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spk10: Good day, and thank you for standing by. And welcome to the Q1 2024 Comfort System USA earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you'll need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. Would now like to hand the conference over to your speaker today, Julie Safe, Chief Accounting Officer. Please go ahead.
spk00: 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. Thanks, Julie.
spk03: 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 margins. 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 segments. 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.
spk04: Bill? Thanks, Brian. You know, 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 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 margins 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 earn out 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 acquisitions 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 advance 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-booking 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 bank. 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 one additional item, which is not directly relevant to our financial results, but that I wanted to flag for awareness. Last night, a Texas jury returned a jury verdict against one of our subsidiaries relating to a 2019 safety incident. The jury verdict was over $70 million. That pencils out to about $48 million for us. Assuming this jury's verdict is entered 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.
spk03: All right. Thanks, Bill. I'm 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 had 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 towards 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, healthcare, 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 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 for 84% of our revenue, with projects for new buildings representing 59%, and existing building construction, 25%. We include modular in new building construction, and modular this quarter was 16% of our revenue. Service revenue increased this quarter, but because of the growth in construction, Even with a 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 our over 16,500 employees for their hard work and dedication. I will now turn it back over to Justin for questions. Thank you.
spk10: And thank you. As a reminder to ask a question, please press star 1 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 1 again. Please stand by while we compile the Q&A roster.
spk11: And one moment for our first question.
spk10: And our first question comes from Alex Dwyer from KeyBank Capital Markets. Your line is now open.
spk14: Hi, team. Congrats on a strong start to the year. Hi, Alex. Hey, Alex.
spk05: Thank you. Yep. So the EBITDA margin was very strong this quarter, and the guide for this year continues to call for similar to last year. Can you just talk about the potential for margin expansion over the rest of the year? Is it just that the comps get tougher in the back half, or is there something in the recent performance that isn't sustainable as we progress through this year?
spk03: Well, you know, Brian, I'll go first, and then Bill can follow up. I mean, we're really pleased with the margins that we have right now. You know, if you're in that gross margin 18% to 20% range, I think you're executing at a high level over at 19% for the quarter. So I think we're going to continue to be in that range throughout the year. You know, we'll have broad-based, excellent performance across our operating companies. So, I mean, might have a little fluctuation up and down as we go, but in general, you know, our performance has just been excellent.
spk04: Like as we noted in the opening comments, we're definitely – anticipating expecting our even the debt margins for the full year to stay up near the last year right and the recent amazing results we have and we're optimistic we could do a little better I will say as you pointed out later this year we hit some very tough comparables right we had extraordinary growth and increases really progressively throughout the year and especially in the second half of the year last year so one of the things you're seeing is even though Last year, the first quarter seemed like an extraordinary quarter, and it was. It got so much better later in the year that we're just facing tougher comparables. We're extremely optimistic, but they are tough comparables, and that's why we're giving that guidance.
spk05: Thank you. And then the organic backlog growth was very strong this quarter. Can you talk about what end markets drove that strength and if there was any larger modular orders in there? And do you think it's fair to assume backlog can continue to increase sequentially through this year?
spk03: I mean, in terms of the backlog, it's broad-based. We didn't get one surge from any particular segment. It's really reassuring to us here to see multi-sectors, particularly if you're talking about you know, the tech sector, manufacturing, you know, education, still at the university level strong, and healthcare, both outpatient and hospital. So we're seeing good balance, you know, across the board.
spk04: And, you know, as far as what might happen in the coming quarters, it would actually surprise me at some point not to see some sequential declines, right? You can't, especially as we get into the summer and the revenues get really big, Historically, we've always had sequential declines in the middle of the year, except for lately. Like I said, it would surprise me, but to be fair, I have been surprised quarter after quarter for the last several quarters. The demand is unmatched. There's never been more demand for our services, and our guys are turning away work. But at some point, you can only take so much work. I think you'll see backlogs stay at extremely high levels, but I don't think you should say, oh, yeah, for sure, every sequential compare will be up. That's really not historically what happens.
spk05: And then a last one from me. The Summit and J&S acquisitions are off to a strong start this year. Is there anything different about the integration of them into your business, given these are so large? And can you talk about the appetite for more deals through the year?
spk03: You know, I'll just start on the integration. You know, the allies, what a little bit of advantage you have when they're larger. They get a little bit more horsepower. They're in the back office to handle public company requirements. These are both very sophisticated companies. Excellent workforce, great leadership. So we're working pretty closely with them to make this as smooth as possible. Plus, they've got a great attitude to integrate themselves, which is a huge help. So far, we're off to a great start.
spk04: Yeah, I couldn't agree more. For us, integration, the biggest thing we try to do in integration is keep what's great about a company and keep it going and keep it that local excellence. And so that's an advantage we have since we're not trying to change things. That makes integration a little easier.
spk14: Thank you. I'll turn it over. All right. Thank you.
spk10: And thank you. And one moment for our next question. And our next question comes from Adam Thalamer from Thompson Davis. Your line is now open.
spk07: Hey, good morning, guys. Great quarter. Hey, thanks, Adam. Good morning.
spk09: I wanted to stick on Summit and just see kind of what you're seeing so far, specifically from chip plants, kind of the timing of those projects.
spk04: You know, they have great work going on and great prospects. They also have a big solar fab, and they have, you know, these guys can do, they're perfect to do the big hard work that the country needs right now. That's why we want We were so excited to buy them. But right now, it's full speed ahead.
spk03: Yeah, you know, Adam, in terms of their skill set, you know, they're looking at a lot of opportunities in pharmaceuticals, et cetera. So, you know, their skills are applicable to a whole bunch of industries.
spk09: Oh, okay. What kind of capacity growth potential do they have as you start getting more into markets?
spk04: So, you know, when we buy a company, we don't push them to grow. You know, we basically push them to do, well, we push them to grow their workforce to really, really put their arms around and grow their workforce, which leads to growth in almost every case. But I would not say for us that's a growth story. I think like almost any company we buy, they will grow over time. But for us, it's just an excellence story. You know, keep your workforce busy.
spk09: And then I wanted to ask about specialty contractor capacity. Is it still, do you think, as tight now as it was kind of a year or two ago? And are you still booking work further out?
spk03: Yeah, you know, Adam, for sure, you know, it's still tight. We've been very fortunate to recruit some outstanding people. On the human resource side, we're attracting some great talent, but it is still tight. But we're a good place to work. We offer great compensation packages, the opportunity to develop. We like to promote from within. So I think that'll be a struggle for a while. But we have good work. People like working here. So I'm very optimistic about the future.
spk09: All right, Bill, just a quick modeling thing. What do you have for DNA in Q2, since we only had the acquisitions for part of Q1?
spk04: So we had two months of those guys. If you look in the footnotes, we actually have a table where we tell you almost exactly what we think it's going to be. So you can go get the actual numbers from one of the footnotes.
spk01: I was being lazy. Okay.
spk04: Yeah, well, I'm being lazy too because I have to go look it up myself. It's big. It's like you saw the pop, right? And that was only two months of those guys. But, you know, you're only required to publish that schedule once a year, but we publish it. We certainly publish it every quarter after we do an acquisition because, you know, those non-cash charges, they're so – They really, it's crazy that we reduce our earnings by that, right? People want to know what the asset they own is doing, but GAAP is GAAP, and so that's what we do.
spk15: Sounds good. Thank you, Bill.
spk10: And thank you. And one moment for our next question. And our next question comes from Josh Chan from UBS. Your line is now open.
spk18: Hey, good morning, guys. Congrats on a really good quarter. Thanks, Josh.
spk19: Could you talk about the bidding environment for potential projects that even are before backlogs? Anything changing there, and how's pricing on those bids that you're putting together?
spk03: Yeah, so in terms of the pipelines, Pre-order, it's still very robust. It's still broad-based. Pricing is still reasonable, for sure. It's a great opportunity for us to work for our really good customers, be very selective in the acquisition process. We don't chase revenue. Chase new opportunities and the work that we're good at. But in terms of the sectors that I hit on the floor, The operations, the opportunities are very consistent still today. No let up. No let up.
spk20: Okay. That's great to hear.
spk19: And then on the data center side, could you just talk about how your conversations are like with your data center customers and any kind of update in terms of your thinking on when you might be able to expand module capacity again?
spk04: you know these are these are big organizations so you're not just talking to one part of the organization right you're talking to the people who desperately need the capacity and who understand you know how to partner with us and you're also talking to parts of the organizations whose job it is to purchase things and to try to get the lowest price I would say that things are expected and our you know what we try to do is just be a great partner for people and if really we do our best work and get the best value for people who reciprocate that but I don't I don't know that anything's changed you know essentially we they are in an all paths to market mindset so they love getting this stuff built modularly there by hiring our contractors who build it in the traditional way and I just think that the demand is so great that they're just looking for people who can help them do what they need to do, and we love to do that for people who want to partner up.
spk03: You know, Josh, I'll just add on a little bit to the opportunities. One of our strengths is the size of the company and the geographic spread we have. You know, opportunity to share labor, it's really an advantage that us and a few of our colleagues throughout the country have to give somebody larger opportunities that we can handle both financially and from a resource basis, including when you think about our suppliers. You know, we're a good company to do business with, so our size right now is really helping us.
spk04: And, you know, we use that size to be a partner to people. We don't try to use it against people. Right. Yeah.
spk19: Any thoughts on whether you could expand capacity sometime later this year or into next year?
spk04: So if you're talking about modular, I would say that that is not something that we are currently making plans around, but we are evaluating.
spk19: Okay. All right. And then just a modeling question. So EBITDA margins usually go up. from Q1 to Q2. I know, Bill, you mentioned the lack of seasonality in Q1, but I was just wondering your thoughts about whether you can see a typical sequential margin expansion into next quarter.
spk04: Yeah, so even though margins do typically go up from the first quarter to the second quarter, but first quarters have never been all-time highs by extraordinary amounts. So it's a very... Insecure time for us to start saying we're going to have sequential upticks in margins, only because of how high they are in the first quarter. I'm more comfortable talking about doing better this year than last year, right? But one quarter. This is a quarter where our EBITDA was up 70% on a same-store basis. We need to adjust to that in our brains, you know? We stick around these margins. We'll be happy, folks. Yeah. Yeah.
spk19: Yeah. That's definitely understood. That's a good problem to have, and congrats, guys.
spk15: Thank you.
spk10: And thank you.
spk11: And one moment for our next question.
spk10: And our next question comes from Julio Romero from Sedodian Company. Your line is now open.
spk16: Thanks. Hey, good morning, guys. Morning, Julio. Hey.
spk17: Hey. Can you maybe talk about the margins you're seeing in construction? Are they trending upward? And are you seeing any fixed cost leverage as that modular business continues to grow?
spk03: You know, for sure, our construction margins, you know, increased back half of this year into this year. You know, there's a lot of multiple reasons for it, but the crux of it is, you know, good job selection with good customers. But I got to tell you, we're executing in the field. which has always run a rubber meets the road for me at a very high level. Really, I'm very grateful to the folks that go out to these jobs every day and the work they're doing. So, minds are up, and to me, a lot of it's about the execution that we're getting.
spk13: Got it. Now, great execution.
spk17: I'm just curious if there's any kind of fixed cost leverage that you see there as that grows.
spk04: Well, you know, our SG&A obviously dropped from 11.5 to 10.6. I would say we are definitely making investments to accommodate our growth from all sorts of back office sales. But with revenue increasing the way it is, it certainly seems like our SG&A can't go up as fast as that. So I don't think you'll see – I don't think you'll see worse SG&A leverage over the course of the rest of this year. Now revenue increases, you know, if we tell you we're going to be sort of in the mid-teens and more likely in the high-teens in revenue increase, and we were in the 20s this quarter, that means it's going to average down some. So I would say maybe we don't get additional leverage, So I don't think you'd see additional leverage sequentially, but I think year over year you're going to see a ton of leverage. And I don't even know. That's just a guess, right? The important part is year over year as far as how the math comes down into what we're doing. I hope you followed that. I think I wasn't very clear in that answer.
spk17: No, that was good commentary. And what's your best guess as to when you see some of this cash flow reversal as expected?
spk04: Well, so our history of getting that right is poor because it keeps waiting. It keeps happening later. I'd say late this year probably at some point. There is a sense in which, you know, it did flatten because we're going to show you a slide in our investor presentation. Last quarter we had a slide in our investor presentation that showed that we had earned Well, we had cash flowed $300 million more than we had earned in 2023. You're going to see at the end of the first quarter that on a trailing 12-month basis, we will have cash flowed more than we have earned by $300 million. Here's the thing. So the $300 million didn't go up, right? It didn't go down, but we didn't get in our same store businesses. Now, we did inherit some advanced cash from our acquisition, especially of Summit. But in our same store businesses, we didn't get farther out. So I think before you start to give some of it back, the first thing that happens is you stop getting more of it. And there were certainly signs in the first quarter that we stopped getting more of it. Having said that, we're earning so much money that cash flow, when I looked at why our cash flow was still so big in the first quarter, In the past quarters, it's been a lot of earnings and advance cash. This quarter, it was just a lot of earnings and not giving back advance cash. There is signs of that flattening out as it literally has to. If somebody pays you to do a bunch of welding and electrical work, Sooner or later, you've got to go do the welding and electrical work. And the welders and the electricians, you're going to pay them. You're going to have to pay them. It's a fantastic problem to have. Not really a problem, but it will look like a problem at some point, because at some point in the future, our cash flow will be less than our earnings by the amount that it was more than our earnings. And, you know, it's a high-class problem.
spk13: It certainly is. Thanks for the call, guys. Appreciate it. All right. Thanks, Leo.
spk10: And thank you.
spk11: And one moment for our next question. And our next question comes from Brent Thielman from DA Davidson.
spk10: Your line is now open.
spk15: Hey, thanks. Good morning, guys. Good morning, Brent.
spk06: I'm going to ask about margins. Sorry. I guess the... You look at this quarter, I mean, just take a step back. Is the margin performance because you're getting paid more generally for what you do or that you have the perfect mix of projects where you get paid more or you're just that much more productive in the field?
spk03: I would say all three. But, you know, the thing that we, you know, really can control on an everyday basis, you know, is how we're doing in the field. And, you know, Brent, you heard this from a lot of times. a different version of prefabrication. The more work we can do sort of inside a building and ship it to the field, the more productive, safer, the higher quality the work is. And we're doing more prefabrication every day. But it's a combination of all three for sure. But we really cannot minimize how well we are execution on a per person basis at these job sites, including service. We're talking a lot about construction, but our service folks are doing a hell of a job as well.
spk04: And the other thing you got to mention is electrical. Like our electrical margins popped by 600 basis points this quarter. And what was amazing about that, we had something like that a year and a half ago where we had an extraordinary gain in the quarter. This was just a mixture of everything good that can happen to a business because they're doing a great job. And our customers really value... the ability we have to go out and bring the manpower that's needed to do big jobs. And they're allowing us to really, you know, reward the people so that we can keep doing that. So electrical is mind-blowing, really amazing quarter. And, you know, you can say, well, is that a one-time blip? And the answer is I wouldn't bet against them. I mean, it's pretty hard to stay at this percentage, but I think they're just going to, they got a long runway ahead of them of doing well.
spk06: Okay. And just looking back, I don't think you guys have ever had a year when EBITDA margins for the rest of the year were below the first quarter. And I know, I know the company in the mix has evolved quite a bit in the last 10 years. I heard you comment kind of perfect storm of weather, both sides, but I'm, I'm just trying to unpack the reasons why we should be careful in thinking that this is tough to repeat.
spk04: And there's one reason that we are, it's our EBITDA on a same store basis was up 70% in the first quarter. It's pretty hard to see that happen and say, oh yeah, there's our new baseline, right? So I understand, we don't know what's going to happen, but these margins are for a first quarter, they are extraordinary. Now, do I think we've got extraordinary margins in our future? I do. But on a comparable basis, it's a tough comparable. We're about to hit tough comparables from the prior year, and our first quarter was a comparable for the ages. But we're about to make a lot of money. We'll go for it. Yeah, we'll make as much money as we can, and you can figure out what that means.
spk06: I got an idea. Okay. I guess I wanted to come back to modular. I mean, I think you're essentially booked in 2024. To what degree do you still have available capacity in 2025 to fill? And are conversations starting at all for 2026? I would say...
spk04: We believe that if we had more capacity, we could sell more than we have capacity for in 25. We have more of our capacity at 25 sold than we would have thought was possible. And, you know, we don't think people are going to, we don't think all of these factors are going to end by 26. But 26 alone, we don't have bookings. We don't have the floor planned for the middle of 2026. You know what I mean? Nobody's doing manpower loading schedules right now for the Winter Olympics. That's a long time out.
spk06: Maybe if you could just talk about the progression with new customers and modular. I know you don't want to talk about name specifics for obvious reasons, but How are you being able to diversify the customer base in that business?
spk04: So things are going great with our second large customer. We like them. They like us. The product they've designed we think is very, very clever and going to do a great job for them. You know, we've sold as much as we would have hoped as we could sell by now. As far as diversifying, the thing that keeps us from diversifying is that fantastic customers are willing to buy all of our capacity. We reserve a little bit of that capacity for a lot of long-time pharma customers who really rely on us to do certain things that other people would have a hard time doing. We have to do that because we owe it to them. But in general, so far, those two customers want all we can do. They've earned first, really, frankly, they've earned last look. They've earned first look and last look. They're great partners. Absolutely. And so as long as they're good partners, we take what the market, we do the work. The skills we have are applicable to all kinds of things, right? It's not like, but in our market, it's always lumpy. And it's always the case that there's more of something in any given year. And right now, You know, we're sticking with guys that need what we can do. And we, they've been great partners and they've earned our loyalty. They've asked us, what do we need to do to have all of your capacity? And we've said, well, this would be what you need to do. And we've, they've done it. And they've asked us last year, they said, what do you need in order to expand your capacity? And we said, look for, to be fair to our shareholders and the risks that we take and the costs we incur, we need these kinds of commitments and they made them. And so we're keeping our commitments to them.
spk06: Yeah, just one last one, guys. I mean, I think it's obvious that the opportunities and data centers has brought a lot of attention to the company and the stock from investors. And clearly, I think it's driving a lot of growth for you. Maybe just your perspective, is that overemphasized relative to some of the other things moving the needle for your business right now? You talk about manufacturing, industrial capacity. I'd just be curious your thoughts to that.
spk03: Well, I mean, I think it's, you know, it's logical that people focus on data centers as, you know, where you and I were touring a couple of weeks ago was everybody's favorite topic. But, you know, if you look at the other stuff we got going on, you know, just take Indianapolis, for example, how much farm is going on, food, you know, there's a lot of sectors, you know, that are very busy and work that we're good at. Whether you're talking about battery plants, food, Pharma, hospitals, you know, education, university work is still very strong. So I think we're seeing multi-sector activity. I think data centers is going to get a lot of attention for a while. But those other sectors, we love them. We're doing a lot of work in them, and the work's going well. Okay.
spk06: Thanks for taking the questions, Ken.
spk03: All right. Thanks, Brent.
spk10: And thank you. And I'm showing no further questions. I would now like to turn the call back over to Brian Lane for closing remarks.
spk03: Okay, Justin. So in closing, I really want to thank our amazing employees. Once again, we are really grateful for their daily efforts. We do appreciate everyone's interest on the call. You know, in our business, it's great to talk about it. And thank you. You know, I'm very optimistic about 2024. We've got great customers. We've got great people. And, you know, really looking forward to how the year pans out. And as well as seeing most of you on the road, probably here pretty soon. So thanks for that, too. And hope everyone has a great spring. Thanks, and enjoy your weekend. Thanks, folks.
spk10: This concludes today's conference call. Thank you for participating, and you may now disconnect. Thank you. Thank you. Thank you. Good day, and thank you for standing by. And welcome to the Q1 2024 Comfort System USA earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you'll need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. Would now like to hand the conference over to your speaker today, Julie Safe, Chief Accounting Officer. Please go ahead.
spk00: 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.
spk03: 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 flows. 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 margins. 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?
spk04: Thanks, Brian. You know, 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 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 businesses. 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 this full year EBITDA margins in 2024 will match or exceed our high 2023 results. Gross margins 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's spin 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 earn-out 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 acquisitions 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 advance 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-booking 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 one additional item, which is not directly relevant to our financial results, but that I wanted to flag for awareness. Last night, a Texas jury returned a jury verdict against 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 entered 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.
spk03: 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, about 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 remained strong. Our revenue mix continues to trend towards 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, healthcare, 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 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 for 84% of our revenue, with projects for new buildings representing 59%, and existing building construction, 25%. We include modular in new building construction, and modular this quarter was 16% of our revenue. Service revenue increased this quarter, but because of the growth in construction, even with a 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 our over 16,500 employees for their hard work and dedication. I will now turn it back over to Justin for questions. Thank you.
spk10: And thank you. As a reminder to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please stand by while we compile the Q&A roster. And one moment for our first question. And our first question comes from Alex Dwyer from KeyBank Capital Markets. Your line is now open.
spk14: Hi, team. Congrats on a strong start to the year.
spk05: Hi, Alex. Hey, Alex. Thank you. Yep. So the EBITDA margin was very strong this quarter, and the guide for this year continues to call for similar to last year. Can you just talk about the potential for margin expansion over the rest of the year? Is it just that the comps get tougher in the back half, or is there something – in the recent performance that isn't sustainable as we progress through this year?
spk03: Well, you know, Brian, I'll go first, and then Bill can follow up. I mean, we're really pleased with the margins that we have right now. You know, if you're in that gross margin 18% to 20% range, I think you're executing at a high level over at 19% for the quarter. So I think we're going to continue to be in that range throughout the year. You know, we'll have broad-based, excellent performance. across our operating companies. So, I mean, might have a little fluctuation up and down as we go, but in general, you know, our performance has just been excellent.
spk04: Like, as we noted in the opening comments, we're definitely anticipating, expecting our margins for the full year to stay up near last year, right, and the recent amazing results we have. And we're optimistic we could do a little better. I will say, as you pointed out, later this year we hit some very tough comparables, right? We had extraordinary growth and increases really progressively throughout the year and especially in the second half of the year last year. So one of the things you're seeing is even though last year the first quarter seemed like an extraordinary quarter and it was, it got so much better later in the year that we're just facing tougher comparables. We're extremely optimistic, but They are tough comparables, and, you know, that's why we're giving that guidance.
spk05: Thank you. And then the organic backlog growth was very strong this quarter. Can you talk about what end markets drove that strength and if there was any, like, larger modular orders in there? And do you think it's fair to assume, like, backlog can continue to increase sequentially through this year?
spk03: I mean, in terms of the backlog, it's broad-based. We didn't get, you know, one surge from any particular segment. It's, you know, it's really reassuring to us here to see multi-sectors, particularly if you're talking about, you know, the tech sector, manufacturing, you know, education, stay at the university level strong, and healthcare, both outpatient and hospital. So, we're seeing good balance, you know, across the board.
spk04: And, you know, as far as what might happen in the coming quarters, it would actually surprise me at some point not to see some sequential declines, right? You can't, especially as we get into the summer and the revenues get really big. Historically, we've always had sequential declines in the middle of the year, except for lately. So, I've been, like I said, it would surprise me, but to be fair, I have been surprised quarter after quarter for the last several quarters. is unmatched. There's never been more demand for our services. And our guys are turning away work. But at some point, you can only take so much work. And so I think you'll see backlogs stay at extremely high levels. But I don't think you should say, oh, yeah, for sure, every sequential compare will be up. That's really not historically what happens.
spk05: And then a last one for me. The Summit and JNS acquisitions are off to a Strong start this year. Is there anything different about the integration of them into your business, given these are so large? And can you talk about the appetite for more deals through the year?
spk03: You know, I'll just start on the integration. You know, the allies want a little bit of advantage. They get a little bit more horsepower. They're in the back office to handle public company requirements. These are both very sophisticated companies. excellent workforce great leadership um so we're working pretty you know pretty closely with with them to make this as smooth as possible but you know plus they got a great attitude you know integrate themselves which is which is a huge help so you know you know so far off to a great start yeah i couldn't agree more we for us integration the biggest thing we try to do in integration is keep what's great about a company and keep it going and keep it you know that local
spk10: excellent continuing and so that's an advantage we have since we're not trying to change things that makes integration a little easier yeah so thank you i'll turn it over all right thank you and thank you and one moment for our next question and our next question comes from adam thalamer from thompson davis your line is now open
spk07: Hey, good morning, guys. Great quarter. Hey, thanks, Adam. Good morning.
spk09: I wanted to stick on Summit and just see kind of what you're seeing so far, specifically from chip plants, kind of the timing of those projects.
spk04: You know, they have great work going on and great prospects. They also have a big solar fab, and they have, you know, these guys can do, they're perfect to do the big hard work that the country needs right now. That's why we want We were so excited to buy them. But right now, it's full speed ahead.
spk03: Yeah, you know, Adam, in terms of their skill set, you know, they're looking at a lot of opportunities in pharmaceuticals, et cetera. So, you know, their skills are applicable to a whole bunch of industries.
spk09: Oh, okay. What kind of capacity growth potential do they have as you start to get them more into markets?
spk04: So, you know, when we buy a company, we don't push them to grow. You know, we basically push them to, well, we push them to grow their workforce, to really, really put their arms around and grow their workforce, which leads to growth in almost every case. But I would not say for us that's a growth story. I think like almost any company we buy, they will grow over time. But for us, it's just an excellence story. You know, keep your workforce busy.
spk09: And then I wanted to ask about specialty contractor capacity. Is it still, do you think, as tight now as it was kind of a year or two ago? And are you still booking work further out?
spk03: Yeah, you know, Adam, for sure, you know, it's still tight. We've been very fortunate to recruit some outstanding people. On the human resource side, we're attracting some great talent, but it is still tight. But we're a good place to work. We offer great compensation packages, the opportunity to develop. We like to promote from within. So I think that'll be a struggle for a while. But we have good work. People like working here. So I'm very optimistic about the future.
spk09: Bill, just a quick modeling thing. What do you have for DNA in Q2, since we only had the acquisitions for part of Q1?
spk04: So we had two months of those guys. If you look in the footnotes, we actually have a table where we tell you exactly what we think it's going to be. So you can go get the actual numbers from one of the footnotes.
spk01: I was being lazy. Okay.
spk04: Yeah, well, I'm being lazy too because I have to go look it up myself. It's big. It's like you saw the pop, right? And that was only two months of those guys. But, you know, you're only required to publish that schedule once a year, but we publish it. We certainly publish it every quarter after we do an acquisition because, you know, those non-cash charges, they're so – They really – it's crazy that we reduce our earnings by that, right? People want to know what the asset they own is doing, but GAAP is GAAP, and so that's what we do. Sounds good. Thank you, Bill.
spk10: And thank you. And one moment for our next question. And our next question comes from Josh Chan from UBS. Your line is now open.
spk18: Hey, good morning, guys. Congrats on a really good quarter.
spk19: Thanks, Josh. Could you talk about the bidding environment for potential projects that even are before backlogs? You know, anything changing there, and how's pricing on those bids that you're putting together?
spk03: Yeah, so, you know, in terms of the pipelines, Pre-order, it's still very robust. It's still broad-based. Pricing is still reasonable, for sure. It's a great opportunity for us to work for our really good customers, be very selective in the acquisition process. We don't chase revenue. Chasing the opportunities and the work that we're good at. But in terms of the sectors that I hit on the floor, The operations, the opportunities are very consistent still today. No let up. No let up.
spk20: Okay. That's great to hear.
spk19: And then on the data center side, could you just talk about how your conversations are like with your data center customers and any kind of update in terms of your thinking on when you might be able to expand module capacity again?
spk04: you know these are these are big organizations so you're not just talking to one part of the organization right you're talking to the people who desperately need the capacity and who understand you know how to partner with us and you're also talking to parts of the organizations whose job it is to purchase things and to try to get the lowest price I would say that things are expected and our you know what we try to do is just be a great partner for people and if really we do our best work and get the best value for people who reciprocate that but I don't I don't know that anything's changed you know essentially we they are in an all paths to market mindset so they love getting this stuff built modularly there by hiring our contractors who build it in the traditional way and I just think that the demand is so great that they're just looking for people who can help them do what they need to do, and we love to do that for people who want to partner up.
spk03: You know, Josh, I'll just add on a little bit to the opportunities. One of our strengths is the size of the company and the geographic spread we have. You know, opportunity to share labor, it's really an advantage that us and a few of our um, colleagues throughout the country have, um, get some of these larger opportunities that we can handle both financially and from a resource basis. Um, including when you think about, um, our suppliers, you know, we're a good company to do business with. So our size right now is really, is really helping us.
spk04: And, you know, we use that size to be a partner to people, not, we don't try to use it against people. Right. Yeah.
spk19: Any thoughts on whether you could expand capacity sometime later this year or into next year?
spk04: So if you're talking about modular, I would say that that is not something that we are currently making plans around, but we are evaluating.
spk19: Okay. All right. And then just a modeling question. So EBITDA margins usually go up. from Q1 to Q2. I know, Bill, you mentioned the lack of seasonality in Q1, but I was just wondering your thoughts about whether you can see a typical sequential margin expansion into next quarter.
spk04: Yeah, so even though margins do typically go up from the first quarter to the second quarter, but first quarters have never been all-time highs by extraordinary amounts. So it's a very... insecure time for us to start saying it's it's going to we're going to have sequential uptick in margins and only because of how high they are in the first quarter we i'm more comfortable talking about doing better this year than last year right but one quarter this is a quarter where our ebitda was up 70 percent on a same store basis we need to adjust to that in our brains you know we stick around these margins we'll be happy folks yeah yeah yeah
spk19: Definitely understood. That's a good problem to have, and congrats, guys. Thank you.
spk10: And thank you.
spk11: And one moment for our next question.
spk10: And our next question comes from Julio Romero from Sedodian Company. Your line is now open.
spk16: Thanks. Hey, good morning, guys. Morning, Julio.
spk17: Hey. Hey. Can you maybe talk about the margins you're seeing in construction? Are they trending upward? And are you seeing any fixed cost leverage as that modular business continues to grow?
spk03: You know, for sure, our construction margins, you know, increased back half of this year into this year. You know, there's a lot of multiple reasons for it, but the crux of it is, you know, good job selection with good customers. But I got to tell you, we're executing in the field. which has always run a rubber meets the road for me at a very high level. Really, I'm very grateful to the folks that go out to these jobs every day and the work they're doing. So, minds are up, and to me, a lot of it's about the execution that we're getting.
spk13: Got it. Now, great execution.
spk17: I'm just curious if there's any kind of fixed cost leverage that you see there as that grows.
spk04: Well, you know, our SG&A obviously dropped from 11.5 to 10.6. I would say we are definitely making investments to accommodate our growth from all sorts of back office sales. But with revenue increasing the way it is, it certainly seems like our SG&A can't go up as fast as that. So I don't think you'll see – I don't think you'll see worse SG&A leverage over the course of the rest of this year. Now revenue increases. If we tell you we're going to be sort of in the mid-teens and more likely in the high-teens in revenue increase, and we were in the 20s this quarter, that means it's going to average down some. So I would say maybe we don't get additional leverage. So I don't think you'd see additional leverage sequentially, but I think year over year you're going to see a ton of leverage. And I don't even know. That's just a guess, right? The important part is year over year as far as how the math comes down into what we're doing. I hope you followed that. I think I wasn't very clear in that answer.
spk17: No, that was good commentary. And what's your best guess as to when you see some of this cash flow reversal as expected?
spk04: Well, so our history of getting that right is poor because it keeps waiting. It keeps happening later. I'd say late this year probably at some point. There is a sense in which, you know, it did flatten because we're going to show you a slide in our investor presentation. Last quarter we had a slide in our investor presentation that showed that we had earned Well, we had cash flowed $300 million more than we had earned in 2023. You're going to see at the end of the first quarter that on a trailing 12-month basis, we will have cash flowed more than we have earned by $300 million. Here's the thing. So the $300 million didn't go up, right? It didn't go down, but we didn't get in our same store businesses. Now, we did inherit some advanced cash from our acquisition, especially of Summit. But in our same store businesses, we didn't get farther out. So I think before you start to give some of it back, the first thing that happens is you stop getting more of it. And there were certainly signs in the first quarter that we stopped getting more of it. Having said that, we're earning so much money that cash flow, when I looked at why our cash flow was still so big in the first quarter, In the past quarters, it's been a lot of earnings and advance cash. This quarter, it was just a lot of earnings and not giving back advance cash. So there is signs of that flattening out as it literally has to, right? If somebody pays you to do a bunch of welding and electrical work, Sooner or later, you've got to go do the welding and electrical work. And the welders and the electricians, you're going to pay them. You're going to have to pay them. It's a fantastic problem to have. Not really a problem, but it will look like a problem at some point, because at some point in the future, our cash flow will be less than our earnings by the amount that it was more than our earnings. And, you know, it's a high-class problem.
spk13: It certainly is. Thanks for the call, guys. Appreciate it. All right. Thanks, Leo.
spk10: And thank you.
spk11: And one moment for our next question. And our next question comes from Brent Thielman from DA Davidson.
spk10: Your line is now open.
spk15: Hey, thanks. Good morning, guys. Good morning, Brent.
spk06: I'm going to ask about margins. Sorry. I guess the... You look at this quarter, I mean, just take a step back. Is the margin performance because you're getting paid more generally for what you do or that you have the perfect mix of projects where you get paid more or you're just that much more productive in the field?
spk03: I would say all three. But, you know, the thing that we, you know, really can control on an everyday basis, you know, is how we're doing in the field. And, you know, Brett, you heard this from a lot of times. you know, different version of prefabrication. The more work we can do sort of inside, you know, building and shipping to the field, the more productive, safer, the higher quality the work is. And we're doing more, you know, more prefabrication, you know, every day. So, but, you know, it's a combination of all three for sure. But we really cannot minimize how well we are execution on a per person basis at these job sites, including service. We're talking a lot about construction, but our service folks are doing a hell of a job as well.
spk04: And the other thing you've got to mention is electrical. Like, our electrical margins popped by 600 basis points this quarter, and what was amazing about that, we had something like that a year and a half ago where we had an extraordinary gain in the quarter. This was just a mixture of everything good that can happen to a business because they're doing a great job. And our customers really value... the ability we have to go out and bring the manpower that's needed to do big jobs. And they're allowing us to really help, you know, reward the people so that we can keep doing that. So electrical is mind-blowing, really amazing quarter. And, you know, you could say, well, is that a one-time blip? And the answer is I wouldn't bet against them. I mean, it's pretty hard to stay at this percentage, but I think they're just going to, they got a long runway ahead of them of doing well.
spk06: Okay. And just looking back, I don't think you guys have ever had a year when EBITDA margins for the rest of the year were below the first quarter. And I know, I know the company in the mix has evolved quite a bit in the last 10 years. I heard you comment kind of perfect storm of weather, both sides, but I'm, I'm just trying to unpack the reasons why we should be careful in thinking that this is tough to repeat.
spk04: And there's one reason that we are, it's our EBITDA on a same store basis was up 70% in the first quarter. It's pretty hard to see that happen and say, oh yeah, there's our new baseline, right? So I understand, we don't know what's going to happen, but these margins are for a first quarter, they are extraordinary. Now, do I think we've got extraordinary margins in our future? I do, but on a comparable basis, it's a tough comparable. We're about to hit tough comparables from the prior year, and our first quarter was a comparable for the ages. But we're about to make a lot of money. We'll go for it. Yeah, we'll make as much money as we can, and you can figure out what that means.
spk06: I got an idea. Okay. I guess I wanted to come back to modular. I mean, I think you're essentially booked in 2024. To what degree do you still have available capacity in 2025 to fill? And are conversations starting at all for 2026? I would say...
spk04: We believe that if we had more capacity, we could sell more than we have capacity for in 25. We have more of our capacity at 25 sold than we would have thought was possible. And, you know, we don't think people are going to, we don't think all of these factors are going to end by 26. But 26 alone, we don't have bookings. We don't have the floor planned for the middle of 2026. You know what I mean? Nobody's doing manpower loading schedules right now for the Winter Olympics. That's a long time out.
spk06: Maybe if you could just talk about the progression with new customers and modular. I know you don't want to talk about name specifics for obvious reasons, but how are you being able to diversify the customer base in that business?
spk04: So things are going great with our second large customer. Um, we like them, they like us, the product they've designed we think is very, very clever and going to do a great job for them. You know, we've sold as much as we would have hoped as we could sell by now. As far as diversifying, the thing that keeps us from diversifying is that fantastic customers, are willing to buy all of our capacity. Like we reserve a little bit of that capacity for a lot of longtime pharma customers who really rely on us to do certain things that any other people would have a hard time doing. We have to do that, right, because we owe it to them. But in general, so far, those two customers want all we can do and They've earned first, really, frankly, they've earned last look. They've earned first look and last look. They're great partners. Absolutely. And so as long as they're good partners, we take what the market, we do the work. The skills we have are applicable to all kinds of things, right? It's not like, but in our market, it's always lumpy. And it's always the case that there's more of something in any given year than right now. You know, we're sticking with guys that need what we can do, and they've been great partners, and they've earned our loyalty. They've asked us, what do we need to do to have all of your capacity? And we've said, well, this would be what you need to do, and they've done it. And they've asked us, last year they said, what do you need in order to expand your capacity? And we said, look, to be fair to our shareholders and the risks that we take and the costs we incur, we need these kind of commitments, and they made them. And so we're keeping our commitments to them.
spk06: Yeah. Maybe just one last one, guys. I mean, I think it's obvious that the opportunities and data centers has brought a lot of attention to the company and the stock from investors. And clearly, I think it's driving a lot of growth for you. Maybe just your perspective, is that overemphasized relative to some of the other things moving the needle for your business right now? You talk about manufacturing, industrial capacity. I'd just be curious your thoughts to that.
spk03: Well, I mean, I think it's, you know, it's logical that people focus on data centers as, you know, where you and I were touring a couple of weeks ago was everybody's favorite topic. But, you know, if you look at the other stuff we've got going on, you know, just take Indianapolis, for example, how much farm is going on, food, you know, there's a lot of sectors, you know, that are very busy and work that we're good at. What are you talking about? Battery plants, food. Pharma, hospitals, you know, education, university work is still very strong. So I think we're seeing multi-sector activity. I think data centers is going to get a lot of attention for a while. But those other sectors, we love them. We're doing a lot of work in them, and the work's going well. Okay.
spk06: Thanks for taking the questions, Ken.
spk03: All right. Thanks, Brent.
spk10: And thank you. And I'm showing no further questions. I would now like to turn the call back over to Brian Lane for closing remarks.
spk03: Okay, Justin. So in closing, I really want to thank our amazing employees. Once again, we are really grateful for their daily efforts. We do appreciate everyone's interest on the call. You know, in our business, it's great to talk about it. And thank you. Yeah, I'm very optimistic about 2024. We got great customers. We got great people. And, you know, really looking forward to how the year pans out. And as well as seeing most of you on the road. Probably here pretty soon. So thanks for that, too. And hope everyone has a great spring. Thanks, and enjoy your weekend. Thanks, folks.
spk10: This concludes today's conference call. Thank you for participating, and you may now disconnect.
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