01—Abstract
Summary
Summary of the 10-K filed March 2, 2011. Cited figures are marked; the original filing is the authoritative source.
Comfort Systems USA, Inc. (FIX) reported its 2010 annual results, highlighting a challenging operating environment marked by a decline in revenues and profitability.
The company, a provider of HVAC installation, maintenance, repair, and replacement services, saw its revenues decrease by 1.8% to $1.108 billiona. This decline was primarily attributed to reduced activity in non-residential markets, particularly in the education and multi-family sectors, and was partially offset by contributions from acquisitions. Profitability was significantly impacted by a 16.3% decrease in gross profit, leading to a substantial drop in operating income to $20.0 million.
A notable event was a goodwill impairment charge of $5.7 millionb, reflecting the challenging market conditions. Despite these headwinds, the company maintained a strong balance sheet with ample liquidity and positive free cash flow, underscoring its financial resilience. Management focused on cost control and operational execution for 2011, expecting continued profitability at levels similar to 2010.
02—Key points
Key Highlights
- Revenue declined by 1.8% to $1.108 billion in 2010, reflecting a challenging non-residential construction market.
- Gross profit decreased by 16.3%, and gross profit margin contracted to 17.0% from 20.0% in the prior year.
- Operating income saw a significant drop of 64.6% to $20.0 million.
- A goodwill impairment charge of $5.7 million was recorded, indicating pressure on asset valuations.
- The company acquired ColonialWebb Contractors Company for $110.3 million, adding $92.8 million in revenue but also contributing to increased goodwill.
- Despite reduced profitability, Comfort Systems USA generated positive free cash flow of $33.5 million and maintained a strong liquidity position with no outstanding borrowings under its credit facility.
- The company's backlog at year-end 2010 increased by 12.3% compared to the previous year, providing some visibility for near-term revenue, although it decreased sequentially.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2010, Comfort Systems USA kept $0.01.
- Revenue$1.06B100.0%
- Cost of revenue−$873.6M82.1%
- Gross profit$189.9M17.9%
- Operating costs−$158.5M14.9%
- Operating income$31.4M3.0%
- Interest, other & tax−$16.7M1.6%
- Net income$14.7M1.4%
Where FY2010 revenue went
$1.06B- Cost of revenue: $873.6M, 82% of revenue
- SG&A: $159.0M, 15% of revenue
- Net income: $14.7M, 1.4% of revenue
- Interest, other & tax: $16.7M, 1.6% of revenue
Kept 1.4% as net incomeNet income $14.7M · 1.4%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2010filed March 2, 2011Financial Statements
FY2010 against FY2009
| Line item | FY2010FY2009 | Change |
|---|---|---|
| Revenue | $1.06B$1.13B | −5.8% |
| Cost of Revenue | $873.59M$903.36M | −3.3% |
| Gross Profit | $189.93M$225.55M | −15.8% |
| SG&A Expenses | $159.02M$169.02M | −5.9% |
| Operating Income | $31.44M$56.63M | −44.5% |
| Interest Expense | $1.70M$1.20M | +41.3% |
| Net Income | $14.74M$34.18M | −56.9% |
| EPS (Basic) | $0.39$0.90 | −56.7% |
| EPS (Diluted) | $0.39$0.89 | −56.2% |
| Shares Outstanding (Basic) | 37.55M38.05M | −1.3% |
| Shares Outstanding (Diluted) | 37.79M38.45M | −1.7% |
05—Questions
Frequently Asked Questions
What were the primary drivers for the decline in revenue and profitability in 2010?
The primary drivers were reduced activity in the non-residential markets across the United States, particularly in the education and multi-family sectors. This led to lower profitability due to broad-based declines and specific job write-downs, coupled with increased price competition within the industry.
How did the acquisition of ColonialWebb Contractors Company impact the company's financials?
The acquisition of ColonialWebb in July 2010 contributed approximately $92.8 million in revenue for the remainder of the year. However, it also resulted in a significant increase in goodwill ($49.9 million) and associated amortization expenses, impacting the overall financial results.
What is the company's outlook for 2011, and what are its key strategic priorities?
Comfort Systems USA expects the weak non-residential construction environment to persist into 2011, with activity levels likely remaining flat. The company's primary emphasis for 2011 will be on execution, cost control, and efficient project and service performance. They anticipate profitability levels similar to those in 2010.
How is the company managing its financial risks, particularly regarding self-insurance and bonding?
The company is substantially self-insured for major liabilities, with significant deductibles, and relies on an actuary for loss estimates. It also maintains strong relationships with surety providers but acknowledges current challenging market conditions for bonding capacity, which could impact future contract bidding. The company has access to a $125 million senior credit facility, though it had no outstanding borrowings at year-end 2010, indicating strong liquidity.
06—Continue