Comfort Systems USA Reports Fourth Quarter and Full Year 2018 Results

HOUSTON–(BUSINESS WIRE)–Comfort Systems USA, Inc. (NYSE: FIX), a leading provider of
mechanical services including heating, ventilation, air conditioning,
plumbing, piping and controls, today announced net income of $25.2
million or $0.67 per diluted share, for the quarter ended December 31,
2018, as compared to $7.5 million or $0.20 per diluted share, for the
quarter ended December 31, 2017. Earnings per share for the fourth
quarter of 2017, adjusted for the remeasurement of net deferred tax
assets for the corporate tax rate reduction of $9.5 million, or $0.25
per diluted share, were $0.45 per diluted share. The Company reported
revenue of $588.4 million in the current quarter, as compared to $461.1
million in 2017. The Company reported free cash flow of $74.6 million in
the current quarter, as compared to $30.3 million in 2017. Backlog as of
December 31, 2018 was $1.17 billion as compared to $1.25 billion as of
September 30, 2018 and $948.4 million as of December 31, 2017.

Brian Lane, Comfort Systems USA’s President and Chief Executive Officer,
said, “We are happy to report record annual and fourth quarter free cash
flow, revenue and earnings per share. Revenue increased by 28% since the
fourth quarter of 2017, and quarterly earnings per share increased
sharply over the same period. During the fourth quarter we had positive
free cash flow of approximately $74.6 million, a result that reflects
fantastic focus and execution by our field teams in each of the markets
we serve.”

The Company reported net income of $112.9 million, or $3.00 per diluted
share, for the twelve months ended December 31, 2018, as compared to
$55.3 million, or $1.47 per diluted share, in 2017. Earnings in the
first quarter of 2018 included a $0.07 per diluted share increase due to
a discrete tax item. Earnings in the second quarter of 2018 included an
$0.08 per diluted share benefit from a legal settlement. Earnings in the
first quarter of 2017 included a goodwill impairment of $0.02 per
diluted share. Earnings per share for 2017, adjusted for the fourth
quarter remeasurement of net deferred tax assets discussed above and the
first quarter goodwill impairment, were $1.74 per diluted share. The
Company also reported revenue of $2.18 billion, as compared to $1.79
billion in 2017. Free cash flow for the twelve months ended December 31,
2018 was $121.6 million, as compared to $80.0 million in 2017.

Mr. Lane concluded, “Our operations achieved unprecedented success in
2018, with annual earnings per share growing by more than 60% from 2017
to 2018. In 2018, we benefited from favorable tax rate changes; however,
our pre-tax income was also up markedly, increasing by 47.3% as a result
of improving execution and strong same store growth. In light of our
substantial increase in backlog compared to the end of 2017, and given
our perception that industry conditions continue to be strong, we
believe that we are well positioned for continued success in 2019.”

The Company will host a webcast and conference call to discuss its
financial results and position on Friday, February 22, 2019 at 10:00
a.m. Central Time. The call-in number for this conference call is
1-888-339-2688, and enter 55116829 as the passcode. The call and the
slide presentation to accompany the remarks can be accessed on the
Company’s website at www.comfortsystemsusa.com
under the Investor tab. A replay of the entire call will be available on
the Company’s website on the next business day following the call.

Comfort Systems USA® is a premier provider of business
solutions addressing workplace comfort, with 128 locations in 114 cities
around the nation. For more information, visit the Company’s website at
www.comfortsystemsusa.com.

Certain statements and information in this press release may
constitute forward-looking statements regarding our future business
expectations, which are subject to the safe harbor provisions of the
Private Securities Litigation Reform Act of 1995. The words “believe,”
“expect,” “anticipate,” “plan,” “intend,” “foresee,” “should,” “would,”
“could,” or other similar expressions are intended to identify
forward-looking statements, which are generally not historic in nature.
These forward-looking statements are based on the current expectations
and beliefs of Comfort Systems USA, Inc. and its subsidiaries
(collectively, the “Company”) concerning future developments and their
effect on the Company. While the Company’s management believes that
these forward-looking statements are reasonable as and when made, there
can be no assurance that future developments affecting the Company will
be those that it anticipates. All comments concerning the Company’s
expectations for future revenue and operating results are based on the
Company’s forecasts for its existing operations and do not include the
potential impact of any future acquisitions. The Company’s
forward-looking statements involve significant risks and uncertainties
(some of which are beyond the Company’s control) and assumptions that
could cause actual future results to differ materially from the
Company’s historical experience and its present expectations or
projections. Important factors that could cause actual results to differ
materially from those in the forward-looking statements include, but are
not limited to: the use of incorrect estimates for bidding a fixed-price
contract; undertaking contractual commitments that exceed the Company’s
labor resources; failing to perform contractual obligations efficiently
enough to maintain profitability; national or regional weakness in
construction activity and economic conditions; financial difficulties
affecting projects, vendors, customers, or subcontractors; the Company’s
backlog failing to translate into actual revenue or profits; failure of
third party subcontractors and suppliers to complete work as anticipated;

difficulty in obtaining or increased costs associated with bonding
and insurance; impairment to goodwill; errors in the Company’s
percentage-of-completion method of accounting; the result of competition
in the Company’s markets; the Company’s decentralized management
structure; material failure to comply with varying state and local laws,
regulations or requirements; debarment from bidding on or performing
government contracts; shortages of labor and specialty building
materials; retention of key management; seasonal fluctuations in the
demand for mechanical systems; the imposition of past and future
liability from environmental, safety, and health regulations including
the inherent risk associated with self-insurance; adverse litigation
results; an increase in our effective tax rate; an information
technology failure or cyber security breach; and other risks detailed in
our reports filed with the Securities and Exchange Commission.

For additional information regarding known material factors that
could cause the Company’s results to differ from its projected results,
please see its filings with the SEC, including its Annual Report on
Form 10-K, Quarterly Reports on Form 10-Q, and Current Reports on
Form 8-K.

Readers are cautioned not to place undue reliance on forward-looking
statements, which speak only as of the date hereof. The Company
undertakes no obligation to publicly update or revise any
forward-looking statements after the date they are made, whether as a
result of new information, future events, or otherwise.

— Financial tables follow —

                 

Comfort Systems USA, Inc.

 Consolidated Statements of Operations

 (In Thousands, Except per Share Amounts)

 
 
Three Months Ended Twelve Months Ended
December 31, December 31,
(Unaudited)
2018 % 2017 % 2018 % 2017 %
Revenue $ 588,359 100.0 % $ 461,072 100.0 % $ 2,182,879 100.0 % $ 1,787,922 100.0 %
Cost of services   470,184   79.9 %   367,341   79.7 %   1,736,600   79.6 %   1,421,641   79.5 %
Gross profit 118,175 20.1 % 93,731 20.3 % 446,279 20.4 % 366,281 20.5 %
 
SG&A 80,458 13.7 % 70,033 15.2 % 296,986 13.6 % 266,586 14.9 %
Goodwill impairment 1,105 0.1 %
Gain on sale of assets   (315 ) (0.1 )%   (206 )   (945 )   (670 )
Operating income 38,032 6.5 % 23,904 5.2 % 150,238 6.9 % 99,260 5.6 %
 
Interest expense, net (1,089 ) (0.2 )% (749 ) (0.2 )% (3,637 ) (0.2 )% (3,086 ) (0.2 )%
Changes in the fair value of contingent earn-out obligations (2,559 ) (0.4 )% 1,870 0.4 % (2,066 ) (0.1 )% 3,715 0.2 %
Other income (expense)   79     992   0.2 %   4,141   0.2 %   1,049  
Income before income taxes 34,463 5.9 % 26,017 5.6 % 148,676 6.8 % 100,938 5.6 %
 
Provision for income taxes   9,307     18,478     35,773     45,666  
Net income $ 25,156   4.3 % $ 7,539   1.6 % $ 112,903   5.2 % $ 55,272   3.1 %
 
Income per share
Basic $ 0.68   $ 0.20   $ 3.03   $ 1.48  
Diluted $ 0.67   $ 0.20   $ 3.00   $ 1.47  
 
Shares used in computing income per share:
Basic 37,102 37,232 37,202 37,239
Diluted 37,467 37,626 37,592 37,672
 

Supplemental Non-GAAP Information — Adjusted Earnings Before Interest,
Taxes, Depreciation and Amortization (“Adjusted EBITDA”) — (Unaudited)
(In Thousands)

                                 
Three Months Ended Twelve Months Ended
December 31, December 31,
2018 % 2017 % 2018 % 2017 %
 
Net income $ 25,156 $ 7,539 $ 112,903 $ 55,272
Provision for income taxes 9,307 18,478 35,773 45,666
Other expense (income), net (79 ) (992 ) (4,141 ) (1,049 )
Changes in the fair value of contingent earn-out obligations 2,559 (1,870 ) 2,066 (3,715 )
Interest expense, net 1,089 749 3,637 3,086
Gain on sale of assets (315 ) (206 ) (945 ) (670 )
Goodwill impairment 1,105
Depreciation and amortization   11,957     10,120     42,689     37,456  
Adjusted EBITDA $ 49,674   8.4 % $ 33,818   7.3 % $ 191,982   8.8 % $ 137,151   7.7 %
 

Note: The Company defines adjusted earnings before interest, taxes,
depreciation and amortization (“Adjusted EBITDA”) as net income,
provision for income taxes, other expense (income), net, changes in the
fair value of contingent earn-out obligations, interest expense, net,
gain on sale of assets, goodwill impairment and depreciation and
amortization. Other companies may define Adjusted EBITDA differently.
Adjusted EBITDA is presented because it is a financial measure that is
frequently requested by third parties. However, Adjusted EBITDA is not
considered under generally accepted accounting principles as a primary
measure of an entity’s financial results, and accordingly, Adjusted
EBITDA should not be considered an alternative to operating income, net
income, or cash flows as determined under generally accepted accounting
principles and as reported by the Company.

       

Comfort Systems USA, Inc.

Condensed Consolidated Balance Sheets

(In Thousands)

 
December 31, December 31,
2018 2017
 
 
Cash and cash equivalents $ 45,620 $ 36,542
Billed accounts receivable, net 481,366 382,867
Unbilled accounts receivable 37,180
Costs and estimated earnings in excess of billings 10,213 30,116
Other current assets   35,321   39,832
Total current assets 609,700 489,357
Property and equipment, net 99,618 87,591
Goodwill 235,182 200,584
Identifiable intangible assets, net 95,275 76,044
Other noncurrent assets   22,789   27,544
Total assets $ 1,062,564 $ 881,120
 
Current maturities of long-term debt $ 3,279 $ 613
Accounts payable 176,167 132,011
Billings in excess of costs and estimated earnings 130,986 106,005
Other current liabilities   156,626   135,099
Total current liabilities 467,058 373,728
Long-term debt 73,639 59,926
Other long-term liabilities   23,820   29,521
Total liabilities   564,517   463,175
Total stockholders’ equity   498,047   417,945
Total liabilities and stockholders’ equity $ 1,062,564 $ 881,120
 

Selected Cash Flow Data (Unaudited) (In Thousands)

                 
Three Months Ended Twelve Months Ended
December 31, December 31,
2018 2017 2018 2017
Cash provided by (used in):
Operating activities $ 79,188 $ 48,398 $ 147,190 $ 114,090
Investing activities $ (9,441 ) $ (18,062 ) $ (95,710 ) $ (128,968 )
Financing activities $ (43,375 ) $ (23,290 ) $ (42,402 ) $ 19,346
 
Free cash flow:
Cash from operating activities $ 79,188 $ 48,398 $ 147,190 $ 114,090
Purchases of property and equipment (5,209 ) (18,637 ) (27,268 ) (35,467 )
Proceeds from sales of property and equipment   621     575     1,698     1,359  
Free cash flow $ 74,600   $ 30,336   $ 121,620   $ 79,982  
 

Note: Free cash flow is defined as cash flow from operating activities
less customary capital expenditures, plus the proceeds from asset sales.
Other companies may define free cash flow differently. Free cash flow is
presented because it is a financial measure that is frequently requested
by third parties. However, free cash flow is not considered under
generally accepted accounting principles as a primary measure of an
entity’s financial results, and accordingly, free cash flow should not
be considered an alternative to operating income, net income, or cash
flows as determined under generally accepted accounting principles and
as reported by the Company.

Contacts

William George
Chief Financial Officer
713-830-9650

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