Comfort Systems USA Inc

NYSE:FIX

Earnings Call Transcript 2019-Q3

[Operator]

Good day, and welcome, everyone, to Q3 2019 Comfort Systems USA Earnings Conference Call hosted by Julie Shaeff, Chief Accounting Officer. [Operator Instructions]. I would like to advise all parties that this conference call is being recorded for replay purposes.

And now with that, I would like to hand the call over to Julie. Please go ahead, ma'am.

[Julie Shaeff, SVP & CAO]

Thanks, Chris. 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 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 more detailed listing and commentary concerning our specific risk factors in our most recent Form 10-K and Form 10-Q as well as in our press release covering these earnings. A slide presentation will accompany our remarks. The slides are 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; and Bill George, Chief Financial Officer.

Brian will open our remarks.

[Brian Lane, CEO, President & Director]

Okay. Thanks, Julie. Good morning, everyone, and welcome to our third quarter earnings call. Let me start by thanking all the Comfort Systems USA employees for their continued hard work and extraordinary execution. I'll start with an overview of our performance, and Bill will cover the financial results in more detail. We earned $0.98 per share this quarter compared to $1.02 per share the same quarter last year. This was a very good quarter with strong operating results and exceptional cash performance. Free cash flow this quarter was $67 million compared to $23 million in the prior year. Year-to-date, our free cash flow is a very strong $79 million. We also paid down more than $50 million of debt in the third quarter. Our backlog has grown to $1.6 billion, and it has increased by 6% on a same-store basis since September 30, 2018.

We also had a significant increase in backlog compared to last quarter, which is especially encouraging after a busy third quarter. We continue to be pleased with the addition of Walker Engineering, which we acquired at the beginning of the second quarter of this year. Walker contributed approximately $0.06 of earnings per share after amortization and purchase adjustments, which is more than we expected so soon after their acquisition.

I will discuss our outlook in more detail in a few minutes. But first, let me turn this call over to Bill to review the details of our financial performance. Bill?

[William George, EVP & CFO]

Thanks, Brian. Please refer to Slides 2 through 6 as I provide some explanations and details of our financial results. Third quarter revenue was $707 million, an increase of $112 million or 19% compared to the third quarter of 2018. This increase is due to the acquisition of Walker Engineering. Revenue increased slightly on a same-store basis for the third quarter, and same-store revenue was up 3% for the first 9 months. Gross profit was $143 million for the third quarter of 2019, an increase of $15 million or 12% compared to the third quarter of 2018. Gross profit as a percentage of revenue was 20.2% in the third quarter of 2019 compared to 21.5% for the third quarter of 2018.

I want to take a minute and talk about how Walker affects our results. Walker was a strong contributor to our earnings and cash flow again this quarter. Of the $15 million increase in gross profit that we reported in this quarter, $13 million was earned at Walker Engineering. Having said that, like our other subsidiaries that have the capability to perform large and complex projects that have significant material and equipment passthrough, Walker will tend towards lower average gross margins.

Without Walker, we would have had lower net income and much lower EBITDA and cash flow. However, our gross profit margin would have been 21.8%. So the addition of Walker impacted our gross margins by 1.6%, arising from a combination of the lower gross margins in their business mix and certain purchase adjustments that impact our gross margins.

SG&A expense was $90 million for the third quarter of 2019 compared to $75 million for the third quarter of 2018. The increase is due to acquisitions, including additional amortization expense, and also reflects investments in people due to the growth we have experienced in recent years. SG&A as a percentage of revenue for the third quarter of 2019 was 12.7%, which is the same as the third quarter last year.

Income tax expense was $12 million with an effective tax rate of 25.6% as compared to $14 million with an effective tax rate of 26.1% for the third quarter of 2018. Net income for the third quarter of 2019 was $36 million or $0.98 per share, which is slightly lower than the same quarter last year when we earned $39 million or $1.02 per share. As a reminder, the $1.02 per share that we earned last year was the first time in our history that we exceeded $1 per share in a quarter. So although down from last year, the $0.98 we reported this quarter is historically very strong.

We had a great free cash flow quarter this quarter. Our quarterly free cash flow was $67 million, a large increase from $23 million a year ago. Our 9 months free cash flow was $79 million, which compares to $47 million for the first 9 months of 2018. We feel good about our cash flow prospects for the fourth quarter, and our working capital trends provide a solid foundation to continue generating additional free cash flow.

As Brian mentioned, we closed the Walker Engineering acquisition at the beginning of April. And as I said, while we expected that Walker would contribute to our EBITDA and cash flow this year, we expected they would be neutral to EPS. As we said, they did better-than-expected and even after amortization and adjustments Walker contributed $0.06 of earnings per share this quarter.

In addition to paying down debt in the quarter, we were quite active this quarter in purchasing shares. During the third quarter, we purchased 184,000 of our shares at an average price of $40.35. So year-to-date, we've purchased 345,000 shares. And since we began our stock repurchase program in 2007, we've bought back 8.5 million shares at an average price of $17.38.

That's all I have on financials, Brian.

[Brian Lane, CEO, President & Director]

Okay. Thanks, Bill. I am going to spend a few minutes discussing our backlog and activity in various markets and sectors. These are covered in Slides 7 through 9. I will also comment on our prospects for the rest of this year. Backlog at the end of the third quarter of 2019 was $1.61 billion, an increase of $113 million compared to the second quarter of 2019. A little more than half of the sequential backlog growth was a result of a sequential increase at Walker where we had especially strong bookings. Our year-over-year same-store backlog also reflected very strong bookings as same-store backlog compared to a year ago increased by $75 million or 6%. In addition to strong backlog improvement, we have remarkable balance across our various end use sectors. Institutional markets, which include government, health care and education, made up 38% of our revenue for 2019. The commercial sector was 31% of our revenue and industrial is the remaining 31%.

Please turn to Slide 9 for our current revenue mix. For 2019, construction is 76% of our total revenue with 44% from construction projects for new buildings and 32% from construction projects in existing buildings. We are being helped by good fundamentals and trends in nonresidential construction. And we continue to book good projects, including many for next year. Geographically, we experienced strong results in most of our markets with particular strength in North Carolina, Florida, Texas and Wisconsin.

We continue to make investments in our service business. For the first 9 months of 2019, service is 24% of our revenue with service projects providing 9% of revenue and pure service, including hourly work, providing 15% of revenue. Our service business is doing very well. And on an absolute and same-store basis, our third quarter 2019 service results were higher than the third quarter of 2018 in both volume and in profitability.

Finally, our outlook. Our backlog is strong and our ongoing prospects remain very supportive. We expect low to mid-single digit revenue growth on a same-store basis in the fourth quarter of 2019 and the first half of 2020. We see good trends in our business. Our pricing environment continues to be good, and we are optimistic that revenue and net earnings for the fourth quarter of 2019 and during 2020 will continue at the strong levels that we have experienced since the start of 2018.

Over the past few weeks, I've spoken to many of our leaders across our markets, and they continue to express enthusiasm about their construction pipelines as well as service and small project demand. Overall, our sense is that our markets remain very supportive, and we believe that our fantastic teams are well positioned to continue to capitalize on these opportunities. Thank you once again to our 11,900 employees for your hard work and dedication.

I'll now turn it back over to Chris for questions. Thank you.

[Operator]

[Operator Instructions]. And our first question is from the line of Adam Thalhimer from Thompson, Davis.

[Adam Thalhimer, Thompson, Davis & Company]

I wanted to zero in first on Q4 specifically. After a couple of quarters of down EPS, do you see growth year-over-year in Q4?

[William George, EVP & CFO]

On the EPS line?

[Adam Thalhimer, Thompson, Davis & Company]

Yes.

[William George, EVP & CFO]

I think that's probably more likely than not, but it would be very similar. I mean we just -- we're earning at high levels.

[Brian Lane, CEO, President & Director]

I mean, Adam, we're confident. I think we'll be on the putting green and about how you think it's going to be. So we're optimistic, though.

[Adam Thalhimer, Thompson, Davis & Company]

Okay. And great cash flow in the quarter, and you've done a great job of paying down the debt quickly from Walker. I'm just curious, what's the M&A outlook from here?

[William George, EVP & CFO]

So we are very actively developing, as we always do. I would say we -- to do a big deal would require a lot of conviction right now. To be honest, we probably have a bias towards some debt repayment. But there are people we're talking to that we would love to own. And if they wanted to talk, we would definitely get serious. I think there is a prospect for M&A not at the largest sizes that we've done recently. So I think we're just probably requiring a high degree of conviction, given that we just did a very large deal, and we're busy getting to know those guys.

[Adam Thalhimer, Thompson, Davis & Company]

Okay. And lastly, Bill, what -- you're -- I'm curious on Walker's gross margin. Do you have any idea what that would be without the purchase accounting adjustments?

[William George, EVP & CFO]

I know off the top of my head they were -- they had a 1.6% effect on our gross margins. This quarter, only 0.2% of that came from purchase adjustments. Purchase adjustments were pretty quiet. As far as their stand-alone gross margin, you could get pretty close to that in the segment stuff, although that does include some other electrical, but we don't disclose individual company gross margin separately.

[Brian Lane, CEO, President & Director]

Yes. And Adam, I just want to jump on that question for a minute. We look at companies, we're worried about earnings, cash flow and how good they are at their work. They're a big construction company. Gross margins are going to be lower, but their overhead's lower. So they'll continue to really contribute EBITDA, earnings, EPS over a long time. So I feel really good about this company.

[Adam Thalhimer, Thompson, Davis & Company]

Yes. And I guess I could ask the question differently. The question really is once you anniversary some of this early accounting stuff, where do you think electrical margins shake out is a better question?

[William George, EVP & CFO]

So I think the -- it's really not a question of anniversary. It's a question of amortization. And we actually included -- I think it's on Page 17 in the 10-Q, we included a table of all of our future amortization, how it will go down. So unless we do another acquisition or we write something off, which is not a prospect right now if we wrote something off early, you can look up and sort of see how that amortization comes down. And that's a mathematical contribution compared to whatever else would have happened. As far as -- I don't know, their margins are similar to our other big project companies. It's not -- there's a lot of material and equipment that passes through those jobs. What they're trying to do is maximize their gross profit per man hour like all of our guys do. But because their business mix is making buildings, giant buildings appear out of empty pieces of land, they do sell a lot of material.

[Brian Lane, CEO, President & Director]

Their margins are fine for the work they do.

[Operator]

The next question is coming from the line of Sean Eastman from KeyBanc Capital Markets.

[Sean Eastman, KeyBanc Capital Markets]

A nice job this quarter. First question from me is you guys set a pretty clear expectation for the second half year on the second quarter call. And it sounds like Walker is the primary contributor to the better-than-expected result here in the third quarter. I guess what I'm wondering is, after seeing their performance this quarter, does that kind of suggest that the neutral EPS contribution you guys had highlighted in expectations for next year is perhaps conservative? Or was this just kind of a lumpy outsized quarter?

[William George, EVP & CFO]

So my answer to that is, I hope so. But I would not change the guidance on that right now. Year-to-date, they've given -- so through the 6 months, they've given us $0.04. They were minus $0.02 just because of purchase adjustments for sure in the second quarter. So this is a big company. So they do have the opportunity to make a big contribution. Once they cover those -- that nut you can -- like I just talked about that's in the footnotes, once they cover that and the purchase adjustments, if they do well, their numbers are just bigger. So they have a bigger opportunity to make a difference. So we feel -- I'm optimistic we'll get some sort of a contribution. But honestly, we didn't buy them for the immediate effect, right. We bought them -- if we only bought companies that had as high a gross margin as we have, we wouldn't have much opportunity for the improvement we've been able to get over the last many years as well, so right.

[Brian Lane, CEO, President & Director]

And Sean, just to add on to that. Our traditional mechanical business performed extremely well in the third quarter.

[William George, EVP & CFO]

To say the least. By the way, just to add, so if you look at what we sort of told people they could expect in the third quarter, it would have triangulated to mid-80s, high 80s, right, and we're at $0.98. So $0.06 of that's from Walker. What -- of that, I guess, beat, if you want, beat of lower expectations, if you want to call it. About half of it came from Walker and about half of it came from our businesses we own doing better than our thorough scrub down, but they did better than we thought they would.

[Sean Eastman, KeyBanc Capital Markets]

Yes. That's helpful. So it's just kind of a combination of the two. And then when we think about the top line trajectory for next year, it seems like I guess after the stronger bookings this quarter, a bit better visibility through the first half of next year, seeing growth, I just wonder, kind of overall for next year, is there maybe 1 or 2 sub end markets that are really critical growth drivers like maybe data centers or health care that are really core to that growth or a big swing factor to that growth next year? Or is it just kind of broad-based as we look into next year?

[Brian Lane, CEO, President & Director]

It's Brian, Sean. I think it's broad-based. You saw by our revenue, right, we're basically 1/3, 1/3, 1/3 in the sectors that we look at, which first time since I've been here we've been that balanced. I mean if we're looking at what we're looking at today, industrial is still very good. Data center is still very strong. Education is maintaining strength at the university level, and we are seeing improvement in health care, few more new build hospitals, particularly in Arizona, Florida, in particular. So I think if we're looking for drivers, those would be the three that I expect to be good in 2020, but it's pretty -- it still is pretty broad-based. We're still seeing a lot of stuff in all the sectors, but those are the three that have probably the most activity.

[Sean Eastman, KeyBanc Capital Markets]

Got it. And I think 1 of the real surprises for me this quarter was to see that backlog tick up sequentially despite the big revenue number. I just wonder about the backlog trajectory here from a capacity perspective. Like how full are you guys? Can the backlog still go up at this point? I don't know. Maybe you can help me understand that kind of...

[Brian Lane, CEO, President & Director]

The backlog number in isolation is just a number. It's all timing, right? Right off, if you look at the curves, you look at over time we have good balance, good distribution. We are very sensitive to the workload versus the capacity that we have, timing of work that we take in. So right now, we're in very good shape in terms of that. We still have some room. But if you look at the spread, we even got some work into 2020. So for -- this is a purely operational standpoint looking at the backlog, the timing is good, and the balance is very good.

[William George, EVP & CFO]

Right. One of the important things to always remember about our backlog is that it's lumpy. So if we have a couple quarters where we have big bookings, then that's natural, but that's a headwind in the next couple quarters because you -- especially we booked -- for example, more than half of our same-store sequential increase in backlog came from Walker. They booked a very large project. Well, they're going to -- even if they continue to book those large projects, they're going to book 1 every 2 or 3 or 4 quarters, not every quarter. So just keep in mind that it's lumpy. The trends are really good. You can't get too focused on a single quarter's backlog number for us. And I think especially over the next few quarters, I think, we have room to have very good news and not look big in the backlog just because we'll work down some of those big projects before we take a new one.

[Brian Lane, CEO, President & Director]

Sean, what gives me optimism is how many opportunities we're still seeing that's good work, right. And that's -- and seeing it in the third quarter when usually we go down is -- it's really a good sign for how the economy is doing in the United States.

[Sean Eastman, KeyBanc Capital Markets]

Yes, that's -- I agree. And last one from me and maybe more for Bill on this one. Just given some of the moving parts with the Walker amortization and all, I'm just curious how free cash flow should look next year relative to net income.

[William George, EVP & CFO]

So going into -- first, let me talk about the fourth quarter. Last year, we had $75 million of free cash flow in the fourth quarter coming off of a third quarter with $23 million. This year, we're coming off of a third quarter with $67 million, very, very hard for us in the fourth quarter to match last year's free cash flow, which, of course, was an all-time crazy quarter. We do -- however, we still have since the beginning of the year a net investment in working capital same-store of over $30 million. So we think we're well positioned to have very, very good cash flow in the fourth quarter. And I don't know why we wouldn't just cash flow our earnings next year. I don't -- I can't -- we expect actually mid, low to mid-single digit revenue growth, so there shouldn't be a big sort of permanent move into working capital. So I think that you'll see our normal pattern of early in the year we won't have much free cash flow, but for the full year next year I think we'll have great free cash flow.

[Operator]

And the next question is coming from Bill Newby from D.A. Davidson.

[William Newby, D.A. Davidson & Co.]

Just one more on Walker because we haven't talked about it enough. The seasonality in that business, I guess, I was a little bit surprised just to see the sequential acceleration on the revenue line from Q2 to Q3. Is that -- I mean it grew, I guess, 20%-ish sequentially. And I'm wondering if that's typical. Or was Q2 a little depressed because that was when you closed the deal?

[William George, EVP & CFO]

So Q2 was a strong revenue quarter for them. 3Q was an even stronger revenue quarter for them. They got started on a big new booking, $100 million plus booking. And the revenue -- they got a lot of revenue there because of some early equipment deliveries. We actually, if you remember our press -- I think that they had over a -- solidly over $100 million of revenue in the third quarter. But if you recall, in our press release, we signaled to our investors that this was a company that was going to give us $325 million to $375 million a year of revenue sort of as the years pass. We stand by that. We think one of the things -- over time, we think there's an opportunity at Walker to do just a little less work and be a little more demanding on pricing, especially in a couple of their markets. So we are not pushing for growth or expecting growth. We think, ultimately, the best path for that business and its people is to make sure they get paid for every hard thing they do. And I would say, if anything, I would expect their sort of annualized revenue contribution next year to be lower than this year, and I would expect that to be good news.

[William Newby, D.A. Davidson & Co.]

Okay. But as I think about the seasonality next year, I shouldn't -- the Q2 to Q3 seasonality should be relatively similar to the core business, correct?

[William George, EVP & CFO]

Yes. I don't have a reason to predict. They are in Texas. There's not as heavy a winter in Texas. So I would say they're probably a little flatter over the full year. But for whatever reason, all of our businesses, even in Florida, have some of that seasonality where people get very busy in the summer. They close things out. And then there's always a slow first quarter.

[Brian Lane, CEO, President & Director]

But what else you're seeing, Bill, just from an activity level, Dallas and San Antonio, in particular, and Austin, it is very busy. So they'll be very busy through this winter.

[William Newby, D.A. Davidson & Co.]

Okay. That clears it up. And then I guess just -- and I think you guys get this question every quarter. But from a labor standpoint, I mean, obviously, you're expecting organic growth to pick up again. I mean where do you stand from a labor standpoint? And is that -- are you still being forced to turn away work because of that?

[Brian Lane, CEO, President & Director]

Yes. The labor thing is a labor thing, that's a long-term issue. I think we're doing a really good job utilizing technology where it's applicable. We talked about prefab here for years, which is a big help. Using technology to help either the construction guy, the service person, become more efficient, productive, yet being safe and doing quality work, that's helping us. So I think we have been able to do more work with less people. So I mean, we'll continue to work on that, and we'll continue to look for good people to join us. We're a good place to work. So I'm very confident that we'll be able to find good people.

[Operator]

And the last question is coming from the line of Joe Mondillo from Sidoti & Company.

[Joseph Mondillo, Sidoti & Company]

I also wanted to ask a question on Walker as well. The gross margins, I guess, at least of the acquisition-related, I think there's some acquisitions outside of Walker. But in terms of the acquisition data, the ex the same-store sales data, it looks like gross margins expanded by over 300 basis points from the second quarter to the third quarter. And I think some amortization fell off from 2Q to 3Q. But even accounting for that, it looks like gross margins expanded sequentially by over 200 basis points. So I'm just wondering what sort of drove that? I assume that it's at Walker, but I'm just trying to understand.

[William George, EVP & CFO]

So gross margin not counting Walker year-over-year 3Q to 3Q, which I know is now what you're talking about, was up 0.3%. The sequential expansion in gross margin was just our typical third quarter seasonality. We always have a stronger third quarter. Typically, the third quarter is always our strongest quarter virtually, really, always from a revenue standpoint and almost always from a margin standpoint, although sometimes and really every now and then in the fourth quarter we'll have higher margins than the third quarter. So I think that's just seasonality, the increase in gross margin sequentially.

[Joseph Mondillo, Sidoti & Company]

Okay. So at Walker, would there be -- from 3Q to 4Q, would there be a step down at all would you anticipate, gross margins at Walker?

[William George, EVP & CFO]

For any one company that's extremely hard to predict, but over a period of years I would expect that Walker has lower gross margins in their third quarters than they have in their fourth quarters. And for this year, if you made me guess, it's just -- as for any of our companies, it's more likely than not. I don't think it's a huge difference. Like I said, our fourth quarter can sometimes rival our third quarter.

[Brian Lane, CEO, President & Director]

But it's not going to be from a performance issue. The work they do is very good, so.

[Joseph Mondillo, Sidoti & Company]

Right. Okay. And then -- okay. So in terms of 4Q gross margin, how do you think about that year-over-year comparison considering that there will be some amortization that would be a headwind in the fourth quarter? How do you think about that 4Q gross margin comp?

[William George, EVP & CFO]

So on a same-store basis, I think we -- right now, I'd say we have a good opportunity to match last year's fourth quarter. And frankly, it's not as tough a comparable as the second and third quarter were. Of course, Walker is going to continue to average us down on a sort of full company as-reported basis, probably in a -- to a degree similar to the third quarter. But it gets very lumpy, right, when you're trying to pick 1 quarter and pick the effect of 1 company, even a big one. But I would say the general trend is what I just said.

[Brian Lane, CEO, President & Director]

And also, Joe, if you look at our total numbers, service is a smaller percentage, but it's a big absolute number in terms of revenue and profitability, so that helps our gross margin too. So I'm not -- we have no projects we're worried about out there. So we should perform well in the fourth quarter.

[Joseph Mondillo, Sidoti & Company]

Okay. And then I wanted to ask about SG&A. So your same-store revenue was sort of flat in the quarter, and yet your same-store SG&A was up over 7%. In the Q, you cited investment in new personnel and I think professional fees, which were largely related to a tax investment. So when did you see the hiring of the new personnel? Was it sort of at the end of 2Q, so you saw a big increase in SG&A in the 3Q? And then also in terms of the tax investment of $900,000, does that -- it was that just a one-time thing in the third quarter?

[William George, EVP & CFO]

So let me take each of those individually. And really, I'm going to add up something as well that's important. As far as the tax thing goes, we are -- we made some investment with professional firms to be in a position to claim, and we have claimed on our tax returns some credits that we're entitled to. Those did not benefit us in the large part yet because we'll have to go through an audit. They're impaired in our -- we didn't take the benefit, but we did bear the expense. The other reason that SG&A -- if you only knew our top line numbers, you would not expected SG&A to be up as much as it was. We did invest -- we did hire people because we're bigger. We have more people. But I would say another factor when we really dug into it was we pay our most important bonuses, by far the largest dollars that are paid at Comfort Systems USA, are paid to the human beings to run our [indiscernible] subsidiary. And in general, for virtually all of them, half their bonus is based on cash flow.

So whereas last year, we had a huge amount of our cash flow in the fourth quarter, so we accrued the bonuses for that in the fourth quarter. We had a pretty big -- bigger than that tax expense by double, a pretty big accrual for cash flow bonuses because we had a ton of cash flow. So we're happy about it. Also that we only get that cash flow once so -- but the bonus for cash flow matches the quarter when the cash flow comes, but sometimes cash flow, like in this case, is bigger in a quarter than the proportional earnings were. So a good chunk of that is also accrual for cash flow bonuses based on the extraordinary cash flow. They are literally getting a share of cash flow that they generate.

[Joseph Mondillo, Sidoti & Company]

Okay. All right. And then I just wanted to ask about the same-store bookings that you've seen this year. It seems like sort of -- if you back out the acquisitions, it seems same-store bookings have been sort of flattish. And I'm curious, if you're getting positive benefits on price, has the same-store sort of volume of projects been sort of tailing down, have we seen sort of peak volumes at the same-store basis?

[Brian Lane, CEO, President & Director]

No, bookings are up about 3% from the end of the year. You've got to also remember nothing in service and small project goes into backlog. Also we do a lot of work during a quarter that never makes it to backlog. You start it on a Monday, and you're done in a week or two. So there's a fair bit of work that we get within the quarter, particularly in the second or third quarter that doesn't make it to backlog. So I'm not worried at all about same-store revenue or backlog today.

[William George, EVP & CFO]

Our people are churning away.

[Brian Lane, CEO, President & Director]

We're churning away work, so.

[Joseph Mondillo, Sidoti & Company]

Okay. And then I guess just lastly, I wanted to sort of ask you guys about sort of the macro data that we're seeing. And considering that -- and you can confirm this, considering that I think most of your business is at the tail end of construction projects. Considering that and then what you're hearing in terms of macro data, is there anything in the macro data of any of these sources that you're reading or whatnot that give you any caution in any of your end markets at all?

[William George, EVP & CFO]

The narratives on TV are going to talk people into something, is my biggest concern. But as far as in our business -- and also not just in our business, which, as you point out is late cycle, in our conversations with customers and our -- with our business development people, there may be a recession out there. It is not yet event-based. It's still -- sooner or later, there's going to be a recession. But right now, it's just not showing up in anything we're seeing. Just like for years, people kept asking us during the financial crisis, isn't it getting better? And we'd say, "Gee, we hope so." Right now all I can say is, gee, we hope not, but we're definitely not seeing it.

[Brian Lane, CEO, President & Director]

No.

[Joseph Mondillo, Sidoti & Company]

Okay. Yes, I'm not even really -- not even really referring to a recession at all, but just specifically nonres construction you see the Dodge Construction starts have been down -- negative. The Architecture Billings Index is indicating contraction. And I'm just wondering if any of that specific nonres data, not just general economic recession talk or whatnot, that specific nonres, if you've seen or heard or heard any of -- indications of a slowing or anything like that?

[Brian Lane, CEO, President & Director]

We have not. But you've also got to remember, we're not up in New York, San Francisco, some of these big northern cities. The markets that we're in, as Bill mentions many times, sort of second-tier smaller cities, the activity is still very good, and we're seeing no signs of the data proofs by economists affecting us.

[Operator]

No incoming questions.

[William George, EVP & CFO]

Do you want to wrap up?

[Brian Lane, CEO, President & Director]

So are we all set? Okay. Chris, I'll wrap it up. I'd like to thank, everyone, for joining the call today. We are very pleased with our results for the quarter, and we are optimistic we will finish the year strong with good momentum going into 2020. I'm sure we're going to see many of you on the road here in the near future, and I hope everyone has a very happy upcoming holiday season. Thank you, and have a great weekend.

[William George, EVP & CFO]

Thanks, everyone.

[Operator]

Thank you. Everyone, that concludes your call for today. You may now disconnect. Thanks so much for joining, and have a great day. Goodbye.