Comfort Systems USA Inc (FIX) 2017 Q3 法說會逐字稿

Morning, ladies and gentlemen, and welcome to the Q3 2017 Comfort Systems USA Earnings Conference Call. My name is Sheila, and I'm the operator for today. (Operator Instructions) I would like to advise all parties, this conference is being recorded for replay purposes. I'd now like to hand over to Julie Shaeff, Chief Accounting Officer. Please proceed.

Thanks, Sheila. Good morning. Welcome to Comfort Systems USA's third quarter earnings call. Our comments this morning as well as our press releases contain forward-looking statements within the meaning of the Private Securities Litigation Act of 1995. What we will say today is based on the current plans and expectations of Comfort Systems USA. Those plans and expectations involve risks and uncertainties that could cause actual future activities and results of our operations to be materially different from those set forth in our comments. You can read a more detailed listing and commentary concerning our specific risk factors in our most recent Form 10-K and Form 10-Q as well in our press release covering these earnings. A slide presentation will accompany the prepared remarks. Those slides are posted on the Investor Relations section of the company's website found at comfortsystemsusa.com.

Joining me on the call today is Brian Lane, our President and Chief Executive Officer; and Bill George, our Chief Financial Officer. Brian will open our remarks.

Okay. Thanks, Julie. Good morning, everyone. Thank you for joining our call this morning. I'd like to start by thanking all of the Comfort Systems employees who are on the call today. Their hard work and dedication makes it possible for us to continue to deliver solidly profitable results. For the third quarter of 2017, we are extremely pleased to report year-over-year improvements. Revenue for the quarter was $481 million, a 12% increase compared to the third quarter of 2016. We earned a record $0.59 per diluted share in the third quarter, a 9% increase compared to the exceptional third quarter we had last year. Most of our operating companies, particularly those in the Northeast and Upper Midwest had a very busy summer. Thanks again for all your contributions.

As you know, Houston and Florida experienced disasters this quarter as hurricanes and floods struck. We have substantial operations in the markets that were affected by these hurricanes. And we derive approximately 11% of our revenue from offices and jobs that were temporarily closed in the face of these storms. We are very proud of the way that our team members reacted to these events. As our people in those markets and even from other parts of our company stepped up to care for each other and their community. The fact is, it is at times like these that you realize there are things that are more important than the things we normally talk about on these calls.

Free cash flow for the quarter was a remarkable $40 million, our best third quarter cash flow ever. Our fantastic cash performance this quarter and year-to-date bodes well for the health of the underlying work. We are on track for strong cash flow performance this year and positive free cash flow for the 19th year in a row. Our backlog remains strong as we finished our busiest quarter at levels much higher than a year ago. Backlog at the end of September was $901 million, a 25% increase compared to the third quarter of 2016. I will discuss backlog and outlook in more detail later in the call. But first, let me turn this over to Bill for the financials. Bill?

Thanks, Brian. You can look through Slides 2 through 6 as I provide some additional information regarding our financial results. Third quarter revenue increased to $481 million, an increase of $52 million or 12% compared to the third quarter of 2016. BCH, our newest company, contributed approximately $35 million of revenue during the quarter. And on a same-store basis our revenue increased 4%.

Gross profit was 21.0% for the third quarter of 2017 compared to 21.6% in the third quarter of 2016. Amortization expense is up significantly due to the BCH acquisition. Excluding that additional amortization expense, gross profit was similar to last year. Net income for the third quarter was $22.3 million or $0.59 per diluted share compared to the third quarter of last year when we earned $20.5 million or $0.54 per diluted share. This is only the second time we have earned more than $0.50 and that results from strong performance across our operating locations.

With respect to our acquisition of BCH earlier this year. During the quarter, we recorded approximately $0.04 per share from revaluing the earn-out. However, at the same time, we experienced expense for the BCH acquisition of approximately $0.03 per share due to our contractual true-up of the work-in-process schedule as of closing. These 2 purchase entries netted to a $0.01 per share net benefit. And after amortization, BCH made a net contribution of approximately $0.05 to our quarter which reflected fantastic performance despite disruption from the hurricane.

SG&A expense was $66.7 million for the third quarter of 2017 compared to $61 million for the third quarter of 2016. The dollar increase is due to the BCH acquisition. SG&A as a percentage of revenue was 13.9% in the current quarter, lower than the same quarter last year when SG&A was 14.2% of revenue. Our year-to-date tax rate was 36.3% which is up slightly from the prior year tax rate of 36%.

We had very strong free cash flow during the quarter. For the quarter, our free cash flow was $39.5 million as compared to $7.3 million a year ago. We benefited from certain tax payment deferrals in the quarter arising from IRS provided hurricane relief and that relief helped our cash flow by about $6 million. Our 9 months free cash flow was $49.6 million, so we're ahead of the $33.3 million that we had at this time for the first 9 months of 2016.

I also want to update you on our stock buyback program. We've been carefully repurchasing our shares since 2007. During the third quarter of 2017, we were active in the program and purchased 153,000 of our shares at an average price of $33.20. Since we began our stock repurchase program in 2007, we have repurchased 7.6 million shares.

We're very pleased with our results for the quarter and optimistic about the remainder of the year and the opportunity presented by our increased backlog. We continue to expect that our earnings, as measured by our EPS, will be similar in 2017 to the record levels that we achieved in 2016, and we believe that underlying EBITDA in 2017 will continue to meaningfully exceed 2016. As Brian mentioned, our strong bookings continue to provide a good opportunity for improvement in 2018.

That's what I've got, Brian.

All right. Thanks, Bill. Let me start with backlog and activity in various sectors and markets. Please go to Slide 7. Our improving backlog trends continued this quarter as the underlying demand for our services has strengthened. Backlog at the end of the third quarter was $901 million. Sequential backlog is down approximately $37 million or 4% from the second quarter of this year. This sequential fluctuation in backlog levels is not unusual since we generally have our highest activity levels in the summer months. Compared to a year ago, on a same-store basis, our backlog has increased by $150 million, which is a 21% increase. The increase is distributed over the majority of our companies. Pricing is stable. Our pipelines are active and we have started to see the return of larger projects in select markets.

Let's turn to Slide 8 for a look at our end-user sectors. We continue to experience good balance in our portfolio of work. Institutional markets, which include government, healthcare and education, made up 40% of our revenue for 2017. The commercial sector was 38% of our revenues and industrial and distribution represented 22% of our 2017 activity. We continue to win projects. And overall, we are happy with trends for our work in the various sectors.

Looking regionally, our companies in the Northeast and Upper Midwest continue to execute and produce strong results, especially our operation in Michigan this quarter. The majority of our operating companies have active pipelines. And as we have said earlier this year, many are operating at capacity. In general, our operations are achieving great results and we see signs of improving demand.

Please turn to Slide 9 for our current revenue mix. For the first 9 months of the year, 37% of revenue was construction projects for new buildings and 32% of our revenue was construction projects in existing buildings. Construction is 69% of our total revenue and our backlog is primarily construction revenue. Our construction business is benefiting from good fundamentals and trends in the nonresidential construction market. Service is 31% of our revenue, with service projects providing 11% of revenue. And pure service, which is composed of repair, maintenance agreements and other hourly work providing 20% of revenue. Our pure service, as all of the majority of the smaller projects we include in service, are substantially contracted and performed within any given reporting period. We continue to benefit from the investments that we've made and continue to make in service. Our service business is profitable and our maintenance base is growing.

Our markets have steadily improved over the past few quarters. Given our backlog increases, we believe that the majority of our markets are likely to remain active and supportive for the next several quarters. Our balance sheet is strong and our long history of cash flow gives us confidence to continue to invest and return capital to our shareholders. We are optimistic about our prospects for the remainder of this year and going into 2018. Thank you once again to our nearly 9,000 employees for your hard work and dedication.

I will now turn it back over to Sheila for questions. Thank you.

(Operator Instructions) And the first question comes from the line of Tahira Afzal of KeyBanc Capital Markets.

Congrats on a fantastic quarter. First question, you guys -- you said your mix is changing. Folks, I don't want to overbuild the revenue line based on enthusiasm. So how would you guide us in terms of what's changing in your backlog in terms of bond profile that we should keep in mind?

If you look at Slide 8, I think it is, you can see our revenue by sector. One of the things that I would -- we've never had industrial that big. That's been a trend for us. Our acquisitions that we've done have had more industrial than the mix that we had before we started doing acquisitions. So today, more of our backlog is that type of work. I'd say there's a slight uptick in healthcare really going from almost no hospitals going on to few hospitals going on. But that's encouraging. And apart from that, institutional is back up to 40%. So I there is -- that's just probably healthcare picking up a little because I don't think the other sectors there would have been bragging.

And I just want to add on, Tahira, education has picked up, and we've had a really strong year particularly at the university level. We've seen a lot of work there and continued work there.

Right. And on the healthcare side. any change in outlook? I know when we talked at the beginning of this year, Brian, you were hoping there would be some uptick. Is all the uncertainty around the regulatory environment sort of pushing some work out there? Does that remain a pretty big opportunity for yourselves?

It's interesting to hear. We are seeing a little bit more, particularly with BCH joining us in Florida. They had a few hospitals. We have a Florida hospital, Northern Florida, that we're doing. We're still seeing strong end-of-life care facilities. But I think we'll see a few more hospitals being built as we go on. A little bit more than we've seen the last 10 years for sure. Bill, you want to add anything different to that?

No, that's exactly right.

And just on the margin side and how fast you can grow. Brian, you've talked about, and I know over the last few years, you've invested a lot into the quality of your labor force. Is that sort of -- how fast you can train new people in terms of quality, is that really a key bottleneck at this point in terms of how fast you can grow?

Yes, I mean, Tahira, look, that question there is a challenge in getting skilled labor to join the trade. But I'm really proud of the workforce we have, global training that we do. We're a good place to work. We got a good benefit package. So we're continuing to hire and train people. I think you'll see the results of that. The gross margin, the way it is, it's a really -- reflection of how well we are performing in the field. So it's a bottleneck. But we're aggressively hiring and training. So I'm optimistic that we'll continue to be able to grow.

And the next question comes from the line of Adam Thalhimer of Thompson Davis.

Great quarter. The -- well actually, I wanted to continue on Tahira's question on the revenue line because there has been strong backlog growth, double digits for the last 3 quarters and up 20% plus the last 2 quarters. What -- how does that translate into revenue for next year? I mean, does that mean we get double-digit top line in '18?

So to the answer to that is no, unfortunately. We still think mid-single digits organic growth. It was finally good, frankly, this quarter to finally see that. We've been predicting it and expecting it. We finally saw a little over 4% organic growth this quarter. Keep in mind, our backlog only represents about, today, 69% of our revenue, the construction revenue. So whatever increase it's driving, it will drive increase only on 69% of the company.

And then also what happens as demand gets better, we -- in order to put something into backlog, we have to have a signature, a price and a scope, and people try to get us committed a little earlier than they would when things are slower. There are people who realize that next summer is going to be busy. Not everybody who wants a building will necessarily get one. So the GC is suddenly, you get those signatures sooner. So what that means is you're back -- the safe work gets in the backlog a little earlier.

So some -- one of the reasons we often have a really big pop when things get better but the revenues don't quite match the percentage changes is people are just committing earlier. The average length of the jobs are getting a little longer. Having said that, even though we can't do double-digit, we can't count on that, we're pretty happy.

Yes. And I just want to add on on the service element, we're getting good steady growth on service. Our maintenance base is over $118 million now. So that has -- our investment there we've made over the number of years is paying off. It's going to continue to pay off.

One of the great things is so many of our shareholders have been with us for so long. A lot of them were patient with us as we made those investments, as we bought these companies deep in the recession. And we're just really happy that so many of our shareholders are still around that we've known for so long to benefit from that.

Okay. That's good color. And then also wanted to ask about how you guys think about gross margins for next year because there are a lot of moving pieces with amortization coming down but new construction particularly as you get in next summer, picking up, possibly as a percentage of revenue.

It's interesting you pointed out amortization coming down. That's a really astute point. We feel good about gross margins. We -- there was -- a couple of years ago we thought 20% was impossible. Now it's pretty hard to find a reason why we would think our gross margins would be lower than next year. The work is good or better. The execution looks good from here. So I think we do have -- maybe we have some larger projects starting and they often have somewhat lower gross margin, although lower SG&A. But I will say overall, it's hard for us to be pessimistic about our gross margins.

Adam, we've been fortunate. We've had an absence of bad news lately, I'm knocking on wood. But it's really attributed to the folks that are sort of managing this work out in the field, that we're performing the way we are. So I think Bill's right. We'd be hard-pressed to say, we'll be lower than the 20%, but 20% is to me very impressive for a contracting organization.

Absolutely. And the last thing for me, just curious if you can give us more color on what you're seeing in the bidding environment. By geography would help, by size of project, that type of thing?

Yes, okay. So if we go across the country, in general, we're still seeing a robust bidding market across the country. The Northeast for us has been strong for 20 years, continues to do extremely well. Markets are good. Opportunities are good. In a place like Buffalo, and I was there a couple weeks ago. A lot of opportunity in Buffalo, New York which probably haven't seen it in a long time.

The Southeast is very active. We're seeing work come back in the middle -- Mid-Atlantic. In particular, Florida's very strong. Tampa in particular, the large number of opportunities there. Midwest, we just have really good companies in the Upper Midwest, good balance of service and construction. A lot of opportunities. And I think back to your other question, we're seeing larger projects particularly in the Mid-Atlantic, a little bit in the Southeast as well, what we would call larger projects. The West is probably where you're going to get your mixed bag in a place like Denver who is just producing extraordinary results. Tons of opportunity if you go there, there's cranes everywhere. So we're seeing Phoenix come back, pretty diversified, some healthcare. Seattle has been very busy, bidding's still good.

Southern California, we're still rebounding in our San Diego office. But opportunity is there. So Adam, I -- it's hard for us to be this optimistic but we're seeing good activity throughout the country and we are seeing some larger work. I think larger work particularly we're seeing is in the Southeast and Mid-Atlantic.

And the next question comes from the line of Bill Newby of D. A. Davidson.

Congrats again on a solid quarter. So kind of hoping to pull a little bit more out of you for 2018, it's good to see that organic growth kind of inflect this quarter. And nice to hear that you're expecting it to continue into '18. Should you guys -- how should we think about the SG&A line as that growth ticks up? Are you guys at a place where you can kind of fund that growth on the SG&A line? Or should that tick up a little bit as well?

So our SG&A will always go up some when our results go up because we have very performance-driven remuneration plans at our subsidiaries and the positions of the people who run things and who run jobs. Having said that, we ought to get some leverage, right? We ought to get some leverage. At the end of the day, there is some downward pressure on gross margins when you start to do bigger jobs. But one of the reasons for that is because they just don't have as much SG&A. The project manager lives in the trailer on the job and they're at least an indirect if not a direct cost. So I would say I wouldn't -- we ought to get some leverage. If we get the growth, we ought to get a little leverage from it.

Okay. And then I guess similarly, I mean, as you get -- as you talk about this recovery that you're seeing in new construction markets, over the last couple years, we've seen services steadily tick up as a percentage of revenues. Is that -- can we still expect that even with this new construction coming in? Or should that kind of maybe flatten out?

Bill, absolutely. We are totally committed to the service business and we're seeing a lot of opportunities. What I call service projects, pretty robust. So I think you'll see service continually, at least, maintain a percentage of the business or slightly grow even with an increased construction business.

Okay, that's good to hear. And then one more if I could. Brian, I think, I mean, you've talked about in the past some of the acquisitions by trying to buy around $100 million in revenue a year as just a general goal. I guess, first, does that tick up as kind of as you guys continue to grow? And I guess maybe for Bill, does how you think about it from a balance sheet perspective change at all? Are you willing to leverage up a little bit more as you guys look at bigger companies?

If you don't mind, I'll answer both of those since I do our acquisitions. I do think that we -- really, where that number of $100 million came from was really a commitment we made in about 2007 or a belief we really adopted that we could spend about 60% or 2/3 of our money on acquisitions and not get ahead of ourselves. So we have more money now. So probably that amount of money does a little more in the way of revenues for acquisitions that -- the size of the companies we're doing now have been bigger than we used to do.

Frankly, I think we've -- our guys, our company overall, has made itself more attractive to some of the older, little more industrial people in our space. We've just kind of proven that we're a great place to be. So I would say yes, it's probably -- we're probably shooting to average more than that. And I would say in any given year, we might not do an acquisition because frankly, if we don't have conviction, we don't do an -- there will be -- if you look back historically, we hit that 60% over 10-year averages. But we don't have a quota.

Yes.

And as far as the balance sheet goes. Today, our trailing 12-month cash flow is $85 million. That is a big number. That gives you a lot of confidence to invest. We do have a little bit of debt today, although we paid down debt over the summer this year, right? That -- I expect to pay down debt at the end of the year. We were paying down debt over the summer. So I think we feel very good about continuing to invest. The mix of our business is going more toward service. So where it was we used to say man, we probably don't ever -- we were probably at 1 turn of EBITDA in a steady-state in the middle part of the market was probably wise for us, conceivably. If you really had conviction about something you can stretch that another half a turn, so I think we got plenty of resources for the foreseeable future to do deals we believe in.

And your next question comes from the line of Joe Mondillo of Sidoti & Company.

I wanted to touch on the services business as well. So it looked like in the quarter, business from services was up sort of mid-single digits which is really good considering the absolutely low interest. So I was wondering if you could -- how affected is your business -- do you really need hot temperatures because it seemed like the business did quite well. And then in addition to that, to your comment, that you expect services to continue to keep up the pace of what your backlog in new construction is, what are you doing to drive up -- to keep that pace? Because the construction's going to drive pretty considerable growth over the next couple quarters just given the backlog. So what are you doing?

Yes, yes. So first and foremost, weather -- obviously extreme temperatures help us. But we've grown our maintenance base considerably which means we're going to service those customers every year no matter what the weather is. So we just have the largest maintenance base we've ever had. We've got really good solid customers that are going to need work. Even with the hurricanes which hurt us in the regions we mentioned, we were probably down for the week and we still paid our folks. We still produced really terrific results and service for the quarter.

Now as we go forward, there might be fluctuations, Joe, month by month, quarter by quarter. But in general, I believe that percentage will maintain. I mean, we -- quarter by quarter who knows. But the reason for my optimism, we continue to hire salespeople. We're continuing to hire service techs. So we still have this element in our business where we are still committing SG&A, investment resources to grow at a nice, steady state base. So you might see some fluctuations by quarter. But in the aggregate, I think you'll see that percentage maintain itself.

So looking at the next couple quarters (inaudible) given this backlog. So over the last quarter or 2 you certainly were sort of cautioning, I think is the right word, relative to gross margins. Just because of the mix of new construction coming, you saw organic growth of 4% and that was largely driven by construction. But going forward, it's going to be even stronger, at least in the very near term, at least in the next couple quarters. So in the near term, could you see a mix to weighing on gross margin just in the near term even though over the next year or 2, you think services continues to -- that higher margins services continues to keep up.

Yes. There are different factors that bake in to gross margins, right? And one is we're proportionately doing more big work. There's just going to be -- that's going to average down the gross margin sort of from whatever it would have been. But at the same time, you have pricing. And at the same time -- which is good. And we have a very good stream of service business. So in any given quarter, Joe, anything can happen with us. It's -- things can be very lumpy.

But at the end of the day, when Brian said -- it's very hard for us to justify projecting getting back below 20% in the current market. Circumstance, it's absent some large execution fail, right? It's just -- now 20% is not 21.6%, right? So we're not saying it can only go up. But the good news is if you listen to each of the 3 things that I said are affecting our margins, setting aside a problem, right, execution problem, they're all good, right? It will be a good problem if we have so much big work that it slightly pulls down our margins. Because that doesn't mean we still won't be -- on the long-term growth line for our service. That doesn't mean we won't still be making a lot of money on our small and medium-size projects.

So sort of a, heads I win, tails I win kind of a situation there. So that's why we don't worry about it a lot but we'd like to make sure people do understand our mix affects our margins. And mainly so that they -- when they see our margins go down they realize there can be bad reasons for that to happen and there could be good reasons for that to happen. A slight decrease in margins when your domestic growth, your organic growth comes back, you can -- as long as you end up making more -- all is what we care about is that cash flow.

Yes, exactly.

Go ahead, Brian.

No, (inaudible)

You mentioned pricing. I just actually wanted to ask you in terms of overall capacity at the industry and net pricing power of your labor cost sort of (inaudible). Can you talk about that? It seems like sort of steadily maybe sort of improving, you certainly have expressed it over on past conference calls. Have we -- has the trajectory escalated at all in terms of your ability to (inaudible) by itself?

I just want to say, Joe, we're only getting about every 2 out of 3 words. You're breaking up on us. I think Brian is going to respond to pricing. But there's a connection issue, just so you know.

So Joe, on the pricing element, pricing has improved steadily. We tend not to mention it, obviously. Our folks are going to get as much pricing as they possibly can. But you got to keep pricing within the context of the competitive environment you're in, who might need some work and you don't want to price the job out that it's not going to go. So I think we're seeing steady state improvement. We continue to see steady state improvement. But I -- we cannot dimension it because I don't think it's going to be significant.

Okay, sorry about the phone. I've been having issues with this. I hope you can hear me now.

Yes, we got you now.

I just had 2 other questions. One, what is the backlog amortization related to BCH that's hitting on a per quarter basis? And when does that fall off?

So BCH is -- we don't do -- we don't give out individual amortization numbers for the different categories of our individual acquisitions. But the -- I think that their backlog, you can...

Amortization (inaudible)

We are losing you, Joe. I'm sorry. Do you want to call us back?

The backlog amortization relative to (inaudible)

Sorry. I'm sorry, Joe. I can't -- I didn't hear that last bit.

Backlog amortization relative to acquisitions?

How those would come off.

Yes. So backlog amortization -- generally for acquisitions, there are 3 paces of amortization. There's trade name, there's customer list and there's backlog. And 2 of them have a long life and a long receding tail. Backlog usually 12 to 15 months. And really, 12 to 24 months if it's a company that has big projects like BCH, you're going to see the backlog amortization come off. And in this case, this quarter, that would have been worth $0.01 or $0.02 for Comfort Systems if there had not been backlog amortization. I don't really have a breakout from all the 3 categories. But the biggest piece was backlog because we're so quick after the deal.

And the next question comes from the line of Sophie Karp of Guggenheim Securities.

Congrats on the quarter. So yes, I guess I wanted to drill down a little bit more on the acquisitions. Could you comment on the valuations that you are seeing in the markets right now? And where in which maybe subsegments you see, you're seeing more attractive opportunities at this stage?

So we -- our first choice is always to go buy more full-service mechanical contractors. We love companies that have sophisticated clients that are like pharmaceuticals -- or industrial clients, healthcare. We've -- we -- what we're going to look for in a big city is a little different than what we're going to look for in a city like Charleston, right? Charleston or a smaller city is going to have a mechanical that's hopefully -- and we can buy a mechanical that's dominant in their market and they're going to do everything. In a place like San Diego or Phoenix where we are, we really have to go after the part of the market that makes sense for us. People who build apartments just a lot of times do that too competitively for that to make sense for us. So we look for companies that have more of a niche that's going to fit with us.

Maybe -- what about the valuations? You're doing well, it seems like the cycle is in the uptick. Are there attractive opportunities there right now for acquisitions?

In what?

Given where we are in the cycle, it seems like the cycle is in an uptick. Business is doing great. Are there attractive valuations right now?

Historically, acquisitions slow down for us at the top of markets. The difference now is that so many of these businesses are owned by baby boomers, who are in their 60s. And many of them -- realistically, their children have taken a different path than being a contractor. So I would say that there is an attractive market of opportunities.

Okay. And I think you -- in the past, you mentioned that you may look into getting into electric space. Is that something that you are still looking at?

We're going to be very deliberate about that. But we think that we have -- first of all, we have some electrical business, right? We have 3 or 4 geographies where we have really good electrical businesses. And we view electrical as an attractive space. I think you know from -- we tend to get to know people before we buy them. So we're just -- we're just not somebody who's going to hire a broker and start making offers for electrical businesses. We're going to get to know somebody, develop conviction that they're going to fit here and it's just going to work well for them and for us. If we've learned one thing from the acquisitions in our space, we're either both going to be happy or neither of us are going to be happy. And we don't go until we really are convinced we're both going to be happy.

All right. So maybe if I may, one more on the share buybacks. Now that the stock has done well, I guess is it an opportunity to slow down share buybacks and move forward with more acquisitions? Or would you just continue buying back shares? How do you guys think about that?

I would say at current levels, we are just buying enough to offset dilution probably plus a little just to make sure we don't miss. And then we stand ready to buy more on dips, that is the conversation. We have some really astute people on our Board of Directors who really believe in the company. Actually, who are putting their own money into buying shares. So they're not just -- so we -- when we have conviction that it's a good thing to do with the money, that's what we'll do. But I would say right now with an opportunity for acquisition and with us not having a bunch of cash on our balance sheet like we have at times in the past when we bought 1 million shares a year, we're probably offsetting dilution plus a little.

The next question comes from the line of Joe Mondillo of Sidoti & Company.

I just had one follow-up question. Regarding your working capital. So that was a pretty big generation of cash that helped drive the strong free cash flow you saw in the quarter. Just wondering what you're looking at toward going -- for the first -- fourth quarter in terms of a use of a derivation of cash?

We'll have a good fourth quarter of free cash flow. But there's very little chance. If you look back over the last 5 years, probably 2 of the last 5 years, we just had an unbelievable fourth quarter. We just had an unbelievable third quarter. And you can't collect the same money twice. So we'll collect cash at year-end. We always do. But obviously, you can't collect the same dollar twice. So it'd be very, very hard for us to have what -- a historically strong free cash flow in the fourth quarter. Because we already have the money.

By the way, collect -- the ability and willingness of people to pay, Brian said in the script, it bodes well for how jobs are doing. So that's -- it's good news on 2 levels. When you're collecting money in the third quarter, you get the money but you also get a lot of comfort that your business is doing well. So thanks.

And now I'd like to turn the call over to Brian Lane for closing comments.

Okay, thank you for joining the call today. We are very pleased with the quarter and we are optimistic that we will finish the year strong. Look forward to seeing everyone on the road shortly. Hope you all have a great weekend. Thank you.

Thank you for joining today's conference. This concludes the presentation and you may now disconnect. And have a great day.