Comfort Systems USA, Inc. (NYSE: FIX), a leading provider of commercial, industrial and institutional heating, ventilation and air conditioning (“HVAC”) services, today announced net income of $5,371,000 or $0.14 per diluted share, for the quarter ended September 30, 2010, as compared to net income of $9,540,000 or $0.25 per diluted share, in the third quarter of 2009.

Bill Murdy, Comfort Systems USA’s Chairman and CEO, said, “During the third quarter our team members delivered solid performance across our operations. Our existing locations maintained their profitability, and ColonialWebb, our recent addition, contributed $39 million of revenue, added $105 million to our backlog, and did not impact our earnings per share after intangible amortization.”

The Company reported revenues from continuing operations of $307,648,000 in the current quarter. On a same store basis, the Company reported revenues from continuing operations of $260,066,000, as compared to $291,591,000 in 2009. The Company reported free cash flow of $1,274,000 in the current quarter, as compared to $23,143,000 in 2009. Backlog as of September 30, 2010 was $638,500,000. On a same store basis, backlog was $533,219,000 as of September 30, 2010, as compared to $506,547,000 as of June 30, 2010.

Bill Murdy continued, “Backlog increased by approximately $132 million including ColonialWebb. For the first time in several quarters same store backlog was up moderately, increasing by 5%. Cash flow was positive in the quarter but continues to reflect weak economic conditions.”

The Company reported net income for the nine months ended September 30, 2010 of $8,944,000 or $0.24 per diluted share including the negative effect of our second quarter noncash goodwill impairment, as compared to net income of $26,580,000 or $0.69 per diluted share in the first nine months of 2009. The Company also reported revenues of $793,711,000 from continuing operations for the first nine months of 2010. On a same store basis, the Company reported revenues from continuing operations of $729,869,000 for the first nine months of 2010, as compared to $872,214,000 for the same period in 2009. Free cash flow for the nine months ended September 30, 2010 was negative $10,289,000, as compared to positive free cash flow of $38,834,000 in the first nine months of 2009.

Bill Murdy concluded, “We expect a profitable fourth quarter and continued profitability in 2011, and we also expect that our cash flow will strengthen as we close out 2010.”

As previously announced, the Company will host a conference call to discuss its financial results and position in more depth on Wednesday, November 3, 2010 at 10:00 a.m. Central Time. The call-in number for this conference call is 1-888-680-0860 and enter 95646121 as the passcode. Participants may pre-register for the call at https://cossprereg.btci.com/prereg/key.process?key=PAQ6RG797. Pre-registrants will be issued a pin number to use when dialing into the live call which will provide quick access to the conference by bypassing the operator upon connection. The call can also be accessed on the Company’s website at www.comfortsystemsusa.com under the Investors tab. A replay of the entire call will be available until 6:00 p.m. Central Time, Wednesday, November 10, 2010 by calling 1-888-286-8010 with the conference passcode of 26353747, and will also be available on our website on the next business day following the call.

Comfort Systems USA ® is a premier provider of business solutions addressing workplace comfort, with 85 locations in 76 cities around the nation. For more information, visit the Company’s website at www.comfortsystemsusa.com .

This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based on the current plans and expectations of future events of Comfort Systems USA, Inc. and involve risks and uncertainties that could cause actual future activities and results of operations to be materially different from those set forth in the forward-looking statements. Important factors that could cause actual results to differ include, among others, the use of incorrect estimates for bidding a fixed-price contract, undertaking contractual commitments that exceed our labor resources, failing to perform contractual obligations efficiently enough to maintain profitability, national or regional weakness in construction activity and economic conditions, financial difficulties affecting projects, vendors, customers, or subcontractors, our backlog failing to translate into actual revenue or profits, difficulty in obtaining or increased costs associated with bonding and insurance, impairment to goodwill, errors in our percentage-of-completion method of accounting, the result of competition in our markets, our decentralized management structure, shortages of labor and specialty building materials, retention of key management, seasonal fluctuations in the demand for HVAC systems, the imposition of past and future liability from environmental, safety, and health regulations including the inherent risk associated with self-insurance, adverse litigation results and other risks detailed in our reports filed with the Securities and Exchange Commission. A further list and description of these risks, uncertainties and other factors are discussed under "Item 1A. Company Risk Factors" in the Company’s Annual Report on Form 10-K for the year ended December 31, 2009. These forward-looking statements speak only as of the date of this filing. Comfort Systems USA, Inc. expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward-looking statement contained herein to reflect any change in our expectations with regard thereto or any change in events, developments, conditions or circumstances on which any such statement is based.

- Financial tables follow –
 

Comfort Systems USA, Inc.
Consolidated Statements of Operations
For the Three Months and Nine Months Ended September 30, 2010 and 2009
(in thousands, except per share amounts)
(unaudited)
 
    Three Months Ended   Nine Months Ended
September 30, September 30,
2010   %     2009   %     2010   %       2009   %  
Revenues $ 307,648 100.0 % $ 291,591 100.0 % $ 793,711 100.0 % $ 872,214 100.0 %
Cost of services   257,339 83.6 %   234,186 80.3 %   661,929 83.4 %   701,335 80.4 %
Gross profit 50,309 16.4 % 57,405 19.7 % 131,782 16.6 % 170,879 19.6 %
 
SG&A 41,885 13.6 % 41,713 14.3 % 114,905 14.5 % 126,175 14.5 %
Goodwill impairment

-

-

-

-
4,446 0.6 %

-

-

Gain on sale of assets
  (29 )

-
  (101 )

-
  (502 ) (0.1 )%   (98 )

-
Operating income 8,453 2.7 % 15,793 5.4 % 12,933 1.6 % 44,802 5.1 %
 
Interest expense, net (793 ) (0.3 )% (184 ) (0.1 )% (1,223 ) (0.2 )% (454 ) (0.1 )%
Other income   669 0.2 %   3

-
  675 0.1 %   5

-
Income before income taxes 8,329 2.7 % 15,612 5.4 % 12,385 1.6 % 44,353 5.1 %
Income tax expense   2,919   6,072   4,164   17,293
Income from continuing operations 5,410 1.8 % 9,540 3.3 % 8,221 1.0 % 27,060 3.1 %
 

Discontinued operations:

Operating loss, net of income tax benefit of $-, $-, $-, and $133

-

 

-

-
(387 )

Estimated gain (loss) on disposition, net of income tax expense of $195, $-, $166 and $-
 

(39
)  

-
  723   (93 )
Net income $ 5,371 $ 9,540 $ 8,944 $ 26,580
 
Income per share:

Basic -
Income from continuing operations $ 0.14 $ 0.25 $ 0.22 $ 0.71
Discontinued operations -
Loss from operations

-

-

-
(0.01 )
Estimated gain (loss) on disposition  

-
 

-
  0.02  

-
Net income $ 0.14 $ 0.25 $ 0.24 $ 0.70
 
Diluted -
Income from continuing operations $ 0.14 $ 0.25 $ 0.22 $ 0.70
Discontinued operations -
Loss from operations

-

-

-
(0.01 )
Estimated gain (loss) on disposition  

-
 

-
  0.02  

-
Net income $ 0.14 $ 0.25 $ 0.24 $ 0.69
 
Shares used in computing income per share:

 
Basic 37,560 37,995 37,564 38,135
Diluted 37,794 38,382 37,821 38,533

Note 1: The diluted earnings per share data presented above reflects the dilutive effect, if any, of stock options and contingently issuable restricted stock which were outstanding during the periods presented.

Supplemental Non-GAAP Information – Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization (“Adjusted EBITDA”) (Unaudited):

     
Three Months Ended Nine Months Ended
September 30, September 30,
2010  

%
  2009   % 2010   %   2009 %
Net income $ 5,371 $ 9,540 $ 8,944 $ 26,580
Discontinued operations 39

-

(723
) 480
Income taxes 2,919 6,072 4,164 17,293
Other income (669 ) (3 ) (675 ) (5 )
Interest expense, net 793 184 1,223 454
Gain on sale of assets (29 ) (101 ) (502 ) (98 )
Goodwill impairment

-

-
4,446

-
Depreciation and amortization   4,802   3,250   11,882   9,802
Adjusted EBITDA $ 13,226 4.3 % $ 18,942 6.5 % $ 28,759 3.6 % $ 54,506 6.2 %
 

Note 1: The Company defines adjusted earnings before interest, taxes, depreciation and amortization (“Adjusted EBITDA”) as net income, excluding discontinued operations, income taxes, other income, interest expense, net, gain on sale of assets, goodwill impairment and depreciation and amortization. Other companies may define Adjusted EBITDA differently. Adjusted EBITDA is presented because it is a financial measure that is frequently requested by third parties. However, Adjusted EBITDA is not considered under generally accepted accounting principles as a primary measure of an entity’s financial results, and accordingly, Adjusted EBITDA should not be considered an alternative to operating income, net income, or cash flows as determined under generally accepted accounting principles and as reported by the Company.
 

Comfort Systems USA, Inc.
Condensed Consolidated Balance Sheets
(in thousands)
 
  September 30,     December 31,
2010 2009
(unaudited)
 
Cash and cash equivalents $ 44,661 $ 127,850
Accounts receivable, net 264,330 203,353
Costs and estimated earnings in excess of billings 26,379 20,432

Other current assets
 

64,520
  61,520
Total current assets 399,890 413,155
Property and equipment, net 44,158 34,671
Goodwill 148,518 100,194
Identifiable intangible assets, net 41,549 19,380
Other noncurrent assets   7,118   7,548
Total assets $ 641,233 $ 574,948
 
Current maturities of long-term debt $ 300 $ 250
Current maturities of notes to former owners 1,117 917
Accounts payable 94,522 83,848
Billings in excess of costs and estimated earnings 73,118 66,343
Other current liabilities   105,248   97,672
Total current liabilities 274,305 249,030
Long-term debt, net of current maturities 2,700

 
Notes to former owners, net of current maturities 27,200 6,441
Other long-term liabilities   29,314   13,493
Total liabilities 333,519 268,964
Total stockholders’ equity   307,714   305,984
Total liabilities and stockholders’ equity $ 641,233 $ 574,948

Selected Cash Flow Data (in thousands) (unaudited):
    Three Months Ended   Nine Months Ended
September 30, September 30,
2010   2009 2010   2009
Cash provided by (used in):
Operating activities $ (3,772 ) $ 24,803 $ (14,471 ) $ 44,754
Investing activities $ (39,165 ) $ (1,438 ) $ (40,417 ) $ (7,241 )
Financing activities $ (20,004 ) $ (3,917 ) $ (28,301 ) $ (14,665 )

 
Free cash flow:
Cash from operating activities $ (3,772 ) $ 24,803 $ (14,471 ) $ 44,754
Purchases of property and equipment (2,021 ) (1,986 ) (4,103 ) (6,420 )
Proceeds from sales of property and equipment 11 326 1,229 500

Taxes paid related to pre-acquisition equity transactions of an acquired company
  7,056  

-
  7,056  

-
 
Free cash flow $ 1,274 $ 23,143 $ (10,289 ) $ 38,834

Note 1: Free cash flow is defined as cash flow from operating activities excluding items related to the acquisition of businesses less customary capital expenditures, plus the proceeds from asset sales. Other companies may define free cash flow differently. Free cash flow is presented because it is a financial measure that is frequently requested by third parties. However, free cash flow is not considered under generally accepted accounting principles as a primary measure of an entity’s financial results, and accordingly, free cash flow should not be considered an alternative to operating income, net income, or cash flows as determined under generally accepted accounting principles and as reported by the Company.

Copyright Business Wire 2010

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