10-QPeriod: Q1 FY2020

COMFORT SYSTEMS USA INC Quarterly Report for Q1 Ended Mar 31, 2020

Filed April 27, 2020For Securities:FIX

Summary

Comfort Systems USA, Inc. (FIX) reported its first-quarter 2020 financial results, highlighting a significant increase in revenue driven by strategic acquisitions, particularly the Walker acquisition and a North Carolina electrical contractor. Despite a 30% year-over-year revenue growth to $700.1 million, the company experienced a decrease in net income to $17.7 million ($0.48 per diluted share) from $19.9 million ($0.53 per diluted share) in the prior year's quarter. This decline is attributed to a lower gross profit margin, impacted by acquisition-related accounting and initial COVID-19 related operational inefficiencies. The company's financial position remains solid with substantial liquidity, evidenced by a significant increase in cash and cash equivalents to $133.3 million from $50.8 million year-over-year, bolstered by recent borrowing activity to fund acquisitions. Management noted that while the first quarter saw some impacts from COVID-19, the effects are expected to be more pronounced in the second quarter. The company is actively managing its cost structure and operational efficiencies in response to the evolving economic environment.

Financial Highlights

51 data points
Beta

Revenue

$700.13M

16.7% Gross Margin

Net Income

$17.72M

2.5% Net Margin

EPS (Diluted)

$0.48

Total Assets

$1.62B

Cash & Equivalents

$133.26M

Free Cash Flow

$14.42M

Financial Statements
Beta
Revenue$700.13M
Cost of Revenue$583.04M
Gross Profit$117.09M
SG&A Expenses$92.92M
Operating Income$24.72M
Interest Expense$2.62M
Net Income$17.72M
EPS (Basic)$0.48
EPS (Diluted)$0.48
Shares Outstanding (Basic)36.67M
Shares Outstanding (Diluted)36.91M

Key Highlights

  • 1Revenue increased by 30.0% to $700.1 million for the three months ended March 31, 2020, compared to $538.5 million in the prior year, largely due to acquisitions (Walker and NC electrical contractor).
  • 2Net income decreased by 10.8% to $17.7 million ($0.48 per diluted share) from $19.9 million ($0.53 per diluted share) in the same period last year.
  • 3Gross profit margin decreased to 16.7% from 19.8%, influenced by lower margins on acquisitions and early COVID-19 related operational impacts.
  • 4Selling, General & Administrative (SG&A) expenses increased by 17.8% to $92.9 million, partly due to increased bad debt expense linked to COVID-19 concerns.
  • 5Cash and cash equivalents significantly increased to $133.3 million as of March 31, 2020, up from $50.8 million as of December 31, 2019, supported by borrowing activities.
  • 6The company generated $21.9 million in cash from operating activities, a substantial increase from $1.0 million in the prior year's quarter.
  • 7Backlog as of March 31, 2020, stood at $1.62 billion, a 1.0% increase sequentially and a 41.7% increase year-over-year, reflecting strong acquisition contributions.

Frequently Asked Questions

Revenue for the first quarter of 2020 increased significantly by 30.0% to $700.1 million, up from $538.5 million in the first quarter of 2019. This growth was primarily driven by contributions from recent acquisitions, notably the Walker acquisition and the North Carolina electrical contractor acquisition, which accounted for a substantial portion of the increase.

The company's liquidity position is strong, with cash and cash equivalents increasing to $133.3 million as of March 31, 2020, from $50.8 million at the end of 2019. This increase was significantly boosted by borrowings under the senior credit facility, which were used to fund recent acquisitions. The company also has substantial available credit under its revolving credit facility.

The company experienced some negative impacts from COVID-19 in the latter half of March 2020, including diminished revenue and increased bad debt expense, primarily affecting its service business and customers in harder-hit industries like retail and restaurants. Management anticipates that these negative impacts will be more pronounced in the second quarter of 2020, with a gradual recovery expected in the latter half of the year. The full extent of the impact remains difficult to quantify but is expected to result in lower earnings compared to the prior year's quarters.

Net income for the quarter decreased to $17.7 million from $19.9 million in the prior year. This decline was primarily due to a lower gross profit margin, which fell from 19.8% to 16.7%. Factors contributing to this margin compression include the accounting for acquisitions, initial operational inefficiencies related to COVID-19 safety measures, and a higher proportion of revenue from recently acquired businesses that may have different margin profiles.