Comfort Systems USA Inc Q1 2025 Earnings Call Summary

The following is excerpted from the question-and-answer section of the transcript.

Question: Alex Dwyer - KeyBanc Capital Markets Inc. - Analyst : So I just wanted to start and ask about the intact revenue and margin guidance, especially in light of the stronger start to the year and the backlog growth kind of reaccelerated this quarter, plus the intact guidance implies a deceleration through the rest of the year. And I know you guys tend to be conservative with your guidance and you did mention the additional macro uncertainty here, so I just wanted to learn a little bit more about the thought processing guidance? And if you can talk a little bit about that?

Question: Alex Dwyer - KeyBanc Capital Markets Inc. - Analyst : Yes. Okay. Got it. And I guess staying on the margins, can you just talk a little bit about how your contracts are structured in the event of potential cost inflation or supply chain challenges, how well protected you are and how quickly you can pass these on to customers? Because I think, last time in COVID, there was some margin pressure in the business. And I'm just wondering what we should expect this time around, how manageable do you think this could be, and what lessons were learned last time?

Question: Julio Romero - Sidoti & Company, LLC - Analyst : Maybe just staying on the 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. So maybe if you guys could maybe rank order the uncertainties out there for us in terms of order of magnitude and how you're viewing them internally? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. APRIL 25, 2025 / 3:00PM, FIX.N - Q1 2025 Comfort Systems USA Inc Earnings Call

Question: Julio Romero - Sidoti & Company, LLC - Analyst : Okay. Great. That is helpful. So it sounds like your experience during the COVID years helps you be more comfortable with inflationary impacts, and then also you're not seeing a level of demand destruction as of this moment. Maybe if you could speak to what you're hearing from your customers and your suppliers as to what their biggest uncertainties are and how that could affect Comfort Systems?

Question: Julio Romero - Sidoti & Company, LLC - Analyst : 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?

Question: Josh Chan - UBS Securities LLC - Analyst : Congrats on a good quarter. I guess could you talk about the project bidding pipeline to say that demand continues to be strong? Maybe talk about what helped add to your backlog this quarter? And then also how have you been continuing to add to the backlog and orders since the tariff announcement?

Question: Josh Chan - UBS Securities LLC - Analyst : Great. I guess maybe a question on your backlog trajectory, just to kind of clarify the typical pattern here. So obviously, you had a good sequential ramp in backlog in Q1. So how do you expect backlog to trend through the summer quarters?

Question: Josh Chan - UBS Securities LLC - Analyst : Yes. Yes, that makes a lot of sense. Maybe can I ask a quick follow-up? So I think, Bill, you mentioned that comps are tougher in the second half. But I think last year, Q2 was also a really strong quarter. So I guess how are you thinking about the relative toughness of all the comps that you're going to face the rest of the year?

Question: Brent Thielman - D.A. Davidson & Co. (Research) - Analyst : I guess, yes. Just on the disaggregation of the different end markets, the manufacturing sector was down in the first quarter. Is that -- is it more a consequence of just focusing your resources to these other end markets? Or why would you see that just given the strength you've been seeing there?

Question: Brent Thielman - D.A. Davidson & Co. (Research) - Analyst : Got it. So the manufacturing side is more likely to ramp up moving forward?

Question: Brent Thielman - D.A. Davidson & Co. (Research) - Analyst : Yes. Good. Yes, that's what I was looking for. There's been a lot -- you've had some of the public on the HVAC side out recently. I guess I wanted to ask you guys on mechanical. Have you seen any impact early this year just related to the whole HVAC refrigerant transition? Did it have any impact on your activity or bookings positive or negative? I know it's temporary, but just trying to understand how that implicates your business.

Question: Brent Thielman - D.A. Davidson & Co. (Research) - Analyst : Okay. Would it help you going forward, Brian?

Question: Brent Thielman - D.A. Davidson & Co. (Research) - Analyst : Okay. Okay. And then I guess last one was just on the balance sheet. I mean it sounds like you're going to be building cash back up here pretty quickly in the coming quarters, Bill. But when you think about just the scale of the backlog, the overall pipeline, it sounds pretty good. Is there a minimum level of cash you want to keep on the balance sheet as we go forward?

Question: Brian Brophy - Stifel, Nicolaus & Company, Inc. - Analyst : Congrats on a very nice quarter. Yes. I wanted to ask on SG&A leverage. Historically, it's been kind of a course of margin expansion for you guys that slowed a little bit this quarter. Just curious how you're thinking about SG&A, SG&A leverage for this year?

Question: Brian Brophy - Stifel, Nicolaus & Company, Inc. - Analyst : Understood. Yes, that's helpful. And then just one more on the 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 point down the road? And I guess, are there any other large cash items we should be thinking about for the rest of the year?

Question: Adam Thalhimer - Thompson, Davis & Co., Inc. - Analyst : Sorry if I missed this or you already said it, but when you think about the impact the tariffs have had in April, if any, I mean, can you help quantify the actual impact on the prices that you're giving to customers?

Question: Adam Thalhimer - Thompson, Davis & Co., Inc. - Analyst : Got it. And that's what I'm really trying to get at is to what extent customers are getting sticker shock in April versus March, if that's happening at all?

Question: Adam Thalhimer - Thompson, Davis & Co., Inc. - Analyst : Yes. And then to what extent does your Q1 '25 backlog give you visibility into '26?