Comfort Systems USA Inc Q4 2024 Earnings Call Summary

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

Question: Brent Thielman - D. A. Davidson & Co - Analyst : Thanks. Good morning. Congrats on a great finish of the year. I guess, Brian or Bill, I mean, I think your comments on your ability to kind of sustain these elevated margin levels in 2025 is pretty notable. I'm just wondering, is that a function of the terms that you continue to see come in on new awards? Is it the schedules you see laid out for 2025 across the different territories? Just wanting to understand gives you the confidence around that, just given such strong margins by historical standards.

Question: Brent Thielman - D. A. Davidson & Co - Analyst : Yeah, okay. And then on modular, I mean just taking the year-to-date 17% of revenue, I mean it looks like the business is up roughly 50% in 2024. Could you just talk about your ability to continue to see growth in modular in '25? I know there's limitations in terms of the capacity, but I just wanted to get a handle around how you're thinking of that in the 2025.

Question: Brent Thielman - D. A. Davidson & Co - Analyst : Okay. And Bill, I mean, with the focus on productivity automation, presumably that could put some upward pressure on margins in that particular area. Is that fair?

Question: Brent Thielman - D. A. Davidson & Co - Analyst : Got it. Last one, if I could. Bill, I mean, the CapEx stepped up here in the fourth quarter, maybe it's associated with modular or something else. Just -- what that was related to? And thoughts on CapEx in 2025?

Question: Adam Thalhimer - Thompson Davis & Co - Analyst : Hey. Good morning, guys. Congrats on a great Q4. I wanted to start on the persistent strong demand from technology customers. Can you give us a little more color on that? And maybe just some anecdotes what you're seeing from the current bidding environment? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 21, 2025 / 4:00PM, FIX.N - Q4 2024 Comfort Systems USA Inc Earnings Call

Question: Adam Thalhimer - Thompson Davis & Co - Analyst : Helpful. And then to what extent are you guys getting? Or do you have visibility, would you say into 2026?

Question: Adam Thalhimer - Thompson Davis & Co - Analyst : Nice. And then just quickly, Bill, how big is that Q1 tax payment?

Question: Julio Romero - Sidoti & Company LLC - Analyst : Thanks. Hey, good morning, guys. Yeah. Just thinking about the modular offering and obviously, a lot of concern about the data center demand that you're seeing. But can you maybe just give us a refresher on the other end markets that currently comprise your modular mix aside from data centers? And maybe if they don't -- if they're not served by modular now, they could be served in the future?

Question: Julio Romero - Sidoti & Company LLC - Analyst : Yeah. No, agreed. Very helpful color, and we're definitely in early stages there. You said this also -- a data center is not just (inaudible) modular, but you also do some [stick] built work for data center as well. Can you maybe just talk about demand trends on that side?

Question: Julio Romero - Sidoti & Company LLC - Analyst : Really helpful. And then one more for me is just you talked about this Century Contractors acquisition you made here in the first quarter. The location seems to be pretty close to your EAS facility. Is there any kind of synergy with that facility, any modular component or benefit to Century Contractors? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 21, 2025 / 4:00PM, FIX.N - Q4 2024 Comfort Systems USA Inc Earnings Call

Question: Josh Chan - UBS Securities LLC - Analyst : Hi. Good morning, guys. Congrats on the great quarter. I know that the gross margin is usually fairly strong in Q4, but could you just kind of help us contextualize the magnitude of strength in this Q4's gross margin? Was there anything unusual? Any closeout benefit anything like that?

Question: Josh Chan - UBS Securities LLC - Analyst : That's a fair point. Yes. That's really encouraging. And then on the -- I guess your people-based business. So can you talk a little bit about the progress behind hiring people and the training of apprentices. How do you feel that's going relative to your demand outlook?

Question: Josh Chan - UBS Securities LLC - Analyst : That's great. And maybe I can ask one last one. How does the M&A pipeline look? And how do you expect that to kind of contribute through the year?

Question: Brian Brophy - Stifel, Nicolaus & Company - Analyst : Thanks. Good morning, everybody. Thanks for taking the question. Congrats on a very nice quarter. I wanted to ask on some of the comments around same-store sales growth for 2025. You mentioned high single-digit range. It sounds like it's a little bit of a change from some of your comments last quarter. So can you just give us a sense for what changed versus what you were mentioning?

Question: Brian Brophy - Stifel, Nicolaus & Company - Analyst : Understood. Yes, that's helpful. And then when I look at the implied mechanical orders, those were down a little bit versus a year ago. Does it have to do with anything regarding the timing of modular orders? Or is there anything else that's driving that?

Question: Brian Brophy - Stifel, Nicolaus & Company - Analyst : Understood. Yes, that's really helpful. And then I guess one other one. We've been getting a lot of questions on inferencing data centers versus training data centers. What that potentially means for power, cooling needs. Can you talk about some of the differences in terms of electrical and mechanical intensity between some of these different types of data centers? And then just broadly, when you're looking at your data center activity builds to date, how much is more cloud-based data centers versus AI data centers today? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 21, 2025 / 4:00PM, FIX.N - Q4 2024 Comfort Systems USA Inc Earnings Call

Question: Brian Brophy - Stifel, Nicolaus & Company - Analyst : Understood. And then last one for me here. Have you guys seen any changes in terms of contract terms today versus a year ago? I would assume they're essentially the same or better? And how should we think about that impacting margins and free cash flow conversion this year?

Question: Alex Dwyer - KeyBanc Capital Markets Inc - Analyst : Hey, guys. Good morning. Thanks for taking my questions. So I wanted to come back to the margin guidance in the flat in '25 versus '24. And just kind of walk through the biggest risks to this, and what could drive to the upside here? Whether it's like a pricing, REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 21, 2025 / 4:00PM, FIX.N - Q4 2024 Comfort Systems USA Inc Earnings Call execution, closeouts, cost inflation or -- or is there anything different about the project environment that can make it harder to execute this year and share resources? It just seems like there's just such a great gross margin story with modular improving efficiencies and in the supply-demand imbalance. And I think there is a good amount of this acquisition amortization that rolls off. So just any thoughts on why margins couldn't actually expand this year versus last year?

Question: Alex Dwyer - KeyBanc Capital Markets Inc - Analyst : Okay. Got it. That's helpful. And then I just wanted to ask about how you think the trend in backlog could play out this year, like quarterly? And like should we expect a similar cadence to 2025 where like 1Q and 4Q are easier to achieve net bookings in the quarter? And then it could be tough again this year to sequentially grow the backlog through those heavy summer quarters?

Question: Alex Dwyer - KeyBanc Capital Markets Inc - Analyst : Okay. Got it. And then I guess my last question, I just wanted to kind of ask about your mix of business within the manufacturing portion of your revenue. And like as we think about that mix last year versus what's in the backlog and plan for 2025. Is there any -- is there any shift in those like sub-end markets between life sciences, chips and food beverage? And then like if we get tariffs in addition to the reshoring theme and the [tips act] funding? Like how do you think that changes your slate of opportunities going forward at all? Like could it change the mix of new construction versus retrofit projects? Or does it not really change that much?