Comfort Systems USA, Inc. (FIX) on Q4 2023 Results - Earnings Call Transcript

Operator: Good day, and thank you for standing by, and welcome to the Q4 2023 Comfort Systems USA Earnings Conference Call. At this time, our participants are on a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Julie Shaeff, Chief Accounting Officer. Please go ahead. Julie Shaeff: Thanks, Justin. Good morning. Welcome to Comfort Systems USA's fourth quarter and full-year 2023 earnings call. Our comments today as well as our press releases contain forward-looking statements within the meaning of the applicable securities laws and regulations. What we will say today is based on the current plans and expectations of Comfort Systems USA. Those plans and expectations include risks and uncertainties that might cause actual future activities and results of our operations to be materially different from those set forth in our comments. You can read a detailed listing and commentary concerning our specific risk factors in our most recent Form 10-K as well as in our press release covering these earnings. A slide presentation has been provided as a companion to our remarks. The presentation is posted on the Investor Relations section of the company's website found at comfortsystemsusa.com. Joining me on the call today are Brian Lane, President and Chief Executive Officer; Trent McKenna, Chief Operating Officer; and Bill George, Chief Financial Officer. Brian will open our remarks. Brian Lane: All right. Thank you, Julie. Good morning, everyone, and thank you for joining us on the call today. Our teams achieved an amazing finish to 2023 with exceptional results, including unprecedented growth, earnings and cash flow as well as a surge in new bookings. We earned $2.55 per share this quarter compared to $1.54 a year ago. Current quarter revenue was $1.4 billion, with same-store growth of 18%. During the fourth quarter, both our mechanical and electrical businesses grew and increased margins to drive our annual results to new heights. Construction finished an already strong year on an up note, including notable profit and activity increases in our modular business. Service also continued to grow as we continue to benefit on ongoing service investments. Backlog is $5.2 billion, up by more than $1 billion from last year, and we had a remarkable sequential increase of $870 million even with strong revenue. Demand remains supportive and is especially robust in our industrial sector. We are carefully selecting work that has good margins and good working conditions for our valuable workforce. Cash flow for the quarter was superb at $149 million and we finished 2023 with an extraordinary $550 million in free cash flow. Earlier this month, we closed two acquisitions, Summit Industrial and J&S Mechanical. Summit is a specialty industrial mechanical contractor serving the advanced technology, power and industrial sectors. Summit performed off-site and site-based construction, including process piping, equipment setting and large pipe rack trusses. Summit is a trusted supplier to some of the world's largest advanced technology, power and industrial companies and is currently deployed on several major chip fabrication projects. J&S provides mechanical construction services to commercial and industrial sectors across the Mountain West region of the United States and works on many of the largest and most technical construction projects in that area. We are thrilled to have both of these companies as part of the Comfort Systems USA family, welcome. I will discuss our business and outlook in a few minutes, but first, I will turn this call over to Bill to review our financial performance. Bill? Bill George: Thanks, Brian. Good morning, everyone. Revenue for the fourth quarter of 2023 was $1.4 billion, a 22% increase, while same-store revenue increased by 18% or $195 million. Full-year revenue for 2023 increased by 26% compared to 2022 to $5.2 billion. For the full-year, our Mechanical segment revenue increased by 24% including a big contribution from our module business. Our Electrical segment increased by an even larger 31% and we now have a $1.3 billion electrical business. Overall, our same-store revenue increased by 23% or $931 million. We are facing tough comparables. However, our best estimate is that we will achieve same-store revenue growth in 2024 in the mid-teens with growth weighted a bit more heavily to the first half of the year. Gross profit was $280 million for the fourth quarter of 2023, a $68 million improvement compared to a year ago. Our gross profit percentage improved to 20.6% this quarter, compared to 18.9% for the fourth quarter of 2022, driven by improved electrical margins. The quarterly gross profit percentage in our Electrical segment improved to 22.9% this year as compared to 18.2% last year. Margins in our Mechanical segment also increased in the quarter to 19.8% as compared to 19.1% in the fourth quarter of 2022. Our mechanical segment includes our modular business, which operates at notably lower margins than our remaining businesses. For the full-year 2023, gross profit increased $249 million our annual gross profit margin was 19.0% in 2023 as compared to 17.9% in 2022. For the full-year, segment margins were similar with mechanical gross margins of 19.0% for the full-year, while electrical was 19.1%. Fourth quarter EBITDA increased 42% to $141 million. Our full-year 2023 EBITDA increased by an even greater 48% as our full-year EBITDA was $499 million. As we look to 2024, we are optimistic that overall EBITDA margins will continue to trend in the strong ranges that we achieved in 2023. Gross margins will also continue to be strong, but gross margin percentage may be more variable in 2024 in light of the effect of amortization and certain purchase adjustments arising from our two large acquisitions. SG&A expense for the quarter was $160 million compared to $132 million in the prior year. And as a percentage of revenue, SG&A expenses -- expense was consistent again at 11.8%. On a same-store basis, SG&A was up approximately $22 million due to inflation and ongoing investments to support much higher activity levels. For the full-year, SG&A expense as a percentage of revenue was 11.0% in 2023, that's down from 11.8% for 2022. Fourth quarter operating income increased by 50% from last year from $80 million in 4Q 2022 to $120 million for the fourth quarter of 2023. With improved gross profit margins, our operating income percentage increased to 8.9% this quarter from 7.2% for the prior year. Our full-year operating income was $418 million, a remarkable increase of $165 million. OI margin increased from 6.1% in 2022 to 8.0% in 2023. Our year-to-date tax rate of 16.7% included an incremental benefit of $10 million or $0.27 of tax gains that related to prior years. Although individual items have affected our tax rate lately, we estimate that a normalized tax rate for us is approximately 20% to 22%. After considering all these factors, net income for the fourth quarter of 2023 was $92 million or $2.55 per share. This compares to net income for the fourth quarter of 2022 of $55 million or $1.54 per share. Our full-year earnings per share for 2023 was $9 and 1% Excluding prior year tax gains in both periods, earnings per share increased to $8.74 per share from $5.29 per share in the prior year, and that's an increase of 65%. Full-year 2023 free cash flow was a remarkable $551 million. We continue to benefit from advanced payments for work that we will fund and complete in the upcoming quarters. 2023 operating cash flow exceeded our earnings by an astounding $300 million. Over the coming quarters, we expect pre-bookings and equipment advances were normalized, creating some cash flow headwind. In the meantime, these early collections have allowed us to invest heavily and fund acquisitions from current cash flows, while at the same time significantly lowering our debt and interest costs. During 2023, we spent $95 million on capital expenditures, almost double the amount we had spent the prior year. The increase includes the build-out of three vast new modular production facilities and the purchase of mini vehicles to catch up from COVID. In 2024, we estimate that our CapEx spend may be roughly $65 million to $75 million, around the midpoint of the spending levels over the past 2 years. Our substantial cash flow allowed us to pay down our revolving credit facility to 0 and to reduce our overall debt by $212 million over the course of 2023. Again, while investing in unprecedented levels of CapEx buying back shares, increasing our dividend and fully funding both of our acquisitions, the purchases of Eldeco and PECO from cash flow. In 2023, we purchased 139 shares of our common stock at an average price of $153. Finally, as Brian mentioned, we acquired Summit Industrial and J&S Mechanical at the beginning of February. Our best estimate is that Summit will contribute annualized revenues of approximately $375 million to $400 million and EBITDA of $35 million to $40 million. We also estimate J&S will have annualized revenues in the range of $145 million to $160 million and EBITDA of $12 million to $15 million. In light of amortization expense, these acquisitions are expected to make a neutral to slightly accretive contribution to earnings per share in 2024 and 2025. Both of these companies will be included in our mechanical segment. That's all I got, Brian. Brian Lane: All right. Thanks, Bill. I'm going to discuss our business and outlook. Our backlog surged at the end of 2023 to a record $5.2 billion. Since last year at this time, our same-store backlog has increased by $913 million, around 23% and the increases were broad-based. During the recently completed fourth quarter, our sequential backlog increased by $870 million and virtually all of the increase was same-store. Our pipelines remain strong. Our revenue mix continues to trend towards data centers, life science, food, chip fabs and battery plants. Those industrial customers accounted for 55% of total revenue in 2023, and they are made to drivers of pipeline and backlog. Technology, which is included in industrial was 21% of our revenue, a substantial increase from 13% in the prior year. The technology sector will continue to grow with the recent acquisition of Summit Industrial as they have several ongoing and large semiconductor projects. Institutional markets, which include education, health care and government are also strong and represent 26% of our revenue. The commercial sector remains active, but it is now a smaller part of our business at about 19% of revenue. Majority of our service revenue is for commercial customers. So the proportion of our overall construction revenue from commercial has become relatively small. Construction was 80% of our full-year 2023 revenue with projects for new buildings at 55%, while existing building construction was 25%. For the first time in 2023, Compass Systems USA achieved $1 billion of annual service revenue. Service was 20% of our total revenue, with service projects providing 9% of total revenue and pure service, including hourly work, providing 11% of revenue. 2023 service revenue was up by 11%. And with our continuing strong margins, service is a great source of profit and cash flow for us. At Comfort Systems USA, our core purpose is to build legacies with our people, customers and the companies who join us. To accomplish this, we strive every day to be the best organization in the world. For a craft worker to build a successful career for construction, service and administrative professionals to grow and thrive, for customers to meet their crucial building and service needs, and for any company in our industry to join with the assurance that their people will be respected and nurtured and that their legacy will be perpetuated and built upon. We believe that our commitment to those principles to our people and their legacies has been and continues to be the lynchpin of our success. Safety, quality and innovation remain at the forefront of our operations. We constantly strive to improve and grow our operations to enable sustainable and efficient building environments to improve the productivity of our diverse workforce and to acquire great complementary businesses. Thanks to our careful and relentless investments in existing and newly acquired businesses, we have the crucial skills and capability to help meet our country's surging needs for mechanical and electrical experts and to build and service buildings, including to grow data capacity for artificial intelligence, to increase our nation's capacity to build its own chips, manufacture its own medicines, supply batteries and provide health care resources for our aging population. As we look ahead, we remain optimistic about the prospects of service and construction across our vast markets. With our backlog over 20% higher than even the robust levels of the prior year, and with persistent strength across our markets, we believe that we can continue to grow and invest in 2024. Our number one priority is to preserve and grow the best workforce in our industry. And so as always, I want to close by thanking our over 15,000 employees for their hard work and dedication. I'll now turn the call back over to Justin for questions. Thank you. Operator: And thank you. [Operator Instructions] And our first question comes from Alex Dwyer from KeyBanc Capital Markets. Your line is now open. Alex Dwyer: Hi, guys. Thanks for taking my question. Bill George: Good morning, Alex. Alex Dwyer: Hi, so I wanted to ask about the backlog increase in the quarter and specifically the modular orders. And was that one order or multiple orders? Was it one customer or multiple customers? And do you think there's the opportunity to see more of these larger modular orders as we go into 2024. Bill George: Alex, the way that -- so if you look at the sequential backlog increase, about 6 -- a little over 60% of that was an increase in modular. So that was $800-something million. If you look at the year-over-year increase in backlog, about 20% of it was modular. So we have a situation where we had some big bookings in the fourth quarter of last year, which was actually last year was more than all of our sequential increase. And then big bookings in the fourth quarter of this year. And of course, over the course of the year, we burned down, we performed a lot of that modular. We're back to higher-than-ever levels of modular backlog with these new bookings. But 80% of our year-over-year backlog increase is broad-based. So honestly, we just couldn't be happier with the breadth, the composition, et cetera. And as far as additional bookings absolutely. Right now, we're taking as much as we can, but the people who are buying these services from us tell us they would like to give us more. Alex Dwyer: Got it. And then the press release mentioned an increase in modular profitability. I don't think we get the disclosures for this. But how was the margin performance this year in modular. And should we expect continued margin expansion in that business this year? Bill George: So modular margins for the full-year were just a little higher than the prior year, but they're at very, very good levels. You may have heard in my script that I mentioned. The gross profit per modular is lower than it is for any of our other businesses. And that's a combination of it. It does have a high component of materials and pass -- the passthrough. It's also performed -- the work we do in the field is performed with licensed electricians and certified medical gas technicians. The work that we perform in our plants is highly skilled, but it isn't as it isn't as difficult to find that labor. So we're very happy with those margins. As far as margin expansion in modular, we'll be thrilled if it stays the same. Of course, we're always working for margin expansion, but man, when you -- after a quarter like this, it's pretty hard to talk about doing better. Brian Lane: We're really happy with the modular business. Alex Dwyer: Got it. And then just last one on the margin outlook for 2024. I think we're talking EBITDA margins more so this year than gross margin. There's the deal amortization. I think inflation could be a tailwind to margins this year. And then maybe like a mix versus the early stage versus the later stage jobs could be like a swing factor. Can we just talk about like the puts and takes in margins this year? Brian Lane: Yes. So if you look at this overall, I just want to comment on the margin performance we've been getting over really since 2016. We've been pretty consistently having 18% to 20%, leave the amortization aside for a minute. So I am personally thrilled with the level of performance we're getting and executing our work. I mean if I was running this work, I'd be really happy myself. So I consider that we'll keep going. If you want to add on... Bill George: I think you made all the right points. The one thing I'll just refine a little bit for everyone. So if you think about it, the amortization is always big at comfort because we buy companies on a fairly regular basis. And the companies we buy come with a lot of backlog. So for example, Summit will roll into comfort with something like $400 million of backlog. And the accounting rules require us to put a value on that backlog and amortize it as an expense. In addition to things like customer list and trade name that all businesses have, our amortization is higher than most. Obviously, it's non-cash, the money is gone. It's never coming back. So in a way, it's not sensible to worry about it because you own what you own today and it's going to earn what it earns. But we're required to reduce the sort of the earnings that we present -- the margins we present to you guys for that. And the reason we wanted to call it out is, last year, we had less acquisitions than we have had over the last three or four years proportionate to the size of Comfort Systems. So amortization was probably the lowest and definitely the lowest proportionate to the size of the company that has been in a long time. Well, on February 1, we did our biggest deal ever. We did another top five or six deal ever. And so amortization is going to come back very -- in a very notable way over the next 18 months. And so obviously, that pushes down gross margins because it's an expense. You put tens of millions of dollars, million tens of millions of dollars of expense through your cost of goods sold, and it's all noncash. So the cash flow still does great. EBITDA still -- EBITDA really is what I look at, still looks good. So we're comfortable with the cadence of our EBITDA margins, we are going to have choppiness in the gross profit margins. So sorry, that's a little bit longer, but it's just -- I think it bears -- given the size of the deals we just did and the fact that we were at a low ebb last year, I just wanted to mention all of that. Alex Dwyer: Thank you. Operator: And thank you. [Operator Instructions] And our next question comes from Julio Romero from Sidoti & Company. Your line is now open. Julio Romero: Hey, good morning, guys. Hey, good morning. Maybe staying on gross margins for a second. You mentioned the same-store revenue for the year, should be looking like first-half weighted. How about the gross margin cadence should that also be first-half weighted? Or how would you have us think about that? Brian Lane: No. I mean if I'm excluding what Bill just went through, just in terms of purely operational, I think we'll be pretty consistent at the gross margin level that we've been at. They'll fluctuate up and down quarter-to-quarter, but I think we'll be in that 18% to 20% range for sure. Bill George: I mean the effects on gross margin from like backlog amortization will be immediate. And then there's also a chance of purchase adjustments later in the year that could make -- could be a little lumpy in a quarter here or there. But if you just -- the business is going to earn a lot of -- it's going to do well. But there would just be a little more noise in those gross margin line. Julio Romero: Okay. Got it. What does your capacity look like... Bill George: The noise can go either direction, just for the record, that noise can go either direction. You shouldn't just hear, it's all bad. Now the amortization will always be an expense. But anyway, go ahead, I'm sorry. Julio Romero: No, no. great point. I'm just thinking about there's also a lot of cost pass-through in modular to and how that could -- depending on whether you do it first-half weighted or second-half weighted, it would affect kind of the cadence of things? Bill George: Yes. Julio Romero: Maybe just turning to capacity. How does that look for you guys? Can you continue to take on orders -- and how far out are you booked these days? Brian Lane: Well, in terms of our capacity, we're in good shape right now. The backlog, the probably a little bit bigger. So we're in good shape for this year for sure. winning a fair amount of work about 30% of our backlogs into 2025. So in terms of the work we have, obviously, we're spending a lot of time making sure we can execute properly, selecting the right work, et cetera. But in terms of capacity, the workload we have, the workload we see, we're in good shape right now. Julio Romero: Okay. That's helpful. And then last one for me is a little bit of a broader question, but industrial and institutional are making up a bigger portion of new construction, as you said earlier, Brian. And I would imagine a good majority of those are owner-occupied buildings, not necessarily spec building. So what are you hearing from those customers in regards to costs? Are these kind of owner-occupied projects just having to swallow a higher cost of capital and tougher project economics just to get comfort to take on the project? Bill George: So I don't think they're worried about the cost of capital. Our -- we're talking the big tech companies, right? The big pharma companies, they have capital. They -- frankly, they want to deploy capital. As far as pricing, pricing is up, it is -- and it's not a -- it's a -- we have to charge people more because we pay our guys, we need to pay our workers very, very well right now. They deserve it. They worked for us, many of them for generations in case some cases, but for decades, and that's what it takes to get the work done. So I would say pricing is definitely up. We're making sure that we get -- we're taking more -- in a sense, we're taking more risk, right, as we're promising to do something at a time when we're already full. We have to make sure that we get pricing that compensates us for that risk and allows us to do a good job for our customers. But for sure, if you thought -- if you started planning a building two years ago and you're building it today, it is costing you a lot more than you were budgeting two years ago. And that's -- by the way, that's true in a lot of parts of the economy, but I think it's especially true in anything that's using skilled labor. Julio Romero: Helpful. Thanks very much. Bill George: Thanks. Operator: And thank you. [Operator Instructions] And our next question comes from Adam Thalhimer from Thomson Davis. Your line is now open. Adam Thalhimer: Hey, good morning, guys. Great quarter. Bill George: Thanks, Adam. Adam Thalhimer: Just since there's so much interest, do you mind just talking high level about data center demand? Brian Lane: I'll go first, and Bill can comment. But data center demand is still strong. Everything you read are here, Adam. It's still have a lot of legs to it. So right now, we see no letup in the stuff we're looking at are the opportunities presenting themselves. And I think it's going to be good for a number of years. Bill George: So you look at Tech whip from 13% to 21% of our revenue. really, we're doing a lot of chip and some other stuff, but that is overwhelmingly data centers. we're seeing data centers not just in our modular business, right? They're very big in Texas and our electrical business. They're very big in like sort of the mid-Atlantic, Virginia. And we're turning -- we're not -- we're disappointing people, right? We're favoring people who've given us -- been partners with us for a long time. But we just -- the demand for data centers is going to force the build to be pushed out over time. And that's one of the great things about modular. Modular is if you're a big data hyperscale, especially data center provider, you really -- people say, well, which modality of building data centers is going to work. We're going to win. And the answer is, is this all of the above world right now. They want to do it modular. They want to do it stick built. They want to do third party. They want to do repurposing. They want to do up adding reconfiguring buildings to support more every way that they can do it is how they're doing it. It reminds me of the way we -- people say, how do you hire people? And the answer is, we hire people every possible way we can think of they're building data centers every possible way they can think of. And for the foreseeable future, if you can help them meet those needs and especially if you can do a really good job, demand, there just seems to be no end to that demand. The demand was big even before artificial intelligence, right, artificial intelligence isn't data center demand is incremental data center. Adam Thalhimer: Right. And then you said three new modular facilities last year. That was higher than I didn't realize that. I thought it was one. But what would be your thoughts about expanding modular capacity further? Brian Lane: I mean, you get to see what the demand is and see what kind of commitments we get from our customers. We've got the three up and running now. So I mean, we'll see how I think it plays out, which customers would want us to do it. Bill George: Yes. So round numbers, we did about a 400,000 square foot facility in North Carolina and we did a 400,000 and a 200,000 square foot facility here in Houston. And it's even -- those sizes are great, but these are also buildings that are much bigger -- have much bigger volume. They're taller so you can build. You have the option sometimes or building at levels because remember, these are -- this is volumetric. You're building buildings that get stacked on top of each other. So this new space is really, really great for our guys. We had an opportunity when we came into this space to really take the lessons we have learned in deploying robots and robotic arms and the kind of equipment that can make robotic arms more efficient and faster. And so far, it's doing -- it's going very, very well. As far as increasing the space, I think we certainly have conversations with existing and new customers about what would get us to do that. I think we're probably not going to make serious decisions about that before the middle of the year. But the opportunity is for certain, it's out there right now. But one of the things about comfort is we really want to do a good job for people. And the one thing we never want to do is promise more than we can really deliver at an absolutely industry standard level. And so our number one consideration in taking work is can we do it and do it right, our number -- and almost similar -- almost the same level of consideration is, is this work that will be good for our workforce. Is it in with people who will treat them fairly and work with them where there will be good efficiency so that they can be successful. Is the geography onerous for them or good for them. I mean, in construction right now, a huge consideration is retaining your workforce and you retain your workforce by considering the things that are going to be important to your workforce. So that's actually a very important consideration right now with our best operators. Adam Thalhimer: Okay. Super helpful. Last one, backlog expectations. I'm just curious if could backlog continue to build in Q1? Or are you basically I would imagine you're kind of full for the 2024 construction season. Brian Lane: Yes, we're in really good shape on backlog this year for sure. You can still grow it because projects are getting little longer. But back to what Bill just said, if the works, good with our good customers, we're going to see what we can do to fill it in, but there's still plenty of stuff to look at, Adam, no shortage of opportunities. Adam Thalhimer: Great update. Thanks, Guys. Operator: An thank you. [Operator Instructions] And our next question comes from Josh Chan from UBS. Your line is now open. Josh Chan: Hi, good morning, Brian, Bill, and Julie. Thanks for taking my questions. Maybe could we contextualize your margin strength in the quarter for a quick minute here. I appreciate the guidance that you gave into next year. So what are some of the factors that drove kind of the margins this quarter? And can those factors pretty much continue into 2024. Bill George: So the factors were remarkably broad-based, remarkably diffuse it's really just good execution, good work at reasons at fair prices and our guys doing a great job of performing it there is very -- is not like -- sometimes historically, when you see stuff like this, there's two or three drivers, right? And certainly, every month and every quarter, there are companies that have an especially good month or quarter, but it's really remarkable right now, how broad-based this is. So I think that makes you more optimistic that it can continue. Brian Lane: And also, right, our service business is up to $1 billion. So we continue to grow that with higher margins, too, which is helping our margins as well, Josh. Josh Chan: Okay. Yes, that's helpful. Thank you for the color there. And then on the growth -- same-store growth that you're projecting for next year, I guess if it's mid-teens for the full-year and stronger in the first half, could your growth kind of accelerate in Q1 beyond what you achieved in Q4? Just kind of wanted to get the shape right versus what you're thinking in terms of how you get to that full-year of mid-teens. Bill George: So it's lumpier than you think. So it's harder to answer that question than you think because the range -- you might think we're within -- we can narrow it to a percentage of it, it's really there's -- to get to 1.5 standard deviations is think you might go from 14 to 23 years or something. So I would say it is certainly the case that if you made me -- if you said Comfort was going to grow 15%, if you made me quarterize that, I'd put 1% or 2% more in the first two quarters than I put in the last two quarters. But I will also say all of the factors that drove us to do better are still at evident. Our guys are really killing it. So honestly, one of the reasons we say it's weighted more heavily towards the first-half as we just have more visibility on the first-half, right? So when you promise something, you know? Josh Chan: Okay. Yes, that's really helpful. Yes, thank you for that. And maybe last one for me. Beyond what's in the backlog now, could you kind of talk about what opportunities you see in terms of things that you're bidding on, you've been working on trying to get to the backlog or the early part of the bidding process? What are you seeing on that front? Thank you. Brian Lane: Well, we're seeing still a tremendous amount of activity. We're being very selective, as we've spoken about and it's heavy and a lot of manufacturing, a lot of industrial, a lot of technology. We're also seeing education backlog and that is the highest it's been in years, particularly university work, some K through 12 and also health care, medical, new build hospitals we're seeing come up. So this is a wide range of opportunities in addition to the food, life sciences, pharma, et cetera, that we've talked about. So pretty broad range, Josh. Josh Chan: That’s great to hear. Congrats on a great quarter and great year. Brian Lane: Thanks. Operator: And thank you. [Operator Instructions] And our next question comes from Jean Ramirez from D.A. Davidson. Your line is now open. Jean Ramirez: Hi, this is Jean Ramirez from Brent Thielman. Congrats on the quarter by the way. Brian Lane: Alright. Thank you, Jean. Jean Ramirez: As a percentage of revenue, what was modulars contribution for the year. Brian Lane: 20%. Bill George: 18%. I believe. Jean Ramirez: 18%, is that correct? Brian Lane: 18%, yes. Bill George: [Multiple Speakers] Jean Ramirez: Perfect. Sorry if I missed that. And just continuing on the conversation around backlog. Do -- is there any concerns or any major concerns around your markets near-term or perhaps maybe just taking a look at your capacity or labor or any other inputs? Is there anything to share there? Brian Lane: Yes. In terms of backlog on the markets, I don't have any concerns, of course, commercial in terms of office buildings. You obviously not seeing a new lot of office buildings. We just have a lot of service, small project work. The exception in Dallas, in the Wall Street Journal earlier this week, Dallas is still pretty busy on office buildings. But in terms of the sectors themselves, I don't have any real concern at all. In terms of our labor capacity, we're hiring all in time. We increased our workforce in the fourth quarter as well. We brought a couple of new companies on that brings us more resources to -- sorry and then we have a temporary labor organization that we have. So in terms of capacity in the backlog, we feel pretty confident about us doing the work and doing the work that we like and that we can do well. Bill George: So just one correction, modular for the full-year was 15%, getting a quarterly number mix up. 15% of our total revenue came through our two modular operations. Jean Ramirez: Perfect. Thank you. I appreciate that. And just one more for me. Could you discuss from the latest acquisition, the Summit Industrial construction. What are the opportunities the company sees to grow this business beyond the revenues ranges discussed? Bill George: Well, it's productive capacity. Both of those two companies have more work available if they can take it the revenue ranges we put in is the amount that's supported by their current backlog, it wouldn't be surprising if they did a little more. They can't do orders of magnitude more because there's a time space mass problem with the number of people. But certainly, virtually every acquisition we've done within a couple of years was bigger. So we're hoping that happens again. Brian Lane: But they're really good companies. Bill George: Now one of the things we don't push people revenue, right? We push them for -- they could do frankly, close to half the time as of a year or two ago, I took a look. Companies shrunk the first full-year we owned them, close to half the time they were smaller, the first full-year we own them. But without with almost -- I don't think with any exception, the third full-year we own them, they're noticeably bigger. So hopefully, that could keep happening. Jean Ramirez: Got it. Thank you so much for the additional comments there. Appreciate it. Bill George: Thank you. Operator: And thank you. [Operator Instructions] We have a follow-up question. And our follow-up question comes from Alex Dwyer from KeyBanc Capital Markets. Your line is now open. Alex Dwyer: Hi, guys. Just one more if I can squeeze one in. So the free cash flow conversion in 2023, I'm just doing the math, it was 175% to net income. Do you have any sense of like where this could shake out in 2024. Like should we be expecting something lower than 100%? Or just any thoughts on visibility and cash flow conversion this year? Bill George: So that's a really hard question because you have to predict the timing. So we have two things going on. One, we have really, really good payment terms on almost all of our work. And that is -- we're overbuilt at unprecedented built et cetera, et cetera. But the big different thing that's going on right now is just when we take these modular orders, we have the right to receive advanced payments when we accept the order. So we have significant amounts of money that are being paid to us sometimes a year in advance of when the work will be done. So it's very, very hard to predict when those orders will come in. I will say -- we just had big orders in the fourth quarter. So some of that money was collected in the fourth quarter. Some of that money will be -- still be collected in the first quarter. So we'll start the year off in a good position. And then I believe sometime, maybe later this year in the third, fourth or first quarter, the next quarter or two where our cash flows are less than our earnings. But I will say this time last year, I thought the same thing and the orders kept coming and we stayed ahead. So that's why it's so hard to predict because when my board asks me that, I just tell them, let's just enjoy this. Operator: And thank you. All right, thanks. And I am showing no further questions. I would now like to turn the call over to Brian Lane for closing remarks. Brian Lane: All right. Thanks, Justin. I really want to, once again, thanks all of our amazing employees. It's a great industry, and we really appreciate everything everybody does in this organization. Thank you all for your interest in Comfort Systems. I hope everyone has a terrific weekend and look forward to everybody soon. seeing everybody soon. Thank you. Bill George: Thanks, everybody. Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.
FIX Ratings Summary
FIX Quant Ranking
Related Analysis

Comfort Systems USA, Inc. (NYSE:FIX) Sees Positive Analyst Outlook and Stock Price Movement

  • Joshua Chan from UBS sets a price target of $525 for NYSE:FIX, indicating a potential increase of approximately 67.42%.
  • Current trading price of $459.11 reflects a 1.80% increase, showcasing positive investor sentiment.
  • Annual price fluctuation between $474.62 and $185.83, with a market capitalization of approximately $16.34 billion, underscores the company's significant industry presence.

Comfort Systems USA, Inc. (NYSE:FIX) is a prominent player in the mechanical services industry, providing heating, ventilation, and air conditioning (HVAC) installation, maintenance, and repair services. The company serves a diverse range of clients, including commercial, industrial, and institutional sectors. As a key competitor in the HVAC market, Comfort Systems USA faces competition from other major firms like EMCOR Group and Johnson Controls.

On November 19, 2024, Joshua Chan from UBS set a price target of $525 for FIX, currently, FIX is trading at $459.11, marking an increase of 1.80% or $8.11. This rise indicates positive investor sentiment and aligns with the optimistic outlook from Wall Street analysts. The stock's price has fluctuated between $451.07 and $460.15 during the trading day, showcasing its volatility. Despite this, the upward trend suggests growing investor confidence in the company's future performance.

Over the past year, FIX has experienced a high of $474.62 and a low of $185.83, highlighting its dynamic price range. The company's market capitalization stands at approximately $16.34 billion, reflecting its significant presence in the industry. With a trading volume of 55,374 shares today, investor interest in FIX remains robust, further supported by positive analyst ratings and price targets.

Comfort Systems USA Expands Stock Repurchase Program

  • Comfort Systems USA, Inc. (NYSE:FIX) increases its stock repurchase authorization to 1,000,000 shares, signaling strong financial health and confidence in future growth.
  • The company reported a net cash inflow from operating activities of approximately $189.86 million, underlining its operational efficiency and robust cash generation capabilities.
  • With a free cash flow of approximately $166.47 million and a healthy cash position, Comfort Systems USA is well-equipped to fund its stock repurchase program while continuing to invest in its operational infrastructure.

Comfort Systems USA, Inc. (NYSE:FIX) is making headlines with its recent announcement to expand its stock repurchase program. As a leading provider in the HVAC and electrical contracting services sector, Comfort Systems USA is demonstrating its confidence in the company's financial health and future prospects. The decision to increase the total shares authorized for repurchase to 1,000,000, up from the previous amount, underscores the company's commitment to enhancing shareholder value. This move is particularly noteworthy considering the company's extensive national presence, with operations spanning 177 locations across 136 cities.

The financial underpinnings supporting this decision are robust, as evidenced by the company's recent quarterly report. Comfort Systems USA reported a net cash inflow from operating activities of approximately $189.86 million, a figure that highlights the company's operational efficiency and its ability to generate significant cash from its core business activities. This strong cash flow is critical for the company as it seeks to fund its stock repurchase program without compromising its financial stability or operational capabilities.

Moreover, the company's strategic financial management is further illustrated by its handling of cash flows related to investing and financing activities. Despite a net cash outflow of about $60.79 million for investing activities and roughly $30.45 million from financing activities, Comfort Systems USA has maintained a healthy cash position. The capital expenditures of nearly $23.38 million during the period reflect the company's ongoing investments in its operational infrastructure, essential for sustaining long-term growth.

The repurchase program's funding is facilitated by the company's impressive free cash flow of approximately $166.47 million. This metric, which deducts capital expenditures from net cash provided by operating activities, provides a clear picture of the cash available for discretionary purposes, such as stock repurchases. Additionally, the company's prudent debt management, with a repayment of about $3.83 million during the quarter, and the increase in cash balance to $199.42 million by the period's end, further solidify its financial position.

Comfort Systems USA's strategic decision to expand its stock repurchase program is backed by a solid financial performance, characterized by strong cash flow generation, careful investment, and financing activities management. This approach not only supports the company's immediate goal of enhancing shareholder value through stock repurchases but also positions it well for sustained growth and profitability in the competitive HVAC and electrical contracting services market.