10-KPeriod: FY2010

COMFORT SYSTEMS USA INC Annual Report, Year Ended Dec 31, 2010

Filed March 2, 2011For Securities:FIX

Summary

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 billion. 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 million, 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.

Financial Highlights

51 data points
Beta

Revenue

$1.06B

17.9% Gross Margin

Net Income

$14.74M

1.4% Net Margin

EPS (Diluted)

$0.39

Total Assets

$640.02M

Cash & Equivalents

$86.35M

Free Cash Flow

$25.06M

Financial Statements
Beta
Revenue$1.06B
Cost of Revenue$873.59M
Gross Profit$189.93M
SG&A Expenses$159.02M
Operating Income$31.44M
Interest Expense$1.70M
Net Income$14.74M
EPS (Basic)$0.39
EPS (Diluted)$0.39
Shares Outstanding (Basic)37.55M
Shares Outstanding (Diluted)37.79M

Key Highlights

  • 1Revenue declined by 1.8% to $1.108 billion in 2010, reflecting a challenging non-residential construction market.
  • 2Gross profit decreased by 16.3%, and gross profit margin contracted to 17.0% from 20.0% in the prior year.
  • 3Operating income saw a significant drop of 64.6% to $20.0 million.
  • 4A goodwill impairment charge of $5.7 million was recorded, indicating pressure on asset valuations.
  • 5The company acquired ColonialWebb Contractors Company for $110.3 million, adding $92.8 million in revenue but also contributing to increased goodwill.
  • 6Despite 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.
  • 7The 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.

Frequently Asked Questions

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.

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.

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.

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.