00:00 Speaker A
Corey, great to meet you. Corey, you gave us a great stock story today and I loved it.
00:04 Corey
Yes.
00:04 Speaker A
Well, for those who are not familiar, maybe just explain it to us. Comfort system. Let’s start at a high level. Maybe not everyone knows this story. Tell us the story, Corey, the history, the mission.
00:13 Corey
This is probably the most boring company you can imagine. They perform HVC repairs, installations and electrical work. Yet they find themselves the primary beneficiaries of the AI ​​world as we move away from the industry you asked us to talk about. We’ve gone from a place where projects are being imagined and approved, maybe there’s buying things like semiconductors, but to put those things together to build these data centers, you need people with wrenches and tool belts, and you need comfortable systems.
00:46 Speaker A
So, are we actually talking about the pipefitters, the welders who actually install and maintain the heating and cooling systems? Is this what we mean, Corey?
00:58 Corey
Yes, absolutely. This is a company that I’ve followed for a long time, but I’m not going to give stock advice, but I want to talk about the company. This was one of the true home runs of my life for this company. In fact, it has outperformed other products in the video space over the past five years and many different periods. This is a company that has a unique ability to make successful acquisitions, right? Roll-ups like this often don’t work. Yet the company was extremely successful. It has a great culture that brings these groups of contractors under their tent and helps them find the right jobs, bid on the right projects. And, you know, three years ago, four years ago, when I owned this company, I looked at it and it did a great job developing new office systems in response to COVID, and at that time companies wanted to have better ventilation systems to provide better safety for workers during the pandemic, which was a big part of their business. But technology, as they call it, has really evolved in their business to the point where:
02:11 Corey
Five years ago, this was less than 5% of their business. Now, it’s really close, currently accounting for about 50% of revenue, and growing at an astounding rate, uh, almost doubling year-over-year growth, beating Wall Street expectations and climbing into the S&P 500. But it does tell us something about where we currently are in the world of artificial intelligence. It does show us that the build of AI is definitely happening, and there are questions about how valuable AI companies are going to be. There are questions about the companies that borrowed money for the expansion, but there’s no question that that money is now being spent on the expansion and it’s the beneficiary of the comfort system, uh, great stock restoration.
03:00 Speaker A
As far as comfort systems, Cory, who do you think are their main competitors? What did they bring to the table that was different?
03:08 Corey
I think what we’re seeing with comfort systems is that they’re really focused on this particular area. So we have other companies that are doing a broader um build where everything that happens in the data center goes into the data center. There are companies that focus specifically on liquid cooling and some of the more cutting-edge technologies that may or may not be implemented in all of these data centers. Of course, we have the companies we’ve been talking about, Nvidia and the sexy chips, is AMD going to take some share, is TSMC going to make those chips? But these people are focused on the boring parts of this business that are doing so well and growing so fast. It’s not just the number of jobs they get and how they bid for those jobs. They’ve also seen margins expand every quarter over the past few years. This suggests they can charge higher fees for these transactions. Another interesting thing about comfort systems is that they allow for quick entry and exit of these items. Well, I’m going to review their 10km. They’re what I love when a company actually submits their Q or K and the results, like every company probably should or doesn’t do. These guys would actually file their results, they would do it after the deal closed and then have a conference call the next morning so people had a chance, people like me had a chance to actually go through it, study your model, read the 10K or 10Q, understand the right questions to ask management. What we’re seeing is, well, some things haven’t changed. Their projects tend to be completed within six to nine months. So it’s not a mystery whether these projects will be around in a few years, whether the backlog is real, they come in and out of these projects, they complete these projects and bring in some nice profits and free cash flow. It’s a sight to behold.
