10-QPeriod: Q3 FY2011

COMFORT SYSTEMS USA INC Quarterly Report for Q3 Ended Sep 30, 2011

Filed November 7, 2011For Securities:FIX

Summary

Comfort Systems USA, Inc. reported a net loss of $36.6 million for the third quarter of 2011, a significant drop from a net income of $5.4 million in the same period of the prior year. This decline was largely driven by a substantial non-cash goodwill impairment charge of $55.1 million recognized during the quarter. Revenue showed a modest increase of 6.7% to $328.1 million, aided by the acquisition of ColonialWebb and organic growth, primarily in the manufacturing sector. However, gross profit saw a slight decrease due to job write-downs and lower profitability in certain operations, coupled with a challenging pricing environment. The company's financial position remains stable, with no outstanding borrowings on its $125 million revolving credit facility as of September 30, 2011. Despite the net loss, the company maintained positive operating cash flow for the quarter and continues to emphasize cost control and efficient execution. The outlook for the nonresidential construction sector remains cautious, with expectations of flat activity levels for the next twelve months, but Comfort Systems anticipates continued profitability through 2012.

Financial Highlights

50 data points
Beta

Revenue

$322.00M

15.2% Gross Margin

Net Income

-$36.57M

-11.4% Net Margin

EPS (Diluted)

$-0.98

Total Assets

$565.65M

Cash & Equivalents

$43.69M

Free Cash Flow

-$1.07M

Financial Statements
Beta
Revenue$322.00M
Cost of Revenue$279.00M
Gross Profit$49.01M
SG&A Expenses$41.49M
Operating Income-$46.73M
Interest Expense$478K
Net Income-$36.57M
EPS (Basic)$-0.98
EPS (Diluted)$-0.98
Shares Outstanding (Basic)37.33M
Shares Outstanding (Diluted)37.33M

Key Highlights

  • 1Reported a net loss of $36.6 million for Q3 2011, compared to a net income of $5.4 million in Q3 2010.
  • 2Recognized a significant non-cash goodwill impairment charge of $55.1 million in Q3 2011.
  • 3Revenue increased by 6.7% to $328.1 million in Q3 2011, driven by acquisitions and same-store growth.
  • 4Gross profit margin decreased to 15.0% in Q3 2011 from 16.4% in Q3 2010, impacted by job write-downs and pricing pressures.
  • 5The company ended the quarter with $43.7 million in cash and cash equivalents and no outstanding borrowings on its credit facility.
  • 6Backlog remained flat year-over-year at $636.1 million as of September 30, 2011.
  • 7Anticipates continued profitability in 2011 and modest profitability in 2012 despite a challenging industry outlook.

Frequently Asked Questions

The primary driver of the net loss in the third quarter of 2011 was a substantial non-cash goodwill impairment charge of $55.1 million. This charge was recognized after the company concluded that impairment indicators existed for four reporting units serving the Virginia, Maryland, and North Carolina markets, leading to a preliminary assessment that their carrying value exceeded their fair value.

Revenue increased by 6.7% to $328.1 million for the third quarter of 2011 compared to the same period in 2010. This growth was attributed to both same-store activity (a 5.1% increase) and the contribution from the acquisition of ColonialWebb (a 1.6% increase), with particular strength noted in the manufacturing sector.

Comfort Systems USA, Inc. ended the third quarter of 2011 with $43.7 million in cash and cash equivalents. Importantly, they had no outstanding borrowings under their $125 million revolving credit facility, indicating a strong liquidity position and available credit capacity.

The company expects weakness in the nonresidential construction sector to continue, with activity levels likely to remain flat over the next twelve months. Despite these industry conditions, Comfort Systems USA, Inc. anticipates being profitable in 2011 and expects modest profitability to continue throughout 2012, emphasizing execution, cost control, and efficient project performance.