Comfort Systems USA Reports Fourth Quarter And Full Year Results

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 attributable to Comfort Systems USA of $4,351,000 or $0.12 per diluted share, for the quarter ended December 31, 2012. During the current quarter, the Company substantially completed its shutdown of an operation located in Delaware which it decided to curtail operating in the fourth quarter of 2011. Net income from continuing operations attributable to Comfort Systems USA was $3,759,000 or $0.10 per diluted share for the current quarter. Excluding the reduction in goodwill and other noncash items recorded in the fourth quarter of 2011, adjusted non-GAAP net income from continuing operations attributable to Comfort Systems USA was $4,321,000 or $0.12 per diluted share, for the quarter ended December 31, 2011. The Company reported revenue from continuing operations of $315,870,000 in the current quarter. On a same-store basis, the Company reported revenue from continuing operations of $308,544,000, as compared to $313,851,000 in 2011. The Company also reported free cash flow of $24,840,000 in the current quarter, as compared to $49,537,000 in 2011. Backlog from continuing operations as of December 31, 2012 was $617,951,000 as compared to $622,847,000 as of September 30, 2012 and $629,542,000 as of December 31, 2011.

Brian Lane, Comfort Systems USA’s Chief Executive Officer, said, “We experienced good cash flow and solid earnings in the fourth quarter and we are pleased to report increased profitability in 2012. Activity levels in nonresidential building construction remain subdued, but we believe we are getting more than our proportionate share of the available market. Service, repair and retrofit exceeded 50% of our 2012 revenue, and these activities continue to provide us with a majority of our earnings and cash flow as we prepare for a recovery in construction.”

The Company reported net income from continuing operations attributable to Comfort Systems USA for the year ended December 31, 2012 of $13,108,000 or $0.35 per diluted share. Excluding the reduction in goodwill and other noncash items, adjusted non-GAAP net income from continuing operations attributable to Comfort Systems USA was $8,773,000 or $0.23 per diluted share for the year ended December 31, 2011. The Company reported revenue from continuing operations of $1,331,185,000 in the current year. On a same-store basis, the Company reported revenue from continuing operations of $1,258,054,000, as compared to $1,216,654,000 in 2011. The Company also reported free cash flow of $19,834,000 in the current year, as compared to $21,731,000 in 2011.

Mr. Lane concluded, “During the last four years of declining markets we have continued to invest in our business through training, acquisitions and productivity improvement. Although we expect 2013 results will be similar to recent years, we believe that underlying conditions now support a renewed commitment to growth, and that will be our focus in 2013 and beyond.”

As previously announced, the Company will host a webcast and conference call to discuss its financial results and position in more depth on Friday, March 1, 2013 at 10:00 a.m. Central Time. The call-in number for this conference call is 1-888-679-8035 and enter 34152352 as the passcode. The Company anticipates that an accompanying slide presentation will also be available under the Investor tab. Participants may pre-register for the call at https://www.theconferencingservice.com/prereg/key.process?key=PAJUYYUPQ. Pre-registrants will be issued a pin number to use when dialing in to 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 Investor tab. A replay of the entire call will be available until 6:00 p.m. Central Time, Friday, March 8, 2013 by calling 1-888-286-8010 with the conference passcode of 79663760, 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 87 locations in 72 cities around the nation. For more information, visit the Company’s website at www.comfortsystemsusa.com .

Certain statements and information in this press release may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. The words “believe,” “expect,” “anticipate,” “plan,” “intend,” “foresee,” “should,” “would,” “could,” or other similar expressions are intended to identify forward-looking statements, which are generally not historic in nature. These forward-looking statements are based on the current expectations and beliefs of Comfort Systems USA, Inc. and its subsidiaries (collectively, the “Company”) concerning future developments and their effect on the Company. While the Company’s management believes that these forward-looking statements are reasonable as and when made, there can be no assurance that future developments affecting the Company will be those that it anticipates. All comments concerning the Company’s expectations for future revenues and operating results are based on the Company’s forecasts for its existing operations and do not include the potential impact of any future acquisitions. The Company’s forward-looking statements involve significant risks and uncertainties (some of which are beyond the Company’s control) and assumptions that could cause actual future results to differ materially from the Company’s historical experience and its present expectations or projections. Important factors that could cause actual results to differ materially from those in the forward-looking statements include, but are not limited to: the use of incorrect estimates for bidding a fixed-price contract; undertaking contractual commitments that exceed the Company’s 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; the Company’s 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 the Company’s percentage-of-completion method of accounting; the result of competition in the Company’s markets; the Company’s decentralized management structure; material failure to comply with varying state and local laws, regulations or requirements; debarment from bidding on or performing government contracts; 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.

For additional information regarding known material factors that could cause the Company’s results to differ from its projected results, please see its filings with the SEC, including its Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, and Current Reports on Form 8-K.

Readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date hereof. The Company undertakes no obligation to publicly update or revise any forward-looking statements after the date they are made, whether as a result of new information, future events, or otherwise.
 

Comfort Systems USA, Inc.Consolidated Statements of OperationsFor the Three Months and Twelve Months Ended December 31, 2012 and 2011(in thousands, except per share amounts)
 
 

Three Months EndedDecember 31,
 

Twelve Months EndedDecember 31,
(unaudited)  
2012   %   2011   % 2012   %   2011   %
Revenue $ 315,870 100.0 % $ 313,851 100.0 % $ 1,331,185 100.0 % $ 1,216,654 100.0 %
Cost of services   260,797 82.6 %   263,386 83.9 %   1,123,564 84.4 %   1,035,124 85.1 %
Gross profit 55,073 17.4 % 50,465 16.1 % 207,621 15.6 % 181,530 14.9 %
 
SG&A 47,028 14.9 % 43,574 13.9 % 185,809 14.0 % 167,053 13.7 %
Goodwill impairment 2,220 0.7 % 57,354 4.7 %
Gain on sale of assets   (53 )   (74 )   (491 )   (236 )
Operating income (loss) 8,098 2.6 % 4,745 1.5 % 22,303 1.7 % (42,641 ) (3.5 )%
 
Interest expense, net (361 ) (0.1 )% (392 ) (0.1 )% (1,571 ) (0.1 )% (1,758 ) (0.1 )%
Changes in the fair value of contingent earn-out obligations 767 0.2 %

(38
) 662

5,528
0.5 %
Other income   63   1,003 0.3 %   145   934 0.1 %
 
Income (loss) before income taxes 8,567 2.7 % 5,318 1.7 % 21,539 1.6 % (37,937 ) (3.1 )%
Income tax expense (benefit)   4,014   701   10,045   (5,463 )
Income (loss) from continuing operations 4,553 1.4 % 4,617 1.5 % 11,494 0.9 % (32,474 ) (2.7 )%
 
Income (loss) from discontinued operations, net of income tax expense (benefit) of $175, $(1,394), $212, and $(2,709)   592   (2,532 )   355   (4,018 )
 
Net income (loss) including noncontrolling interests

 
5,145

1.6

%

 

2,085
0.7 % 11,849 0.9 %

 

(36,492

)
(3.0 )%
 
Less: Net income (loss) attributable to noncontrolling interests

 
794

 
338   (1,614 )

 
338

 
 
Net income (loss) attributable to Comfort Systems USA, Inc.

$
4,351

1.4

%

$

1,747
0.6 %

$
13,463 1.0 %

$

(36,830

)
(3.0 )%
 
Income (loss) per share attributable to Comfort Systems USA, Inc.:
Basic-
Income (loss) from continuing operations $ 0.10 $ 0.12 $ 0.35 $ (0.88 )
Income (loss) from discontinued operations   0.02   (0.07 )   0.01   (0.11 )
Net income (loss) $ 0.12 $ 0.05 $ 0.36 $ (0.99 )
 
Diluted -
Income (loss) from continuing operations $ 0.10 $ 0.12 $ 0.35 $ (0.88 )
Income (loss) from discontinued operations   0.02   (0.07 )   0.01   (0.11 )
Net income (loss) $ 0.12 $ 0.05 $ 0.36 $ (0.99 )
 
Shares used in computing income (loss) per share:
Basic 37,070 37,069 37,112 37,389
Diluted 37,238 37,166 37,259 37,389
 

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 – (Unaudited):
 
  Three Months EndedDecember 31,   Twelve Months EndedDecember 31,
2012   %   2011   % 2012   %   2011   %
Net income (loss) from continuing operations attributable to Comfort Systems USA, Inc. $ 3,759 $

4,279
$ 13,108 $

(32,812
)
Goodwill impairment (after tax) (81 ) 44,805

Changes in fair value of contingent earn-out obligations (after tax)

 
(688 ) 123 (597 ) (5,276 )
Tax valuation allowances (after tax)         2,056

Net income from continuing operations attributable to Comfort Systems USA, Inc. excluding goodwill impairment, changes in fair value of contingent earn-out obligations and tax valuation allowances

$
3,071

1.0

%

$
4,321 1.4 %

$
12,511

0.9

%

$
8,773

0.7

%
 
Diluted income (loss) per share from continuing operations attributable to Comfort Systems USA, Inc. $ 0.10 $ 0.12 $ 0.35 $ (0.88 )
Goodwill impairment 1.20
Changes in fair value of contingent earn-out obligations (0.02 ) (0.02 ) (0.14 )
Tax valuation allowances         0.05
 

Diluted income per share from continuing operations attributable to Comfort Systems USA, Inc. excluding goodwill impairment, changes in fair value of contingent earn-out obligations and tax valuation allowances
$ 0.08 $ 0.12 $ 0.33 $ 0.23
 

Note 1: Operating results from continuing operations attributable to Comfort Systems USA, Inc., excluding goodwill impairment, changes in fair value of contingent earn-out obligations and tax valuation allowances are presented because the Company believes it reflects the results of the core ongoing operations of the Company, and because we believe it is responsive to frequent questions we receive from third parties. However, this measure is not considered a primary measure of an entity’s financial results under generally accepted accounting principles, and accordingly, this amount should not be considered an alternative to operating results as determined under generally accepted accounting principles and as reported by the Company.

Note 2: Net income (loss) from continuing operations attributable to Comfort Systems USA, Inc. is income (loss) from continuing operations less net income (loss) attributable to noncontrolling interests.

Note 3: The tax rate on these items was computed using the pro forma effective tax rate of the Company exclusive of these charges.
 

Supplemental Non-GAAP Information – Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization (“Adjusted EBITDA”) ― (Unaudited):
 
  Three Months EndedDecember 31,   Twelve Months EndedDecember 31,
2012   %   2011   % 2012   %   2011   %
Net income (loss) including noncontrolling interests $ 5,145 $ 2,085 $ 11,849 $ (36,492 )

Discontinued operations
(592 ) 2,532 (355 ) 4,018
Income taxes 4,014 701 10,045 (5,463 )
Other expense (income), net (63 ) (1,003 ) (145 ) (934 )
Changes in the fair value of contingent earn-out obligations (767 )

38
(662 )

(5,528
)
Interest expense, net 361 392 1,571 1,758
Gain on sale of assets (53

)
(74 ) (491 ) (236

)
Goodwill impairment 2,220 57,354
Depreciation and amortization   5,140   5,283   20,569   18,982
Adjusted EBITDA $ 13,185 4.2 % $ 12,174 3.9 % $ 42,381 3.2 % $ 33,459 2.8 %
 

Note 1: The Company defines adjusted earnings before interest, taxes, depreciation and amortization (“Adjusted EBITDA”) as net income (loss) including noncontrolling interests, excluding discontinued operations, income taxes, other (income) expense, net, changes in the fair value of contingent earn-out obligations, 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 (loss), net income (loss), 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)
 
 

December 31,2012
  December 31,2011
 
Cash and cash equivalents $ 40,757 $ 51,237
Accounts receivable, net 256,959 260,145
Costs and estimated earnings in excess of billings 26,204 26,602
Assets related to discontinued operations 1,582 11,407
Other current assets   47,051   41,159
Total current assets 372,553 390,550
Property and equipment, net 41,416 41,693
Goodwill 114,588 107,093
Identifiable intangible assets, net 44,515 48,349
Other noncurrent assets   7,682   6,295
Total assets $ 580,754 $ 593,980
 
Current maturities of long-term debt $ 300 $ 300
Current maturities of notes to former owners 332
Accounts payable 100,641 111,683
Billings in excess of costs and estimated earnings 73,814 70,635
Liabilities related to discontinued operations 767 4,257
Other current liabilities   93,065   93,577
Total current liabilities 268,587 280,784
Long-term debt, net of current maturities 2,100 2,400
Notes to former owners, net of current maturities 5,000 12,349
Other long-term liabilities   17,761   15,341
Total liabilities   293,448   310,874
Comfort Systems USA, Inc. stockholders’ equity 270,405 264,591
Noncontrolling interests   16,901   18,515
Total stockholders’ equity   287,306   283,106
Total liabilities and stockholders’ equity $ 580,754 $ 593,980
 
 

Selected Cash Flow Data (in thousands):
 
  Three Months EndedDecember 31,   Twelve Months EndedDecember 31,
(unaudited)
2012   2011 2012   2011
Cash provided by (used in):
Operating activities $ 27,078 $ 51,645 $ 30,510 $ 29,680
Investing activities $ (2,195 ) $ (29,417 ) $ (23,168 )

$
(35,750 )
Financing activities $ (19,791 ) $ (14,683 ) $ (17,822 ) $ (29,039 )
 
Free cash flow:
Cash from operating activities $ 27,078 $ 51,645 $ 30,510 $ 29,680
Purchases of property and equipment (2,377 ) (2,214 ) (11,782 ) (8,666 )
Proceeds from sales of property and equipment   139   106   1,106   717
 
Free cash flow $ 24,840 $ 49,537 $ 19,834 $ 21,731
 

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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