10-KPeriod: FY2015

COMFORT SYSTEMS USA INC Annual Report, Year Ended Dec 31, 2015

Filed February 23, 2016For Securities:FIX

Summary

Comfort Systems USA Inc. (FIX) reported strong revenue growth in 2015, increasing by 12.0% to $1.58 billion, driven by increased project work primarily in the industrial sector. This growth, coupled with improved project execution and higher margins, led to a significant increase in gross profit and operating income. The company's strategy focusing on core competencies, operating efficiencies, and employee development appears to be yielding positive results. Financially, the company demonstrated robust cash flow generation, ending 2015 with a substantial increase in cash from operating activities and a healthy free cash flow. The company also managed its debt effectively, with a low leverage ratio. While competition remains a factor, Comfort Systems USA's diversified customer base, geographic reach, and focus on both installation and service offerings position it well to navigate the cyclical nature of the construction industry. The company anticipates similar or improved revenue and profitability in 2016, reflecting confidence in current industry trends.

Financial Highlights

54 data points
Beta

Revenue

$1.58B

20.1% Gross Margin

Net Income

$49.36M

3.1% Net Margin

EPS (Diluted)

$1.30

Total Assets

$691.59M

Cash & Equivalents

$56.46M

Free Cash Flow

$77.06M

Financial Statements
Beta
Revenue$1.58B
Cost of Revenue$1.26B
Gross Profit$318.13M
SG&A Expenses$228.97M
Operating Income$90.04M
Interest Expense$1.75M
Net Income$49.36M
EPS (Basic)$1.32
EPS (Diluted)$1.30
Shares Outstanding (Basic)37.44M
Shares Outstanding (Diluted)37.87M

Key Highlights

  • 1Revenue increased by 12.0% in 2015 to $1.58 billion, driven by strong performance in same-store activity (10.6% increase) and acquisitions.
  • 2Gross profit margin improved significantly from 17.7% in 2014 to 20.1% in 2015, reflecting better project execution and increased volumes.
  • 3Operating income saw a substantial increase, rising to $90.0 million in 2015 from $42.2 million in 2014.
  • 4Cash flow from operating activities significantly improved, generating $97.9 million in 2015 compared to $42.6 million in 2014.
  • 5Free cash flow also saw a strong increase, reaching $78.4 million in 2015, up from $24.7 million in 2014.
  • 6The company maintained a strong balance sheet with a low leverage ratio (0.10) and ample credit availability.
  • 7Comfort Systems USA repurchased approximately 0.3 million shares for $8.3 million in 2015, continuing its share repurchase program.

Frequently Asked Questions

Revenue growth in 2015 was primarily driven by a 10.6% increase in same-store activity, attributed to strong performance in operations like Environmental Air Systems, LLC, and its Arizona and Virginia locations. This increase was fueled by higher project work, particularly in the industrial sector, benefiting from improved market conditions. Additionally, acquisitions contributed approximately 1.4% to the overall revenue increase.

Profitability improved significantly due to a substantial increase in gross profit, rising by 27.4%. This was achieved through improved project execution, better margins at most operating locations, and favorable market conditions leading to increased volumes. The company also benefited from approved change orders and agreements on multiple jobs in the fourth quarter of 2015, which boosted revenue with minimal additional costs. Selling, General, and Administrative (SG&A) expenses as a percentage of revenue decreased slightly due to the higher revenue base.

Comfort Systems USA expects revenue and profitability in 2016 to be similar to or above the levels experienced in 2015. This outlook is based on improving industry conditions, a solid backlog, and the company's strategic focus on execution, cost discipline, labor force development, and investment in growth areas like service and small projects.

The company's primary market risk exposure is to interest rates, mainly through its revolving credit facility. Comfort Systems USA has a modest level of indebtedness and actively monitors its exposure. They do not use derivative financial instruments. The weighted average interest rate on its borrowings under the revolving credit facility was approximately 1.7% as of December 31, 2015. The company also maintains a strong liquidity position with significant available credit and cash balances.