10-QPeriod: Q1 FY2017

COMFORT SYSTEMS USA INC Quarterly Report for Q1 Ended Mar 31, 2017

Filed April 26, 2017For Securities:FIX

Summary

Comfort Systems USA, Inc. (FIX) reported first-quarter 2017 results with total revenue of $380.6 million, a slight decrease of 1.4% compared to the prior year period, primarily due to a same-store revenue decline partially offset by an acquisition. Despite the revenue dip, gross profit saw a 3.3% increase to $76.0 million, boosting the gross profit margin to 20.0% from 19.0% in the prior year. This improvement was driven by better project execution in certain locations and the contribution from a recent acquisition. The company's net income for the quarter was $7.5 million, down from $9.8 million in Q1 2016, reflecting higher selling, general, and administrative (SG&A) expenses, which rose by 8.7% due to increased compensation costs, investments in services, and bad debt expense. A goodwill impairment charge of $1.1 million related to a California operation also impacted profitability. The company maintained a strong financial position with $286.1 million in available credit and generated $5.3 million in free cash flow, demonstrating a consistent focus on operational efficiency and cash generation.

Financial Highlights

52 data points
Beta

Revenue

$380.59M

20.0% Gross Margin

Net Income

$7.48M

2.0% Net Margin

EPS (Diluted)

$0.20

Total Assets

$687.61M

Cash & Equivalents

$31.44M

Free Cash Flow

$4.98M

Financial Statements
Beta
Revenue$380.59M
Cost of Revenue$304.63M
Gross Profit$75.95M
SG&A Expenses$63.25M
Operating Income$11.76M
Interest Expense$390K
Net Income$7.48M
EPS (Basic)$0.20
EPS (Diluted)$0.20
Shares Outstanding (Basic)37.23M
Shares Outstanding (Diluted)37.72M

Key Highlights

  • 1Revenue slightly declined by 1.4% to $380.6 million, attributed to same-store activity, though offset by an acquisition.
  • 2Gross profit increased by 3.3% to $76.0 million, with gross profit margin improving to 20.0% from 19.0%.
  • 3SG&A expenses increased by 8.7% to $63.2 million, impacting net income.
  • 4A goodwill impairment charge of $1.1 million was recorded for a California operating unit.
  • 5Backlog significantly increased by 13.1% sequentially to $863.0 million, indicating strong future project bookings.
  • 6Free cash flow remained positive at $5.3 million, though lower than the prior year's $9.6 million.
  • 7The company maintained a strong liquidity position with $286.1 million in available credit and no outstanding borrowings on its credit facility.

Frequently Asked Questions

The decrease in revenue was primarily driven by a 2.9% decrease in same-store activity, particularly at its Michigan and one of its Virginia operations. This decline was partially offset by a 1.5% increase in revenue attributed to the acquisition of Shoffner.

The company improved its gross profit margin to 20.0% from 19.0% through better project execution at specific operations, such as its New York and Wisconsin locations, and through the contribution of its acquired Shoffner business. These improvements helped to offset job underperformance at its California operation.

The company anticipates continued improvement in industry conditions throughout 2017. Management's primary focus for the year is on execution, cost discipline, efficient project performance, and workforce development. They expect 2017 revenues to exceed 2016 levels due to recent acquisitions and foresee profitability remaining strong, similar to 2016 levels.

The backlog increased by 13.1% sequentially to $863.0 million. This indicates strong project bookings and suggests positive revenue momentum for the next six to twelve months, driven by increased project wins in key regions like Virginia, Florida, Colorado, and Maryland.