FIX - Earnings call transcript Q4 2019 | Comfort Systems USA, Inc.

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Operator

Good day, everybody and welcome to the Q4 2019 Comfort Systems USA Earnings Conference Call hosted by Julie Shaeff, Chief Accounting Officer.

During the presentation, your lines will remain on listen-only. [Operator Instructions] I’d also like to advise all participants, this call is being recorded for replay purposes.

I'd now like to hand over to Julie. Please go ahead.

Julie Shaeff

George. Thanks, morning. Good Systems earnings Comfort quarter full and Welcome USA's XXXX call. year to fourth

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

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

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

Brian Lane

morning Julie. joining today. for on All us right, you thank call everyone and the thanks, Good

by finished start flow strong quarter for record the billion great earnings for Systems we a million. USA USA. XXXX all hard and $XXX per per with share work year for generated me full Let and $X.X the their results. of Systems was Comfort of year strong $X.XX earned full cash the $X.XX we was free the year thanking XXXX year and share. Revenue We Comfort employees year full for fourth

year or at on an XX% prior the $XXX robust of billion, million Our is $X.X backlog a same-store basis. over increase

strategic strong Carolina. financing reflects acquisition and facility $XXX opportunistic Earlier the North credit our million. from month, position Greensboro, additional to gives to this acquisitions. amended capacity us our headquartered and This make in announced strength million new financial Starr we and we increased of investments $XXX Electric December, our capacity financial In

and the are and grow Carolina Starr our our Starr the capabilities in expand for USA modular keep great construction part We of growing that productivity Systems worked and very to investing electrical to decades, Comfort to and electrical maximize modular allows as adds have our is North happy have provides importance us in and We offering. and offsite construction with believe finest investment contractor to and customers, This segment in our We way highly in workforce. our safety to business to plan offsite family. a offsite construction. the skilled of

our XXXX, beginning of to Walker Engineering, perform continues which of at quarter the or acquired at the second we above expectations.

Although, we last did minutes. our outlook not nine the to earnings be share in per in contributed initially expect $X.XX of a XXXX. I Walker will of during detail them months few discuss more accretive, approximately

details over to our Bill? this call me financial let first, to review But performance. turn of the Bill,

Bill George

or reported is XXXX. which fourth X% revenue acquisition declining Thanks million, as off our segment. was results. explanations quarter provide fourth in $XXX some slightly, of and Brian. million This details increase $XXX Slides increase was an the to due financial to Please of refer our quarter of I revenue X the to is Fourth XX% the quarter. through of Electrical Walker, Same-store compared X for

the an Revenue in basis, that of increase compared million same-store was a revenue most acquisition. for XXXX X% $X.X increase was in than higher was year billion, Walker to XX% and XXXX full to XXXX of or On XXXX. $XXX related

the to was of fourth or of XXXX, was $XX quarter of XXXX, million to quarter percentage the million an fourth quarter XX.X% for Gross XXXX. fourth of as increase XX.X% Gross profit the a of compared the revenue compared XXXX. XX% fourth quarter profit in $XXX in of

XX.X% $XX to $XX million in million full the year, that XXXX, the XX.X% of this XXXX. $XX reported our margin million was in profit increased in profit in was XXXX, increase we year the gross compared profit earned gross For Electrical and Of gross segment.

with profit of amounts therefore through lower and and pass Our and costs, Electrical material segment weighted have large mix business tend to margins. to equipment complex average significant is projects gross

segment revenue that gross and also Electrical lower SG&A profit correlates also Our with had margins service less lower percentages. and

Additionally, gross acquisition adjustments related lowered because by within margins created Electrical Electrical segment large reported transaction occurred year, our single for in the the acquisition XXXX a was for our that the segment.

been would adjustments. gross full higher segment have Electrical the X% X% And XXXX, of segment on those basis gross quarter XXXX, over fourth an have annual the without been margins without higher over margin the for For would year adjustments. related Electrical acquisition

segment, arises gross from Electrical mentioned difference mix certain that in gross lower the percentage have X.X% adjustments would their our our a a that our margins. profit business of and full-year just margins XX.X%, impact and Without of purchase gross I that combination been

With these our larger projects and less has service, SG&A Walker lowered percentage.

to million million other $XX costs we this income to earlier year, share $X.XX $X.XX of or incurred to XXXX. and lost reimburse as of a as per in hard suffered in April share due XXXX. received cyber for recorded quarter of we gain of Net soft fourth compared $X.XX quarter the the insurance XXXX, incident result us proceeds in productivity share the and $XX for XXXX a or per We per was fourth

additional recorded recoveries reduction recorded incident. Approximately, $X.X any the gain million related a or that We to expect services. other as not remainder was of the a reduction and insurance of as proceeds SG&A to do was of cost

record was year and had full in share per per compared per another prior Our we year earnings $X.XX to the $X share share year. XXXX, so in

For million new increase to compared acquisition Walker EBITDA is The the the for to in million, Electrical in was primarily year. year, $XXX our prior due $XXX the segment. EBITDA full

of for compared the Our the XXXX. overall for fourth SG&A million million was expense $XX fourth quarter quarter $XX to of XXXX,

had the XX% SG&A in dollar had of acquisition, for as SG&A including a compensation the quarter, a XX.X% we mentioned, good lower incentive Walker to revenue of by in additional The that in fourth the to We result the amortization compared we year. had SG&A last percentage for recovery was fourth quarter fourth increase our expense. fourth quarter leverage SG&A XXXX also insurance the was helped quarter and of declined expense.

full percentage a largely SG&A The prior full XX.X%, of improvement SG&A. the to as the to the of segment, due as the as in year. lower was SG&A revenue overall year, earlier, proportionately in compared XX.X% which requiring For was explained levels Electrical larger projects percentage

discrete in a future deduction. benefited XXXD Our estimate will XXXX. tax efficient discrete compared while XX%. known XX% tax XXXX rate tax XXXX commercial from rate building effective to from the currently was as and the from XXXX our XX.X% energy tax We benefited between also The tax benefits production, rate rates a item, XX.X%, be

end However, end XXXX. could of of range our the through of effective recent toward extension the now this tend XXXX same tax lower due to calendar extended XXXD the deduction, that rate in been that's

makes have our at that our to we're feel flow another flow the X has strong debt dividend. and full increase for announce free great was about down pay XXXX. happy by our $XXX $XXX XXXX increased strong year to cash over was XXXX allowed cash Cash million flow compared also the year prospects quarter. April we acquisition flow dividend the Walker for end $XX to in This XXXX. between this and of our us cash This We consecutive million seventh million on

and credit amount our covenants our by $XXX have increase We're conservative amended we reward mentioned, a million well total facility $XXX to strength available happy been financial in million. favorable recognize pricing, to our Brian balance December sheet that to as able approach the to to of long-held management. As lock-in as

good and complete continue to our transactions and strategic to even us our as stockholders. we amended We expires agreement and gives flexibility investments. January also XXXX now return all, procured stability, our Above more capital in thus visibility

XX,XXX course at to over During shares shareholders. price purchased the an in of overall, began shares $XX.XX. the our of an million of repurchase Since our over year. we at returning purchased back of average XXXX, shares price million fourth $XX.XX, full average quarter, stock the XXXX and $XXX directly we program we XXX,XXX bought X.X In our

financials, on Brian. I all That's have

Brian Lane

going X. Thanks the will backlog comment activity covered year. on Bill. a of are rest to for discussing prospects spend our right. minutes various in few I markets. I'm These this also in through All X sectors and and our Slides

billion, of Sequentially, XXXX, $X end end quarter fourth XXXX the the and at the of strength of was million. continued many flat, due increase of locations. down $X.X same-store essentially $XXX to to of a was primarily market performance Backlog XX%, our backlog strong compared our or reputations the million and

backlog the quarter third expected, XXXX. retreated, end the Electrical million of segment our declining to compared $XX As of by

of the XXXX. we project last third a Walker booked As quarter, final during quarter large the very months in that burned heavily mentioned

by Our $XX Mechanical X%. or sequentially increased million segment backlog

have XXXX. we commercial healthcare balance improvement, XX% various which government, user education and Institutional sectors. XX% industrial to acquisition With In of to our The strong was backlog addition which industrial a our very be markets, our our new the provided of good across was XXXX, for revenue a include sector revenue the remaining sector will Starr important us. and Electrical in market our continue include will segment, the end for XX%.

for Please turn current X revenue Slide to mix. our

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

most Geographically, a of fundamentals We end-use construction projects are broad we book in and in to and with and North good good pricing being our markets, strong continue across with by results strength Carolina, we experienced and Florida. trends sectors. in Virginia non-residential helped market particular distribution

make We service in investments business. our continue to

hourly our service our revenue. revenue, including service, revenue, XXXX, of with work X% and providing was projects pure XX% providing XX% of our For of service

On our is and in profitability absolute XXXX. were well. volume an business doing service service basis, and higher both results Our than very same-store XXXX

year, contracted in impressive record end are service not reported a service which of numbers. increase and maintenance an base since maintenance X% the of of the Our contracts included million at $XXX end is the is revenue XXXX. for us backlog These our annually

our margins generating we remain focused partner with cash XXXX, improving protecting wisely and continuing via four, Two, one, on the acquisitions. to the segment flow. free in of the investing and best prudent Mechanical our margins segment; contractors, three, Electrical MEP For

outlook. Finally, our

is backlog solid. Our

active. are markets Our

good We have we are experiencing and project service demand. strong pipelines project

expect with expect planning. on or mid to as Electrical We revenue single-digits. be that down same-store basis just flat opportunities our a segment single-digit slightly be we segments estimate And will revenues our is Overall, mid will low up our by pursue Mechanical in XXXX. and discipline combined we growth our best during

will remains and of we trends optimistic levels market pricing We see business. in start experienced our good XXXX strong we the The XXXX. that have conditions good environment since the for continue at are that

Our the is very supportive believe to that the is sense positioned Comfort opportunities. will we Systems well these team capitalize and markets remain on

ever. We than are stronger

Thank questions. hard XX,XXX I to once to for our again dedication. for now over Thank turn employees you back will their you. work it George and

Operator

the Our from Instructions] Eastman [KeyBanc first [Operator Capital question comes Markets]. of line Sean

on live call. Please the ahead. go are You

Sean Eastman

Hi, gentlemen.

Brian Lane

Good morning, Sean.

Sean Eastman

for First the one Compliments. finish me the is year nice by and to – way.

Brian Lane

Thank you.

Sean Eastman

acquisition on vertical? response I'm what curious, your tell entering curious, talking space presence, the adding major Electrical Systems Comfort just of that the to I'm us here with and Electrical customer can the about Starr you to

Bill George

huge is a our advantage that many in, the companies of of already best these have which contain very We great there, based were of both our markets one companies.

on it, And very – with many they same saw example just in to with acquire ago. many, have given those And partner years day, comfortable continue jobs that so is by that customers the seen us with and really them, our them. they Dyna Dallas, for Ten be Dyna Starr any the were Ten half on jobs subsidiary for a because Air Environmental on, fantastic Systems token,

revenue. the top these our of two our really – three by or largest – So were and revenue of four acquisitions market by two markets one level our

Brian Lane

Dallas, our favorable of visited customer, both and in contractors Sean, the under was specialty with and the electrical positive we with he these had I Hey, very team that project the mechanical and both roof.

Bill George

right, Texas and markets, Carolina. great North what And

Sean Eastman

embarking bit I That's on great. the there And items fold and. a in in does excellent little bit of for Starr in with guys K here just modular That's what you you're commentary talk is could on the know might in right. list EAS. investment. Absolutely outlook we about see angle there, then a with and focus what an construction partnership Maybe XXXX? the of there

Bill George

sophisticated offsite And semis, Just on talk construction view our done to years. talking on we've may felt on the there, and in semis When building Air and you when plant, in Systems, spot. case, had bought very were XXX of practical modular transporting systems million putting they we over about it what site cases $XX have we construction, we that together let point are be and a that modular exactly some In for many right. Environmental everybody in is of work, Last them. XX $XXX and we've job of of from to about would the and a time on what then as years matter, have couple their know range over of content, gone bill the of that owned million work. the the margins $XX they've up million been that it

we that business, investing So them. we've really in like been

Starr in in a a construction we've Electric North but partner many meanwhile theirs been of been for years. customer has us great for Carolina,

Starr electricians our year, million work business, mostly plants. last mostly EAS' of So about offsite inside construction worth for did in $XX of the and walls

needed, So them, the internalize the wanted would because we've able that to until were a to we and plant with if chiller a an to capability, for company them had else's say plant, so customer do only us put up this we're chiller workforce let's room to by with get somebody work. if relationship building, teaming were build we going a for up for that electrical for order now, when we to long,

Now part to we being us, we're with add excited our and as offsite product as that – good sell of product mechanical Starr that are as construction. to that we the just for can that's a go just family,

So understand. that's helps answer, but people long a hopefully that

our This it its the is already to it market pushing because was and happening. have reality makes labor we work, on is been wasn't We're the Comfort just and money doing that, internalizing labor. that not

us, a be for a that we'll able product – us. now really So offering service to for adds

Sean Eastman

just me, interesting that's stuff. business, from piece big considering one year. on this progression electrical the initiative quick the margin of Last Really a

curious, maybe like? guideline can looks we in Just expect what rough some what versus maybe around XXXX XXXX

Brian Lane

tackling working Over best Over the gross improve. Sean, margins they this working the they and has to but with improve training, and to eager are start well. can't give we'll you practices. how improve, at company, beginning. us blocking forward move today, on always been a long the impossible typical sharing call, time the with but takes acquisition they're for its just metrics it time, and the will – as that I it

Sean Eastman

Thanks, Excellent. I time. the appreciate gents.

Brian Lane

right. All

too. You

Operator

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

go in are call. You the Please live ahead.

Brent Thielman

morning. Good thanks. Hey,

Brian Lane

Brent. Good morning

Brent Thielman

that off first to year, the that growth that see guess you've rebuilding I Hey, and on larger this of do Walker; Does little book to half, about more talk through XXXX. this specifically year, as start managing you they a talked business in year? work? this kind them backlog initiatives can of How burn them some that for about have pick the second up you you for business this of

Bill George

then, job for in by the talked to I The they that lumps. large that month and having site, going has like very But as be that, last it of heavily million way they first big probably just then thing to know, right. next be at a are lumpy, booked burns backlog to we – it that the quarter. it still will Well, the first to how people very a they as this would in as point. they gets that's phases. year. on will their it's going understand of quarter lumpy – in backlog, have far be. one get say months about, a are On and in the job you heavily, Since When revenued third the booked It is, couple $XX said

large margins that, a far materials that a amount fee-based plus go, are has guaranteed big a delivered. as job price. As It a with like maximum of – have is cost that when they very

job extraordinary and of will absorption, like gross on quarters where overhead. have they that, heavily but lower a So they margin, the even during months revenue

So the – develop that course year. will over of this they do

a combination then of can peer, we So there a couple a without they markets believe, and of – it, where pickier. their be little they of they rival the is can they markets lumpiness where and they of also, just think then without have a are couple

also So Comfort do really for revenue. that we And chases don't practice. – to a not that company will like is work

very So I trend know... moving of And But there pieces. be is don't a should good. underlying the lot

Brian Lane

we very corporate this. have been Brent to them receptive. They've citizens go they've through joined tools terrific number also, are a us. They of since help

Brent Thielman

can evenly then think backlog? it's spread your up I development geographies? And XX% that that you about okay. same-store across year-on-year. Is Yes, talk that of pretty

Brian Lane

users, country, really seeing And we're Yes. I across Brent, pleasure in across and based, across-end which I the my said weaknesses commentary, any that that in think the we're broad biggest seeing that's numbers end it's users. not these

don't So that's optimism X% business. year. over leading of a to customer And our we this also, for our have

customer base good well. So as diversified a we get

we where want be. So it's to really

Brent Thielman

be Yes. inclusion past, of typical any historically? this And year differently what thinking now just and mix cash with we then any shift conversion business than should the mean – or in any you've the Starr? about in or free Walker Bill, I the to seen

Bill George

to a that, We continue will in quarter after-tax $XX of bit. ourselves earnings fourth we conversion. like said XXXX we cash So ahead Having flow had little non-cash a for plus got expense. flow items stock bit cash fantastic plus our million a little

Third this of so compare proportionately, years. comp the quarter we way quarter have made why cash as expense. of one little when lot over We the the you incentive of which we if the accruals the quarter SG&A is just not year, by big, fourth cash the bigger than were a two third a million, look reasons those in $XX flow flows, incentivize

they We much, can the face that keep revenuing the receivables. year, but good are of well our because big really financials flow with we you you on when positioned about, up. year, that think can't our big These of this come we're very cash see into you're we're for talking projects payers, as

roll across way see year. other and positioned well is in to for then those every this as which those in our cash very begin ramp down, from So service business, cash flow for we'll

Brent Thielman

since Last you right from these the in a concern chain that Is days, field? issues for seeing are one now? it's news in or just the guess with Yes. folks me, topical any respect to supply your activities any I foresee

Brian Lane

need Brent, thanks what right for here issues them our asking. suppliers We've no we to gone with see as sit we now, supplying we out all and today.

Brent Thielman

Yes.

on best Okay, year, and Congrats the of luck. great.

Brian Lane

you. Thank

Operator

of you Please next question line Co.] Thalhimer the call. from go comes & – [Thompson on Davis ahead. Our are live Adam the

Thalhimer. Sorry,

Adam Thalhimer

Good morning, guys.

Brian Lane

Adam. morning, Good

Adam Thalhimer

this single mid growth to low year, that said you – organic? digit total revenue Brian, that's does

Bill George

Yes.

Adam Thalhimer

you And Starr? Okay. closed have

Bill George

Yes, that was closed.

Adam Thalhimer

revenue the contribution Starr? what's from And Okay.

Bill George

I of press we million and over release initially, $X expect companies there $XX in both our million time we say, to would we think improve EBITDA think two said I together. definite opportunities and annualized to of these work as numbers revenues about million $X those is

Adam Thalhimer

Got it. high but I profile isn't And answered margin versus then Walker's – just are you guess their well, level? there the question,

Bill George

Actually, revenue But similar profiles margin similar had it's similar. a – very a I but – think high couple just quarters very of initially. It's they're very had Walker super has couple mentioned. I

Brian Lane

that, but What's overhead the about I their is yes, interesting lower. Walker, gross is lower, Adam is mean margin

income operating their isn't what off, non-mechanical from people that So do. far

Adam Thalhimer

then get Right. more And a it margin modular over just, is one time? No, on that. I Bill, benefit

Bill George

of sell. it I why; issues, here two for would product it's Two, to say addresses the more more one, volume labor is benefit, and a reasons, right.

in fitters. volume very do that site get amount welders of that up to we and expect I them with don't margins on But precipitously. we stainless we a job can business, with are shoot the constrained good more pipe necessarily but So steel

in a learn and can more and over it one more that are production because task hundreds of over, in can and they and a expand do foot of train then test. square space, discrete environment, these they readily thousands on down up of can controlled You one people

skilled, or has to a delivering, you're been. sort is a think labor future, sophistication maintain important really force with increase cope it do with the to experience available and way we less to quality the reason the is it's the its many way very years it's – fact even the So it of actually that but an the ability than of product

Adam Thalhimer

that makes thanks, guys. sense. Great, Okay, lot of a

Brian Lane

you. Thank

Operator

Company]. Our line Mondillo next [Sidoti & Joe question comes from of the

the on go live Please call. ahead. are You

Joe Mondillo

morning. Hi, guys. Good

Brian Lane

Hey, good morning, Joe.

Joe Mondillo

versus just you're little and were in at So your Could little dynamics the similar on competitor mechanical explain we what growth mechanical call, of being is you sort between seeing why stronger a and stating electrical more electrical? in growth mechanical versus their a who electrical.

Bill George

So that buildings on to what to I are going an think based being are two markets have the built. opportunity grow,

– they little of the have point great they from with say same have a both a would Electrical. view. also opportunity are we my But that, being So I just pickier

I to matter. it's they're have support I'm systems going that's referring Emcor, been just through So also you're going we've awful, competitor, the computer stock of thing past we I one week. not to say, with a it, they're through for little want a to have and lot reason. sorry, and going Emcor their it's this bought to that get

of So matters it's not be a the something to – going to not that Emcor. value that's long-term

Brian Lane

to And up basis. electrical the an Joe, opportunity on good from finish now about just market Bill. We feel

some that talked we're I discipline confident market. think and there, very we about planning but with

Joe Mondillo

posted the maybe general, high then, to or you I And at if look or seems you take customers when the have just And tone the it quarter. and over, any color approach little but seems difference be may your of of confidence we sensed level that course environment? over overall this you like it just bit, businesses and couple have overall, look the things mean regarding in Any just your talk a Okay. obviously just like your anecdotally, backlog market years business, that? last certainly around that in slowing not you you the seen that a orders of given

Brian Lane

we what hearing that? will this XXXX. do it, in add make figured, today, We're Brian, of I it. here sit sensitive front stable we're right. first, But is and sure for kind been that. seeing as want not very Bill, downturn, you steady any hearing of to I as everyone you are you we on are can in as to We're to really imagine, touch and we've of weeks in go last Joe with the couple is Yes. and not

Bill George

it's staying like high seems at a level. it Yes,

Joe Mondillo

quite manner. Okay, It a for interest we've a in pretty rates seen and been quick bit. has severe then

if this, much, maybe over guys maybe rates So you forward faster so interest see anything? I that course going to rates relative time a were to it not don't a But scare. that changes than little severely at? little like fall more, know you provide it you and customers when of needs if fall a higher. tell Does any projects does it that anything that look or Is economic

Bill George

last that's Yes, one interesting is the a work. of happened we is decade for developed lot – us, like has Comfort over there things used the multi-family really gotten and doing from do more to

do or general, that, – in and have Now very our of right. they know industrial. reality of almost we percentage virtually more none a is, money to customers they do The what with, lot don't low do we have that,

think, it any I us, nowadays. in changes the effects only – they have I So “being on feedback it interest as the affects past, rate is, think invest, whatever of never financed” good I that the and time need compared has the really to up and something to funds in comes of it don't they bad the a the little economy. – see just concept the

Joe Mondillo

is seen buildings and I the country terms factor America where are apologize know in in sort the affecting Middle seeing I that farming did, I Okay. work, seeing could those in if you that your regarding of manufacturing I if talk of business a regions sort new projects? you if sort play next but of new that don't leads the and type two wondering mentioned works, this in. the know don't are know in a and we've lot hearing of right you construction downturn, being a lot if construction you're and And I'm Anything or about, that into earlier, you that of some then, sector of areas of you pressure

Bill George

I'll like positioning food, headed really now. a have good in, they verticals go eyes would seem very pharma, Data, say is we're bit. The little hospitals, I are right peeking first. level even open strength. that our

Brian Lane

is which just place is is would plenty hanging there. for level. in on, add more I university education, one us seeing opportunities here Still the of that

Joe Mondillo

money Yes. is that lot of sure. A for still sector in

Brian Lane

Absolutely.

Joe Mondillo

And thanks a lot right. Well, guys. day. All a have great

Brian Lane

You Joe. you. Thank too,

Operator

We we over have calls to hand Lane. If could Brian further no now.

Brian Lane

the based all we'll that force today. at everybody. the at We effort levels Hope a at see this you on elite it. labor XXXX Thanks hearty welcome we and the was a continuation a listening appreciated. the on field, year optimistic road Okay, in. great that joining in to out you here confidence call. the the day. of out on these call results, close soon. a and session I training office you folks are Have my and to and for all the year. outstanding give thank have XXXX be Systems, in It's project enjoyed Dallas of both just for management organization, to appreciate the that appreciate everyone really we for are yeoman's I the want great much very again, the Academy will Once Comfort

Bill George

Thanks.

Operator

you. That Thank conclude does today's call.

day. have disconnect. you now Thank good and for may joining You a

Comfort Systems USA (FIX) 29 Feb 202019 Q4 Earnings call transcript