10-QPeriod: Q2 FY2021

COMFORT SYSTEMS USA INC Quarterly Report for Q2 Ended Jun 30, 2021

Filed July 28, 2021For Securities:FIX

Summary

Comfort Systems USA, Inc. (FIX) reported its second quarter and first six months results for the period ending June 30, 2021. For the second quarter, revenue was $713.9 million, a decrease of 4.0% year-over-year, primarily driven by a 6.2% decrease in same-store activity, partially offset by the TEC acquisition. Net income for the quarter was $33.0 million, a decrease from $39.5 million in the prior year period. For the first six months, revenue declined 4.2% to $1.38 billion, while net income increased slightly to $59.5 million from $57.2 million in the prior year. The company's backlog saw a significant increase, growing 20.2% year-over-year to $1.84 billion, indicating a positive outlook for future revenue, particularly in the mechanical services segment. Despite the revenue decline in the current quarter, the company maintained a strong operational performance, with positive free cash flow generation of $100.8 million for the first six months of the year. The company also continues to manage its debt effectively, with ample credit availability under its senior credit facility.

Financial Highlights

52 data points
Beta

Revenue

$713.89M

17.7% Gross Margin

Net Income

$32.97M

4.6% Net Margin

EPS (Diluted)

$0.90

Total Assets

$1.75B

Cash & Equivalents

$53.66M

Free Cash Flow

$19.47M

Financial Statements
Beta
Revenue$713.89M
Cost of Revenue$587.44M
Gross Profit$126.45M
SG&A Expenses$87.55M
Operating Income$39.40M
Interest Expense$1.36M
Net Income$32.97M
EPS (Basic)$0.91
EPS (Diluted)$0.90
Shares Outstanding (Basic)36.40M
Shares Outstanding (Diluted)36.57M

Key Highlights

  • 1Revenue for Q2 2021 decreased by 4.0% to $713.9 million compared to Q2 2020, largely due to a 6.2% decline in same-store activity, partly offset by acquisitions.
  • 2Net income for Q2 2021 was $33.0 million, down from $39.5 million in Q2 2020.
  • 3For the first six months of 2021, revenue decreased by 4.2% to $1.38 billion, while net income rose slightly to $59.5 million from $57.2 million in the same period of 2020.
  • 4The company's backlog increased significantly by 20.2% year-over-year to $1.84 billion as of June 30, 2021, signaling strong future demand.
  • 5Free cash flow for the first six months of 2021 was $100.8 million, a decrease from $150.6 million in the prior year, largely due to changes in working capital.
  • 6Interest expense decreased in both the second quarter and the first six months of 2021 compared to the prior year, reflecting lower debt balances and interest rates.
  • 7The company had $385.5 million of credit available under its senior credit facility as of June 30, 2021, indicating strong liquidity.

Frequently Asked Questions

The primary driver for the revenue decrease in Q2 2021 was a 6.2% decline in same-store activity. This was partially offset by a 2.2% increase in revenue attributed to the TEC acquisition. Specific segment impacts included decreased activity in the retail, restaurants, and entertainment sectors, as well as the education sector for mechanical services, and expected decreases in large jobs for electrical services.

Comfort Systems USA has a $600 million senior credit facility with $385.5 million in available credit as of June 30, 2021, indicating strong liquidity. The company has been actively managing its debt, with interest expense decreasing due to lower outstanding debt balances and reduced interest rates. They also have a history of positive free cash flow generation.

The company's backlog increased significantly by 20.2% year-over-year to $1.84 billion as of June 30, 2021. This substantial increase, driven by new project bookings, suggests a positive outlook and robust demand for the company's services, particularly over the next six to twelve months.

The company is involved in a dispute with a customer for approximately $15 million in damages related to a completed project and claimed future subcontract work. Comfort Systems is counter-claiming approximately $9 million for unpaid amounts and incurred costs. This matter is scheduled for arbitration in Q2 2022. While an accrual has been made, there is a possibility of unexpected outcomes that could lead to additional costs.