Julie Shaeff - CAO and SVP Brian E. Lane - CEO, President, and Director William George - CFO and EVP.

Tahira Afzal - KeyBanc Capital Markets Adam Thalhimer - Thompson, Davis & Company, Inc. Bill Newby - D.A. Davidson & Co. Joseph Mondillo - Sidoti & Company Sophie Karp - Guggenheim Securities.

Good morning ladies and gentlemen and welcome to the Q3 2017 Comfort Systems USA Earnings Conference Call. My name is Sheila and I am your operator for today. During the presentation your lines will remain on listen-only. [Operator Instructions]. I would like to advice all parties that this conference is being recorded for replay purposes.

I'd now like to handover to Julie Shaeff, Chief Accounting Officer. Please proceed..

Thanks, Sheila. Good morning. Welcome to Comfort Systems USA's third quarter earnings call. Our comments this morning as well as our press releases contain forward-looking statements within the meaning of the Private Securities Litigation Act of 1995. What we will say today is based on the current plans and expectations of Comfort Systems USA.

Those plans and expectations involve risks and uncertainties that could cause actual future activities and results of our operations to be materially different from those set forth in our comments.

You can read a more detailed listing and commentary concerning our specific risk factors in our most recent Form 10-K and Form 10-Q as well as in our press release covering these earnings. A slide presentation will accompany the prepared remarks.

Those slides are posted on the Investor Relations section of the company's website found at comfortsystemsusa.com. Joining me on the call today is Brian Lane, our President and Chief Executive Officer; and Bill George, our Chief Financial Officer. Brian will open our remarks..

Okay, thanks Julie. Good morning everyone. Thank you for joining our call this morning. I'd like to start by thanking all of the Comfort Systems employees who are on the call today. Their hard work and dedication makes it possible for us to continue to deliver solidly profitable results.

For the third quarter of 2017 we are extremely pleased to report year-over-year improvements. Revenue for the quarter was 481 million, a 12% increase compared to the third quarter of 2016. We earned a record $0.59 per diluted share in the third quarter, a 9% increase compared to the exceptional third quarter we had last year.

Most of our operating companies particularly those in the Northeast and upper Midwest had a very busy summer. Thanks again for your contributions. As you know Houston and Florida experienced disaster this quarter as hurricanes and floods struck.

We have substantial operations in the markets that were affected by these hurricanes and we derive approximately 11% of our revenue from offices and jobs that were temporarily closed in the face of these storms.

We are very proud of the way that our team members reacted to these events, as our people in those markets and even from other parts of our company stepped up to care for each other in their community. The fact is it is at times like these that you realize there are things that are more important than the things we normally talk about on these calls.

Free cash flow for the quarter was a remarkable 40 million, our best third quarter cash flow ever. Our fantastic cash performance this quarter and year-to-date bodes well for the health of the underlying work. We are on track for strong cash flow performance this year and positive free cash flow for the 19th year in a row.

Our backlog remains strong as we finished our busiest quarter at levels much higher than a year ago. Backlog at the end of September was 901 million, a 25% increase compared to the third quarter of 2016. I will discuss backlog and outlook in more detail later in the call, but first let me turn this over to Bill for the financials, Bill. .

Thanks Brian. You can look through slides 2 through 6 as I provide some additional information regarding our financial results. Third quarter revenue increased to $481 million, an increase of $52 million or 12% compared to the third quarter of 2016.

BCH our newest company contributed approximately 35 million of revenue during the quarter, and on a same store basis our revenue increased 4%. Gross profit was 21.0% for the third quarter of 2017 compared to 21.6% in the third quarter of 2016. Amortization expenses are up significantly due to the BCH acquisition.

Excluding that additional amortization expense gross profit was similar to last year. Net income for the third quarter was $22.3 million or $0.59 per diluted share compared to the third quarter of last year when earned $20.5 million or $0.54 per diluted share.

This is only the second time we have earned more than $0.50 and that results from strong performance across our operating locations.

With respect to our acquisition of BCH earlier this year, during the quarter we recorded approximately $0.04 per share from revaluing the year now; however, at the same time, we experienced expense for the BCH acquisition of approximately $0.03 per share due to our contractual true up of the work in process schedule as of closing.

These two purchase entries netted to $0.01 per share net benefit and after amortization BCH made a net contribution of approximately $0.05 to our quarter which reflected fantastic performance despite disruption from the hurricane. SG&A expense was $66.7 million for the third quarter of 2017 compared to $61 million for the third quarter of 2016.

The dollar increase is due to the BCH acquisition. SG&A as a percentage of revenue was 13.9% in the current quarter lower than the same quarter last year when SG&A was 14.2% of revenue. Our year-to-date tax rate was 36.3% which is up slightly from the prior year tax rate of 36%. We had very strong free cash flow during the quarter.

For the quarter our free cash flow was $39.5 million as compared to 7.3 million a year ago. We benefited from certain tax payment deferrals in the quarter arising from IRS provided hurricane relief and that relief helped our cash flow by about $6 million.

Our nine months free cash flow was 49.6 million so we're ahead of the 33.3 million that we had at this time for the first nine months of 2016. I also want to update you on our stock buyback program. We've been carefully repurchasing our shares since 2007.

During the third quarter of 2017 we were active in the program and purchased 153,000 of our shares at an average price of $33.20. Since we began our stock repurchase program in 2007 we have repurchased 7.6 million shares.

We're very pleased with our results for the quarter and optimistic about the remainder of the year and the opportunity presented by our increased backlog.

We continue to expect that our earnings as measured by our EPS will be similar in 2017 to the record levels that we achieved in 2016 and we believe that underlying EBITDA in 2017 will continue to meaningfully exceed 2016. As Brian mentioned our strong bookings continue to provide a good opportunity for improvement in 2018. That's what I've got Brian. .

Alright, thanks Bill. Let me start with the backlog and activity in various sectors and markets. Please go to slide 7, our improving backlog trends continued this quarter as the underlying demand for our services has strengthened. Backlog at the end of the third quarter was 901 million.

Sequential backlog is down approximately 37 million or 4% from the second quarter of this year. This sequential fluctuation in backlog levels is not unusual since we generally have our highest activity levels in the summer months. Compared to a year ago on a same store basis our backlog has increased by 150 million which is a 21% increase.

The increase is distributed over the majority of our companies. Pricing is stable, our pipelines are active, and we have started to see the return of larger projects in select markets. Let's turn to slide 8 for a look at our end user sectors. We've continued to experience good balance in our portfolio of work.

Institutional markets which include government, healthcare and education made up 40% of our revenue for 2017. The commercial sector was 38% of our revenues and industrial and distribution represented 22% of our 2017 activity. We continued to win projects and overall we are happy with trends for our work in the various sectors.

Looking regionally our companies in the Northeast and upper Midwest continue to execute and produce strong results especially our operation in Michigan this quarter. The majority of our operating companies have active pipelines and as we have said earlier this year many are operating at capacity.

In general our operations are achieving great results and we see signs of improving demand. Please turn to slide 9 for our current revenue mix. For the first nine months of the year 37% of revenue was construction projects for new buildings and 32% of our revenue was construction projects in existing buildings.

Construction is 69% of our total revenue and our backlog is primarily construction revenue. Our construction business is benefiting from good fundamentals and trends in the nonresidential construction market.

Service is 31% of our revenue with service projects providing 11% of revenue in pure service which is composed of repair, maintenance agreements, and other hourly work providing 20% of revenue.

Our pure service has always the majority of the smaller projects we include in service are substantially contracted and perform within any given reporting period. We continue to benefit from the investments that we have made and continue to make in service. Our service business is profitable and our maintenance base is growing.

Our markets have steadily improved over the past few quarters. Given our backlog increases we believe that the majority of our markets are likely to remain active and supportive for the next several quarters. Our balance sheet is strong and our long history of cash flow gives us confidence to continue to invest and return capital to our shareholders.

We are optimistic about our prospects for the remainder of this year and going into 2018. Thank you once again to our nearly 9000 employees for your hard work and dedication. I will now turn it back over to Sheila for questions. Thank you..

Thank you. [Operator Instructions]. And the first question comes from the line of Tahira Afzal of KeyBanc Capital Markets. Please proceed. .

Hi folks, congrats on a fantastic quarter.

You know first question, you guys you said your mix is changing folks, you know I don't want to overbuild the revenue aligned based on enthusiasm, so how would you guide us in terms of what's changing in your backlog in terms of burn profile that we should keep in mind?.

If you look at slide 8, I think it is, you can see our revenue by sector. One of the things that I would -- we've never had industrial that big, it has been a trend for us, our acquisitions that we've done have had more industrial than the mix that we had before we started doing acquisitions. So today more of our backlog is that type of work.

So there's a slight uptick in healthcare really going from almost no hospitals going on to few hospitals going on but that's encouraging. And you, know apart from that institutional is back up to 40%. So I think there's -- that is just probably healthcare picking up a little because I don't think the other sectors there would have been….

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

Okay, and on the healthcare side, any change in outlook. I know when we talked at the beginning of this year Brian you were hoping there would be some uptick.

It is all the uncertainty around the regulatory environment sort of pushing some work out there, does that to remain a pretty big opportunity for yourselves?.

It's interesting to hear. We are seeing a little bit more particularly with BCH joining us in Florida. They had a few hospitals, we have our Florida hospital, Northern Florida that we are doing.

We are still seeing strong end-of-life care facilities, but I think we'll see a few more hospitals being built as we go on, a little bit more than we have seen last 10 years for sure. Bill you want to add anything different to that. .

That is exactly right. .

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

Yeah, I mean, Tahira looking at that question, it is a challenge in getting skilled labor to join the trades, but I'm really proud of the work force we have, the level of training that we do. We're a good place to work, we've got a good benefit package. So we are continuing to hire and train people. I think you see the results of that.

The gross margin, the way it is, it's really a reflection of how well we are performing in the field. So, it is a bottleneck, but we are aggressively hiring and training, so I am optimistic that we will continue to be able to grow..

Thanks a lot folks and congrats again. .

Alright, thank you..

Thank you and the next question comes from the line of Adam Thalhimer of Thompson Davis. Please proceed. .

Hey, good morning guys, great quarter. .

Thanks..

Well actually I wanted to continue on Tahira's question on the revenue line because there has been strong backlog growth, double-digits in the last three quarters and up 20% plus the last two quarters.

What -- how does that translate into revenue for next year, I mean does that mean we get double-digit top line in 2018?.

So the answer to that is no unfortunately. We still think mid-single-digits organic growth. It was finally good frankly this quarter to finally see that. We've been predicting it and expecting it, and we finally saw a little over 4% organic growth this quarter.

Keep in mind our backlog only represents about, today it is 69% of our revenues, the construction revenue. So whatever increase it is driving it will drive increase only on 69% of the company.

And then also what happens as demand gets better, we in order to put something into backlog we have to have a signature, a price, and a scope and people try to get us committed a little earlier than they would when things are slower.

There are people who realize that next summer is going to be busy, not everybody who wants a building will necessarily get one. So the GC is suddenly, you know you get those signatures sooner. So what that means is you're back.

The same work gets into backlog a little earlier, so one of the reasons we often have a really big pop when things get better, but the revenues don't quite match the percentage changes, it is people are just committing earlier and the average length of the jobs are getting a little longer.

Having said that, even though we can't do double-digit, we can't count on that, we're pretty happy. .

Yeah, and Adam, I just want to add on the service element, we're getting good steady growth in service. Our maintenance space is over 118 million now. So that has -- our investment there we've made over the number of years is paying off, it's going to continue to pay off. .

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

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

It's interesting you pointed out amortization coming down, that is a really a stoop point. We feel good about gross margins, there was a couple of years ago we thought 20% was impossible. Now it's pretty hard to find a reason why we would think our gross margins would be lower the next year. The works is good or better.

The execution looks good from here so I think we do have -- maybe we have some larger projects starting and they often have somewhat lower gross margin although lower SG&A but I will say overall it's hard for us to be pessimistic about our gross margin. .

You know Adam we've been fortunate, we've had on absence of bad news lately, I am knocking on wood. But it is really attributed to the folks that are sort of managing this work out in the field that we're performing the way we are. So, I think Bill's right.

We'd be hard pressed to say we will be lower than the 20 but 20 is to me very impressive for our contracting organization..

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

Yes, okay. So if we go across the country in general we are still seeing a robust bidding market across the country. The Northeast for us has been strong for 20 years, continues to do extremely well. Markets are good, opportunities are good.

In a place like Buffalo and I was out a couple weeks ago, a lot of opportunity and Buffalo New York has probably hasn’t seen it in a long time. The Southeast is very active. We are seeing work come back in the middle of the mid Atlantic in particular Florida is very strong, Tampa in particular. There lies a number of opportunities there.

The Midwest we just have really good companies in the upper Midwest, a good balance of service and construction, a lot of opportunities and I think back to your other question we are seeing larger projects particularly in the Mid Atlantic a little bit in the Southeast as well what we would call larger projects.

You know the West is probably where you're going to get your mixed bag at a place like Denver who's just producing extraordinary results. Tons of opportunities, if you go there, there is cranes everywhere. So we're seeing Phoenix come back pretty diversified, some healthcare. Seattle's been very busy, bidding still good.

Southern California we are still rebounding and I have seen -- office but opportunity is there. So, I added like it is time for us to beat us on domestic but we're seeing good activity throughout the country and we are seeing some larger work. I think large work particularly we're seeing is in the Southeast and Mid Atlantic.

Okay, thanks so much. .

Thank you and the next question comes from the line of Bill Newby of D.A. Davidson. Please go ahead. .

Good morning guys and congrats again on a solid quarter. .

Thank you..

So kind of opened the pull a little bit more for 2018, it's good to see that organic growth kind inflect this quarter and nice to hear that your segment to continue into 2018, should you guys, how should we think about the SG&A line as that growth picks up, are you guys at a place where you can kind of fund that growth on the SG&A line or should that pick up a little bit as well?.

So our SG&A will always go up some when our results go up because we have very performance driven remuneration plans that our subsidiaries and the positions of the people who run things and who run jobs. Having said that we ought to get some leverage, right we ought to get some leverage.

At the end of the day there is some downward pressure on gross margins when you start to do bigger jobs but one of the reasons for that is because they just don't have as much SG&A. The project manager lives in the trailer on the job and there is at least an indirect if not a direct cost. So, I would say we ought to get some leverage.

If we get the growth well we got to get a little leverage from it..

Okay, and then I guess similarly, I mean as you talked about this recovery that you are seeing in the new construction markets, over the last couple years we've seen services steadily pick up as a percentage of revenues, is that -- can we still expect that even with this new construction coming in or should that kind of maybe flatten out?.

Bill absolutely, we are totally committed to the service business and we are seeing a lot of opportunities in what I call service projects. Pretty robust, so I think you will see service continually. At least maintain a percentage of the business or slightly grow even with the increased construction business. .

Okay, that is good to hear. And then one more if I could, Brian I think -- I mean you've talked about in the past some acquisitions, I am trying to buy around $100 million in revenue a year as just the general goal.

First, does that tick up kind of as you guys continue to grow? And I guess maybe for Bill, how you think about it from a balance sheet perspective changes or are you going to leverage up a little bit more as you guys look at bigger companies?.

If you don't mind I'll answer both of those since I do our acquisitions. Well, I do think that we, you know, really where that number of 100 million came from was really a commitment we made in about 2007 or believe we really adopted that we could spend about 60% or two thirds of our money on acquisitions and not get ahead of ourselves.

So we have more money now, so probably that amount of money does a little more in the way of revenues for acquisitions. The size of the companies we're doing now have been bigger than we used to do.

Frankly I think we've -- our guys, our company overall has made itself more attractive to some of the older, little more industrial people in our space which kind of proving that we're a great place to be. So I would say yes, it is probably -- which probably shouldn’t average more than that.

In any given year we might not do an acquisition because frankly we don't have conviction, we don't do an act. There will be -- if you look back historically we hit that 60% over 10 year averages. But we don't have a quota. As far as the balance sheet goes you know today our trailing twelve month cash flow is $85 million.

That is a big number, that gives you a lot of confidence to invest. We do have a little bit of debt today although we've paid down debt over the summer this year, right. I expect to pay down debt at the end of the year, we were paying down debt over the summer. So I think we feel very good about continuing to invest.

The mix of our business is going more towards service so whereas we used to say man, we probably don't ever -- we probably at one turn of EBITDA in a steady state, in the middle part of the market was probably wise for us conceivably if you really had conviction about something you could stretch that another half a turn.

So I think we've got plenty of resources for the foreseeable future to do deals we believe in..

Alright, thanks for the color. I will jump back in queue. .

Alright, thanks. .

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

Hi guys, good morning. I wanted to touch on the services business as well.

So it looks like in the quarter business from services was up sort of mid single-digits which is fairly good considering the [Technical Difficulty] good, how effective does your business -- do you really need hot temperatures because it seemed like the business did quite well? And then in addition to that to your comment that you expect services to continue to keep up the pace of what your backlog and new construction is, what are you doing to drive to keep that pace because the construction is going to drive pretty considerable growth over the next couple quarters just given the backlog, so what are you doing?.

So, first and foremost you wonder whether the obviously extreme temperatures help us. But we've grown our maintenance base considerably which means we are going to service those customers every year no matter what the weather is.

So, we just have the largest maintenance base we have ever had to get really good solid customers that are going to need work. Even with the hurricanes which hurt us in the regions we mentioned we were probably down for the week and we still paid out folks. We still produced really terrific results and service for the quarter.

Now as we go forward there might be fluctuations Joe month-by-month, quarter-by-quarter but in general I believe that percentage will maintain I mean quarter-by-quarter, who knows. But the reason for my optimism we continue to hire sales people, we are continuing to hire service techs.

So we still have this element of our business where we are still committing SG&A investment resources to grow at a nice steady state base. So you might see some fluctuations by quarter but in the aggregate I think you'll see that percentage maintain itself..

So looking at the next book given this backlog, so over the last quarter or two you certainly were sort of cautioning I think is the right word relative to gross margins, just how is the mix of new construction coming, you saw organic growth of 4% and that was largely driven by construction.

But going forward it's going to be even stronger at least in the very near-term, at least in the next couple of quarters. So in the near-term could you see a mix to weighing on gross margins just in the near-term even though over the next year or two you think services continues to -- kind of the higher margin services continues to keep up..

Yes, I -- you know there are different factors that bake into gross margins, right and one is that we're proportionately doing more big work.

There's just going to be -- that's going to average down the gross margin sort of from whatever it would have been because at the same time you have pricing and at the same time, which is good and we have a very good stream of service business. So in any given quarter Joe, anything can happen with us.

Everything's going be very lumpy but at the end of the day when Brian said it's very hard for us to justify projecting getting back below 20 in the current market. Circumstances absent some large execution fail, right. It's just -- now 20 is not 21.6, right so we're not to saying they can only go up.

But the good news is if you listen to each of the three things that I said are affecting our margin, setting aside a problem right, execution problem they're all good, right.

It'll be a good problem if we have so much big work that it slightly pulls down our margins because that doesn't mean we still won't be on the long-term growth line for our service and that doesn't mean we still won't be making a lot of money on our small and medium sized projects. So, it is sort of heads I win, tails I win kind of situation there.

So that's why we don't we don't worry about it a lot but we'd like to make sure people do understand our mix affects our margins and mainly so that when they see our margins go down they realize there can be bad reasons for that to happen and there could be good reasons for that to happen.

A slight decrease in margins when your domestic growth, your organic growth comes back as long as you end up making more money -- otherwise we could earn cash flow. .

Understood.

You mentioned pricing, I actually wanted to ask you in terms of overall capacity of the industry and net pricing power of favorable cost [Technical Difficulty] could you talk about that, it seems like sort of steadily maybe sort of improving, you certainly have been stressed it over on past conference call, has the trajectory escalated at all in terms of your abilities?.

Yeah, I just want to say Joe we're only getting about every two out of three words you're breaking up on us. So I think Brian's going to respond to pricing but there's a connection issue, just so you know. .

So, Joe on the pricing element, pricing has improved steadily. We tend not to mention though obviously, our folks are going to get as much pricing as they possibly can. But you got to keep pricing within the context of the competitive environment, your rent, who might need some work. You don't want to price a job out that is not going to go.

So, I think we are seeing steady state improvement. We continue to see steady state improvement. But we cannot just mention it because I don't think it's going to be significant..

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

I just have two other questions; one, what was the backlog amortization related to BCH that is hitting on a per quarter basis and when does that fall off?.

So BCH is, we don't we don't do, we don't give out individual amortization numbers for the different categories of our individual acquisitions but I think that their backlog you can -- we are losing you Joe, I'm sorry. Do you want to call us back. .

[Technical Difficulty]. .

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

Backlog information relative to acquisitions..

Yeah, I mean so backlog amortization generally for acquisitions there are three paces of amortization, there's trade name, there is customer list, and there's backlog and two of them have a long life and a long receding tail. Backlog usually 12 to 15 months and really 12 to 24 months if it's a company that has big projects like BCH.

You're going to see the backlog amortization come out and in this case this quarter that would have been worth a penny or two for Comfort Systems. If there had not been backlog amortization I don't really have a breakout from all the three categories but the biggest piece was backlog because we're so quick after the deal. If you want to call us... .

I apologize. .

That is okay, thanks. .

Thank you and the next question comes the line of Sophie Karp of Guggenheim Securities. Please go ahead. .

Good morning Sophie. .

Hi, good morning guys. Congrats on the quarter and thank you for taking my question.

Yeah, I guess I wanted to drill down a little bit more on the acquisitions, can you comment on the revelations [ph] that you're seeing in the markets right now and in which maybe sub segments you are seeing more attractive opportunities at this stage?.

So we -- our first choice is always to go buy more full service mechanical contractors. We love companies that have sophisticated clients that are like pharmaceuticals or industrial clients, healthcare. What we are going to look for in a big city is a little different than what we're going to look for in a city like Charleston, right.

Charleston and smaller cities are going to have a mechanical that is hopefully -- and we can buy mechanical that is dominant in their market and they're going to do everything in a place like San Diego or Phoenix where we really have to go after the part of the market that makes sense for us.

People who build apartments just a lot of times do that too competitively for that to make sense for us. So we look for companies that have more of a niche that's going to fit with us..

And maybe I -- but what about the variations that you are going to see, you are doing well, it seems like the cycles and the uptick are there attractive opportunities there right now for acquisitions?.

In what?.

Given where we are in the cycle it seems like the cycle is in -- business is doing great are there attractive variations right now?.

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

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

Yeah we are going to be very deliberate about that but we think that we have -- first off we have some electrical business right, we have three or four geographies where we have really good electrical businesses and we view electrical as an attractive space. I think you know from we tend to get to know people before we buy them.

So we are not somebody who is going to hire a broker and start making offers for electrical businesses. We're going to get to know somebody, develop conviction if they are going fit here and if it's going to work well for them and for us.

Well if we've learned one thing for the acquisitions in our space, we are either both going to be happy or neither of us are going to happy. And we don't go until we really are convinced we're both going to be happy..

Alright, so -- maybe if I may one more on the share buybacks.

Now that the stock has done well, I guess is it an opportunity to slow down share buybacks then move forward with more acquisitions or would you just continue buying back shares, how do you guys think about that?.

I would say at current levels we are just buying enough to offset dilution probably plus a little just to make sure we don't miss. And then we stand ready to buy more on dips, that is the conversation there.

We have some really astute people on our Board of Directors who really believe in the company, actually who are putting their own money into buying shares. So they're not just -- so when we have conviction that it's a good thing to do with the money that's what we'll do.

But I would say right now with an opportunity for acquisitions and with us not having a bunch of cash on our balance sheet like we have at times in the past when we bought a million shares a year, we're probably offsetting evolution plus a little..

Got it, thank you. I'll jump back in the queue. .

All righty, thank you. .

Next question comes from nine of Joe Mondillo of Sidoti & Company. Please proceed. .

Hey guys, I just had one follow up question really regarding your working capital, so that was a pretty big generation of cash that helped drive strong free cash flow that we saw in the quarter, just wondering what you're looking at towards going for the fourth quarter in terms of a user generation of cash?.

So, we will have a good fourth quarter of free cash flow but there's very little chance. If you look back over the last five years probably two of the last five years we had just an unbelievable fourth quarter. We just had our unbelievable third quarter and you can't collect the same money twice.

So we'll collect cash at year-end, we always do but obviously you can't collect the same dollar twice. So, it would be very, very hard for us to have what a historically strong free cash flow in the fourth quarter. Because we already have the money..

Okay, thanks. .

Alright, thanks you guys. And by the way the ability and willingness of people to pay bodes -- Brian said in his script it bodes well perhaps jobs are doing. So it is good news on two levels. When you're collecting money in the third quarter you get the money but you also get a lot of comfort that your business is doing well. So thanks. .

Thank you and now I would like to turn the call over to Brian Lane for closing comments..

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

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