Comfort Systems USA (FIX) 27 Jul 232023 Q2 Earnings call transcript

Thank you for standing by, and welcome to the Q2 2023 Comfort Systems USA Earnings Conference Call. [Operator Instructions] Please be advised that today's call is being recorded.

I would now like to turn the call over to Julie Shaeff, Chief Accounting Officer. Please go ahead.

Thanks, Valerie. morning. Good System XXXX Comfort Call. Second USA's to Earnings Quarter Welcome

and regulations. press well forward-looking the Our and say expectations and current different in and as of our upon our is results USA. risks applicable operations we releases and from cause forth might to expectations plans based Systems that today comments. laws of actual materially comments those today of our plans set Comfort include be meaning as Those contain the uncertainties future activities will the statements security What within

commentary You most our can read Form in a detailed XX-K these Form release risk listing XX-Q our and earnings. in press well as concerning our factors and as specific recent covering

to A Relations slide our the posted of presentation section presentation found Investor on is has The been at companion company's a remarks. website the comfortsystemsusa.com. provided as

Brian will the Officer; Officer. Bill on Brian today Trent call remarks. Chief me George, Operating McKenna, Executive Joining President and open Officer; are and Chief Financial our Chief Lane,

All another right. on We everyone, today. and the call you, joining had morning, you for thank quarter. us Julie. great Thank Good

Our this especially very weather. are remarkable and for in their hot execution, teams grateful delivered dedication, we

stronger work and valuable and demand had are carefully we selecting people. never have working conditions We that a margins good our has environment, good for

our $X.X in per with demand same-store quarter earned year XX%, compared was strong this quarter share ongoing revenue billion We ago. growth $X.XX to $X.XX Current a reflecting of markets.

Electrical margins mechanical operations perform Our increased significantly. levels, to high segment continued at and

trajectory. and performance our business upward has growth service maintained solid and quarter its continued in includes This modular

billion, is it quarter. a to levels $X.X Backlog billion continues the unprecedented is time was backlog year. same at despite our than last strong revenue Additionally, at higher for the which $X.X track

$XXX Our of flow strong cash the million achieve work terms us and second new quarter. execution in on helped payment favorable

I shareholders. to our and I continuing to commitment to by share, strong our our also over $X.XXX dividend a reward our performance. call business to outlook few turn our financial $X.XXX we and Today, flow but this cash increased Bill Bill? in per will first, will our quarterly discuss which reflects review minutes

Thanks, cash $XXX our with by compared same-store and margins, XX% EBITDA amazing of a over million SG&A higher to had We leverage flow remarkable Brian. increased revenue year. an last quarter; XX% growth,

revenue million Specifically, the compared second was year. or $X.X increase XX% for $XXX quarter last an XXXX to of of billion,

from Mechanical increased Our segment $XXX growth our it million revenue business. modular XX%, benefit continues or by and to in

revenue $XXX by benefit pass-through larger demand and Our same-store million an by XX% Electrical Combined we segment even or continue as XX% of inflation. increased and increased $XXX to effects some million. to strong from

to the single revenue comparables the in that full We year facing high be in growth will we year, high be digits low teens. and percentage half likely growth currently and second is in the double tougher are expect that the currently in of the to revenue second the revenue estimate half for

to for Gross the year. quarter, $XXX $XX last compared million million improvement profit was a second

driven XXXX, XX.X% year improved the XX.X%. Mechanical of gross at percentage our Our margins. profit this gross the in XX.X% quarter was to second improved this by percentage for to compared quarter last and same electrical year profit Quarterly segment

cost XXXX in and unfold for Electrical material to as will modular remainder margins the light increasing our to in rose XX.X% compared It's mix. variability of XX.X% in segment in hard in Margins how our and quarter to XXXX. predict the QX of

the achieved at remain optimistic will margins However, slightly to continue above XXXX. XXXX or we in in we margins that trend

On cost SG&A activity last revenue expense year. a quarter million higher investments approximately in to this quarter or revenue, was SG&A $XX due our ongoing million in XX.X% SG&A million or $XXX to basis, of than compared inflation second growth to for XXXX. the resulting as of same-store support in our was up for our compared $XXX revenue much leverage good slower the and quarter exceptionally to But SG&A was levels. considerably growth in the XX.X%

increased last $XX year income to by million. Our XX% from operating

percentage for XXXX the X.X% to to from income still improved we quarter margins in this X.X% expense quarter and great electrical XXXX. operating SG&A as had Our interest from of expect leverage. increased We as increase second XXXX

as our a temporarily and were However, income favorable the so the to legal of first higher partially extremely far this cash outcome first half strong flow related year. by in interest quarter year, payments well offset as in the interest

conforming rescind $X to Our this which year-to-date XXXX. statement $X.XX research the the occurs. a R&D will Congress and conforming of $X.XX to immediate tax expenditures that million this tax rate of from an credit, restores we incremental that of adjustment, reverse income If for or have benefit of related period in gain adjustment XX.X% included deductibility $X.XX

XX%. our have we tax rate approximately to Although a affected tax lately, rate many is individual items XX% estimate for us that normalized

of all income income quarter XXXX was $XX or quarter the and $X.XX $XX net second for share, to of net or XXXX million share. per compares per After factors, the this considering second these $X.XX of for million

EBITDA flow few few was cash and quarter discuss increased for higher our million. usual in of And an much first cash of months than cash million from are take remarkable net quarter, us Free than have $XX X want of increase million to which a over to the $XXX this a flow flow achieve our helped cash results flow I XXXX to X last create minutes also will impacting next variability in year the XX%. the quarters. second more income, factors that but $XXX

been have factors the factors headwinds. of flow the cash helping are of creating X and cash flow Two

driver is very positive straightforward. first The

terms profitability to across and able obtain are We fantastic our we're fair achieving payment favorable that's of book business. and

advanced late of our some the that in in a The our second and cash the of first commitment to capacity. add projects large as for helping positive half payments factor is fact we XXXX XXXX received modular flow result

cash some large purchases. customer have currently relating equipment ongoing also and to We

benefit advanced aggregate currently that Although to we estimate costs from late are payments, this as XXXX $XXX first X million project months normalize We the received incurred. advanced $XXX payments to million. and continue XXXX, to of in benefit the will these

words, we currently of we other cash not that million earned. in have $XXX around So have

early have substantial we As a cash flow money. money because portion the already ongoing be collections this from of normalize, will reduced these

first tax factor affecting is The expenditures. taxes result we are negative our for cash the a flow of as research the paying deferral extra of deductions

approximately deductible million have last Unless million to far we made restore not next of spread XXXX tax this tax those payments would current additional the regulation. year, months that $XX as of disbursed Congress So $XX we cost the been is under prior the of expect years. deductibility, have business in payments the X make during X over to to million acts $XX

our vehicles of $XX impacting temporarily we the COVID. capital level out the is same expect continue as the expenditures Year-to-date, we expenditures, period net The X cash this second result fourth during and availability higher million as flow prior build heightened we we million we expenditure spent XXXX. had square of a feet purchase of and in and as year, capacity factor double capital what will half reduced modular more of final new vehicle in

I factors negative first this the factors. the during described positive half X the overwhelmed just of So year, X

the fund lower than cadence expect more into next amortize might commitments, payments might a we advanced those you otherwise as as and few over be normal equipment our free However, quarters. flow cash

as addition free the quarter reduce our flow debt million was in quarter. of since Our end debt at substantial in allowed lower funding the cash by our first purchase to $XXX us year-end, to Eldeco

adding at XX,XXX acquiring continue to XXXX. repurchased year and $XXX.XX our shares of half million purchase since also an first XX shares, We in shares the to over the average of the we've price

implemented meaningful increase dividend Finally, quarter. as Brian noted, we another this

Brian. That's I all have,

minutes our am business and Thanks, a spend few right. All outlook. discussing to I Bill. going

Our around second quarter last backlog $X.X the substantial year our mechanical increased at with and XX% business our $X.X in traditional at backlog our the time, operations. construction billion. increases end was electrical billion, new bookings Since and same-store has in offsite this of

by in we making the decreased with most good modular the $XXX business. reflecting backlog that million, sequential prebookings our of progress are on Our

roughly was midyear a despite rate. flat heavy our modular, burn Excluding backlog

and in continues such food processing chip revenue as industrial manufacturing months of centers, Our X prospects life in were Data to in included new our was industrial is XXXX. of Technology, the XX% mix work, of increase a first of total and in drivers Industrial, are other which and sciences, substantial first the backlog. revenue trend XXXX, from major XX% prior battery customers of year. the plants our revenue towards XX% half in

represent government are part buildings new a with and it care construction was strong Year-to-date, commercial our at disproportionately of commercial building and at of our The existing health also active revenue but XX% revenue, education, while sector our include revenue. business projects smaller of is now is mix, our XX%. revenue. XX% changing which and markets, with for is about was XX% XX%, construction of service Institutional

year-to-date to the seek are are operations, being to revenue we of both In our pure improve by compared last of members increased encouraging XX% diverse construction, of and customers projects revenue. Service and and service committed service, Service businesses, of good the work, XX% total revenue sustainability year. with we of and we supporting and to revenues, X% serve. including communities our they total and hourly as providing providing service XX% was efficiency their buildings

unique light in them superb Comfort capabilities and skills profitability people of in we continued confident and our is thriving the their because of enduring in Systems to our prospects XXXX. strong for the and best-in-class growth execution. for need Thanks feel and

priority to our industry. the remains Our in workforce grow #X best preserve and

want and trust. dedication. employees are their hard over We their I grateful XX,XXX end thanking for your by to work for our and

now Valerie over I'll to you. questions. turn back Thank for it

of comes Our Instructions] from question first Eastman KeyBanc. Sean [Operator

Team, very and had a to actually bit. pretty heavy into flat, I quarter. backlog big modular, which dive prebookings the and little dynamic, It's the know that's nice bullish to backlog the wanted trend just helpful is that excluding burn pretty a quarter.

the proposal and you that's year? very helpful. an optically balance burn might opportunity the the think since activity, comment perhaps the you on give bid perhaps But the this backlog guys modular to And overall just dialogue, of the on could how set how of that's over how trend start the trended expectation maybe year? an I

little go Bill comment All right, bit more Sean, and this modular. on is I'll Brian. I'll first, a let

The opportunities noted projects. and know, you operating we we're noted formal work words do little We in big are robust. the have right still to that different had we bigger now. you and as our bit And preorders It's markets going we're a As lumpier. now. very be through that in

quarter-to-quarter So good. might a But overall environment some is have you pluses from seeing trend demand the that we're minuses. still and very

That's margins still looking work really are in we're our in it. good good for making We with wheelhouse. sure

in. good optimistic very the that So position feel about we're still and very we're Bill?

Yes.

business of But So about modular interesting doing second. Modular, margin, I'll a amazingly see driven by the for quarter difference book well. is just you the modular. heavily -- things in entire is the the talk are our at

They a space So hasn't modular booked And million December. in of they're so of now $XXX they're square building the in come yet, And week million equipment. will those prebookings burn mind January. that feet that had additional burning online quicker. -- in work even new that keeping in

add They It's notable but have even take. can right evaluating more That affected the a how that that the of because build much they we was cash a of very, very to of order part them had of some it flow we big works and to prebookings, immediately. paid and our they're be had capacity. that also to took 'XX, those until inducing not we really good when that right the work us portion

added right So in never we've we're said, had now. characteristics demand than lumpiness experiencing Brian some but our business as it's stronger

potential consider. think growth think line, all through I a just the different very go-forward we we as on parts that's to few have helpful. moving And top

We've have have we this But trend. backlog We growth inflation tight abating. then capacity. got massive also

into mean revenue all this much way on think how piece next you I is help there potential that those any look about to would at trying have you be kind can a way next through just I'm year good year's could us So together. what like think point? and organic to visibility what of those

that and usual especially we're way not there, of we if in So equipment. a assume the of revenue and assume But that's way you've bigger of price through, pass than generally out can materials "Listen, pipeline the pass-through meaning sort going a of and deflation a much but than variability like and say, we revenues for sort the light next nailed a the would sue our assume area, and no I to we that still for we're 'XX going 'XX, in to inflation." sure backlog our normal in expect inflation, much, in -- to think less demand. just have be higher in to us,

our a extent, growing a few so game had growth guys. have going fantastic only to, back miserable can They Like Human not That positive been to have much. years. have we're by long very is And we don't do workforce. our a who workforce, flow be hard a working we that to beings run favorable but for we're has held play going We're our at reasonable We've and trying years. a take that work XX Comfort. GCs that's project. locations, to cash for to favorable -- guys certain

so workforce benefit term almost right -- is to that to the it's do shareholders. our the the and to need now what's focus do term that the things Our said Having demand long irresistible. and is long build preserve going that, great, really is in we

for being this one to XXXX are standing you or at margin for gross me. nice but up levels. then last revenue Okay. taken It's see by XXXX near outlook the guys And

well I running there's why a in tell in the second first just because margins XXXX So should half tough gross half. be a comp guess the perhaps the you year-over-year we curious of to half? on maybe down second was really above me think reason as me, I But I we're margin can't levels and in

remarks that. you our just thing, We trend said lot prepared when and above. expected one or of correct far That's above here And that how we know a above, said. the in Well, slightly between margins what to work we to at actually

have that getting these at very performing right a correct also couldn't now. from more the now right for we're Sean, But in level We high helping some us than field. thanks we're folks

Okay. Great.

least in the looking going outlook. than revenue everything at bit we’re we So to I better mean margins little addition is on is great. and Execution have thought a would good, stronger before

And clarifying. there. it a for lot, thanks Thanks So turn over I’ll team.

Sidoti. from of comes Julio the Our Romero line question next of

do I going wanted It's of sales model. year? really to talk of what's How to percentage the in do for the leverage how as SG&A And impressive. there? remainder the expect on SG&A trend about you're you the seeing -- you a

unprecedented at hold So at we're course, can optimistic levels we we that are for first which, of the the half, it that us. had

before our service has analyst grown, SG&A fast since though Part were what's an a As lower. aren't even is been as construction has construction single has It's -- quarter percent just you that of and -- as every our revenue, never driving service service they long of have lower you grown growing SG&A. and impressive. profits really

about is leverage, we're to we you cost. where all think goal people do hold you reality, in gross at that and we as was your SG&A to But oh, much grew continue And did add level certainly we as But didn't these our control our cost. that margins the to really If just levels think, that. held hope at.

of deflation X, as ago risk look a would the for in say, to the it SG&A for and some XX to let's X, some which there's is selling than today -- any gross a sold percent more revenue, big that you it. the at X, lot X years want in be revenue way Now to of equipment,

about Here's happens, X/X historically, the mid-digit right? the cost a are XX%, though. should goods go costs. margin range, And thing, like gross our sold they're materials our low in XX%. percent Because If our up, XX%, of that XX% of as of

make bit, tick more So up little, if that our possibly make they you a want to for SG&A or that. you'd down but a up margins even gross little up go see for see than our

the elephant us. that that room just that predict of passed cost hard there's because a it's So in through moment big to

comps not would SG&A. the extent the and service about affects the there? construction business the business given that just maybe could the you're appreciate talk that growing tough trends service to the totally could really No, construction guess, makes seeing the of I XXXX, I there. you about construction Yes. business, that sense explanation Maybe in outgrow And have? that service

it's solid doubled I good outpace consistent a happen. last get at the don't that believe So the We'll service XXXX, that's tripled last in XXXX, it look but X. it to growth, it in years, we've in incremental will Julio, growth for over service. you slow if over very continue to general, XX Brian, construction

But still will it grow. markets strong next think very and this construction year. still these I are year

will growth get So out than out more we of we construction will of service.

And Okay. moment? one newer there it any Great. there for others if within maybe out And is lately? of kind data artificial the just last the me centers just intelligence at or hyperscalers driving then is just talk about is activity are

lot. has So centers there gone a an data demand big up for was already

not answer X, what, of the X, driving projects. hotter. the projects, in It's These is, of business. the cooling value burn number So it's can of absolutely. And the the servers driving course, guess we're yes, just new Xx

for So it's really us. advantageous

also And requirements. electrical in X is range, demand more the same the to Xx

more this work these us is buildings, of do Julio. each So to for in

The thing pushes is technically people because very, execute, have much which capable less the us, people hard to buildings cheap complex workforces, to we that and now. right become other towards cheerful big are more and likely even that happens very right, think the

One moment, you. please. Thank

of line question Joshua next the Our from Chan comes of UBS.

across a on basically guess, Bill even beyond the to projects outlook, that markets possibly I what of Julie, preparing work to about project on? quarter. you're are and the Brian, backlog, your I that different great you're congrats seeing bid end ask wanted

a you XX% on about work and So still right? strong got we're for turning that's revenue have -- roll projects better. starting been able So data to Right another X demand. is already you've work. amount demand It's then have you've got people in over silicon through up totally We're good now, United better. sources be the good never manufacturer we're to States. so work, you the deployed new our And technology manufacturing. leg on why the center then positioning. of more industrial, trying taken really never find And are very picky that's it's heavily really it's away been of from That's there's of -- largest you we're side, Battery demand, to the more.

You've really pharma. good got

-- XX offshoring years, legs us restoring extraordinary. now. or like got it's hurt XX right it's feels got for just You've and The

kind And hear. assume of module you capacity order to us able be of on line to remind million business, time when could on online good the and newer That's foot modular orders your might the you when square the completing and large then side? comes the

may space that least production we quarter, So third even at but have it both of in some if should be in so, spaces, quarter, in the middle of new production X the buildings. big so the of detectable. By the by of we fourth have won't the the new end one some

We never still other bookings prospects in -- part better. are of They've our been our like for modular business. every additional

have are We Right we have sure could conversations. on make waiting honestly. orders we we now, we to have, what execute take quite that we can

it's have July. to projects, that's of could the come you one about into the all going larger won time in the middle right, June, Josh,

larger the a is bigger time take awarded. work, ones longer. The the on quickly would So is smaller little different be bit than work it on just

question D.A. Brent from Our Thielman the of next Davidson. comes line of

the the course out you saw there in some XX-plus order be opportunities can on customers talk additive months? next Bill, the or XXXX modular having of kind with the of like that side? of late you Brian there discussions guess, similar Are you're just over I about maybe might

work But we companies modular really bought of we've that, done us. largest X only customer since that either that So the really we right? single a certain amount can talk before for about do with our

more adapt we than their more leave and case, at do also one so good them contractors. XX We're it's years. for to can looking for scope work that So ways

have a we're that honestly, we're in customer visited we've We in design orders conversations, new for been others. on major new quite and by

build been for -- them because to we to the we're give developing of people, take people the of But them have want there they out want them absolutely these of data right? us we're -- all forever, what the But good And to they the capacity build well. give above for they -- all care center these we us They frankly, for especially constrained and we're need built... to really, make side they modular. going of -- all it's strategy. on who've treat future, sure foreseeable to

They're doing it all.

doing people. think can They're that for everything we for And hiring doing we're that what of. is

are many of Brent. just state how Texas, amazing It's opportunities the Altea in

like Got your impact it. on modular, margins or lot with it's Maybe sounds that in is the impact just quarter in of first how much a up much is of mechanical? half, sticking an maybe having here an that? ramped It

right? per margins very margins right? skilled labor slightly mechanical field skilled, how on big our or to force. good mean, better, So in the are business, on still no, of spend as they use skilled I lower our But out the than average, down average It's their the much. forfeits a as dollar points Their not still the as are because as they Comfort journey in as as of less average they're but margins. are, margins the They less labor far basis of as tens rest

lastly, that. Okay. all attached mean, caught free I flow pieces the in through Bill, the first guess half, moving about the to cash comments I $X

a but it strong do could still year is us of don't to cash be that for of speaking? half that, I the tends repeat it you you you're to feasible expect think historically generation telling second pretty because

understand they it's twice. you That but we money. kind lot relationships same that -- to take of were them, money. We The to And take for in those would would our is have we to haven't a literally for maintain prebooking customers, come can't earn us good it with earned. collect new come, only would risks have news, of the most the million if So fact not a It and likely, take $XXX it right? and that we this. time money the

made some it clear lumpy to we all we're was still it to perfectly that and just normalization cash that, there'd people X or happening, it money quarter there'd we you can't to be got you So We just you the clear about when that prebookings -- be of us, collect time. advanced twice. be and we with can want know to going early, collect over -- what's be clear this normalize a where We make to have getting but people has right? like want we

Right.

Just if last a what experienced Maybe does the that talk you just like hit all heat operations markets seems could you're have of you one. about the the of and implications company? at lot the you but where waves it's that mean for

you we XXX% the more. places -- if of a Well, is in some hot try house. right, as of from can lot work get imagine, a If a to perspective, these not living company utilization, it anybody places,

just it's regulating -- here don't Brent. the us making really is workers, is implication But new work because -- in hard, difficult. of we safety it -- it they're really South, sure our the for and the health is hydrated so seeing So very down

we care do. there's work -- to of for want them not We bigger to That's long of That's for take sure really out term. there. So that implication. the There's plenty work just can of we make them plenty the problem. the

is Brian, well? service outsized contributions driving you. from as Got that

capacity make sure to Yes. fully Service him working so just them don't you run weekends, you take the into utilized, got ground. is you fully

probably down on Arizona. roofs in talking Texas, folks these of you're XXX, same those are degrees roofs, Some in XXX on

work, work, lot you the what driving as repair So you just but lot is working are, of cetera, et a of imagine. it be how conditions would got and to a them you're careful much

line Our Thomson Thalhimer of comes next the question of Davis. from Adam

those confirm Bill, right? to I were do just revenue wanted targets that organic, include you They the Eldeco? gave, not

company, always million a was percentage-wise, get fantastic I've the $XX organic. quarter. in it's said they're they Yes, but

those indifference. error no, are So -- a it's But but rounding organic.

well, and I playing well, a you up some last revenue to because then start. really with of that you the set was having as where hoping I kind in around model could don't just terms know of comment night. brought XXXX visibility on And it guys

revenue. larger XXXX will XXXX So I expect than revenue be

margins the if close think growth. keep to count same, the can I you some you on

If growth, don't to you should higher. expect our show you margins get

not right, of because really it's is part mix. the changes problem the variable, So independent is an it operative it

already, already have mean amount I XXXX Yes. for we work Adam. a of significant

looking at we're some So XXXX cases. in

good XXXX July we're for So feeling sure. about for

Okay. opinion is guess, about margins? Bill, growth more if get little a that bit revenue I you you have to the the going decelerate But then optimistic

XXX%.

Got forward? too. When CapEx was facility, you. then do said what one going -- thought does But I and it constructing? those we do And you when do this modular with stop

So North build-outs fully square end and the in it's money for square substantially XXX,XXX-plus year. feet Carolina the XXX,XXX-plus funded of in be feet Texas. by should those The

way got vehicle a I catch-up think actually has really long to go.

probably we if So to were we'd halfway back back know, we're normal. back our of getting you now, next get years of halfway we'll X that say from we're bigger sort and but would level there I traditional to CapEx year, be down

going for next trends. It's is That's year. keep not following obviously asset-light drive it's business to model long-term mind, and your such on now, CapEx us, that cash guess, it's normal its a XXX% doubled of the it's back trends the an in long-term but year, side. its to it's maybe We're So by small right? -- and from just so

does at just all changed of the And as Perfect. more then over thinking lastly, years. the profile business the to revenue margin multiple just modular? shifts I'm

"Hey, would margins people So money. you were yes, higher. lower. we way would lot -- of you the margin. gross productivity of we see and be it and lower of say, you make gross everything, to modular." One to freeze would And see yes, has be just is double freeze get a Yes, And be would but goods cost look modular, materials would a I a money. lower we'd SG&A make lot say, make would -- concerned at everything of that the of slightly percent a gross sold What margin as lot if

different per reality labor So we're of of the the have the in anything into to business, dollar are damn have it's plants. good because you is as or steel, cost businesses. lot better material, -- in and those going generators margin our than these is have they characteristics, things rest good is not And we a chillers, pretty those -- just building same characteristics. of right? about you that There think the

you. closing further for Thank call Lane questions over time. the back like no showing to remarks. I'm to at I'd this any Brian turn

Okay. to want there. seeing have rest takes hope our hope we to thank I you of once and everybody else, Thank closing, amazing I you, you. I care Valerie. of out look everybody again your employees. In a forward And themselves Thank great summer you all soon.

gentlemen, participating. today's and conclude Thank you for Thank conference. you. does this Ladies all

may Have great a now disconnect. You day.