Comfort Systems USA Reports Third Quarter 2013 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 $11,379,000 or $0.30 per diluted share, for the quarter ended September 30, 2013, as compared to $5,673,000 or $0.15 per diluted share, for the quarter ended September 30, 2012. Earnings per share for the current quarter includes $0.05 arising from income from prior reporting periods and a change in the fair value of an earn-out liability. The Company reported revenue of $349,989,000 in the current quarter as compared to $335,241,000 in 2012. The Company reported free cash flow of $22,263,000 in the current quarter, as compared to $13,843,000 in 2012. Backlog as of September 30, 2013 was $570,949,000 as compared to $590,276,000 as of June 30, 2013 and $622,847,000 as of September 30, 2012.

Brian Lane, Comfort Systems USA’s Chief Executive Officer, said, “We are pleased to report third quarter results marked by continued growth in earnings and cash flow. Our margin improvement resulted from solid field execution, an increase in the proportion of our revenues derived from service work, and continued stabilization in pricing.”

The Company reported net income attributable to Comfort Systems USA for the nine months ended September 30, 2013 of $21,673,000 or $0.58 per diluted share as compared to $9,112,000 or $0.24 per diluted share, for the first nine months of 2012. The Company also reported revenue of $1,026,932,000 as compared to $1,015,315,000 for the same period of 2012. Free cash flow for the nine months ended September 30, 2013 was $11,877,000 as compared to negative free cash flow of $5,006,000 in the first nine months of 2012.

Mr. Lane continued, “During 2013 we have benefitted from a more balanced supply and demand environment as activity levels remained consistent and backlog declined somewhat. We attribute the decline in backlog to the changing nature of our project work as we get more of our project revenue from work in existing buildings, and we have experienced a shift from institutional work towards industrial work.”

Mr. Lane concluded, “We are experiencing gradual improvement in more and more of our markets. We believe that we are well positioned to take advantage if construction demand improves in the coming quarters. Despite lower reported backlog, we currently expect revenues and earnings will be similar or modestly higher in 2014.”

As previously announced, the Company will host a webcast and conference call to discuss its financial results and position in more depth on Thursday, October 31, 2013 at 10:00 a.m. Central Time. The call-in number for this conference call is 1-888-713-4214 and enter 48547461 as the passcode. Participants may pre-register for the call at https://www.theconferencingservice.com/prereg/key.process?key=PJVTKH9GQ. The Company anticipates that an accompanying slide presentation will also be available under the Investor tab. 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, Thursday, November 7, 2013 by calling 1-888-286-8010 with the conference passcode of 59882552, 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.

– Financial tables follow –
                 

Comfort Systems USA, Inc.

Consolidated Statements of Operations

For the Three Months and Nine Months Ended September 30, 2013 and 2012

(in thousands, except per share amounts)

(unaudited)
 
Three Months Ended Nine Months Ended
September 30, September 30,
2013 % 2012 % 2013 % 2012 %
Revenue $ 349,989 100.0 % $ 335,241 100.0 % $ 1,026,932 100.0 % $ 1,015,315 100.0 %
Cost of services   282,968   80.9 %   279,720   83.4 %   848,477   82.6 %   862,767   85.0 %
Gross profit 67,021 19.1 % 55,521 16.6 % 178,455 17.4 % 152,548 15.0 %
 
SG&A 49,404 14.1 % 45,853 13.7 % 141,623 13.8 % 138,781 13.7 %
Gain on sale of assets   (117 )

-
  (99 )

-
  (367 )

-
  (438 )

-
Operating income 17,734 5.1 % 9,767 2.9 % 37,199 3.6 % 14,205 1.4 %
 
Interest expense, net (342 ) (0.1 )% (393 ) (0.1 )% (1,013 ) (0.1 )% (1,210 ) (0.1 )%
Changes in the fair value of contingent earn-out obligations

750
0.2 %

(38

)

-
696 0.1 %

(105

)

-
Other income   83  

-

 
  13  

-
  184  

-
  82  

-
Income before income taxes 18,225 5.2 % 9,349 2.8 % 37,066 3.6 % 12,972 1.3 %
 
Income tax expense   6,588     3,926     14,366     6,031  
Income from continuing operations 11,637 3.3 % 5,423 1.6 % 22,700 2.2 % 6,941 0.7 %
 
Loss from discontinued operations, net of income tax expense (benefit) of $(18), $77, $(57) and $37   (25 )   (98 )   (79 )   (237 )
Net income including noncontrolling interests 11,612 3.3 % 5,325 1.6 % 22,621 2.2 % 6,704 0.7 %
 
Less: Net income (loss) attributable to noncontrolling interests   233     (348 )   948     (2,408 )
Net income attributable to Comfort Systems USA, Inc. $ 11,379   3.3 % $ 5,673   1.7 % $ 21,673   2.1 % $ 9,112   0.9 %
 
Income (loss) per share attributable to Comfort Systems USA, Inc.:

Basic-
Income from continuing operations $ 0.31 $ 0.15 $ 0.58 $ 0.25
Loss from discontinued operations  

-
   

-
   

-
   

-
 
Net income $ 0.31   $ 0.15   $ 0.58   $ 0.25  
 

Diluted-
Income from continuing operations $ 0.30 $ 0.15 $ 0.58 $ 0.25
Loss from discontinued operations  

-
   

-
   

-
    (0.01 )
Net income $ 0.30   $ 0.15   $ 0.58   $ 0.24  
 
Shares used in computing income (loss) per share:
Basic 37,293 37,155 37,184 37,126
Diluted 37,631 37,332 37,444 37,265
 

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 Interests, Taxes, Depreciation and Amortization (“Adjusted EBITDA”) — (Unaudited)

  Three Months Ended     Nine Months Ended
September 30, September 30,
2013     %     2012     % 2013     %     2012     %
Net income including noncontrolling interests

$

11,612
$ 5,325 $ 22,621

$

6,704
Discontinued operations 25 98

 
79 237
Income taxes 6,588 3,926 14,366 6,031
Other income (83 )

(13

)
(184 ) (82 )
Changes in the fair value of contingent earn-out obligations

(750

)
38

(696

)
105
Interest expense, net 342 393 1,013 1,210
Gain on sale of assets (117 )

(99

)
(367 )

(438

)
Depreciation and amortization   4,603     5,324     13,901    

15,429
 
Adjusted EBITDA $ 22,220   6.3 % $ 14,992   4.5 % $ 50,733   4.9 % $ 29,196   2.9 %
 

Note 1: The Company defines adjusted earnings before interest, taxes, depreciation and amortization (“Adjusted EBITDA”) as net income 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, 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)
 
September 30, December 31,
2013 2012
(unaudited)
 
Cash and cash equivalents $ 45,305 $ 40,757
Accounts receivable, net 270,612 256,959
Costs and estimated earnings in excess of billings 30,200 26,204
Assets related to discontinued operations 297 1,582
Other current assets   42,812   47,051
Total current assets 389,226 372,553
Property and equipment, net 44,943 41,416
Goodwill 114,588 114,588
Identifiable intangible assets, net 39,107 44,515
Other noncurrent assets   6,590   7,682
Total assets $ 594,454 $ 580,754
 
Current maturities of long-term debt

$

-
$ 300
Current maturities of notes to former owners 2,000

-
Accounts payable 95,667 100,641
Billings in excess of costs and estimated earnings 62,566 73,814
Liabilities related to discontinued operations 88 767
Other current liabilities   106,328   93,065
Total current liabilities 266,649 268,587
Long-term debt, net of current maturities 5,000 2,100
Notes to former owners, net of current maturities

-
5,000
Other long-term liabilities   16,592   17,761
Total liabilities   288,241   293,448
Comfort Systems USA, Inc. stockholders’ equity 288,364 270,405
Noncontrolling interests   17,849   16,901
Total stockholders’ equity   306,213   287,306
Total liabilities and stockholders’ equity $ 594,454 $ 580,754
 

Selected Cash Flow Data (in thousands):
    Three Months Ended     Nine Months Ended
September 30, September 30,
2013     2012 2013     2012
Cash provided by (used in):
Operating activities $ 27,433 $ 16,455 $ 23,782 $ 3,432
Investing activities $ (5,170 ) $ (2,997 ) $ (11,862 ) $ (20,973 )
Financing activities $ (304 ) $ (6,604 ) $ (7,372 ) $ 1,969
 
Free cash flow:
Cash from operating activities $ 27,433 $ 16,455 $ 23,782 $ 3,432
Purchases of property and equipment (5,234 ) (2,817 ) (12,471 ) (9,405 )
Proceeds from sales of property and equipment   64     205     566     967  
 
Free cash flow $ 22,263   $ 13,843   $ 11,877   $ (5,006 )

Note 1: Free cash flow is defined as cash flow from operating activities 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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