COMFORT SYSTEMS USA INC Q3 FY2024 earnings call

• Record earnings and extraordinary cash flow: Earned $4.09 per share, up 40% from last year. Operating income 50% higher than strong third quarter last year. - Backlog: Far above last year, with same-store backlog $900 million higher than last year at this time. Entering Q4, same-store backlog 21% higher. - Revenue: Same-store quarterly revenue 18% higher, year-to-date up 23%. Revenue mix trends toward data centers, kit fabrication, etc. Industrial customers accounted for 60% of 2024 revenue; technology (part of industrial) was 32% of revenue. - Service: Revenue up 7% this quarter, on-track to exceed $1 billion in 2024. - Cash position: Cash now exceeds debt by $347 million after strong cash flow, share repurchases, and acquisitions.

The Electrical segment achieved unprecedented margins, while Mechanical margins remained strong. Third-quarter revenue was $1.8 billion, up 32% year-over-year. Electrical segment revenue increased by 8%, and Mechanical segment revenue by 39%. Same-store quarterly revenue was 18% higher, with year-to-date revenue up 23%. Gross profit for the third quarter of 2024 was $382 million, a $104 million improvement from the prior year. The Electrical segment's gross profit percentage increased to 23.9% from 19.4% in the prior year, while Mechanical margins were roughly flat at 20.3%. EBITDA for the quarter was $238 million, a 53% increase from the third quarter of 2023, with same-store EBITDA up over 30%.

Expect continued strong results in Q4 and 2025. Revenue expected to rise in 2025, likely high single-digit to low double-digit percentage growth. EBITDA margins for remainder of 2024 and into 2025 expected to remain strong. Backlog at end-of-Q3 was $5.7 billion, with same-store backlog 21% higher than last year at this time.

Risks and uncertainties as detailed in Form 10-K and 10-Q that could affect actual results. Discipline in project selection due to high demand may impact margins/execution. Seasonality in margins, with Q1 typically lower than other quarters.

Q: Could hit a new record backlog over next couple of quarters?

A: Bill George said he'd be surprised if not one of the next two quarters, driven by strong demand but requiring disciplined project selection.

Q: Thoughts on Electrical margins shake-out?

A: Brian Lane said electrical companies are executing superbly, margins unprecedented, likely to stay strong for a while.

Q: Modular efficiency initiatives?

A: Bill George said both Texas and North Carolina are involved, using robots, new customers driving design and manufacturing improvements.

Q: Liquid cooling in data centers?

A: Bill George said new data centers have higher density, more connections due to increased chillers, with liquid cooling increasingly used.

Q: Margin expansion sustainability?

A: Brian Lane said it's a combination of pricing, execution, workforce development, technology, and risk management.

Q: Project selection factors?

A: Bill George said people first, partner second, profit third, considering location, general contractor, existing customers, and gross profit per labor.

Q: Field productivity?

A: Bill George said technology, drawings, utilization, and workforce sharing help; Brian Lane praised COO and team for applying construction technologies.

Q: Uses of cash?

A: Bill George said share repurchases, acquisitions of great companies, with a disciplined approach.

Q: Manufacturing vertical trends?

A: Bill George said movement to data center work by industrial subsidiaries due to best opportunities; Brian Lane said visibility in multi-phase projects contributes to confidence.

Q: Cash-flow terms?

A: Bill George said favorable terms across businesses, influenced by bargaining power and customer willingness to pay for future work.

Q: Data center TAM?

A: Bill George said data centers have more content for Comfort, with demand ongoing as compute and data needs grow.

Q: Buybacks attractiveness?

A: Bill George said prepared to buy shares on dips, increased buyback in Q3, confident in business.

Q: Margin seasonality?

A: Bill George said Q1 typically lower, Q4 usually down from Q3, summer service pushes up margins.