FIX - Earnings call transcript Q3 2018 | Comfort Systems USA, Inc.

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Operator

Good day and welcome everyone to the Quarter Three 2018 Comfort Systems USA Earnings Conference Call hosted by Julie Shaeff, Chief Accounting Officer. My name Sheila and I am the operator for today.

During the presentation, your lines will remain on listen-only. [Operator Instructions] And I will now handover to Julie. Please go ahead.

Julie Shaeff

Sheila. Thanks, morning. Good Systems Comfort Quarter Call. Earnings Welcome USA to Third

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

earnings. a Relations listing well slide factors as found Form section our accompany You Investor more can slides presentation specific recent at website and comfortsystemsusa.com. our XX-K commentaries as risk in read posted will our filed A most on The detailed the these remarks. of and our XX-Q concerning are Company’s press Form the in covering release

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

Brian Lane

We I'll the and Good to third time of for substantially our $XXX quarter quarter. morning the the want third compared XXXX. Profits Revenue the earnings to hard details. million, income $X.XX financial the the exceeded our the is full-year quarter months quarter are results. results and best underlying we've of for history, well Comfort in and increase per and to of share to Bill discuss strong. USA which welcome XXXX work. operating we will first by our another last share I quarter performance record was quarterly first XX% per their the in Thanks earned was for work field dedication. already the our improved the execution and a quarterly Julie. $X all highlights employees ever our teams, quarter by of health more this record our superb the happy And call. for income. in quarter Systems year-to-date also year's goes report a quarter to has cash thanking operating start Free cash flow exceeded and Thanks, nine our cover for Okay. this

very on are performance year. and flow for track fourth good in cash We next the quarter

detail year. has more backlog next year. to We our over flow have our last our Board free of had the into few in backlog Overall, a about since a cash our $XXX cash our call Bill? in this our I'll in let results row. our XX for performance. light minutes. million, optimistic it positive companies of increased in prospects to discuss our details outlook our again markets in majority going Bill dividend years Directors review this I our and financial $X.XX strong a remarkable capital In returning raised per invest quarter, to increasing remain flow, this committed and to flow to share. shareholders. cash But add business, construction turn and of very using Robust first activity in We great me in am to time existing continues of the by

Bill George

of growth revenue or for slide Brian. an XX.X% to of results. in provides third increase million quarter, XXXX the quarter some $XXX our explanation third to $XXX is that accelerated three, reported details Thanks, as six million which we of of two, refer Please XXXX. as Revenue the and quarter compared this

of the Net year quarter million effective $XX.X was million quarter quarter an was is XX.X% for the million third for quarter for Pre-tax increase same of tax quarter or so recent Gross in for $X.XX third compared the the the to increased points store tax that an same the $XX.X of million the of or of XX% third third the underlying the quarter XX.X% or The the for profit performance was revenue as for accruals. XXXX. expense % this million of and our to of improvement third Our increase by increase of a In profit of increases same the of remarkable XXXX million, the in income rate to modest benefited XX.X $XX.X compared by third period per quarter dollar quarter's the XXXX. by XXXX. XXXX was Gross as from store of a revenue accomplishment pre-tax XXXX share increase of revenue percentage compared in quarter XX I $XX XXXX. XXXX strong an income million $XX of million exactly the tax of XX.X% reflects XX.X% that basis light of million in driven $XX change third million of decreased cents operations. $XX.X quarter same an and activity. to increase approximately for growth. of per compared $X.XX expense quarter increased million in quarter construction of a XX% light tax XXXX third acquisitions XXXX. of by revenue a $XX the to XXXX. the third as or projects for XX% believe in with $XX.X share to third Income SG&A last an XX.X% with result is as $XX.X compared effective the our was for third tax in our of rate, increase leverage to quarter third rate SG&A in by income $XXX increase bonus of good income SG&A XX% indicator XXXX, percentage the expense revenue from achieved

flow profits $XX.X cash million was effect that year Free reform the for the of $XX tax, they XX% XX% the compares million after of third by XXXX to ago. illustrate help tax of new a with our to before by and but the So rates, increased tax. tax increased quarter

Our months nine which the compares free is million $XX cash first for of to month XXXX. flow million $XX.X nine

in repurchased quarter we shares and purchases XX,XXX quarter, to third have the continued XXXX since we ended. so far During the make including

retired of we third to than have discipline cost to financials, returned Brian. overall We was repurchases. growth, the million stock what exceptional XXXX That’s quarter X,XX,XXX have have In and $XX summary, shareholders I our more SG&A marked over shares and expansion via on by margin revenue leading performance.

Brian Lane

down, increased to a of year. and this All few comment a solid. include various revenue for $XXX our of Backlog from XXXX. the was current broad based government, made quarter million store we for be store Slide going of markets. and to the basis, XX% sectors strong. end growing discussing all will positive third the Bill. our and of is are our Please companies. is business. now million over to a heavy barely on segments Institutional same of our mix. nine, seven our by turn Sequentially, that backlog strong but and are increased of our same trend a On very $XXX a to a I burden. at be year will is I rest to These our typically increases remained activity markets XXXX distributed right. spend third commercial then to Thanks, $X.XX Backlog backlog of The from industrial slides for or user minutes covered nine. XX% when which education of backlog experience Virtually prospects end $X.X revenue billion. in most healthcare a billion. has are and XX% in continues and revenue XX% with sector up quarter our am These

construction buildings. from construction XX% projects, total For in existing is with the revenue XX% buildings construction new XXXX, and projects of our of XX%

is fundamentals from construction market. and business benefiting construction good Our non-residential trends

with We are projects particular good most experienced upper booking the of results for the Geographically, mid-Atlantic, our including Midwest many strengths and next northeast. in strong in and the year. we markets

continue and X% revenue reap our of profits. the and Service from providing exceeded have We of our service our pure Sheila in XXXX to for X,XXX revenue XX% fourth for once service XX% investments business pricing and the -- quarter Overall, including of employees dedication. benefits environment supportive, volume you. over remain about we and hourly our optimistic backlog of I with the in service prospects. Services total third questions. to work business. again work hard you are and back revenue. their Thank quarter XXXX it our projects providing will Thank to we made and turn now

Operator

D.A. the of line Instructions] first of Newby Please Bill question [Operator go Davidson. ahead. comes the from And

Bill Newby

and morning, on Good another congrats great guys, quarter.

Brian Lane

Bill. Thanks,

Bill Newby

guys. kick is the this have to mean just off where thinking that pretty grown digit doesn’t it achievable. XXXX up to is. mean through to looking you’re guess don’t XXXX? backlog it be Brian line which revenue thinking with summer I pretty should I into for about – single it if unusual you you mean on you high you guys are mid I that – I I are know growth How

Brian Lane

for Yeah, going we’ve and Bill. I expecting. XXXX digit with year. single what into committed high what That’s next to thinking we’re have agree exactly is the already Bill we’re both backlog mid what growth

Bill George

the there But we’ve And in a by better Carolina slow third which you than extraordinary had was they’re because growth is last year affecting one have for subsidiary quarter Carolina in have a than done more – markets year. or the we significantly of growth. this year North They’ve we North record two factor last do accounted of have then that. and hitting we that a know that for year that did a themselves

doubled they So that up continue. can’t factor

single reasonable know mid that’s So to digits you high most we’re saying is why the outlook.

Brian Lane

pleased single be digit if we we’d mid-to-high Yeah, growth. got

Bill George

Yeah.

Bill Newby

much mean me just into is Obviously to the is I but construction coming execution guess sustainable And and versus forward? this on this I on given driving margin how that. surprised service. mix then mix mean helping I what’s see any little the how color going strength a is the line quarter out margin

Brian Lane

every a the field are at in which at It exceptionally I is real tribute for serving the it’s look doing for fantastic safely day look month helps that out our performing it’s to you how and and that And matter and profit the work. now. a well number and results. it customers no Bill, gross trained the drive that folks

we’ve had around product while. good fantastic of report. a you bad good news really profit. it’s for performance know, pricing, do number just news, that to want pleased we’re Bill, of lack hover bad add? that had good of we’ve gross get absence But So you and and to execution Combination also anything an you just

Bill George

No.

Bill Newby

strength the end little has a in been for in I bit be guess thoughts you industrial you kind healthcare, Guys, mean work I guess continuing, just out and that And past more to you to the part has this margin I Do of of see any there guys that guys. there? that. markets pick on up pointed higher

Brian Lane

proportion over time So and – a at our leap you really revenue such have of of the was more did come were we’ve far in year-over-year mix time moment. say year than to a just how record an a at a of doing you’re reasons we’ve market big I our that last hitting average part much it that absolutely But They’re And the it. of company across in that for had if segment at big I the of off was mentioned acquisitions a as just right. more done year. conference and Carolina combination lower the It’s I’ve then especially been overtime of this most they is been year industrial, one still it’s That’s look in would look that proportionately some. it’s industrial fantastic in really industrial had Medical’s industrial as opportunity company. this industrial revenue. systems just – that that it the North you the is if the more as and have back XXX% we year of that virtually them a what one Indiana

future because think more but So think are they’re you’ll new levels see becoming – I in at see you’re really industrial that it’s going we’re you up and what compositional to popped more I numbers. the is changing the comfort you’ll They’ve know. see the

company We’re having segment a that’s bigger of industrial. our

Bill George

volume Bill grown service that’s has know helped too. profit, And and and in so also actually dollars both you real

Bill Newby

a got guys. broads, I Thanks more take and in some guys you queue back shot.

Bill George

Alright. Thanks Bill.

Operator

comes question next line go Thompson Adam the of Davis. Please And the you. ahead. from Thank Thalhimer of

Adam Thalhimer

guys. Hey, a great quarter. on good Congrats morning

Bill George

Adam. Thanks,

Adam Thalhimer

in are give at you your the I’m gross composition on whole for the us large lines portfolio Can the same a projects? contributing the do or sense the early starting margin of side. and still projects on it when feel as we’re on And large margin line. to you you any like gross of look mature

Brian Lane

lot our it’s we’re were PLCs, earlier low the percent neutral at projects them but a in across than to have complete or sort it’s the If a right. – of look of you – because started,

We that haven’t been them for long. doing

have for a end So robust we we expect would at for you been the year as example will many out as next won’t of like that’s year market closing around in this longer.

as the It’s that more the that more the it is more I one work a little profitable. say turns owner. far there’s reasons there quicker. it higher of That’s As of is percentage the job total be with can composition, would of the a industrial

that business don’t forecast are So ways manage know that understand some to that I not in but say under any. almost and this if it’s helps is to I forecast. easier we is impossible would

history big in where was big a in going at I’m predicting far as had the past back to project. we’re our we’re on when of but By you a our our business. we our work. percent levels work nowhere back If that’s those get going near at of way as the to times look That’s lot times it not

more than industrial a mix we’ve million. business. plant at small lot strengthened we’ve that brought X million We’ve like in doubled our or like work more has know business. our service in and The small You X projects a

We grown. has have our more control controls business

our We know some in have electrical have embedded you we some of companies.

just So mixed I which think more a very we’re is healthy. we’re just company

Adam Thalhimer

year complete when your that to be would PLCs above where average? maybe middle and start say percent is So best – would guess you’re you next of you

Bill George

to I’d fourth three Adam. say the closer quarter, be to

Adam Thalhimer

next Okay. And expectation flattish how does Kind the North backlog year. their year-over-year. then subsidiary your and them of would revenue what Carolina be look from for

Brian Lane

to down million just or have they’ll the number up our fantastic. than were than their they the have noticeably backlog by you year. think dollar company of there more in was and this there more and our their a way, all all X that companies of ever second highest XX that back backlog – By it’s another way rest sequentially hundred you the – if million I year we’re five double them know be Their backlog of out average they the years. across fifty up like we’re our million. And the of backlog but still could last a been XX and is

for So to happen their it’s little sometimes busy. has not moderate to as when if a it’s this healthy get backlog you that

we’re So earlier should like pretty another good little reasons good. I would our talk willing say one a it of we the year really, backlog because to really XXXX we’re really just say positive about and think XXXX and about is be

Adam Thalhimer

what South. good region? is bookings I weakness any I Midwest the if were you just in report push the lastly shows at kind And to the mean mean was going then look and there. you on Brian try your you regions. ABI the that the Okay. I seeing you’re to the said only mean of looks region fantastic only September but I the by northeast ABI

Bill George

broad I The based pretty think always interesting northeast us. been strong region a we’re has our pretty been seeing historically. has strongest for

companies They great got a share got work. there. fair of You’ve the up

So I But still I the of ABI know work lot very is a strong. down. years

Brian Lane

really good got This companies. is exceptionally up Adam. We there, different companies

Adam Thalhimer

thanks. I’ll over. And turn Okay. it

Bill George

Thanks. right. All

Operator

Please Afzal go Thank ahead. the of you. from line comes KeyBank. next Tahira And of the question

Tahira Afzal

Hi, folks.

Bill George

Good morning, Tahira.

Tahira Afzal

know know, disconnect chance days, two? now but trend that for given market flow there get the your yourself in you between general impact strong. So strong proactive buybacks, else. a saying folks, the you the free the terms overall could guys obviously is for something Obviously you remains is is and cash very in environment you macro And more you stock two of know

Brian Lane

point proactive have more are shares know the gotten probably We XXX,XXX you over more at buybacks more that’s – way the in this in than – dilution. is, year covers than

next But I shareholders. between very in here there’s flow this ways two. and our to our buybacks the and think cash cash benefit see not know together you We’ll finding or know think we board good you months. that with the as point be earning I acquisitions should six no in next week

So won’t we buybacks go bunch what do to to. we of money is don’t need but borrow do

Tahira Afzal

I optics know up seems the you be just – obviously to for that. of And mean next operating Right. year shaping talking well. performance about

and have year comp a buybacks Do ready organic know the strategy. You you tax between can between next sign? offset and into acquisitive that think you on you EPS

Brian Lane

year. where talking specific very very about we’re It’s next us early point a get getting to to for about

if think ought of I We year going could another us. some things we but acquisitions creative amortization that we in even done senses a But mean. bit. I have acquisitions have a come acquisitions right will There’s do those to down what of continues little next we for The great we be our not they’re we’ve past. say them to have that do the the – year. range

Tahira Afzal

Right.

Brian Lane

fully have things bought already we’ve help. fully shares those small back but all don’t into The baked diluted they you know are not are those although our

things That are next be us for another we that really positive us year. into early early be guidance of – It’s go help out year. will to that this too us. for the actually us as there good So ordinary to for give with is directional this helpful should

Bill George

really – really year next good hear, into backlog a we good. basis going so to have What I we’re feel

Tahira Afzal

it. Got

both in red but that that tough and look Brian, going always – are for call positive if forward. things negative there the Bill Okay. you to it’s we more defensive what should turned should strategy we you at little a your view and get as be flags, watching these would

Bill George

going don’t gyrations what we a they had in the haven’t with years margin. the where becoming to you’ve time indicators since – time – in really like defensive. going And I are where The drive us have careful the discipline far to know for, maintain know broader market the to moment residential you as – far businesses good defensive, CFO And make was been acquisitions. as been forward I few what willingness we’re very is say XXXX. as look for us at to good always your will to of I’ve capital investment I market a It’s very acquisitions. to as what that think kind you So you be for look

other going if defensive only all be what would deal gives areas, right like we chances say us So chance our a make some That’s have go it’s take do we for little just where and it while. but the it. conviction looks like area we a we’re and market will give a the us I going to now to about to we money

Brian Lane

we’re country the Our of us time. structure, about the country this Tahira, same gives that trouble in whole so many would have at parts protection some

Tahira Afzal

a point. That’s good

Bill George

We have service industrial we’ve doubled our business.

Brian Lane

So going if protections some some we’ve gets. things got – this forward

Tahira Afzal

it. Got

sense. makes congratulations actually Folks, That your to very you team. thank Okay. and yourself much and

Brian Lane

very Thank you much.

Operator

question from line Sidoti next & Joe the comes And of of Company. ahead. Please the go Mondello

Joe Mondello

morning. Good guys. Hi

Brian Lane

Good morning.

Joe Mondello

questions wanted I of but ask my on were to you answered Most pricing.

we’ve you as demand of like year know inflationary it wages it's all labor like environment environment seems and shortages terms it progressed in overall this escalated. construction know You throughout the of seems –

how starting little years starting yes on sort gotten Have last are to or the where that things two, pricing all of pricing guys go a to over escalate pricing and we then of we're that start are to So consistently get. net you it three you to to point to at the starting a really get said starting is environment or exponentially progressing? benefit seeing and are

Brian Lane

it's going Yes, has the I been environment good, across been country. the pricing mean

be is this there it. wage to no increases going right, about year You're question

in going of to able lot is whether we of the is trembled pricing as etcetera application the what's do. it's and training technology and use [law] pass there improvement productivity in etcetera, are well lot we on that We been a of and

do So on want future to offset with in one to add you it's will way that. the that. some as these of help sure Bill, costs for

Bill George

and thing busy one I'd market are about guys the our Yeah, pricing full. it's is say pretty a

people and their pricing So pretty happy work work them new get people. with they the to take about have it. be they care to They for hard, and they their

I So very say on pricing. opportunities good our

Brian Lane

– get, do lot their of so at work be good lot of one selective And you there's and guys a are thing and you more a they out what Jose strength the the at when good work little you is. can our are work there are able

Joe Mondello

of ideal job that spread that where now widening this environment get you bid so… you sort Is right complete cost that to between you can on job a the a the or the price versus requires

Bill George

and course anybody at if negative if capital secular and sort more That that the frankly about future. how far lower wonder the that about months like is -- street capital me and happened there don't been necessarily its center I worldwide can XX is everything of are that's be why far main for like more we are run rate run are getting things of that me said the of to and see receptivity verticals competitive predicting non-financial feel make offshoring competitive in now right as the know. we we gross didn't -- I last we lot but having further I and verticals where ought make describing in, the things, has lot it's mean margins, U.S. that that as energy least over allocation there a tax what's sort decisions a exactly too of

Brian Lane

Right to work there now Joe. of a there's do, out lot

Joe Mondello

Okay.

might didn't of but negative have into that Tahira detail. this I or asked I go missed on the might to it sort And component guess everything, think to have you touch I maybe much question maybe

you're pretty where obviously backlog where build at labor, XX% of are cost or build a right build. Just in to is went sort any building and the right all We're an I of to starting cost historically rates, sort sort interest costs escalation considering XX% these a and the environment we're through does I'm to this if gone pause seeing at many I I mean see higher you overall what big don't caution rates a year-over-year. seeing back period of cycle is escalating. the I on wondering now? now, find terms know materials could I'm a terms and give just wondering of guys of up you your in just thoughts time cycles interest have such time, of to

Bill George

that first Brian can then go his will I level and give high on thoughts.

As far Comfort a as this never goes, we’ve like backlog. seen the in period-over-period increases

that of to and bunching, the it's I Some that because for in general but a was in get like Carolina very the where mid-Atlantic little see strong. numbers North there slowdown is of individual a situation example it's come back, some of bit

out States pull the we bigger in and will seen we're we're Mcgraw-hill think good are increases bought you good crazy. we’ve United some many out so not year-over-year and levels and it derived just looking some These I this, census some times good companies is made investments than of from some are in If markets. numbers the we've percentage wins The sort numbers that in are them.

Joe Mondello

the macro? saying You're

Bill George

off think it capacity what out CFO been be not not the don't I now. a off it's is but the I was like at charts it -- really think I've I The off I good, that's like think? been am company. sure given don't it's Brian, not there. -- charts be it will I'm the macro, this or think times in all. and right macro do couple the charts the since off you It's it's by saying could

Brian Lane

I you happen going to do. is is we and it'll it's help, if everything mean always affect mean said I we’ll think, Joe business I Well, respond can correct. like

Joe Mondello

the Okay. just I'm cyclical everything Yes, unpredictable going so so for is now well or out just always business, wondering? looking congratulations. I'm

Brian Lane

Joe. you, Thank right. All

Operator

ahead, question of Instructions] the next your comes Sophie Securities. line Karp Guggenheim Please go of Thanks you. from [Operator And Sophie.

Sophie Karp

guys. my questions. taking on you the Congrats good Hi, for quarter. Thank solid morning,

Brian Lane

you. Thank

Sophie Karp

push the the historically, I deals winter point getting now it's the end great a done is you business sell? too it for macro. wanted right and on go. maybe, you've in I a and willing people in bit to year in is little you timeframe to environment going not to M&A you. where M&A given the just of the the what Thank pricey and how Is are or see conducive this guess

Bill George

be honest. I'll

speeding not M&A really process issue, us, we of individual companies that we're is like. sort really For not a an looking really, we're for environment

good. The is I targets very seen being a to interest the of to of I of sort as that their deal the next us it think good can months her right. we as good it as part go pricing whether I've far a think talk whether that availability get in close could way either ever as six in is the reason is big we

a staring you'll if a company results. They're be have bankrupt recent wasn’t. very good person first. can you And a to years EBITDA within their know they seven forward bankers very, the go is staring that than private at good You're be selling by more typically sell we it at still told That They're especially very result. amount or certain being they they the of to equity. you know tell five yeah them

willing of get it whether think have of and a the opportunities we care a on some be to I going I their – lot So of and there's it on who's things rate price good can don't somebody know. at there end have people can take of we on a get we day return the we at or that that sell basis. a confident we

we But years year which those is two do if in back you off know capital. But in also or given could it can split how that those deploy or on extra attractive place or think you did how of we and way stock spend trade dividends to -- of be that our I also thirds you in look a the X any an off equities what buybacks. have and XX you when did years of backward rest deal. if percentages. acquisitions between -- the do cash right. are you only And this X XX look be -- I the years see if you'll do we'll mean what forward I years get think, way of those last next XX% does exactly know we we conviction. we XX most our about we

Sophie Karp

Right.

have looking know coming the so your on that way you So obviously at to free that's cash you just backlog of flow topic a organic going opportunities. growth the lot be and

So discussed which in capacity the sheet have some past. you balance you've

bit a increase the more a bit to acquisition the become quite it's mind? scarce, little [indiscernible] of option dividend If is your war an chest. there in yield So

Brian Lane

look Well, strategies, and and look Board our have at dividend at it again as forward increased at We that. increased we and both go so buyback Board every we'll to this in methodically meeting. we the looks both quarter it continue do that we

Bill George

I quarters three row. the increased we've in think a dividend

think the happens increasing I dividend years board – penny at our quarter. a half were we what a So for

Sophie Karp

Yeah.

Bill George

enough wasn't a half keep each per penny with to company up the a have quarter. wasn't the enough growth penny That – was That having. year to

recognition think the dividend So has frequently I little a boarded lately. of that more the increased

I a point, happened consider but you think pause row times us. want a where never And three continue pause know they that they'll in to to to when then to they for get that. feel they

Sophie Karp

Okay.

Bill George

So what there's a saying. you're little clearly of recognition bit of

Sophie Karp

for you the Thank color. Appreciate answers. the

Bill George

you. Thank

Brian Lane

care. Take Sophie. you, Thank

Operator

Thank you.

Brian questions. to for Lane more We remarks. closing have I’d to back no hand like

Brian Lane

Thank to joining the outstanding have thank let's finish And a Sheila. And you quarter [Red hope confident of weekend. Sox]. a Thanks, had an We for strong I you. go all I call and Okay. everyone great am today. XXXX. you

Operator

you may disconnect. joining great for your and conclude today Thank might now weekend. for and That you. call have conference Thank a you

Comfort Systems USA (FIX) 26 Oct 182018 Q3 Earnings call transcript