Q4 2023 Comfort Systems USA Inc Earnings Call
Participants
Julie Shaeff; Senior Vice President & Chief Accounting Officer; Comfort Systems USA Inc
Brian Lane; Independent Director; Comfort Systems USA Inc
William George; Chief Executive Officer, President & Director; Comfort Systems USA Inc
Alex Dwyer; Analyst; KeyBanc Capital Markets Inc
Julio Romero; Analyst; Sidoti & Company LLC
Adam Thalhimer; Analyst; Thompson Davis & Co Inc
Josh Chan; Analyst; UBS
Presentation
Operator
Good day and thank you for standing by, and welcome to the Q4 2023 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. If you ask a question during the session, you'll need to press star one one on your telephone. You'll then hear an automated message. Revising your hand is raised. To withdraw your question, please press star one. Once again, please be advised that today's conference is being recorded.
I would now like to hand the conference over to your speaker today, Julie Shaeff, Chief Accounting Officer. Please go ahead.
Julie Shaeff
Thanks, Jeff, and good morning. Welcome to Comfort Systems USA's fourth quarter and full year 2023 earnings call. Our comments today as well as our press releases, contain forward-looking statements within the meaning of the applicable securities laws and regulations. What we will say today is based 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 from the presentation posted on the Investor Relations section of the company's website found at Comfort Systems, USA.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 following.
Brian Lane
Thank you, Julie. Good morning, everyone, and thank you for joining us on the call today. Our teams achieved an amazing finish to 2023 with exceptional results, including unprecedented growth, earnings and cash flow as well as a surge in new bookings. We earned $2.55 per share this quarter compared to $1.54 a year ago. Current quarter revenue was $1.4 billion with same-store growth of 18% during the fourth quarter. Both our mechanical and electrical businesses grew and increased margins to drive our annual results to new heights. Construction finished an already strong year on an up note, including notable profit and activity increases and our modular business service also continued to grow as we continue to benefit from ongoing service investments.
Our backlog is $5.2 billion, up by more than $1 billion from last year and we had a remarkable sequential increase of 870 million, even with strong revenue. Demand remains supportive and is especially robust in our industrial sector. We are carefully sourcing work that has good margins and good working conditions for our valuable workforce.
Cash flow for the quarter was superb at $149 million, and we finished 2023 with an extraordinary $550 million in free cash flow. Earlier this month, we closed two acquisitions. Some in industrial and Janus mechanical Summit is a specialty industrial mechanical contractor serving the advanced technology power and industrial sectors. Summit performed off-site insight based construction, including process piping equipment setting in large pipe rack. Truffles Summit is a trusted supplier to some of the world's largest advanced technology power and industrial companies. It is currently deployed on several major chip fabrication process. JNS. provides mechanical construction services to commercial and industrial sectors. Across the Mountain West region of the United States and works on many of the largest and most technical construction projects in that area. We are thrilled to have both of these companies as part of the Comfort Systems USA family. Welcome.
I will discuss our business and outlook in a few minutes, but first, I will turn this call over to Bill to review our financial performance. Bill?
William George
Thanks, Brian, and good morning. Everyone. revenue for the fourth quarter of 2023 was 1.4 billion, a 22% increase, while same-store revenue increased by 18% or 195 billion. Full year revenue for 2023 increased by 26% compared to 2020 to 5.2 billion. For the full year, our Mechanical segment revenue increased by 24%, including a big contribution from our modular business. Our electrical segment increased by an even larger 31%, and we now have a $1.3 billion electrical business. Overall, our same-store revenue increased by 23% or 931 million. We are facing tough comparable. However, our best estimate is that we will achieve same-store revenue growth in 2024 in the mid 10s with growth weighted a bit more heavily to the first half of the year.
Gross profit was $280 million for the fourth quarter of 2023, a 68 million improvement compared to a year ago. Our gross profit percentage improved to 20.6% this quarter compared to 18.9% of the fourth quarter of 2022, driven by improved electrical margins. The quarterly gross profit percentage in our Electrical segment improved to 22.9% this year as compared to 18.2% last year. Margins in our mechanical segment also increased in the quarter to 19.8% as compared to 19.1% in the fourth quarter of 2022.
Our Mechanical segment includes our modular business, which operates at notably lower margins than our remaining business. For the full year 2023, gross profit increased 249 million, and our annual gross profit margin was 19.0% in 2023 as compared to 17.9% in 2022. For the full year, segment margins were similar with mechanical gross margins of 19.0% for the full year, well, electrical was 19.1%. Fourth quarter EBITDA increased 42% to $141 million. Our full year 2023, EBITDA increased by an even greater 48% as our full year EBITDA was 499 million. As we look to 2024, we are optimistic that overall EBITDA margins will continue to trend and the strong raises that we achieved in 2023. Gross margins will also continue to be strong, but gross margin percentage may be more variable in 2024 in light of the effect of amortization and certain purchase adjustments arising from our two large acquisitions.
Sg&a expense for the quarter was 160 million compared to $132 million in the prior year. And as a percentage of revenue, SG&A expenses, tax expense was consistent again at 11.8%. On a same-store basis, SG&A was up approximately 22 million due to inflation and ongoing investments to support much higher activity levels for the full year.
Sg&a expense as a percentage of revenue was 11.0% in 2023. That's down from 11.8% for 2022. Fourth quarter operating income increased by 60% from last year from $80 million in 4Q 2020 to $120 million for the fourth quarter of 2023, with improved gross profit margins. Our operating income percentage increased to 8.9% this quarter from 72.27 0.2% for the prior year. Our full year operating income was EUR418 million, a remarkable increase of EUR165 million. Oi margin increased from 6.1% in 2022 to 8.0% in 2023. Our year-to-date tax year to date tax rate of 16.7% included an incremental benefit of 10 million or $0.27 of tax gains that related to prior years, although individual items have affected our tax rate likely, we estimate that a normalized tax rate for us is approximately 20% to 22% after considering all these factors, net income for the fourth quarter of 2020 was 92 million or $2.55 per share. This compared to net income for the fourth quarter of 2022 of 55 million or $1.54 per share. Our full year earnings per share for 2023 was 9.1%. Excluding prior year tax gains in both periods, earnings per share increased to $8.74 per share from $5.29 per share in the prior year, and that's an increase of 65% full year 2023. Free cash flow was a remarkable 551 million. We continue to benefit from advanced payments for work that we will fund and complete in upcoming quarters.
2023 operating cash flow exceeded our earnings by an astounding 300 million over the coming quarters. We expect bookings and equipment advances were normalized, creating some cash flow headwinds. In the meantime, these early collections have allowed us to invest heavily and fund acquisitions from current cash flows, while office at the same time, significantly lowering our debt and interest costs. During 2023, we spent 95 million on capital expenditures, almost double the amount we had spent the prior year. The increase includes the buildout of three Bass new modular production facilities and the purchase of many vehicles, the catch-up from COVID in 2024, we estimate that our CapEx that may be roughly 65 to 75 million around the midpoint of the spending levels over the past two years. Our substantial cash flow allowed us to pay down our revolving credit facility to zero and to reduce our overall debt by 222 hundred and 12 million over the course of 2023. Again, while investing in unprecedented levels of CapEx, buying back shares, increasing our dividend and fully funding both of our acquisitions, the purchase purchases of Alico Adecco from cash flow in 2023, we purchased 139 shares of our common stock at an average price of $153. Finally, as Brian mentioned, we acquired some in Industrial & J & S mechanical at the beginning of February. Our best estimate is that Summit will contribute analytic annualized revenues of approximately 375 to $400 million and EBITDA of 35 to 40 million. We also estimate J and ADS will have annualized revenues in the range of 145 to $160 million, an EBITDA of 12 to 15 million in light of amortization expense. These acquisitions are expected to make a neutral to slightly accretive contribution to earnings per share in 2024 and 2025. Both of these companies will be included in our mechanical segment.
That's I've got, Brian.
Brian Lane
All right. Thanks, Bill. I'm going to discuss our business and outlook, our backlogs surge at the end of 2023 to a record 5.2 billion since last year. At this time, our same-store backlog increased by $913 million, around 23%, and the increases were broad-based during the recently completed fourth quarter, a sequential backlog increased by 870 million, virtually all of the increase was same-store. Our pipelines remain strong. Our revenue mix continues to trend towards data centers, Life Science through chip fab and battery plants. Those industrial customers accounted for 55% of total revenue in 2023, and they are major drivers of pipeline and backlog. Technology, which is included in industrial, was 21% of our revenue, a substantial increase from 13% in the prior year. The technology sector will continue to grow with the recent acquisition of some industrial as they have several ongoing and large semiconductor projects. Institutional markets which include education, healthcare and government are also strong and represent 26% of our revenue. The commercial sector remains active, but it is now a small part of our business at about 19% of revenue. A majority of our service revenue is for commercial customers. So the proportion of our overall construction revenue from commercial has become relatively small. Construction was 80% of our full year 2023 revenue projects for new buildings at 55% for existing building construction was 25% for the first time in 2023 Comfort Systems USA achieved $1 billion of annual service revenue. Service was 20% of our total revenue, with service projects providing 9% of total revenue and pure service, including hourly work, providing 11% of revenue, 2023 service revenue is up by 11%. And with our continuing strong margins services, a great source of profit and cash flow for us that Comfort Systems USA. Our core purpose is to build legacies with our people, customers and the companies join us to accomplish this. We strive every day to be the best organization in the world for a craft worker to build a successful career for construction, service and administrative professionals to grow and thrive for customers to meet their crucial building and service needs and for any company in our industry to join with the assurance that their people will be respected and nurtured net, their legacy will be perpetuated and built upon. We believe that our commitment to those principles to our people and their legacies has been and continues to be the linchpin of our success. Safety quality and innovation remain at the forefront of our operations. We constantly strive to improve and grow our operations to enable sustainable and efficient building environments to improve the productivity of our diverse workforce and to acquire great complementary businesses, thanks to our careful and relentless investments in existing and newly acquired businesses. We have the crucial skills and capability to help meet our country's surging needs for mechanical and electrical experts and to build and service buildings, including to grow their capacity for artificial intelligence to increase our nation's capacity to build its own chip manufacturers on medicines, supplies, batteries and provide health care resources for our aging population. As we look ahead, we remain optimistic about the prospects for service and construction across a vast market. So that backlog over 20% higher than even the robust levels of the prior year and was persistent strength across our markets. We believe that we can continue to grow and invest in 2024 our number one priority is to preserve and grow the best workforce in our industry. And so as always, I want to close by thanking our over 15,000 employees for their hard work and dedication.
I'll now turn the call back over to Justin for questions.
Question and Answer Session
Operator
Thank you, and thank you. As a reminder, to ask a question, please press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one. Again, please stand by while we compile the Q&A roster and One moment for our first question.
And our first question comes from Alex Dwyer from KeyBanc Capital Markets. Your line is now open.
Alex Dwyer
Hi, guys. Thanks for taking my question. Pointing out, I wanted to ask about the backlog increase in the quarter and specifically the modular orders? And was that one order or multiple orders with one customer or multiple customers? And do you think there's the opportunity to see more of these larger modular orders as we go into 2024.
William George
You know, Alex, the way that so if you look at the sequential backlog increase about six little over 60% of that was an increase in modular. So that was 800 some million dollars. If you look at the year over year increase in backlog, about 20% of it was modular. So we have a situation where we had some big bookings in the fourth quarter of last year, which was actually last year was more than all of our sequential increase and then big bookings in the fourth quarter of this year. And of course, over the course of the year, we burned down, which we've performed a lot of that module were back to higher than ever levels of modular backlog with these new bookings, but 80% of our year-over-year backlog increase is broad based so which honestly we just couldn't be happier with the breadth, the composition, et cetera. And as far as additional bookings, you know, absolutely right now, we are taking we're taking as much as we can. But the people who are buying these services from us tell us they would like to give us more.
Alex Dwyer
Got it. And then the press release mentions an increase in modular profitability. I don't think we got the disclosures for that. But how was the margin performance this year in modular? And should we expect continued margin expansion in that business this year.
William George
So so modular margins for the full year were just a little higher than the prior year, but they were at very, very good levels. You may have heard in my script that I mentioned, the gross profit for modular is lower than it is for any of our other businesses, and that's a combination of it. It does have a high component of materials and past that pass through. It's also performed. The work we do in the field is performed with licensed electricians and certified medical gas definition. The work that we perform at our plants is highly skilled, but it isn't as though it isn't as difficult to find that labor. So we're very happy with those margins.
Brian Lane
As far as margin expansion in modular.
We'll be thrilled if it stays the same, I you know, of course, we're always working for modular for for margin expansion.
But man, would you after a quarter like this. It's pretty hard to talk about here doing better.
We're really happy with the modular business area.
William George
Got it. And then just last one on the margin outlook for 2024, I think we're talking EBITDA margins more so this year than gross margin and there's the deal amortization. I think inflation could be a tailwind to margins this year. And then maybe like the mix versus the early stage versus at the later stage, jobs could be like a swing factor. So we just talk about like the puts and takes in margins this year?
Brian Lane
So if you look at this overall, I just want to comment on the margin performance we've been getting over really since 2016. We've been pretty consistently having 18% to 20% on the amortization side for a minute. So I am personally thrilled with the level of performance we're getting in executing that work. I mean, if I was running this work. I'd be really happy myself. So I consider that it will keep going until if you want to add, I mean, I think I think you made all the right points.
The one thing I'll just refine a little bit for everyone. So if you think about it, the amortization is always big at comfort because we buy companies on a year on a fairly regular basis. And the companies we buy come with a lot of backlog. So for example, some it will roll into copper with something like $400 million of backlog and the accounting rules require us to put a value on that backlog and amortize it as an expense. In addition to things like customer lists and trade names that all all businesses have. Our amortization is higher than most. And obviously, it's non-cash. The money's gone. It's never coming back. So in a way, it's not sensible to worry about it because you own what you own today and it's going to earn what it earns. But we're required to reduce the sort of the earnings that we present to you the margins we present to you guys for that. And the reason we wanted to call it out is last year we had less acquisitions than we have had over the last three or four years proportionate to the size of Comfort Systems. So amortization was probably the lowest and definitely the lowest proportionate to the size of the Company that it's been in a long time will on February first, we did our biggest deal ever. We did another top five or six deal ever. And so amortization is going to come back.
Barry, you know a very notable way over that next 18 months. And so obviously that pushes down gross margins because it's an expense. It's you put tens of millions of dollars, many tens of millions of dollars of expense through your through your cost of goods sold and it's all non-cash and the cash flow still does great EBITDA still EBITDA really is what I'd look at still looks good. So we're comfortable with the cadence of our EBITDA margins. We are going to have choppiness in the gross profit margin. So sorry, that's a little bit longer. But it's just I think it bears given the size of the deals we just did and the fact that we were at a low and last year, I just wanted to mention all of that.
Operator
Thank you, and thank you, and one moment for question.
And our next question comes from Julio Romero from Sidoti & Company. Your line is now open.
Julio Romero
Hey, good morning, guys, and staying on. Hey, morning. So staying on gross margins for a second, you mentioned the same store revenue for the year. You should be looking like first half weighted, how about the gross margin cadence? Should that also be first half weighted? Or how would you have us think about that, though?
Brian Lane
I mean, if I'm a studio of builders went through just in terms of purely operational, I think we'll be pretty consistent at the gross margin level that we've been at. They'll fluctuate up and down quarter-to-quarter. But I think we'll be in that 18% to 20% range for sure.
William George
I mean, the effect on gross margin from like backlog amortization will be immediate. And then there's also a chance of purchase adjustments later in the year that could make it could be a little lumpy in a quarter here or there. But if you just the business is going to earn a lot of it's going to do well, but there would just be a little more noise and those gross margin.
Julio Romero
Okay, got it. On what does what does your capacity look like that might hinder the directions is for the record, that noise can go either direction. You shouldn't this year. It's all bad. Now the amortization will always be an expense, but anyway. Go ahead.
William George
No, great point. I'm just thinking about there's also a lot of cost pass-through in modular two and how that could you know, depending on whether you do it first half weighted or second half weighted, it would affect kind of the cadence of things.
Yes.
Julio Romero
And maybe just turning to capacity, how does that look for you guys can you continue to take on orders and how far out are you booked these days? Will you have to add capacity?
Brian Lane
We're in good shape right now. I know the backlog the projects a little bit bigger. So we're in good shape for this year for sure, winning a fair amount of work, but 30% of our backlogs into 2025 so in terms of the work we have, obviously, you're spending a lot of time, making sure we can execute properly slots in the right work, et cetera. But in terms of capacity, the workload we have the workload we see we're in good shape right now.
Julio Romero
Okay. That's helpful. And then the last one for me is a little bit of a broader question, but industrial and institutional are making up a bigger portion of new construction. As you said earlier, Brian, and I would imagine it majority of those are owner occupied buildings, not necessarily spec buildings. So what are you hearing from those customers in regards to the cost? Are these kind of owner occupied projects just having to swallow a higher cost of capital and tougher project economics just to get comfort too take on the project.
William George
So I don't think they're worried about the cost of capital. Our DNOs, we're talking the big tech companies right. The big pharma companies, they have capital. They say, frankly, they want to deploy capital as far as pricing pricing is up, it is and it's not it's not up. It's up. We have to charge people more because we have we pay our guys. We need to pay our workers very, very well right now. They deserve it. They've worked for us many of them for generations and take some cases, but for decades, and that's what it takes to get the work done. So I would say pricing is definitely up. We're making sure that we get we're taking more in a sense we're taking more risk, right, because we're promising to do something at a time when we're already full. We have to make sure that we get pricing that compensates us for that risk and allows us to do a good job for our customers. But for sure, if you thought if you started planning and building two years ago and you're building it today, it is costing you a lot more than you were budgeting to sort of. And that's by the way, that's true in a lot of parts of the economy, but I think it's especially true in anything that's using skilled labor.
Helpful.
Operator
Adam Thalhimer from Thompson Davis. Your line is now open.
Adam Thalhimer
Hey, morning, guys. Great quarter.
Thank you, Adam.
And just since there's so much interest do you mind just talking high level about data center demand?
Brian Lane
Yes, I'll go first and Bill can comment, but data center demand is still strong. Everything you read on here, Adam, it's still have a lot of legs to it. So right, right now, we see no letup in the stuff. We're looking at the opportunities on presenting themselves that the is going to be good for a number of years.
So you look at Tech went from 13% to 21% of our revenue. The really we do it, we're doing a lot of chip and some other stuff, but that is overwhelmingly data centers. We're seeing data centers, not just in our modular business, right? That's very big in Texas and our electrical business. And they're very big in like sort of the mid-Atlantic, Virginia. And we're targeting. We're not, hey, we're disappointing people like we're favoring people who have given us been partners with us for a long time, but we just the demand for data centers is going to force the build to be pushed out over time. And that's one of the great things about modular modular is if you're if you're big data, a hyperscale, especially data center provider, you really people say, well, what which modality of building data centers is going to work we're going to win and the answer at this and all of the above world right now, they want to do it modular. They want to do it stick built. They want to do third party. They want to do repurposing and want to do, you know, adding it. We are configuring buildings to support more every way that they can do. It is how they're doing it. It reminds me of the way we people say how do you hire people? And the answer is we hired people every possible way we can think of they're building data centers every possible way they can think of and for the foreseeable future, if you can help them meet those needs. And especially if you can do a really good job demand. There just seems to be no end to that demand. The demand is big even before artificial intelligence, right? Is artificial intelligence isn't data center demand. It's incremental data sets.
And then you said three new modular facilities last year that was higher than I didn't realize that. I thought it was one. But what will be your thoughts about expanding modular capacity further, I may have a you can see what the demand is and see what kind of commitments we get from our customers. We've got the three up and running now. So and we will see I think it would plays out which customers would want us to do it.
William George
So round numbers, we did about a 400,000 square foot facility in North Carolina, and we did a 400,000 and a 200,000 square foot facility and here in Houston. And it's even those sizes are great. But these are also buildings that are much bigger, much bigger volume there, they're taller, you can build. You have the option sometimes of building at levels because remember these are this is volumetric you're building buildings that get stacked on top of each other. So this new space is really, really great for our guys. We had an opportunity when we came into this space to really take the lessons we had learned in deploying robots and robotic arms and <unk> the kind of equipment that can make robotic arms more efficient and faster. So far, you know doing is going very, very well. As far as increasing the space. I think we certainly have conversations with them existing and new customers about what what would get us to do that. I think we're probably not going to make serious decisions about that before the middle of the year. But the opportunity is for certain it's out there, right. But one of the things about comfort is we really want to do a good job for people. And one thing we never want to do is promise more than we can really deliver at an absolutely industry standard level. And so our number our number one consideration and taking work is, can we do it and do it right? Our number at almost similar almost the same level of consideration is this work that will be good for our workforce and with people who will treat them fairly and work with them where there will be good efficiency so that they can be successful, you know, into geography, onerous for them or are good for them. I mean, in construction right now, a huge consideration is retaining your workforce and you retain your workforce by considering the things that are going to be important to your workforce. So that's actually a very important consideration right now with our best operators.
Adam Thalhimer
Okay. Super helpful. Last one on backlog expectations. I'm just curious if could backlog continued to build in Q1. Are you basically I would imagine you're kind of full for the 2024 construction season on where we are in really good shape of backlog this year. For sure, you can still grow it because the projects are getting longer, but that was built to set up the works with the customers.
Brian Lane
Now we're going to see we can do to facilitate, but there's still plenty of stuff to look at, Adam, no shortage of opportunities a great update.
Operator
Josh Chan from UBS.
Josh Chan
Bag one Brian Doyle and Julie, and thanks for taking my questions and maybe we can rationalize your margin strength in the quarter for a quick minute here. I appreciate the guidance you gave into next year, but what are some of the factors that drove kind of the margins this quarter? And can those factors pretty much continue into 2024?
William George
So the factors were remarkably broad base markedly, no, the future. It's really just good execution, good work at retail at fair prices and our guys doing a great job. Farming is new. There is very it's not like sometimes historically when you see stuff like this, it's there's two or three drivers, right? And certainly every month and every quarter there are companies that have an especially good month of the quarter, but it's really remarkable right now a broad basis. And so I think that makes you more optimistic that it can continue.
Brian Lane
We're also right, our service businesses need to be. And so we continue to grow them with higher margins too, which is helping our margins as well to us.
Josh Chan
Okay. Yes, that's helpful. Thank you for the color there.
And then and then on the on the growth same-store growth that you're projecting for next year, I guess it's mid-teens for the full year and stronger in the first half. Could your growth kind of accelerate in Q1 beyond what you achieved in Q4? Just kind of wanted to get the shape right versus what you're thinking in terms of how you get to that full year of mid 10s.
Brian Lane
So it's lumpier than you think. So it's harder to answer that question than you think because the range, you know, the range. You might think we're within we can narrow it to a percentage, but it's really there to get to 1.5 standard deviations that you might go from 14 to 23 years. And so I would say it is certainly the case that if you made me, if you said copper was going to grow 15%, maybe quarterize that I put a percent or two more in the first two quarters and I put in the last two quarters, but I will also say all of the factors that drove us to do better are still in evidence. Our guys are really killing it. So, you know, as honestly, one of the reasons we say it's weighted more heavily towards the first half is we just have more visibility on the first half now.
Right? Which promise sometime now.
Josh Chan
Okay. Yes, that's better.
So everyone, thank you for that. And maybe last one for me beyond what's in the backlog now for to kind of talk about what opportunities you see in terms of things that you're bidding on yoga and working on trying to get to the backlog or the early part of the bidding process? What are you seeing on that front?
Brian Lane
Yes. Well, we're seeing yields still a tremendous amount of activity. We're being very selective as we've spoken about and it's in its heavy and light manufacturing, a lot of industrial, a lot of technology. We're also seeing education backlog, and that is the highest it's been in years, particularly university work, some K through 12 and also health care, medical, new build hospitals, we're seeing come up. So so there's a wide range of opportunities in addition to the food, life sciences, pharma, et cetera, that we've talked about. So pretty bright.
Josh Chan
Great, Josh, that's great to hear. Congrats on a great quarter and great year.
Thanks.
Operator
And our next question comes from Jamie Meyer from D.A. Davidson.
Your line is now as is General Motors for Brent Thielman. Congrats on the quarter by the way. Got it. Back to you on a percentage of revenue was modulars vision for the year, about 20% goes to 18, I believe, yes, 18% is a 13%. Yes, the greater the pie are as asset growth increased. Perfect. Yes.
Brian Lane
Sorry if I missed that, Vietnam and just continuing on the conversation around backlog, and is there any concerns or any major concerns around your markets near term or perhaps maybe just taking a look at your capacity or labor or any other inputs that you can share there yet in terms of backlog in the market?
You know, I don't I don't have any concerns, of course, commercial agenda office buildings. You're obviously not seeing new large office buildings. We have a lot of service, small project worth the exception of Dallas in The Wall Street Journal earlier this week, gals still pretty busy on office buildings. But in terms of the sectors themselves, I don't have any real concern at all of our labor capacity were higher in all the time. We increased our workforce in the fourth quarter as well, and we bought a couple of new companies on that brings us more resources to site, and then we have a temporary labor organization that we have.
So in terms of capacity in the backlog, we feel pretty confident about us doing the work and doing the work, though that we like and that we can do well.
William George
So just one correction modular was for the full year was 15% getting the quarterly number except So 15% of our total revenue came through our two modular operations.
Appreciate that. Perfect. Thank you. And just one more for me. For me. Could you discuss from the latest acquisition, the Summit, industrial construction? What are the opportunities the company sees to grow this business beyond the revenues ranges discussed as well as productive capacity.
Brian Lane
Both of those two companies have more work available if they can take it. As you know, the the revenue ranges we put in is the amount that's supported by their current backlog wouldn't be surprising if they did a little more, they can't do orders of magnitude more because there's a time space mass problem with the number of people. But you know, certainly virtually every acquisition we've done within a couple of years is bigger. Now we're hoping that happens again, but they're really good companies.
Understood. Thank you know, one of the things that we have posted about revenue, right? We have a super negative, frankly, close to half the time as of a year or two ago. I took a look company shrunk the first full year. We own them close to half the time they were smaller the first full year we own them. So without with almost I don't think with any exception, the third full year we own them. They're noticeably better. So hopefully that can that could keep happening.
Got it. Thank you so much for the additional comments.
Operator
Alex Dwyer from KeyBanc Capital Markets
Alex Dwyer
I guess just one more if I can squeeze one in. So the free cash flow conversion in 2023, I'm just doing the math. There was 100, 75% to net income, do you have any sense of like where that could shake out and 2020 for like, should we be expecting something lower than 100% or just any thoughts on visibility and cash flow conversion this year?
William George
So that's a really hard question because you have to predict the timing. So we have two things going on. One, we have really, really good payment terms on, yes, almost all of our work and that is wherever build at unprecedented levels, et cetera, et cetera. But the big different thing that's going on right now is this when we take these modular orders, we have the right to receive advance payments when we accept the orders that we have significant amounts of money that are being paid to us sometimes a year in advance of when the work will be done. So it's very, very hard to predict when those orders will come in. I will say we just had big orders in the fourth quarter. So some of that money was collected in the fourth quarter. Some of that money will be still be collected in the first quarter. So we'll start the year off in a good position. And then I believe sometime maybe maybe later this year in the third for their first quarter of next year, we'll have a quarter or two where our cash flows are less than our earnings. But I will say this time last year, I thought the same thing on the orders kept coming and we stayed ahead. So that's why it's so hard to predict because what my Board asks me that I just tell them, let's just enjoy this past September.
Alex Dwyer
Yes, and got it and thank you.
All right, thanks.
Operator
And I am showing no further questions. I would now like to turn the call over to Brian Lane for closing remarks.
Brian Lane
Thanks, Justin, and I really want to once again, thank all our amazing employees. It's a great industry and we really appreciate everything everybody does in this organization. Thank you all for your interest in Comfort Systems. I hope everyone has a terrific weekend and look forward to everybody soon. See everybody soon. Thank you.
William George
Thanks, everybody.
Operator
This concludes today's conference call. Thank you for participating. You may now disconnect.
