioned it in my script, maybe I didn't but it's in the Q I think I've mentioned in the script, but at the end of the day that is cash flow in the second quarter. We think that will just offset the additional payments will make so I don't think youll see it in our numbers you saw.
Certainly.
Speaker Change: <unk> been publishing for over two years. This slide we call advanced cash to make sure that people wouldn't be surprised by this that slides and you won't see that slide anymore, we're pretty much, especially given the puts and takes in the second quarter.
Speaker Change: It's a thing of the past so now we should go back to just cash flowing or net income.
Speaker Change: Understood very helpful I'll pass it on.
Speaker Change: Alright, Thanks, Brian.
Speaker Change: Thank you.
Speaker Change: Our next question comes from the line of Adam <unk>.
Speaker Change: Thompson Davis. Please go ahead Adam.
Adam: Good morning, guys.
Speaker Change: Yes.
Speaker Change: Sorry, if I if I missed this are you already said it but when you think about the impact of tariffs have had an April if any I mean can you help quantify.
Speaker Change: The actual impact on the prices that you are giving the customers.
Speaker Change: On the price as well okay. So so I would say that it is not detectable in general right. So people.
Speaker Change: I'm not saying it won't be but I would say, we basically price our work based on our labor we figure out how much we're going to spend for the other elements of our costs. If we're doing a subcontract we make sure we make some money on that because we have to manage them and we take a little risk.
Speaker Change: <unk>.
Speaker Change: We figure out to the best of our knowledge, what we're going to have to pay for the equipment and materials that we put in we go lock as much of that most of the big equipment. We get we have a quote for it before we quote it to somebody else because it's highly specced right. It's highly configured its not like its bought in a commodity basis.
Speaker Change: And typically on sort of commodities and materials, we buy it as soon as we have the job we commit to it we commit some of it before we have jobs that opportunistically and.
Speaker Change: On top of that we have a history of our customers helping us.
Speaker Change: Something changes and by the way, we have a history of giving it back to them when good things happen give taking it into account.
Because these are long term relationships for us. So we don't know what's going to happen with tariffs. We don't know, what's really going to happen with sort of the bigger picture of the economy I would say if you want to think about that visa b comfort systems.
Speaker Change: We have customers and if it affects our customers and however, it affects our customers it affects us if people want to build buildings, where here. We're the best people to build them. If they stop wanting to build buildings, we won't build them without them and honestly. There is an awful lot of demand and we do feel like Brian said, we do feel like we are in real.
Good markets really good verticals like we just happen to be in the right place at the right time to feel better than we might.
Speaker Change: Given some of the trends that are out there.
Speaker Change: Okay got it and Thats, what im really trying to get at is to what extent.
Customers are getting sticker shock.
Speaker Change: In April versus March if that's happening at all.
Speaker Change: Not yet no.
Speaker Change: Too soon to tell we are at a very good question.
Speaker Change: Yeah.
Speaker Change: And then to what extent does.
Speaker Change: Does your Q1 'twenty five backlog gives you visibility into 'twenty six.
Speaker Change: I mean, if you look at so strong this year. We obviously are looking at opportunities going into 2026, I think we have more backlog for 2006 2026 at this point in year than we've ever had.
Speaker Change: So that's what we said in the script that we're very optimistic about 2026.
Speaker Change: You're also looking at opportunities on some of the longer term stuff in 2728, but I think we're feeling good about 2006, knowing what we've already seen come our way.
Speaker Change: Great. Thanks, guys.
Speaker Change: Alright take care Adam.
Speaker Change: Thank you I would now like to turn the conference back to Brian Lane for closing remarks, Sir.
Speaker Change: Alright, thank you.
Speaker Change: Want to thank everyone for being on the call with us today.
Speaker Change: As we have mentioned our first quarters have always been.
Speaker Change: Usually seasonally lower for us however.
Speaker Change: Certain parts of our business such as modular have grown and with an increasing portion of our revenues in markets that do not get as cold such as Texas, Florida and the Carolinas.
Speaker Change: Seasonality has become less pronounced over the last several years.
Speaker Change: Even with those trends.
Speaker Change: This was an especially strong quarter.
Speaker Change: And I am frankly and off of what our amazing teams across the country continue to accomplish.
Speaker Change: I am grateful for their hard work and we will continue to work hard for our people our customers and those who have chosen to invest with us. Thank you again.
Speaker Change: And we look forward to seeing many of you in the coming months have a great weekend. Thank you.
Speaker Change: This concludes today's conference call. Thank you for participating you may now disconnect.
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