Comfort Systems USA Inc Q3 2024 Earnings Call Transcript

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

Question: Adam Thalhimer - Thompson Davis & Co - Analyst : Hey, good morning, guys. Congrats on another strong quarter. So you guys typically burn backlog in the summer, build it in the winter. I'm curious if you think we could hit a new record backlog over the next couple of quarters? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 25, 2024 / 3:00PM, FIX.N - Q3 2024 Comfort Systems USA Inc Earnings Call

Question: Adam Thalhimer - Thompson Davis & Co - Analyst : Okay. And then Brian, I wanted to ask you about your comment on Electrical margins, which I think you said unprecedented. I'm curious where you think those shake out long term? Is there like a specific project that's driving the really high margins this year? Or if you think that that group, this is just what they can achieve over time?

Question: Adam Thalhimer - Thompson Davis & Co - Analyst : Great. Okay, I'll turn it over. Thanks, guys.

Question: Alex Dwyer - KeyBanc Capital Markets Inc - Analyst : Good morning, Brian, Bill and Julie. Thanks for taking my questions. So I guess first question on modular. I know the last expansion kind of came with more automation and higher roofs and I think this is the big focus for the team to drive efficiencies. Can you just kind of expand on what exactly you're working on in these efficiency initiatives next year for modular? Is this mainly happening in Houston? Or is it in Greensboro or is it kind of spread across both?

Question: Alex Dwyer - KeyBanc Capital Markets Inc - Analyst : Got it. That's very interesting. And then there's a lot of talk about liquid cooling in the industry, which I guess is going to be needed in addition to air cooling for these new data centers coming up. I know you guys have a lot of experience in installing liquid cooling systems already. But is there anything that changes going forward when we get to these new AI data center builds as liquid cooling is increasingly implemented in these projects? Just any thoughts there would be helpful.

Question: Alex Dwyer - KeyBanc Capital Markets Inc - Analyst : Thank you. I'll turn it over here.

Question: Julio Romero - Sidoti & Company LLC - Analyst : Julio. Thanks. Hey, good morning, everyone. So I appreciate you guys providing preliminary sales thoughts for 2025 of the high single-digit to low double-digit percentage growth. Just wanted to get your thoughts on what it would take for margins to continue to expand, would the conditions that are allowing you to execute and achieve these high margins have to kind of sustain? Would they have to get better? Just any thoughts there.

Question: Julio Romero - Sidoti & Company LLC - Analyst : Okay. And you mentioned mitigating risk and project selection is a big part of that. You're in a position where you can kind of afford to be picky. Just if you could speak to what factors within projects help them rise to the top of your selection list?

Question: Julio Romero - Sidoti & Company LLC - Analyst : Understood. Appreciate the color. I'll pass it on.

Question: Josh Chan - UBS - Analyst : Hi, good morning, Brian, Bill, Julie. Maybe sticking with a question on the field. In the last couple of years, you've done a great job kind of driving productivity gains in the field. I know that everybody has been really busy. So could you just talk to your ability to kind of further drive field productivity and how you feel about that going forward?

Question: Josh Chan - UBS - Analyst : Thank you. That's really a great color. Bill, you mentioned the balance sheet. And obviously, you guys have done really good with M&A over time. Could you just talk to the uses of cash from here, especially when free cash flow generation has been stronger than historical? Thank you. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 25, 2024 / 3:00PM, FIX.N - Q3 2024 Comfort Systems USA Inc Earnings Call

Question: Josh Chan - UBS - Analyst : Great. Thank you for the call and good luck for the rest of the year.

Question: Brent Thielman - D. A. Davidson & Co - Analyst : Hi, thanks. Good morning. Brian, Bill, I guess, when I go through the different end markets, the manufacturing vertical was sort of the one that, I guess, of real size have been taken a step back relative to last year and maybe even next to the second quarter. And what are you seeing in that area in particular? Is it your view this is just sort of timing related? Anything to say around the opportunity pipeline in that vertical?

Question: Brent Thielman - D. A. Davidson & Co - Analyst : Okay. And I think you guys have sort of a level of visibility, especially on some of these larger kind of multiphase projects or maybe you don't have a signed award, but you're sort of in the seat for future phases. Can you talk around that? Is that partially what's giving you the confidence to say this demand environment isn't really fading? Is it something else?

Question: Brent Thielman - D. A. Davidson & Co - Analyst : Yeah. That's helpful. I guess just on the cash flow, I mean, obviously, extraordinary here. Are the terms that you're getting I guess, under these new contracts confined to a particular group of customers? Or are you really able to negotiate some favorable terms across the board? I'd just be curious around that.

Question: Brent Thielman - D. A. Davidson & Co - Analyst : And Bill, I know you're -- yeah, go ahead.

Question: Brent Thielman - D. A. Davidson & Co - Analyst : And Bill, I know you're adamant that this can't continue on forever, but if you looked at the contracts you're signing today, I mean are those terms as favorable as they were 12 months ago, such that you could still continue to see the sort of free cash conversion? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 25, 2024 / 3:00PM, FIX.N - Q3 2024 Comfort Systems USA Inc Earnings Call

Question: Brent Thielman - D. A. Davidson & Co - Analyst : Excellent. Sorry, just last question. Again, I know you've wanted to take some time to absorb the Summit transaction, looks like that's going really well among the others you've done. Obviously can't time when deals happen. But maybe more a question just around the -- given the strength of the industry, your own business, the multiples you're seeing out there for potential transactions dramatically changed from maybe what you've talked about in the past?

Question: Brent Thielman - D. A. Davidson & Co - Analyst : I appreciate all the context. So, best of luck. Thanks guys.

Question: Adam Thalhimer - Thompson Davis & Co - Analyst : Thanks, guys. I was just curious on the data centers, the total addressable market for Comfort. As these guys start talking about 1, all the way up to 5-gigawatt data centers. As the data center gets bigger, does that increase your TAM?

Question: Adam Thalhimer - Thompson Davis & Co - Analyst : Okay. The other question I've been getting is on -- I'm still getting a question on uses of cash. If you -- because you guys are at a record amount of net cash --

Question: Adam Thalhimer - Thompson Davis & Co - Analyst : Just curious if that makes buybacks more attractive?

Question: Adam Thalhimer - Thompson Davis & Co - Analyst : I appreciate that. I think I'm all set. I'm going to get it out quickly.

Question: Adam Thalhimer - Thompson Davis & Co - Analyst : I look forward to seeing what you do this winter. Thanks, guys.

Question: Josh Chan - UBS - Analyst : Hey, guys. Just a quick clarifying question. When you guys say margins stay around current levels, it's still within the context that there's seasonality to your margins in Q3 and possibly Q2 is usually the high quarter and Q1, Q4 are lower. Is that a fair characterization at least on the EBITDA level?

Question: Josh Chan - UBS - Analyst : Right. That makes a lot of sense. Yeah. Thanks for clarifying that, Bill. Have a good weekend guys.