Comfort Systems USA Q1 2024 Earnings Call Transcript

Quartr
Provided by Quartr
April 26, 2024

There are 8 speakers on the call.

Operator

Good day, and thank you for standing by, and welcome to the Q1 2024 Comfort Systems USA Earnings Conference Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer session. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Julie Saeth, Chief Accounting Officer.

Operator

Please go ahead.

Speaker 1

Thanks, Justin. Good morning. Welcome to Comfort Systems USA's Q1 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.

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. This presentation is posted on the Investor Relations section of the company's website found at comfortsystemsusa.com.

Speaker 2

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. 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.

Speaker 2

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 $1,500,000,000 with same store growth of 23%. Our mechanical business exceeded last year, while our electrical segment achieved unprecedented margins. Backlog is $5,900,000,000 up both year over year and sequentially on a same store basis.

Speaker 2

Construction continues to thrive amid strong ongoing demand and service is performing at high levels. In February, we closed 2 substantial acquisitions, Summit Industrial and J and 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.

Speaker 2

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? Thanks, Brian. I can't help but also express my gratitude to the people who are working every day to create these amazing results.

Speaker 2

So as Brian noted, revenue for the Q1 of 2024 was $1,500,000,000 and that is an increase of $362,000,000 or 31% compared to last year. Same store revenue increased by 23% or $266,000,000 with the remaining $96,000,000 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 Q1 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.

Speaker 2

And with the strong growth in modular, more of our work is being performed under roof inside our modular plant. 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 $297,000,000 for the Q1 of 2024, a $92,000,000 improvement compared to a year ago. Our gross profit percentage improved to 19.3% this quarter compared to 17.5 percent for the Q1 of 2023.

Speaker 2

The quarterly gross profit percentage 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 Q1 of 2023. Our Mechanical segment includes our Modular business, which operates at lower margins than our remaining business. EBITDA improved markedly to $170,000,000 this quarter from an already strong $90,000,000 in the Q1 of 2023. Same store EBITDA increased by over 70%.

Speaker 2

Although the Q1 benefited from the favorable factors I mentioned earlier, our underlying trend and our underlying trends are strong. We expect that for 2024 EBITDA margins will continue to trend in the strong ranges that we have achieved over the last several quarters, and we are optimistic that full year EBITDA margins in 2024 will match or exceed our high 2023 results. Gross margin should also remain strong, but gross margin percentage may be more variable in 2024 in light of the effect of amortization and certain purchase related adjustments. SG and A expense for the quarter was 163,000,000 or 10.6 percent of revenue compared to $135,000,000 or 11.5 percent of revenue in the Q1 of 2023. On a same store basis, SG and A spend was $19,000,000 higher due to ongoing investments to support our higher activity levels.

Speaker 2

Our operating income increased by 91% from last year from $71,000,000 in the Q1 of 2023 to $135,000,000 for the Q1 of 2024. With improved gross profit margins and favorable SG and 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 12,000,000 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 and S acquisitions and the significant contingent consideration opportunities that were included in those transactions.

Speaker 2

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 Q1 of 2024 was $96,000,000 or $2.69 per share. This compares to net income for the Q1 of 2023 of 50 $7,000,000 or $1.59 per share. Free cash flow for the Q1 of 2024 was 123,000,000 dollars We continue to benefit from advanced payments for work that we will fund and complete in upcoming quarters, and operating cash flow continues to exceed our earnings by about $300,000,000 on a trailing 12 month basis.

Speaker 2

Over the coming quarters, we expect that eventually pre bookings and equipment advances will normalize creating some cash flow headwind. In the meantime, these collections have allowed us to invest in growth and fund acquisitions from current cash flows while lowering interest costs. Our total debt as of March 31, 2024 was $90,000,000 with no funded debt from our banks and that was despite large cash payments for the Summit and J and 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.

Speaker 2

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 $70,000,000 and that pencils out to about $48,000,000 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.

Speaker 2

All right. Thanks, Bill. I am going to discuss our business and outlook. Our backlog at the end of the Q1 was a record 5,900,000,000 dollars Since last year, our backlog had increased by $1,500,000,000 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 $754,000,000 of which $612,000,000 related to acquisitions.

Speaker 2

Our same store sequential backlog increased by $142,000,000 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 Q1 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.

Speaker 2

The commercial sector remains reasonably active in the regions that we serve, but it is now part a smaller part of our business at about 17% of revenue. The majority of our service revenue is for commercial customers. So the share of our overall construction revenue from commercial has become relatively small. Construction grew quickly and drove great results for us this quarter. Overall, construction accounted for 84% of our revenue with projects for new buildings representing 59% and existing building construction 25%.

Speaker 2

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 the service revenue increase, service fell to 16% of total revenue. Service, which remains seasonal, continues to be a great source of profit and cash flow for us. Comfort Systems USA is thriving and our team members across the country are delivering exceptional results. Thanks to their excellence and in light of the strong ongoing demand, we are optimistic that we will continue to achieve strong results in 2024.

Speaker 2

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.

Speaker 2

Thank you.

Operator

And our first question comes from Alex Dwyer from KeyBanc Capital Markets. Your line is now open.

Speaker 3

Hi, team. Congrats on a strong start to the year.

Speaker 2

Hi, Alex. Hey, Alex. Thank you.

Speaker 3

Yes. 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?

Speaker 2

Well, this is 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. If you're in that gross margin 18% to 20% range, I think you're executing at a high level, we're over 19% for the quarter. So I think we're going to continue to be in that range throughout the year.

Speaker 2

We'll have broad based excellent performance across our operating companies. So I mean, might have a little fluctuation up or down as we go, but in general, our performance has just been excellent. Yes. Like as we noted in our in the opening comments, we're definitely anticipating, expecting our EBITDA margins for the full year to stay up near last year, right, and the recent amazing results we have and we're optimistic we can do a little better. I will say, as you pointed out, later this year we hit some very tough comparables, right?

Speaker 2

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 Q1 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.

Speaker 3

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?

Speaker 2

I mean in terms of the backlog, it's broad based. We didn't get one search of any particular segment. It's really reassuring to us here to see multi sectors, particularly if you're talking about the tech sector, manufacturing, education, stay at the university level strong and healthcare over there outpatient and hospitals. So we're seeing good balance across the board. 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?

Speaker 2

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. The demand is unmatched. There's never been more demand for our services. And our guys are turning away work.

Speaker 2

But at some point you can only take so much work. And so I think you'll see backlog stay at extremely high levels, but I don't think you should say, oh yes, for sure every sequential compare will be up. That's really not historically what happens.

Speaker 3

And then a last one for me, the Summit and J and 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?

Speaker 2

I'll just start on the integration. The outliers, what a little bit of advantage you have with the lodge is they get a little bit more horsepower, they're on the back office, they 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. But plus they got a great attitude to integrate themselves, which is a huge help.

Speaker 2

So far off to a great start. 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 that local excellence continuing. And so that's an advantage we have since we're not trying to change things. That makes integration a little easier.

Speaker 3

Thank you. I'll turn it over. All right.

Speaker 2

Thank you. Thank you.

Operator

And thank you. And one moment for our next question. And our next question comes from Adam Thalhimer from Thompson Davis. Your line is now open.

Speaker 4

Hey, good morning guys. Great quarter.

Speaker 2

Hey, thanks Adam. Good morning.

Speaker 4

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?

Speaker 2

They have great work going on and great prospects. They also have a big solar fab and they have these guys can do they're perfect to do the big hard work that the country needs right now. That's why we were so excited to buy them. But right now, it's full speed ahead. Yes.

Speaker 2

Adam, in terms of their skill set, they're looking at a lot of opportunities in pharmaceuticals, etcetera. So their skills are applicable to a whole bunch of industries.

Speaker 4

Okay. What kind of capacity growth potential do they have as you start to get a more end markets?

Speaker 2

So when we buy a company, we don't push them to grow. 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 excellent story.

Speaker 2

Keep your workforce busy.

Speaker 4

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 2 ago? And are you still booking work further out?

Speaker 2

Yes. Adam, for sure, 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.

Speaker 2

We offer great compensation package, the opportunity to develop. We like to promote from within. So I think that will be a struggle for a while, but we have good work, people like working here, so I'm very optimistic about the future.

Speaker 4

And Bill, just a quick modeling thing. What do you have for D and A in Q2 since we only had the acquisitions for part of Q1?

Speaker 2

So we had 2 months of those guys. I think it's in we put a if you look in the footnotes, we actually have a table where we tell you exactly, well, almost exactly what we think it's going to be. So just you can go get the actual numbers, from one of the footnotes.

Speaker 4

I was being lazy. Okay.

Speaker 2

Thank you. Yes, 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?

Speaker 2

And that was only 2 months of those guys. But 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 that those non cash charges, they're so they really it's crazy that we reduced 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.

Speaker 4

Sounds good. Thank you, Bill.

Operator

Yes. 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.

Speaker 5

Hey, good morning, guys. Congrats on a really good quarter.

Speaker 2

Thanks, Josh.

Speaker 5

Could you talk about the bidding environment for potential projects that even are before backlogs? Anything changing there? And how is pricing on those bids that you're putting together?

Speaker 2

Yes. So in terms of the pipeline 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, to be very selective in the acquisition process. We don't chase revenue, chase new opportunities and the work that we're good at.

Speaker 2

But in terms of the sectors that I hit on the 4, the operations, the opportunities are very consistent still today. No let up. No let up.

Speaker 5

Okay. That's great to hear. 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 modular capacity again?

Speaker 2

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 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 as expected and our 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.

Speaker 2

But I don't know that anything has changed. Essentially, we they are in an all path to market mindset. So they love getting this stuff built modularly. They're hiring our contractors who build it in the traditional way. 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.

Speaker 2

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. Opportunity to share labor, it's really an advantage that us and a few of our colleagues throughout the country have to get some of these larger opportunities that we can handle both financially and from a resource basis, including when you think about our suppliers, we're good company to do business with. So our size right now is really helping us. And we use that size to be a partner to people, not we don't try to use it against people.

Speaker 2

Right.

Speaker 5

Any thoughts on whether you could expand capacity at sometime later this year or into next year?

Speaker 2

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.

Speaker 5

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 the next quarter?

Speaker 2

Yes. So EBITDA margins do typically go up from the Q1 to the Q2. But 1st quarters have never been all time highs by extraordinary amounts. So it's a very insecure time for us to start saying it's going to we're going to have sequential uptick in margins and only because of how high they are in the Q1. I'm more comfortable talking about doing better this year than last year, right?

Speaker 2

But 1 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. We stick around these margins, we'll be happy folks. Yes.

Speaker 5

Definitely understood. That's a good problem to have and congrats guys.

Speaker 2

Yes. Thank you.

Operator

And thank you. And one moment for our next question. And our next question comes from Julio Romero from Sidoti and Company. Your line is now open.

Speaker 6

Thanks. Hey, good morning, guys.

Speaker 2

Good morning, Julio.

Speaker 6

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?

Speaker 2

For sure, our construction margins increased back half of this year into this year. There's a lot of multiple reasons for it, but the crux of it is good job selection with good customers. But I got to tell you, we're executing in the field, which is always where the rubber meets the road for me at a very high level. Really are 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.

Speaker 6

Got it. Great execution. I'm just curious if there's any kind of fixed cost leverage that you see there as that grows?

Speaker 2

Well, you saw our SG and A obviously dropped from 11.5 to 10.6. I would say we are definitely making investments to accommodate our growth in every from all sorts of back office sales. But with revenue increasing the way it is, it certainly seems like our SG and A can't go up as fast as that. So I don't think you'll see worse SG and 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.

Speaker 2

That means it's going to average down some. So I would say maybe we don't get additional leverage. But 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? And it will the important part is year over year as far as how that math comes down into what we're doing.

Speaker 2

Hope you followed that. I think I wasn't very clear in that answer.

Speaker 6

No, that was a good commentary. And what's your best guess as to when you see some of this cash flow reversal as expected?

Speaker 2

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 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 while we had cash flowed $300,000,000 more than we had earned in 2023. You're going to see at the end of the Q1 that on a trailing 12 month basis, we will have cash flowed more than we have earned by $300,000,000 Here's the thing.

Speaker 2

So the $300,000,000 didn't go up, right? It didn't go down, but we didn't get in our same store businesses, we did inherit some advanced cash from our acquisition, especially at 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 Q1 that we stopped getting more of it.

Speaker 2

Having said that, we're earning so much money that cash flow a big when I looked at why our cash flow was still so big in the Q1, 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 was there is signs of flat 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 got to go do the welding and electrical work. And the welders and the electricians, you're going to pay them.

Speaker 2

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 it's a high class problem.

Speaker 6

Certainly, yes. Thanks for the color guys. Appreciate it.

Speaker 2

All right. Thanks, Leo.

Operator

And thank you. And one moment for our next question. And our next question comes from Brent Thielman from D. A. Davidson.

Operator

Your line is now open.

Speaker 7

Hey, thanks. Good morning, guys.

Speaker 2

Hey, Brent. Good morning, Brent.

Speaker 7

Going to ask about margins, sorry. I guess, 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?

Speaker 2

I would say all 3. But the thing that we really can control on an everyday basis is how we're doing in the field and Brent you heard us from a lot of times, different version of prefabrication. Face it, the more work we can do sort of inside building and ship it to the field, the more productive, safer, the higher quality the work is. And we're doing more pre fabrication every day. So 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.

Speaker 2

We're talking a lot about construction, but our service folks are doing a hell of a job as well. 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 1.5 years 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.

Speaker 2

And they're allowing us to really help reward the people so that we can keep doing that. So Electrical is mindblend, really amazing quarter. And you could say, well, is that a one time blip? And the answer is, I wouldn't bet against them. I mean, they might it's pretty hard to say at this percentage, but I think they're just going to they got a long runway ahead of them doing well.

Speaker 1

Okay.

Speaker 7

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 Q1. And I know the company and the mix has evolved quite a bit in the last 10 years. I heard you comment kind of perfect storm weather both sides. But I'm just trying to unpack the reasons why we should be careful in thinking that this is tough to read

Speaker 2

just given And there's one reason that we are our EBITDA on a same store basis was up 70% in the Q1. It's pretty hard to see that happen and say, oh yes, there's our new baseline, right? So I understand, we don't know what's going to happen, but these margins are for our Q1, they are extraordinary. Now do I think we've got extraordinary margins in our future? I do.

Speaker 2

But on a comparable basis, it's a tough comparable. We're about to hit tough comparables from the prior year and our Q1 was comparable for the ages. But we're about to make a lot of money. We'll go for it. Yes, we'll make as much money as we can and you can figure out what that means.

Speaker 7

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 our conversations starting at all for 2026?

Speaker 2

I would say we believe that if we had more capacity, we could sell more than we have capacity for in 2025. We have more of our capacity in 2025 sold than we would have thought was possible. And we don't think people are going to we don't think all of these factors are going to end by 'twenty six. But 'twenty six is a lot. We don't have bookings.

Speaker 2

We don't have the floor planned for the middle of 2026, you know what I mean. Nobody is doing manpower loading schedules right now for the Winter Olympics. Yes, that's a long time.

Speaker 7

And then maybe if you could just talk about the progression with new customers in 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?

Speaker 2

So things are going great with our 2nd large customer. We like them, they like us. The product they've designed we think is very clever and going to do a great job for them. 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.

Speaker 2

Like 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 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 2 customers want all we can do. And they've earned 1st really, frankly, they've earned last look. They've earned 1st look and last look.

Speaker 2

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, 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?

Speaker 2

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'd incur, we need these kind of commitments and they made them. So we're keeping our commitments to them.

Speaker 7

Yes. Maybe just one last one, guys. I mean, I think it's obvious that the opportunities in data centers 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?

Speaker 7

You talk about manufacturing industrial capacity. I'd just be curious your thoughts to that.

Speaker 2

Well, I mean, I think it's logical that people focus on data centers as you and I were touring a couple of weeks ago, it was everybody's favorite topic. But if you look at the other stuff we got going on, just take Indianapolis, for example, how much farm is going on, food, there's a lot of sectors that are very busy and work that we're good at, whether you're talking about battery plants, food, pharma, hospitals, 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.

Speaker 2

We're winning a lot of work in them and the work is going well.

Operator

And I'm showing no further questions. I would now like to turn the call back over to Brian Lane for closing remarks.

Speaker 2

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 in our business. It's great to talk about it and thank you.

Speaker 2

I'm very optimistic about 2024. We got great customers, we got great people and really looking forward to how the year pans out and as well as seeing mostly on the road. Probably here pretty soon. So thanks for that too and hope everyone has a great spring. Thanks and enjoy your weekend.

Speaker 2

Thanks folks.

Operator

This concludes today's conference call. Thank you for participating and you may now disconnect.

Powered by Quartr
Earnings Conference Call
Comfort Systems USA Q1 2024
00:00 / 00:00