10-QPeriod: Q1 FY2016

COMFORT SYSTEMS USA INC Quarterly Report for Q1 Ended Mar 31, 2016

Filed April 27, 2016For Securities:FIX

Summary

Comfort Systems USA, Inc. (FIX) reported revenue of $385.9 million for the first quarter of 2016, an increase of 4.4% compared to the same period in 2015, driven by a combination of organic growth and a recent acquisition. Net income attributable to the company was $9.8 million, or $0.26 per diluted share, a significant improvement from $5.1 million, or $0.13 per diluted share, in the prior year quarter. The company's gross profit margin also improved to 19.0% from 17.5% year-over-year, indicating better project execution and volume leverage. The company's financial position remains strong, supported by a larger revolving credit facility and a consistent history of generating positive free cash flow. The company completed two acquisitions in the first quarter of 2016, including acquiring the remaining noncontrolling interest in Environmental Air Systems and purchasing the ShoffnerKalthoff family of companies, which are expected to contribute to future growth. Management is optimistic about industry conditions, expecting revenue and profitability in 2016 to be similar to or above 2015 levels.

Financial Highlights

53 data points
Beta

Revenue

$385.94M

19.0% Gross Margin

Net Income

$9.84M

2.5% Net Margin

EPS (Diluted)

$0.26

Total Assets

$708.97M

Cash & Equivalents

$43.54M

Free Cash Flow

$9.35M

Financial Statements
Beta
Revenue$385.94M
Cost of Revenue$312.44M
Gross Profit$73.50M
SG&A Expenses$58.19M
Operating Income$15.46M
Interest Expense$701K
Net Income$9.84M
EPS (Basic)$0.26
EPS (Diluted)$0.26
Shares Outstanding (Basic)37.34M
Shares Outstanding (Diluted)37.83M

Key Highlights

  • 1Revenue increased by 4.4% to $385.9 million in Q1 2016 compared to Q1 2015, driven by acquisitions and same-store growth.
  • 2Net income attributable to Comfort Systems USA, Inc. more than doubled to $9.8 million, with diluted EPS rising to $0.26 from $0.13 year-over-year.
  • 3Gross profit margin improved to 19.0% from 17.5% in the prior year quarter, reflecting enhanced operational efficiency.
  • 4The company strengthened its financial position by amending and increasing its senior credit facility to $325 million.
  • 5Two acquisitions were completed in Q1 2016: acquiring the remaining 40% noncontrolling interest in Environmental Air Systems and purchasing the ShoffnerKalthoff family of companies.
  • 6Backlog as of March 31, 2016, was $776.9 million, an increase of 9.2% from December 31, 2015, indicating a positive outlook for future project work.
  • 7Free cash flow remained strong at $9.5 million for Q1 2016, although lower than $17.0 million in the prior year quarter, primarily due to investments in acquisitions.

Frequently Asked Questions

The significant increase in net income was primarily driven by higher revenue, improved gross profit margins due to better project execution and increased volumes, and the absence of net income attributable to noncontrolling interests following the acquisition of the remaining stake in Environmental Air Systems, LLC.

Comfort Systems USA, Inc. amended and increased its senior credit facility on February 22, 2016, raising its borrowing capacity from $250 million to $325 million with a $100 million accordion option. As of March 31, 2016, outstanding borrowings were $51.0 million, with $41.5 million in letters of credit outstanding and $232.5 million of credit available, indicating substantial liquidity.

Management expects industry conditions to continue improving and anticipates that revenue and profitability for 2016 will be similar to or above the levels experienced in 2015. The company plans to focus on execution, cost discipline, labor development, and investing in growth, particularly in service and small projects.

In Q1 2016, the company acquired the remaining 40% noncontrolling interest in Environmental Air Systems, LLC for $47.0 million and purchased the ShoffnerKalthoff family of companies for approximately $19.5 million. These acquisitions contributed to the revenue growth for the quarter and are expected to support future growth, though they also increased investing activities cash outflows.