10-QPeriod: Q3 FY2022

COMFORT SYSTEMS USA INC Quarterly Report for Q3 Ended Sep 30, 2022

Filed October 26, 2022For Securities:FIX

Summary

Comfort Systems USA, Inc. (FIX) reported a strong third quarter in 2022, with significant year-over-year growth in revenue and net income. Revenue surged by 34.3% to $1.12 billion, driven by both organic growth across its mechanical and electrical segments and contributions from recent acquisitions. The company benefited from favorable market conditions and the pass-through of inflation on costs. Profitability also saw a substantial improvement, with net income increasing by 32.9% to $61.5 million. This growth was supported by increased gross profit, despite a slight decrease in gross profit margin percentage, and well-managed selling, general, and administrative (SG&A) expenses which decreased as a percentage of revenue. The company's robust backlog provides a positive outlook for continued revenue generation, and management anticipates solid earnings and cash flow for the remainder of 2022.

Financial Highlights

52 data points
Beta

Revenue

$1.12B

18.1% Gross Margin

Net Income

$61.52M

5.5% Net Margin

EPS (Diluted)

$1.71

Total Assets

$2.55B

Cash & Equivalents

$71.14M

Free Cash Flow

$46.65M

Financial Statements
Beta
Revenue$1.12B
Cost of Revenue$917.79M
Gross Profit$202.22M
SG&A Expenses$121.19M
Operating Income$81.44M
Interest Expense$3.61M
Net Income$61.52M
EPS (Basic)$1.72
EPS (Diluted)$1.71
Shares Outstanding (Basic)35.85M
Shares Outstanding (Diluted)35.97M

Key Highlights

  • 1Revenue increased by 34.3% year-over-year to $1.12 billion for the third quarter of 2022.
  • 2Net income grew by 32.9% year-over-year to $61.5 million for the third quarter of 2022.
  • 3Gross profit increased by 27.0% to $202.2 million, though the gross profit margin slightly decreased from 19.1% to 18.1%.
  • 4SG&A expenses increased by 27.2% but decreased as a percentage of revenue from 11.4% to 10.8%.
  • 5Backlog stood at $3.25 billion as of September 30, 2022, representing a significant 67.4% increase year-over-year.
  • 6The company amended and increased its senior credit facility to $850 million, providing ample borrowing capacity.
  • 7The company generated $169.5 million in cash from operating activities in the first nine months of 2022, alongside $136.9 million in free cash flow.

Frequently Asked Questions

Revenue growth was driven by a combination of factors, including strong market conditions, increased backlog, pass-through of inflation on costs to customers, and contributions from recent acquisitions like Atlantic Electric, Ivey Mechanical, MEP Holding Co., and Amteck. Both the mechanical and electrical services segments contributed to this growth.

Comfort Systems USA experienced a significant increase in net income, rising 32.9% year-over-year to $61.5 million. This was primarily due to higher gross profit, which increased by 27.0%, and improved management of SG&A expenses, which decreased as a percentage of revenue. While gross profit margin saw a slight decrease, the overall increase in revenue and operational efficiency led to higher net earnings.

The company has a strong backlog of $3.25 billion, indicating positive future revenue potential. Management anticipates solid earnings and cash flow for the remainder of 2022 and expects supportive industry conditions to continue into 2023. Comfort Systems USA also has significant borrowing capacity under its amended $850 million credit facility, demonstrating a robust liquidity position.

The company amended its senior credit facility in May 2022, increasing its borrowing capacity to $850 million, which is now primarily a revolving credit line. The previous term loan was eliminated. As of September 30, 2022, outstanding borrowings on the revolving credit facility were $335.0 million, with substantial credit available. The company remains in compliance with its debt covenants.