10-QPeriod: Q1 FY2011

COMFORT SYSTEMS USA INC Quarterly Report for Q1 Ended Mar 31, 2011

Filed May 3, 2011For Securities:FIX

Summary

Comfort Systems USA, Inc. (FIX) reported a net loss of $5.2 million for the first quarter ended March 31, 2011, a significant shift from a net income of $1.9 million in the prior year's comparable quarter. This loss was driven by a substantial increase in the cost of services, which outpaced revenue growth and led to a decline in gross profit margins from 16.7% to 12.1%. While revenues saw a notable 19.3% increase to $282.1 million, largely due to the acquisition of ColonialWebb and a modest same-store increase, the company struggled with project write-downs and lower profitability in certain operations. Despite the quarterly loss, the company maintained a strong liquidity position, with no outstanding borrowings under its $125 million revolving credit facility and substantial uncommitted cash balances. The company's backlog remains solid, indicating potential for future revenue. However, management anticipates continued price competition and expects flat industry activity levels for the next twelve months, emphasizing a focus on execution, cost control, and efficient project management for the remainder of 2011.

Financial Highlights

30 data points
Beta

Revenue

$274.38M

12.5% Gross Margin

Net Income

-$5.17M

-1.9% Net Margin

EPS (Diluted)

$-0.14

Cash & Equivalents

$63.64M

Free Cash Flow

-$21.43M

Financial Statements
Beta
Revenue$274.38M
Cost of Revenue$247.85M
Gross Profit$34.16M
SG&A Expenses$42.62M
Operating Income-$7.47M
Interest Expense$487K
Net Income-$5.17M
EPS (Basic)$-0.14
EPS (Diluted)$-0.14
Shares Outstanding (Basic)37.54M
Shares Outstanding (Diluted)37.54M

Key Highlights

  • 1Reported a net loss of $5.2 million for Q1 2011, compared to a net income of $1.9 million in Q1 2010.
  • 2Revenue increased by 19.3% to $282.1 million, driven by the acquisition of ColonialWebb and a 2.0% same-store revenue increase.
  • 3Gross profit margin decreased significantly from 16.7% in Q1 2010 to 12.1% in Q1 2011, impacted by job write-downs and lower profitability in specific operations.
  • 4Selling, General, and Administrative (SG&A) expenses as a percentage of revenue decreased slightly from 15.8% to 15.1%.
  • 5Maintained strong liquidity with no outstanding borrowings on its $125 million credit facility and $80.5 million in available credit.
  • 6Backlog remained stable at $619.5 million as of March 31, 2011, showing a slight increase year-over-year.
  • 7Company expects continued industry weakness and strong price competition, with a focus on execution and cost control for 2011.

Frequently Asked Questions

The company reported a net loss of $5.2 million primarily due to a significant increase in the cost of services, which outpaced revenue growth. This led to a decline in gross profit margins and was exacerbated by job write-downs and lower profitability in certain operating segments.

The acquisition of ColonialWebb, completed in July 2010, contributed approximately $40.8 million in revenue during the first quarter of 2011. It also increased SG&A expenses due to amortization. While it boosted overall revenues, the company faced challenges in integrating and achieving desired profitability from acquired operations.

Comfort Systems USA anticipates continued weakness in the nonresidential construction activity, leading to flat industry activity levels and strong price competition. The company's primary focus for the rest of the year will be on execution, cost control, and efficient project and service performance to maintain profitability.

The company maintained a strong liquidity position with $63.6 million in cash and cash equivalents and no outstanding borrowings on its $125 million revolving credit facility as of March 31, 2011. It has $80.5 million in available credit and has consistently generated positive free cash flow, indicating sound financial management. Debt levels remain manageable with significant covenants being met.