Yahoo Finance Comfort Systems USA, Inc. (NYSE:FIX) Q1 2024 Earnings Call Transcript
Comfort Systems USA, Inc. (NYSE:FIX) Q1 2024 Earnings Call Transcript April 26, 2024
Comfort Systems USA, Inc. isn't one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good day, and thank you for standing by, and welcome to the Q1 2024 Comfort Systems USA Earnings Conference Call. At this time all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today’s conference is being recorded. I would now like to hand the conference over to your speaker today, Julie Shaeff, Chief Accounting Officer. Please go ahead.
Julie Shaeff: Thanks, Justin. Good morning. Welcome to Comfort Systems USA’s first quarter 2024 earnings call. Our comments today as well as our press releases contain forward-looking statements within the meaning of the applicable securities laws and regulations. What we will say today is based on the current plans and expectations of Comfort Systems USA. Those plans and expectations include risks and uncertainties that might cause actual future activities and results of our operations to be materially different from those set forth in our comments. You can read a detailed listing and commentary concerning our specific risk factors in our most recent Form 10-K and Form 10-Q as well as in our press release covering these earnings.
A slide presentation has been provided as a companion to our remarks. This presentation is posted on the Investor Relations section of the company’s website found at comfortsystemsusa.com. Joining me on the call today are Brian Lane, President and Chief Executive Officer; Trent McKenna, Chief Operating Officer; and Bill George, Chief Financial Officer. Brian will open our remarks.
Brian Lane: Thanks, Julie. Good morning, everyone, and thank you for joining us on the call today. 2024 is off to an outstanding start, with strong revenue, fantastic margins and continuing strong cash flow. Our dedicated teams across the country achieved superb execution, and I am deeply grateful for their hard work and commitment. We earned $2.69 per share this quarter compared to $1.59 a year ago. Our revenue was $1.5 billion with same-store growth of 23%. Our Mechanical business exceeded last year, while our Electrical segment achieved unprecedented margin. Backlog is $5.9 billion, up both year-over-year and sequentially on a same-store basis. Construction continues to thrive amid strong ongoing demand and service is performing at high levels.
In February, we closed two substantial acquisitions, Summit Industrial and J&S Mechanical, and they, too, are off to a great start. Both of these companies are included in our Mechanical segment. We also increased our dividend by 20% adding $0.05 to reach $0.30 per share. This increase reflects our continuing strong cash flow and our commitment to reward our shareholders. I will discuss our business and outlook in a few minutes. But first, I will turn this call over to Bill to review our financial performance. Bill?
Bill George: Thanks, Brian. I can’t help but also express my gratitude to the people who are working every day to create these amazing results. So as Brian noted, revenue for the first quarter of 2024 was $1.5 billion, and that is an increase of $362 million or 31% compared to last year. Same-store revenue increased by 23% or $266 million, with the remaining $96 million increase resulting from acquisitions. Our Mechanical segment revenue increased by 29% and our Electrical segment revenue increased by 37%. We did not experience as much seasonality in this first quarter as we have in the past as an increasing proportion of our work is being performed in warmer climates. Additionally, weather in our colder climates was favorable for construction this quarter and with the strong growth in modular, more of our work is being performed under roof inside our modular plans.
We are also facing tougher prior year comparable results for the remainder of this year. However, our best estimate is that we will achieve same-store percentage revenue increases in at least the mid-teens and more likely in the high teens for the full year. Gross profit was $297 million for the first quarter of 2024, a $92 million improvement compared to a year ago. Our gross profit percentage improved to 19.3% this quarter compared to 17.5% for the first quarter of 2023. The quarterly gross profit percentage in our Electrical segment improved to 22.6% this year as compared to 16.1% last year. Margins in our Mechanical segment also increased in the quarter to 18.4% as compared to 17.9% in the first quarter of 2023. Our Mechanical segment includes our modular business, which operates at lower margins than our remaining business.
EBITDA improved markedly to $170 million this quarter from an already strong $90 million in the first quarter of 2023. Same-store EBITDA increased by over 70%. Although the first quarter benefited from the favorable factors I mentioned earlier, and our underlying trends are strong, we expect that for 2024, EBITDA margins will continue to trend in the strong ranges that we have achieved over the last several quarters and we are optimistic that full year EBITDA margins in 2024 will match or exceed our high 2023 results. Gross margin should also remain strong, but gross margin percentage may be more variable in 2024 in light of the effect of amortization and certain purchase-related adjustments. SG&A expense for the quarter was $163 million or 10.6% of revenue compared to $135 million or 11.5% of revenue in the first quarter of 2023.
On a same-store basis, SG&A spend was $19 million higher due to ongoing investments to support our higher activity levels. Our operating income increased by 91% from last year from $71 million in the first quarter of 2023 to $135 million for the first quarter of 2024. With improved gross profit margins, and favorable SG&A leverage, our operating income percentage increased to 8.8% this quarter from 6.0% in the prior year. Changes in the fair value of our earnout obligations this quarter reduced our income by $12 million, and that was caused by the variability noted earlier, and it was triggered by strong early performance at our recent acquisitions. We always have purchase-related adjustments in the periods following an acquisition; however, they will likely be much larger over the next several quarters because of the size of the Summit and J&S acquisition and the significant contingent consideration opportunities that were included in those transactions.
Our first quarter tax rate was 21.7%. We currently estimate that the full year 2024 tax rate will likely be in the 21% to 22% range. After considering all these factors, net income for the first quarter of 2024 was $96 million or $2.69 per share. This compares to net income for the first quarter of 2023 of $57 million or $1.59 per share. Free cash flow for the first quarter of 2024 was $123 million. We continue to benefit from advanced payments for work that we will fund and complete in upcoming quarters. And operating cash flow continues to exceed our earnings by about $300 million on a trailing 12-month basis. Over the coming quarters, we expect that eventually pre-bookings and equipment advances will normalize, creating some cash flow headwind.
In the meantime, these collections have allowed us to invest in growth and fund acquisitions from current cash flows, while lowering interest costs. Our total debt, as of March 31, 2024, was $90 million with no funded debt from our banks, and that was despite large cash payments for the Summit and J & S acquisitions in February. As Brian noted, we also increased our dividend. Before I close, I want to mention 1 additional item, which is not directly relevant to our financial results, but that I wanted to flag for awareness. Last night, a Texas store returned a jury verdict because one of our subsidiaries relating to a 2019 safety incident. The jury verdict was over $70 million and that pencils out to about $48 million for us. Assuming this jury’s verdict is rendered by the judge, we will pursue a number of strong appeals.
Even if the appeals are unsuccessful, this event is not expected to have an impact on us financially. That’s all I have, Brian.
Brian Lane: All right, thanks, Bill. I am going to discuss our business and outlook. Our backlog at the end of the first quarter was a record $5.9 billion. Since last year, our backlog has increased by $1.5 billion or 33% and about half of that increase was same-store growth, and the other half was new backlog from companies we acquired. Our sequential backlog increased by $754 million, of which $612 million related to acquisitions. Our same-store sequential backlog increased by $142 million and pipelines remain strong. Our revenue mix continues to trend to its data centers, chip fabrication, battery plants, life science and food. Industrial customers accounted for 60% of total revenue in the first quarter and they are major drivers of pipeline and backlog.
Technology, which is included in industrial, was 30% of our revenue, a substantial increase from 19% in the prior year. Institutional markets, which include education, health care and government, are also strong and represent 23% of our revenue. The commercial sector remains reasonably active in the regions that we serve, but it is now part – a smaller part of our business at about 17% of revenue. The majority of our service revenue is for commercial customers. So the share of our overall construction revenue from commercial has become relatively small. Construction grew quickly and drove great results for us this quarter. Overall, Construction accounted by 84% of our revenue with projects for new buildings representing 59% and existing building construction 25%.
We include modular and new building construction. In modular, this quarter, with 16% of our revenue. Service revenue increased this quarter, but because of the growth in Construction, even with the service revenue increase service fell to 16% of total revenue. Service, which remains seasonal, continues to be a great source of profit and cash flow for us. Comfort Systems USA is thriving and our team members, across the country, are delivering exceptional results. Thanks to their excellence. And in light of the strong ongoing demand, we are optimistic that we will continue to achieve strong results in 2024. Safety, execution and innovation remain at the forefront of our operations. We believe that our commitment to our employees and to building legacies is the foundation of our success.
Our number one priority is to preserve and grow the best workforce in our industry. And so as always, I want to thank – I want to close by thanking all our 16,500 employees for their hard work and dedication. I will now turn it back over to Justin for questions. Thank you.
See also
25 Most Underrated Cities in Europe to Visit in 2024 and
15 Fastest Aging Countries in the World.
To continue reading the Q&A session, please click here.
