Earnings Call Transcript - FIX Q4 2021

Operator, Operator

Thank you for standing by and welcome to the Fourth Quarter 2021 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 may be recorded. I would now like to hand the conference over to your host, Julie Shaeff, Chief Accounting Officer. Please go ahead.

Julie Shaeff, Chief Accounting Officer

Thanks, Carmen. Good morning. Welcome to Comfort Systems USA's Fourth Quarter and full-year 2021 Earnings call. Our comments today include forward-looking statements within the meaning of the applicable securities laws and regulations. What we will say today is based on the current plans and expectations of Comfort Systems USA. Those plans and expectations include risks and uncertainties that might cause actual future activities and results of our operations to be materially different from those set forth in our comments. You can read a detailed listing and commentary concerning our specific risk factors in our most recent Form 10-K as well as in our press release covering these earnings. A slide presentation has been provided as a companion to our remarks. The presentation is posted on the Investor Relations section of the company's website, found at comfortsystemsusa.com. Joining me on the call today are Brian Lane, President and Chief Executive Officer, Trent McKenna, Chief Operating Officer, and Bill George, Chief Financial Officer. Brian will open our remarks.

Brian Lane, President and CEO

All right. Thanks, Julie. Good morning, everyone, and thank you for joining us on the call today. We have more information than usual to cover, but considering the events in Ukraine and Europe, we will try to be as efficient as possible, and our thoughts are with those who are affected. We are pleased to report a strong finish to 2021. Our team has delivered excellent execution across our segments, and we are grateful for their hard work. For the fourth quarter, we earned $1.4 per share on revenue of $856 million. Same-store revenue grew by 8% compared to the fourth quarter of 2020 as overall non-residential building construction and service continue to show broad-based strength. For the first time ever, we are reporting more than $3 billion in full-year revenues. We have good cash flow, and our backlog has registered an unprecedented increase. In addition, in January of 2022, we received approvals of previously filed tax refund claims for the past years. That will meaningfully impact our first-quarter results. Bill will review those in detail during his remarks. We had an active fourth-quarter for acquisitions. At the beginning of December, we acquired IV Mechanical, which services customers across the Southeast and United States. We have known IV for 25 years, and their mechanical construction and service expertise is well-positioned for collaboration and mutual benefits. On the last day of December, we acquired Edwards Electrical and Mechanical based in Indiana. Edwards brings us a solid full-service presence in Indianapolis and provides new capabilities in clean room solutions that will complement our off-site construction and pre-fabrication. On December 31, we also acquired a strong servicing controls business in Kentucky, Thermal Solutions. And on that same day, we acquired Kodiak Labor Solutions, a temporary staffing agency that we have worked with on an ongoing basis, and which will help us recruit and deploy skilled construction labor in many of our markets. We are happy to have these strong teams as a great new part of Comfort Systems USA, and we are confident that we have added some wonderful people and strong capabilities. 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.

William George, Chief Financial Officer

Thanks, Brian. Good morning, everyone and good afternoon for those on the East Coast. Revenue for the fourth quarter of 2021 was $856 million, an increase of $157 million or 22% compared to last year. Same-store revenue increased by a strong 8% with the remaining increase resulting from our acquisitions of TEC and Amteck, and one month of owning IB. Revenue for the full year 2021 was $3.1 billion, an increase of 8% compared to 2020, and the annual increase was a result of our 2020 and '21 acquisitions. As you know, we and our industry are experiencing delays in the receipt of materials and equipment, which modestly reduced our revenue in the fourth quarter. It is impossible to precisely measure that effect because there are always variances and timing issues relating to materials and equipment. However, we roughly estimate that our revenue would have been higher without these issues, and our best estimate is that the effect on the fourth-quarter revenue was a reduction of perhaps 2% to 4%. We expect to continue to experience these effects for at least the first half of 2022, and we currently expect high single-digit same-store revenue growth for the upcoming year. Gross profit was $154 million for the Fourth Quarter of 2021, a $17 million improvement compared to a year ago. Our gross profit percentage was 18% this quarter compared to 19.6% for the Fourth Quarter of 2020. Our gross profit percentage in our Mechanical segment declined to 18.9%, while margins in the Electrical segment have increased significantly compared to last year from 10.7% in 2020 to 14.5% in 2021. The decrease in the gross profit percentage resulted from several factors, including cost pressure and changes in revenue mix as new construction increased in proportion to our revenues, and the fact that we are in the early stages of a disproportionate amount of our project work. For the full year 2021, gross profit increased by $16 million and our gross profit margin was 18.3% in 2021 compared to 19.1% in 2020. SG&A expense for the quarter was $105 million or 12.3% of revenue compared to $89 million or 12.7% of revenue for the Fourth Quarter of 2020. On a same-store basis, SG&A was up approximately $5 million, primarily due to compensation-related items. For the full year, SG&A expense as a percentage of revenue was 12.2% for 2021, down from 12.5% for 2020. On a same-store basis for the full-year SG&A declined by $7 million primarily due to a reduction in bad debt expense. Our operating income in the fourth quarter of 2021 was $49.3 million, slightly higher than the same quarter of the prior year. Last year in our fourth quarter, we got a benefit from earn-out changes. That was 11% higher than we reported this year. Each quarter end, we examine our estimates related to our earn-out liabilities. As a result, this quarter, we reported an overall gain of $3 million or $0.07 per share in 2021 as compared to $7 million or $0.18 per share in the prior year. Our 2021 tax rate was in the expected range at 24.7%. After considering all of the factors above, net income for the fourth quarter of 2021 was $38 million or $1.04 per share. This compares to net income for the fourth quarter of 2020 of $43 million or $1.17. Our full-year earnings per share was $3.93 per share compared to $4.9 in the prior year. For our fourth quarter, EBITDA increased by 8% to $68 million, and our full-year 2021 EBITDA increased just $256 million. Full-year 2021 free cash flow was $161 million compared to $265 million in 2020. Our prior year free cash flow was increased by disinvestment in working capital from COVID and federal legislation that allowed us to defer $32 million in 2020 payroll taxes. 2021 cash was decreased by $18 million as we paid back a portion of the deferral, thus creating a $50 million timing issue just from that tax issue. Despite these factors, 2021 was a great cash flow year for us. And although we will deploy working capital in the early stages of the various projects we're starting, we believe that we have strong cash prospects for 2022. Brian mentioned that we closed four acquisitions in the fourth quarter. IV was acquired on December 1st and is reported in our Mechanical segment. It is expected to contribute annualized revenues of approximately $150 million to $160 million and EBITDA of $7 million to $9 million. The other three acquisitions closed on December 31st and their results will only be included in our financial results beginning January 1st. However, their balance sheet and backlog are included as of December 31st. We expect Edwards to contribute annualized revenues of approximately $85 million to $95 million and EBITDA of $6 million to $8 million. Thermal should contribute approximately $20 million in revenue and consistent margins and finally Kodiak, which is a staffing company that was acquired to augment labor resources, is not expected to materially contribute to revenue or EBITDA on a standalone basis. Because of the amortization expense related to intangibles and other acquisition costs, these acquisitions are not expected to contribute to EPS in 2022. After incurring approximately $130 million to fund these acquisitions, our debt at the end of the year was $388 million. We're continuing to opportunistically repurchase our shares. In 2021, we purchased 363,000 shares at an average price of $74.57, and we have been active in share repurchases over the last few weeks. Since we began our repurchase program in 2007, we have bought back 9.7 million shares at an average price of $21.69. Before I pass the time back to Brian, I want to describe the tax events that he alluded to and that were mentioned in the press release. In January 2022, we received approval from the IRS for our previously filed refund claims for the 2016, 2017, and 2018 years. The refunds were primarily due to claiming the credit for increasing research activities that we refer to as the R&D tax credit. As a result, we expect that the first quarter of 2022 will have an incremental benefit of approximately $30 million in after-tax net income or approximately $0.80 per diluted share. And we expect to receive approximately $30 million of operating cash during the first quarter of 2022. In addition to the immediate gains from these IRS approvals, we will be reassessing the judgments we have made regarding our taxes for the intervening years of 2019, 2020, and the recently concluded 2021, since we expect to assert the credit for those years as well. We're assessing the amounts and likelihood of benefit that will result from those credits and will also include that benefit when we report our first quarter. The changes in assessment are ongoing, but we expect that we will reduce our provision for income taxes with respect to these years, and we estimate that we will record additional first-quarter income that we currently approximate at $22 million or $0.60 per diluted share. Finally, our successful assertion of the R&D tax credit will likely reduce our effective tax rate in future years, beginning immediately in 2022. The tax benefit will vary based on our qualifying expenses each year, but should lower our tax rate by approximately four to five percentage points in 2022 and in future years until and unless the landscape for these credits, which have been made permanent by Congress, changes. I'm very appreciative of the hard work done by our tax department and by numerous of our subsidiaries in seeking and documenting these credits. That's all I have on financial trend.

Trent McKenna, Chief Operating Officer

Thank you, Bill. I am going to spend a few minutes discussing our backlog and markets. I will also comment on our outlook for 2022 and on inflation and supply chain considerations. Our backlog at the end of 2021 was $2.31 billion. And this is the first time that our backlog has exceeded $2 billion. Sequentially, our same-store backlog increased $224 million with strength in our modular work and in our electrical operations in Texas. Year-over-year, our same-store backlog is up by over $578 million or at 38%, a broadly-based increase. Industrial customers were 44% of our total revenue in 2021. We think this sector, which includes technology, life sciences, and food processing, will remain strong for us, as industrial has heavily represented a new backlog, as well as in our recent larger acquisitions. Institutional markets, which include education, healthcare, and government, are also strong and represented 32% of our revenue. The commercial sector is also doing well. But with our changing mix, it is now a smaller part of our business at about 24% of revenue. Year-to-date construction was 78% of our revenue, with 46% from construction projects for new buildings, and 32% from construction projects in existing buildings. Service was strong this year. And our increasing service revenue was 22% of year-to-date revenue, with service projects providing 9% of revenue, and pure service, including hourly work, providing 13% of revenue. 2021 service revenue is up by 12%. And with our continuing strong margins, our service earnings were up by a similar amount. Overall, service continues to be a great source of profit for us. As 2022 begins, we believe that we are returning to good ongoing market conditions and that we have largely recovered from negative impacts to our business due to business disruption caused by COVID-19. At the same time, we are experiencing inflation and some delays in materials and equipment. As we mentioned, supply chain and inflation were factors in 2021, especially in the fourth quarter. And we currently expect that those effects will continue through at least the first half of 2022. We are recognizing these challenges in our job planning and pricing, and we are working with our customers to share the risks and mitigate the effects of these challenges. In addition, during the first six weeks of 2022, we experienced temporary reductions and available labor as Omicron peaked. And that will also add some headwind to what we nevertheless expect will be a solid and profitable first quarter of 2022. We believe the good trends outweigh the challenges, and we remain optimistic about our prospects for 2022. The headwinds described above will likely be pronounced during the first half of 2022. However, our current belief and expectation is that in 2022 our full-year earnings and margins are likely to be comparable to 2021, with an opportunity for improvement as we get farther into our backlog as the year progresses. As we continue to emerge from the various effects of the pandemic, we believe that future demand in our key markets is strong, and we continue to invest in our workforce, technology, execution capabilities and in our service businesses. Underlying demand for our capabilities, especially in our key segments, including industrial and institutional buildings, continues to be very robust. Our fundamental outlook for the next several quarters is very positive, especially with our strong backlog and pipeline. We are happy with our investments today, and we are keen to continue to invest, grow and improve in our essential industry. Our skilled workforce is the heart and soul of Comfort Systems USA. And we will continue to develop and reward our unmatched team members as they strive each day to work safely, improve our communities, and provide the built infrastructure to serve our many markets. I will now turn it back to comments for questions. Thank you.

Operator, Operator

Thank you. Your first question is from Sean Eastman with KeyBanc Capital Markets. Your question please.

Sean Eastman, Analyst

Hi gentlemen. Thanks for taking my questions.

Brian Lane, President and CEO

Hi, good morning Sean.

Sean Eastman, Analyst

Good morning. So I wanted to start on the margins. I think you said at the end, Brian, that margins are going to be comparable to 2021. They did look a little soft in the fourth quarter. I think there are some mix elements going on. You mentioned COVID and supply chain, so maybe just some color on what's happening under the hood, how margins should progress over the next 12 months. Just the moving pieces in there would be great.

Trent McKenna, Chief Operating Officer

I'll start, and Bill wants to follow up, but what gives us optimism is that the work and the opportunities is good, the margins are good in the work that we're winning. We're still executing in January. And as the year goes on, I think we'll hit our average and margins will reflect 2022. I think we're managing as best we can the supply chain and inflation with our customers, and we are doing everything to satisfy them and be successful.

William George, Chief Financial Officer

If you compare our margins from 2021 with those during our peak years, particularly the high margins we experienced during COVID, it’s not a fair comparison due to a significantly different mix. We were involved in much less new construction, which typically has more material pass-through. We had not acquired several electrical companies yet, which typically have lower margins and lower selling, general and administrative expenses compared to mechanical companies, even though their revenue and margins have increased. In the coming months, we will start many jobs, and we won’t see substantial profits until factors like rainfall, the performance of others on site, and the startup of systems with liquid in pipes come into play. Essentially, we were pleased with our margins last year. While we could have improved in some areas affected by COVID, we believe what you observed last year is what you'll see at the start of this year. As we progress further into these jobs, there’s definitely potential for improvement, but we won’t return to the margin levels of 2021 as our mix has changed.

Sean Eastman, Analyst

Okay. That's helpful. And I think you also said at the end, Brian, that earnings will be comparable for last year. I just wanted to clarify that, particularly considering we've got a high single-digit top-line outlook and these big tax benefits coming early in the year.

William George, Chief Financial Officer

Yes, the range of earnings is similar to what we achieved last year or more. Last year, we noticed that people were overly concerned about supply chain issues, leading to significant pessimism. What we are conveying is that we expect to generate substantial profits and cash flow again. While we are optimistic about improvements this year compared to last, we are facing some revenue headwinds early in the year. The Omicron variant caused increased absenteeism in January, and we believe our revenue was impacted by 2% to 4% in the fourth quarter. We are also experiencing delays with chillers arriving later than anticipated. It is quite challenging to ask suppliers for discounts right now; many are just hoping to secure their orders. That's the basis for our predictions.

Sean Eastman, Analyst

Okay. I just have one more question. Regarding the tax benefits, how is the tax provision expected to appear in the first quarter? Also, what is the current normal tax rate as we progress through the year, and for how many years do you anticipate maintaining the four to five point reduction in the tax rate?

William George, Chief Financial Officer

Okay, hold on for a minute, Brian, getting out of slide rule.

Brian Lane, President and CEO

I'll let Julie handle this, Sean.

William George, Chief Financial Officer

So essentially, we've been saying we're at a 25% to 27% tax rate. Now, we're going to be 4% or 5% below that. And that cushioned that some right, because we're not making the assumption that we'll do as well in the ongoing part of it as we were able to do for those five consecutive years that we just settled up. But whatever else is true, after five years now of getting this benefit, frankly, we have to bake in that benefit as we look at our tax rates for the next several years, and we think it's going to lower our tax rate for 5%. And so if you hire future cash flow and saw some changes.

Sean Eastman, Analyst

Okay. Got it. All right. I'll turn it over there. Thanks so much.

William George, Chief Financial Officer

All right. Take care, Sean.

Operator, Operator

All right. Your next question comes from Brent Thielman with DA Davidson. Your line is open.

Brent Thielman, Analyst

Hey, thank you. Hey, Brian or Bill, are there a few particularly large projects in the backlog right now that need to kind of hit certain thresholds for margins to move a lot higher, or is this kind of more of a broader statement across the business in terms of the new construction work you've taken on?

Brian Lane, President and CEO

It's a combination of both. We have some larger projects that we're quite optimistic about, but the range of project sizes is also broad. It's the typical mix. As we work through smaller projects, mid-level work, and a few larger projects, we now have confidence in our ability to manage these larger projects. Overall, I think the mix is consistent with what we usually experience.

Brent Thielman, Analyst

And then service growth has been a great story here. Maybe you just talk about some of the initiatives you're undertaking that continue to grow that business in 2022. Can we see another year of double-digit growth? How do you think about that?

Brian Lane, President and CEO

I'm still very optimistic about service. We continue to make the investments we've made over the last ten years. Our goal is to achieve double-digit growth as we go along. So far, we've done it. We'll continue to invest in training, improve in our sales process, and we're executing really well in service, particularly on the small project front. So I expect that trend to continue, Brent. There is nothing that tells me it will be different.

Brent Thielman, Analyst

Okay. And then just the uptick again in backlog, particularly same-store backlog is great story there. How much of that be attributed to sort of this industrial vertical versus these more traditional non-residential markets? Are education, office, retail, and smaller pieces of the pie starting to become more impactful to the growth in bookings you think?

William George, Chief Financial Officer

Yes, both in terms of acquisitions and same-store performance, we have seen significant growth in our subsidiaries, particularly in modular and electrical segments. The new projects we secured are largely focused on the industrial sector, including TEC and Pharma, with some movement in the battery area as well. While we've only begun to book a small amount of battery projects, there is a considerable amount in the pipeline for electric vehicles. So, I would say this trend is definitely continuing.

Brian Lane, President and CEO

Yes. So Brent, if you look at the mix, over 40% is in the industrial sector, but it's a capability we already possess; it's not something new we are starting. The companies we have acquired already have a long history in this area. Therefore, we are very confident in the resources we have to tackle that market.

Operator, Operator

Our next question is from Julio Romero with Sidoti & Company. Your line is open.

Julio Romero, Analyst

Hey, good afternoon and thanks for taking the questions.

Brian Lane, President and CEO

Hey, how are you?

Julio Romero, Analyst

I'm good. Thanks. So to your point earlier, the electrical segment margins are inherently lower than mechanical and it's going to pull down the consolidated margins. But if I look at the last few quarters, I think your electrical gross margins are trending upward, and I want to say the incremental on the electrical segment seem to be trending nicely. So can you maybe speak to what's going right in electrical and what you're doing there to improve the margins?

Brian Lane, President and CEO

Yeah. So electrical, and thank you for noticing, has improved. I think we've got back to some of the basics. I think they've benefited from some of the training that Comfort provides in our new acquisitions as we were back to focusing on work that we're really good at: data centers, for example, food processing. The one thing about the margins might be a little lower, but their overheads are lower. So you look at the operating level are about the same. But I just think it's just improving on the fundamentals that these companies have done. They are doing a great job, as you can tell from their results.

Julio Romero, Analyst

Okay, that's helpful. And can you speak to what equipment you're seeing delays on? I think you mentioned chillers earlier. And do you think it's fair to assume the go-forward impact of those delays to be in the same range you saw in the fourth quarter?

William George, Chief Financial Officer

Switchgear and generators have long lead times, as do chillers. While there has been some improvement with certain commodities, the situation is mixed, with some items getting better and others deteriorating. We are now required to order supplies much earlier during our bids, informing clients that we need to purchase these items immediately and that storage costs will be necessary for us to meet their schedules. Generally, we have been able to secure the necessary supplies, but it remains unpredictable. Anyone who claims to know how this will develop in the coming year is mistaken. However, we excel in managing these challenges, and often, not all tasks on a construction project are on the critical path, allowing us to continue progress. Our team is adept at navigating these issues, although they do present a challenge.

Brian Lane, President and CEO

We have strong partners, and we strive to be a good partner in return. This approach is proving beneficial. Our size allows us to order equipment earlier compared to smaller contractors, which is an advantage for us because we want to meet our customers' expectations. We are doing everything possible to ensure we acquire the necessary equipment for installation.

Julio Romero, Analyst

All right. And then just last one for me would be can you maybe speak to the IV acquisition and the rationale there and how it complements your portfolio and maybe touch on market sector breakout, whether it's weighted to industrial, institutional, etc.

William George, Chief Financial Officer

I'll start. IV is an excellent company. You may have noticed in the press release that we've been in discussions with them for 25 years. The comments I included in that press release were derived from a letter from their leadership when we acquired the company. This is a relationship we've maintained for a long time. They have strong workforces and are present in appealing markets like Nashville, Kentucky, North Carolina, Mississippi, and Atlanta. Additionally, they have a team of experienced workers who specialize in healthcare, particularly in hospitals. As hospital roles continue to expand, it's become clear to both us and IV that collaborating would be mutually beneficial because their traveling personnel can support us as we take on larger jobs than they previously handled. They can collaborate with our teams and existing companies. We believe this is a fantastic match, presenting a great opportunity for mutual growth and enjoyment.

Trent McKenna, Chief Operating Officer

Julio, what's really interesting is they've only been here two months, and we're already working on some joint projects with them. So this has started off really well.

Julio Romero, Analyst

Great, sounds exciting. Thanks very much and best of luck in 2022.

Brian Lane, President and CEO

Thank you.

Operator, Operator

Our next question is from Adam Thalhimer with Thompson Davis. Your line is open.

Adam Thalhimer, Analyst

Hey, good morning, guys.

Brian Lane, President and CEO

Good morning, Adam.

Adam Thalhimer, Analyst

Can we start just on some of the income statement items, obviously, maybe for Bill. Just thoughts on SG&A and D&A and interest expense, because I'm still trying to square the comparable EPS comments and maybe the secret is somewhere on those lines.

William George, Chief Financial Officer

Well, the secret is we don't know what's going to happen next year. But I think you'll see interest expense tick up some. Will tick up some because our debt's a little higher, it will tick up a little more probably because, as we were paying 1.3% on our borrowing, that's going to be at least 10s of basis points higher and RDS started that. SG&A, you know, if revenue picks up, we'll get SG&A leverage. So that could cut them in the direction of what you're pushing towards.

Adam Thalhimer, Analyst

Yes.

William George, Chief Financial Officer

We'll get very good absorption. What was the other line you mentioned?

Adam Thalhimer, Analyst

Well, G&A is probably the toughest one to know with the acquisitions.

William George, Chief Financial Officer

Well, yeah, although in a 10-K, you can go right back to the footnote, and there's a table, and it'll tell you exactly what the amortization is going to be every quarter. Our amortization would have been a source of lifts for us this year when we did a whole bunch of acquisitions late in the year, if not the amortization up but we haven't what is a very, very close estimate of that in our foot notes. That's going to hide a lot of that income. So what you're going to see is very good incremental increases to EBITDA, and that's going to not filter down to the EPS as quickly as it should. I should also say everything we've set up till now about earnings being similar with upside later in the year, kind of update stuff reflects the uncertainty it has baked into it. The uncertainty that we're talking about vis-a-vis supply chain and other issues. It also does not count the change in tax rates. The rules are very clear with this tax stuff that if you get an approval, you can't go back and push it into the prior year. So when we report the first quarter, like when I said we will be looking at our intervening years, and we expect $22 million of income, we'll be doing a lot more work between now and when we report our first quarter. That number should be at least that big, if not bigger. By then we will be able to start baking in to the forward stuff, the new lower tax rates. So there are some things that it's really important that people understand.

Adam Thalhimer, Analyst

Okay. That takes care of it.

William George, Chief Financial Officer

Yeah.

Adam Thalhimer, Analyst

And then, Brian, can you take us a little bit around the country and what you're seeing in the bidding environment?

Brian Lane, President and CEO

In general, the bidding environment is very good across the country, with the Northeast remaining strong. In Syracuse, New York, we are likely at full capacity this year, and that will continue into next year. We are involved in a lot of plumbing projects, particularly in apartment buildings and healthcare. Moving south, there are numerous prospects in manufacturing and industry, and we are performing well in the Southeast, largely due to the companies Bill has brought in. There is a significant amount of medical and data center work. My outlook for the Southeast down to Texas is very positive. Texas is performing strongly, especially with Dallas and Houston experiencing considerable growth in the past six months. Austin is extremely busy, and San Antonio is rapidly expanding with plenty of data center projects. We are quite optimistic about the developments in Texas. In the West, our results are mixed. While Denver and Phoenix are doing well, our presence there is smaller. Overall, bidding opportunities are robust. For larger projects worth $5 million or more, I am currently considering more than I have in a long time, which gives us a good reason to be optimistic across the board.

William George, Chief Financial Officer

If you consider the current situation and wonder how operations would be if we didn't face challenges like the supply chain issues and inflation, it's clear that having confidence in our future amidst this uncertainty indicates that even a small amount of positive news could have a significant impact.

Brian Lane, President and CEO

Yeah. We're really pleased with the workforce, even with the challenges due to illness that keep it on schedule. So the folks out there doing the work are doing a Yeoman's effort to keep our customers happy.

Adam Thalhimer, Analyst

What are you seeing with COVID now? I mean, you said it impacted you in January.

William George, Chief Financial Officer

Yes, it's come down fast.

Brian Lane, President and CEO

It's coming down fast.

William George, Chief Financial Officer

I mean, I'm not sure if anyone is actually saying that. If you speak with our company president in mid-February, there were many people discussing it in mid and late January, and we're actually...

Brian Lane, President and CEO

It's really quite difficult.

Adam Thalhimer, Analyst

I hope it does. That's good color.

Brian Lane, President and CEO

All right, thanks, Adam.

Operator, Operator

Thank you. And your last question is from Sean Eastman from KeyBanc Capital Markets. Please go ahead.

Sean Eastman, Analyst

Hey guys. My clarification question got answered, but I'm just going to hit you with one anyway. How should we think about the capacity of the business? We have a strong high-single-digit organic growth outlook in place for 2022. Could you feasibly flex to a number higher than that? And how would you characterize the labor situation? I guess the Omicron variant kind of muddies that up, but just underneath that, is it loosening up? Is it getting worse? How would you characterize that?

Brian Lane, President and CEO

If you look at the labor, I think it's the same; it's tight. Another thing I think we have going for us is that we're really good employers. In the structure we have, our people in all the local markets know those markets really well. With that, we're hitting the military, community colleges, folks in high school. We got some opportunities, maybe some lower income neighborhoods that's helping with some training and getting those folks involved in the business. So labor is tight. Kodiak is going to help us with some of the traveling folks. They've got a lot of good tradespeople, so we can flex it up, but you've got to manage your labor every day. At the end of the day, you have to be a good place to work, training new people, etc. all of the things that we are proud of what we do. So I can see that continuing on, Sean, so we'll just keep at it.

Sean Eastman, Analyst

Got it. All right. Well, let you guys get back to business. Thanks for the time.

Brian Lane, President and CEO

All right. Take care.

William George, Chief Financial Officer

Take care.

Operator, Operator

All right, ladies and gentlemen, this concludes our Q&A session. I would like to turn the call back to Brian for his final remarks.

Brian Lane, President and CEO

All right. In closing, I want to again thank our hard-working employees. We are glad we will be seeing many of you on the road again, hopefully. But in the meanwhile, thanks for your interest in the company. We really do appreciate it today. Please be safe and healthy, and we will see you soon. Thank you.

Operator, Operator

Thank you, ladies and gentlemen. This concludes today's conference. You may now disconnect. Have a wonderful day.