STAAR Surgical Q3 2023 Earnings Call Transcript

Quartr
Provided by Quartr
October 27, 2023

There are 8 speakers on the call.

Operator

Thank you for standing by and welcome to the Q3 2023 Conference System 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. Please be advised that today's call is being recorded. I would now like to turn the conference over to your host, Julie Schaeff, Chief Accounting Officer.

Operator

Please go ahead.

Speaker 1

Thanks, Valerie. Good morning. Welcome to Comfort Systems USA's Q3 2023 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 upon the current plans and expectations of Comfort Systems USA.

Speaker 1

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 ks 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. The 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.

Speaker 1

Brian will open our remarks.

Speaker 2

Thanks, Julie. Good morning, everyone, Thank you for joining us on the call today. I am in awe of the discipline and execution that our amazing teams continue to Great and build on. They are the true source of our exceptional results this quarter, our best ever growth, Earnings and cash flow. We earned $2.93 per share this quarter compared to $1.71 a year ago.

Speaker 2

Current quarter revenue was $1,400,000,000 with same store growth of 20%. Revenue was higher across our operations and our modular business in particular surged while maintaining superb execution for our customers. Service also continues to grow and increase earnings, Thanks in large part to past and ongoing investments. Our mechanical and electrical operations performed incredibly well. Our backlog continues to track at unprecedented levels and our pipeline of additional work is still strong.

Speaker 2

Backlog is $4,300,000,000 $1,000,000,000 ahead of last year and we also booked a sequential increase Even though this is our seasonally most active quarter, demand is especially robust in our industrial sectors. The unprecedented demand for data, chip and battery and strong trends in other areas like food, Pharma and Healthcare continue to give our teams the opportunity to show their expertise and commitment. We are carefully selecting work that has good margins and good working conditions for our valuable workforce. Operating cash flow surged this quarter to over $200,000,000 as our customers Continue to recognize our value and performance with favorable payment terms and timely payments. Today, we also increased our quarterly dividend by $0.025 to $0.25 per share or a rate of $1 per share on an annualized basis.

Speaker 2

This reflects our continuing strong cash flow And our commitment to reward our shareholders. We are also excited to announce that on October 2, we acquired Deco, An extremely capable pipe and mechanical company located in New Hampshire, and we welcome that team to Comfort Systems. I will discuss our business and outlook in

Speaker 3

a few minutes. But first, I'll turn this call over to Bill to review our financial performance. Bill? Thanks, Brian. We had an amazing Q3 with 20% same store revenue growth, Higher margins and over $200,000,000 of operating cash flow.

Speaker 3

In addition, compared to last year, both our EPS And EBITDA increased by over 50%. Revenue for the Q3 of 2023 was $1,400,000,000 An increase of 23 percent or $258,000,000 compared to last year. Our Mechanical segment revenue increased by 100 $73,000,000 or 20 percent and continues to benefit from growth in our modular business. Our Electrical segment increased by an even larger 33 percent to $347,000,000 Combined, Same store revenue increased by 20% or $224,000,000 as we continue to benefit from strong demand and some pass through effects of inflation. We are facing tougher revenue comparables in the Q4 of the year and we currently estimate that same store revenue growth in the Q4 will be in the mid teens.

Speaker 3

Gross profit was $277,000,000 for the Q3, a $75,000,000 improvement compared to a year ago. Our gross profit percentage improved to 20.1% this quarter compared to 18.1% for the Q3 of 2022, driven by improved mechanical margins. Quarterly gross profit exceeded 20% for the first time in a few years. This quarter, we grew by over 20% on a same store basis and added 2 full percentage points to our gross profit margin, An extraordinary operational accomplishment. The quarterly gross profit percentage in our Mechanical segment improved to 20.4% this year As compared to 17.6% last year, margins in our Electrical segment declined slightly in the quarter to 19.4% As compared to 19.7% in Q3 2022.

Speaker 3

However, last year, our Electrical segment benefited from a litigation win. So core execution in electrical profitability was also notably higher. We are optimistic For the Q4 and next year, margins can trend in the strong ranges that we achieved over the last few quarters. SG and A expense for the quarter was $143,000,000 or 10.4 percent of revenue compared to $121,000,000 or 10.8 On a same store basis, SG and A was up approximately 18,000,000 Due to inflation and ongoing investments to support our much higher activity levels, but the growth in our SG and A cost was Lower than our growth in revenue resulting in SG and A leverage this quarter as compared to last year. Our operating income increased by 66% from last year to $135,000,000 With improved mechanical margins and SG and A leverage, our operating income percentage improved to 9.8% this quarter, an all time high from 7.3% for the Q3 of 2022.

Speaker 3

Interest expense for the 1st 9 months of 2023 continues to benefit from our extremely strong cash flow. It is also partially and temporarily offset by interest income related to a favorable legal outcome earlier this year. Our year to date tax rate of 16.1 percent included an incremental benefit of $10,000,000 or $0.27 of tax gains Related to prior years. Although individual items have affected our tax rate lately, we estimate that a normalized tax rate for us is Approximately 20% to 22%. After considering all these factors, net income for the Q3 of 2023 was $105,000,000 or $2.93 per share.

Speaker 3

This compares to net income for the Q3 of 2022 of $62,000,000 or $1.71 per share. Excluding prior year tax gains, earnings per share increased to $2.74 per share From $1.67 per share in the prior year, an increase of 64%. EBITDA increased from $101,000,000 in the Q3 of last year to $156,000,000 this quarter, An increase of 54%. Free cash flow for the 1st 9 months of 2023 Was a remarkable $402,000,000 We continue to benefit from advanced payments for work that we will need to fund and complete in upcoming quarters. Our trailing 12 month operating cash flow exceeds our trailing 12 month earnings by an astounding $300,000,000 That over collection must reverse at some point as we pay to perform the work that we have already been paid for.

Speaker 3

But that timing is unknown and it is dependent on the timing of future orders and future advance payments. In the meantime, these collections have allowed us to lower our debt and our interest costs tremendously. So far this year, we have spent $64,000,000 on capital expenditures, which is double the amount we have spent at this time last year. The increase includes the build out of 2 vast new modular production facilities and the purchase of vehicles as we catch up from COVID. Our substantial cash flow allowed us to pay down our revolving credit facility to 0 this quarter and to reduce our overall debt by $209,000,000 since the year began.

Speaker 3

And during that time, we also funded the purchase of Eldeco from our current cash flow. We continue to purchase our shares and have acquired 64,000 so far this year at an average price of 134 And $0.53 Finally, as Brian mentioned, we acquired Deco at the beginning of October. We expect Deco to initially contribute annualized revenues of approximately $50,000,000 to $65,000,000 Margins that are consistent with our overall business. They will be included in our Mechanical segment. So I've got our financials, Brian.

Speaker 2

Okay. Thanks, Bill. I'm going to spend a few minutes discussing our business and outlook. Our backlog at the end of the 3rd quarter Was $4,300,000,000 Since last year at this time, our same store backlog has increased by $900,000,000 Around 27% with increases in our traditional mechanical and electrical business And substantial new bookings in our off-site construction operations. Our sequential backlog increased by $102,000,000 despite the Heavy revenue volume over the past 3 months.

Speaker 2

Our pipeline of future work remains strong. Our revenue mix continues to trend towards data centers, life science, food and other manufacturing such as chip plants and battery. Those industrial customers accounted for 54% of total revenue in the 1st 9 months of 2023 and they are major drivers of pipeline and backlog. Technology, which is included in industrial, With 21% of our revenue in the 1st 9 months of 2023, a substantial increase from 13% in the prior year. Institutional markets, which include education, healthcare and government are also strong and represent 27% of our revenue.

Speaker 2

The commercial stunt sector is active, but with our changing mix, it is now a smaller part of our business At about 19% of revenue and most of that commercial revenue is service. Year to date, construction was 80% of our revenue, with projects for new buildings at 55%, While existing building construction was 25%. Service revenue increased by 14% year to date compared to last year. Service was 20% of our total revenues, with service projects providing 9% of total revenue and pure service, including hourly work providing 11% of revenue. Service revenue continues to be about 20% of our total revenue And our service business is on track to be $1,000,000,000 of revenue for full year 2023.

Speaker 2

In both service and construction, we are encouraging and supporting our customers as they seek to to improve the efficiency and sustainability of their buildings and operations, and we are committed to being good members of the diverse communities we serve. Comfort Systems is fortunate to have the right capabilities To help meet the surging need for mechanical and electrical experts, to grow data capacity for artificial intelligence And to help increase our country's capacity to build its own chips, manufacture its own medicines, Supply its batteries and provide healthcare resources as our population ages. We are thriving because of our people's commitment, excellence and hard work And because of our field leaders' discernment in choosing projects and managing risk, Thanks to them. We feel confident in our prospects for continued growth and strong profitability into 2024. Our number one priority remains to preserve and grow the best workforce in our industry.

Speaker 2

We are grateful for their and your trust. I want to end by thanking our over 15,000 employees for their hard work and dedication. I'll now turn it back over to Valerie for questions. Thank you.

Operator

Thank you. Our first Question comes from the line of Brent Thielman of D. A. Davidson. Your line is open.

Speaker 4

Hey, thanks. Good morning. Great quarter.

Speaker 5

Brian or Bill, I heard your comments that you had anticipated margins sort of hanging around the range you Spoke of last few quarters. Any reason to think the margins would be down next year, just given this year's really strong performance?

Speaker 2

Not really, as you know, Brett, you're going to have margins move up and down quarter to quarter a little bit. But in the aggregate, if you look over the whole year, I think we'll continue to perform at a very high level into 2024. Over 20%, as you know, is extraordinary, right? But in the high teens that we've been hitting, I would anticipate Continue to hit that.

Speaker 5

Okay. And then, when you refer to a cash sort of headwind in the coming quarters. Do you anticipate cash flow sort of getting back to historic conversion rate? So how are you thinking about that?

Speaker 3

So it's if you combine time period, that's easy. We're going to cash flow our after tax earnings. We're in an interesting situation now where we've collected 100 of 1,000,000 of dollars before we've gone out and done the work to earn it. There will be quarters at some point in the future, maybe middle of next year, but maybe not, where we'll be paying the guys doing the work we've already been paid for. So we could have some cash flow quarters where that has to be reflected in our cash flow.

Speaker 3

At the same time, we'll keep making money on all the work we're doing then and so it's hard to say where that will bake out. What we won't continue to do is cash flow twice or double our earnings, right? So at some point, We will cash on average over a multiyear period, we're going to cash flow our earnings no more, no less. So I don't know, it's fantastic news, right? Think about the position you're in when your are paying you massive amounts early.

Speaker 3

But and it's really hard to we thought we might start to see some of that Slide this quarter, so we booked new orders and guys were ahead on their billing. So it's I don't really have a lot of faith in our ability to guess which quarter. We'll see some of that turnaround, because frankly, our guys keep surprising us and doing better than we thought.

Speaker 5

Hopefully, that keeps happening, Bill, but understood. I guess just on the modular, Could you talk about maybe the dialogue you're having with key customers or new customers now that you've got Some additional square footage in place still seems to be some folks that Wonder if data center customer spending can continue at the rate it has. Just curious any anecdotes you could offer there?

Speaker 3

So we are doing everything we can to meet the needs of a very large and very loyal customer that we feel like we've Really had a great relationship with and we've done our best really to serve them. We have another similar large hyperscale data center customer That has given us some notable amounts of work over $100,000,000 as they try to sort of learn about our capabilities There's certainly additional work for that customer that we're already looking at on a very collaborative basis. Really at this moment, We can sell as much of that stuff as we can build. As you know, we're in the midst of doubling our capacity. We're not going to decide to go double it again or until we've successfully really done that.

Speaker 3

But so far, As you can see from our numbers, so good, right? We're in both of those spaces. 1, we're doing substantial work In that space and the other, we're just beginning to build bases. The first thing we're going to do when we really get deployed into the new spaces and get the Robotics and stuff in is bringing people over from other facilities and let them work during the day. Right now, we're running in some places 2.5 shifts And it's not sustainable.

Speaker 3

So what you can't do is say, well, you're doubling your square footage, so you're going to double your revenue. Some of that a A big part of that increase has already happened because we had to meet our customers' needs and we're working those extra shifts. But over time, We hope they just keep getting better, keep finding new ways to automate things. We think there's a really bright future, but what we will not do Let's get ahead

Speaker 4

of ourselves. Understood. Okay.

Speaker 5

Thank you, guys.

Speaker 2

Thanks,

Speaker 3

Brett.

Operator

Thank you. One moment, please. Our next question comes from the line of Julio Romero of Sidoti, your line is open.

Speaker 6

Thanks. Hey, good morning, guys.

Speaker 2

Good morning, Julio.

Speaker 6

Hey, good morning. Just Maybe thinking about the Mechanical segment, I want to kind of dig into a little bit more about what's driving that step up in margins, Because both sequentially and year over year, it's really impressive. So maybe if you could just dig into Op leverage, pricing, execution, if there's maybe one factor that's kind of leading the others in terms of the mechanical segment?

Speaker 2

Yes. So, as you can imagine, when you're over 20%, it's all of the above, right? Good mix of work. It's work we're really good at doing. Margins are good in the work and we're planning and executing.

Speaker 2

But at the end of the day, It's going to come down to how well we perform in the field and they're just performing at a very high level. We don't have If you noticed a long time, we don't have any we have an absence of significant bad news and that really does help you. But also, We had a really strong, is it, 40% increase in service revenue. We had a very strong Service, 3rd quarter. As you know, the heat was tremendous.

Speaker 2

Our folks were working night and day to satisfy our customers' needs, both On call out work, small project, etcetera, the margins are higher in service. That really helps us as well. So We've got good balance, good execution, good work mix and the work that we're good at.

Speaker 3

Another interesting factor, you may recall a year We were saying we're very early in a lot of our work because we were coming out of COVID, so there was more work starting. Now we really have a nice like cadence of business. We have if we look at you look at our top 100 or 200 jobs out of our 10,000 or that live on are currently on our POC. The big ones, there's lots of 80% completes in there and 65% and 90%, whereas A year ago, you were seeing a lot of sub-fifty and really low actually with jobs beginning. When you get up to 70, 80, 90, if you're really performing well, you start to Get comfortable with releasing contingency and so part of it is just we're getting to a more normalized book of work And which is exactly what we were hoping for crossing our fingers for.

Speaker 3

These guys are doing it.

Speaker 6

Really helpful. And then my second question is just on the revenue. You mentioned the same store sales growth for The Q4 expected in the mid teens. I guess that implies like a full year same store sales around 22% or so. Just Considering that, I guess, how do we think about how should we think about revenue comps for 2024 considering the backlog and Growth momentum, but also some of the pass through costs that may moderate?

Speaker 3

So we're in budgeting season now. Literally, we're literally going out and getting our field view on that. The comparables get tougher and tougher. Half of the growth until this quarter With inflation, we don't expect net inflation growth, right? We don't expect inflation to reverse currently.

Speaker 3

We don't expect it to be a big 10% pusher. So So I would I just don't see how our we continue to have same store revenue growth of 20% next year. The one thing I'll say is we really didn't expect it this quarter, Right. But we do have $1,000,000,000 more of backlog than we had a year ago, so it's going to be pretty hard for us to not at least think we're going to have double digit growth. Quite honestly, we're just We're figuring that out right now.

Speaker 3

This business is a business you go out and you earn it and you do it every quarter and every day.

Speaker 6

Yes, that makes sense. And what was the inflation portion of the 3rd quarter sales growth?

Speaker 3

Almost 9%, 3% to 4%, Yes, I would say. That's our best estimate, about what it was for the U. S. Economy, A lot less than to add than recently.

Speaker 6

Okay. Very helpful. I'll pass it on. Thanks very much.

Speaker 4

Thank you. Thanks.

Operator

Thank you. One moment please. Our next question comes from the line of Josh Chan of UBS, your line is open.

Speaker 4

Hi, good morning, Brian, Bill and Trent. Congrats on a really good quarter. Thank you. Yes. I was thinking about the organic growth and if only

Speaker 2

3 or

Speaker 4

4 points of that was price, Could you just kind of talk about how much of the remaining growth is from you successfully hiring more workers Or kind of improving productivity within your construction process, kind of how that breaks down to contribute to the really strong growth?

Speaker 2

It is a combination of both. We did hire more folks. I mean, we're a good place to work. People want to come and work here. So we had good luck with that.

Speaker 2

But we also had productivity improvements. The use of prefabrication continues to accelerate BIM modeling, which is really accelerating at a rapid race. All this stuff is really helping us out in the field, automation on the welding front, etcetera. So it's a combination of hiring more folks And clearly, improved productivity and just really trying to support the folks in the field to make the work As easy as we can for them on a job site.

Speaker 3

Yes, it's crazy. I mean, also we worked a ton of overtime in service, right, with the heat. Yes, that's a point or 2. And then you've got like we got 2 points we went from 18.1% gross profit to 20.1% gross profit. That's revenue, right?

Speaker 3

The difference between those two is recognized revenue. So this was just a fantastic quarter And really all of the above and we just got to hand it to the guys.

Speaker 4

Right, right. Yes, it was definitely a really good quarter. I was wondering if you can talk about the Bing environment for new projects. I guess for a while now there's been more work than you and the industry can handle. Is it Still the case now, what verticals are you seeing the new projects kind of starting to get bid out here?

Speaker 2

Yes. So I mean, the opportunities are still very strong. It's broad based, coast to coast, The industrial sectors, we talked about in our prepared remarks, is still very strong Data, pharma, food, battery, etcetera. So we have not seen a let up in opportunities. As we also said, we just got to make sure we stay prudent, taking the work we're good at, don't overextend ourselves and Make sure we continue to do good work for our customers.

Speaker 2

So, so far, we're in a really good spot right now.

Speaker 4

Great. Thank you for the color and thank you for your time.

Speaker 3

Thank you.

Operator

Thank you. One moment please. Our next question comes from the line of Adam Thalmer of Thompson Davis, your line is open.

Speaker 4

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

Speaker 2

Thanks, Adam.

Speaker 4

Can you talk about Modular for a little bit longer? Because I'm curious, the contract you signed in December, Like are you shipping on that now? And then if so, what has been the early experience with margins and productivity? Because I think that was supposed to start with kind of low productivity and ramp up.

Speaker 3

Yes. So just so you know, what was booked in a 10 day period in December There was numerous purchase orders, so they range from $20,000,000 to $40,000,000 for individual units. They were just all sent over in a batch to get us to Help us feel comfortable signing those leases. Some of those have already they're already on trucks. Very small part of them are on trucks, but a Ton of that's already being built.

Speaker 3

That's why we're working 2.5 shifts. And we've received some new orders. It's going better than we could have hoped, right? Look at our numbers, right? So far, knock on wood, I don't know.

Speaker 4

Wait, so some new orders versus the ones in December?

Speaker 3

Yes. So we've gotten more new orders. Otherwise, you would have seen our That one dropped by even more, right, in the Q2 and then it's up in the Q3, which shows that you couldn't really you couldn't be getting 0 orders in modular and hope to have a Sequential increase. And by the way, those come in lumpy. I mean, people should not worry about a sequential backlog change unless it's Unless we're telling you to worry about it.

Speaker 3

It's there's going to be if we didn't have some quarters where we had sequentials down, We would spin out of control and go out of business. I mean, people I know love to see that. But right now, what we're telling you is We are turning away work. You're going to see I think you're going to see in the overall construction markets at some point in the next year or 2 Some maybe little less stuff is being built than a lot of people are projecting. When that happens, it's going to be because the capacity to build it isn't It's not going to be because suddenly people aren't going to want AI or chips or food or because the baby boomers stop getting older.

Speaker 3

It's just that there's so there's such a capacity constraint that right now the governors The ability to do it and obviously that puts us in a pretty good place, right, because we represent A lot of productive capacity.

Speaker 4

Okay, perfect. And then, actually just a couple of cash flow questions. I'm completely confused on this R and D tax credit. I had a negative in my model Like for the next 5 quarters from that from the expiration, like a negative cash, a pretty large one actually. And should I still be baking that in?

Speaker 4

So here, I'm going to tell you, it got

Speaker 3

even crazier this quarter. So the IRS released An interpretation where they said, hey, we've got this stuff going on where you can't recognize certain expenses. Listen, I'm not we'll get you on the phone with our tax guy. But they came out and they said, but you don't need to recognize the revenue Related to those expenses, this year, it's a 1 year change on a 5 year problem. Suddenly, we didn't need to make a tax payment in the 3rd quarter.

Speaker 3

It's really complicated and we just need Congress to pass that extender. It's going to put a lot of little companies out of business if they don't. Yes. We need things to go back to normal, but you're absolutely it's a good catch. We expected to make probably a $30,000,000 or $40,000,000 tax Payment and we literally we'd already I think we'd actually literally already I'd already approved the payment and then This interpretation came out, which I think might have been the IRS trying to give at least a little bit of relief to the people who are You know, being put out of business by Congress' failure to be rational.

Speaker 3

But so we didn't pay our We didn't have to make that Q3 payment right now. As things stand, based on the interpretations that are being agreed by all the gurus, we I don't think we'll make a tax payment in the Q4, but then we'll be back. If they don't fix the extender, we'll be back to big tax payments next year Because that was like a this year interpretation. And if that confused you, it is so much more confusing.

Speaker 6

Adam, I'm going

Speaker 4

to ask you to do that in an Excel spreadsheet.

Speaker 3

It's insane. By the way, There was a Wall Street Journal article within the last week that would bring you up to about a year ago, up to date to about the problems that were about a year ago, But they didn't even touch on the stuff that's happened in the last couple of weeks. At some point hopefully times.

Speaker 4

That $30,000,000 to $40,000,000 payment, would that have been for a full year or you're expecting that every quarter if

Speaker 3

That would have been a 3rd quarter payment. And the way the payments work through the course of the year, you make them sort of 45 days in arrears. So it really wasn't Yes. It would have just it would have been a big payment, but that's not the amount we would pay every quarter on our current earnings. But that's what a Q3 payment would Look like if we didn't have to make it, it might have been 20 or 30, honestly, I don't know.

Speaker 4

Okay. All right. Well, that's fine. And then lastly, what does the CapEx Drop 2 once the new facility builds roll off?

Speaker 3

I would say it goes down by a third. It doesn't go back down to half. So we were in the $30,000,000 range. We're jumping up to the $60,000,000 range. I think we'll go back to like 40.

Speaker 3

If I had to guess, now we've signed and leased for more space, which is not inconceivable. That's a discrete event where One of the spaces we're building out the space we're building out in North Carolina has we're installing 24 overhead Track cranes, like cost $7,000,000 We have to have them. They make they're worth it. They're fantastic. The robots we put in, They're big.

Speaker 3

They take us a minute to walk past them. So We're making but the paybacks on these are like 1 year. So I don't know. Hopefully, 1 year.

Speaker 4

How much do you pay attention to the core data center Man, like what's going on in that market? I mean, I know you're getting orders hand over fist, but are you also paying attention to what the market is doing?

Speaker 3

So 1,000 not just are we paying attention, our guys are literally in some of the meetings inside some of the big they're called out to California to sit In planning meetings and yes, so we got guys in our electrical stuff in Texas that are very, very tightly connected. As you might imagine, if you were a hyperscale data center person, you'd have a big incentive to be talking to us As you made decisions and decided what. So we're definitely we're incredibly in contact with those people. Now do they know what's going to happen? No.

Speaker 3

What they believe is going to happen is build, build, build, build, build.

Speaker 4

Sounds great. Thanks guys. Have a good weekend.

Speaker 3

All right.

Speaker 2

You too, Adam. Take care.

Operator

Thank you. One moment please. Our next question comes from the line of Eric Crown of Ritchie Capital Group. Your line is open.

Speaker 7

Thank you. Good morning and thank you for taking my questions guys.

Speaker 2

Yes, good morning. Good morning.

Speaker 7

I guess just one on my end really. Could you provide just love to hear some commentary around the quality of the Backlog in its current state, during a potential economic slowdown, I guess to expand on that, given the current Customer and projects mix that you guys have, should we think about the probability of canceled orders or slowdown any differently than Kind of the historical cadence for the company during a downturn though?

Speaker 3

So here's the thing. At any given time, between 80% 90% Our backlog is work that's already in progress. So it's the cost. We don't put something in the backlog until after We have a price and a scope and a commitment and that almost always happens after the building has already started because somebody So we have had very, very few cancellations over the last 25 years. Like until COVID, we had only had one Cancellation over $20,000,000 something that went into our backlog and came out.

Speaker 3

During COVID, we had $60,000,000 or $70,000,000 That we took out of backlog because they were put in the middle of work, some stuff was put on hold with no recommencement date. All of that work has come back and been finished. So our definition of back is so strict that we rarely, rarely people just don't build half build a building and stop Very much. In the U. S, most places, it's illegal to do that.

Speaker 3

So our backlog is very firmly committed historically. And is it possible that something yes. The thing that really when you're exposed to certain clients, it's possible they say stop, stop for a period of time. If anybody says stop, stop, if they don't have a recommence date, we did get out of backlog because we have a super strict definition of backlog. We just always have.

Speaker 3

But let me just say, the quality of our backlog has never been better. It's astoundingly good. Yes. It's really good. It's worth yes, it's astoundingly good.

Speaker 3

It's never been better.

Speaker 7

That's extremely helpful. And yes, I guess that makes a lot of sense. It's less of a concern of cancellations or postponements or anything, more just a Slow down of things being brought into the backlog? And I guess from that aspect, are there any kind of customer types that you flag Maybe on the top of the list of if there was a slowdown, maybe work from their end would slow down a little bit as well.

Speaker 3

So commercial would 100% be the one that you would worry about right now, especially office building. We only less than 20% of our revenue right now is commercial and it's almost all service. So we just happen not to play in that market. In the markets that are important for us, I think I would say In the backlog, there's no real discernible risk. In the pipeline, stuff that we consider very high potential, what could happen is People could figure out AI is not real or the chip stuff could be get bogged down in, I don't know.

Speaker 3

They'd be sort of or by the way, the biggest risk, if you look back in the last 20 years, the two times we hit a big Delay, a big air pocket would have been 9.11 and I guess that's more than 20 years ago. And then the financial crisis, when the financial crisis first hit, there were Serious delays on jobs, although even then we were profitable right through it.

Speaker 7

Okay. I appreciate the commentary guys and congrats on a great quarter.

Speaker 4

Yes. Good question. Thank you.

Operator

Thank you. I'm showing no further questions at this time. I'd like to turn the call back over to Brian Lane, CEO, for any closing remarks.

Speaker 2

Okay. Thanks everyone for your interest in Comfort Systems. I really want to once again thank our amazing employees. Fantastic, fantastic job. Hope everyone has a wonderful upcoming holiday season.

Speaker 2

Stay safe. We look forward to seeing everyone and have a great weekend. Thank you. Thanks.

Operator

Thank you. Ladies and gentlemen, this does conclude today's conference. Thank you all for participating. You may now disconnect. Have a great day.

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Earnings Conference Call
STAAR Surgical Q3 2023
00:00 / 00:00