UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 8-K

 

CURRENT REPORT

Pursuant to Section 13 OR 15(d) of The Securities Exchange Act of 1934

 

Date of Report (Date of earliest event reported)   May 3, 2007

 

Comfort Systems USA, Inc.

(Exact name of registrant as specified in its charter)

 

Delaware

 

1-13011

 

76-0526487

(State or other jurisdiction

 

(Commission

 

(IRS Employer

of incorporation)

 

File Number)

 

Identification No.)

 

 

 

 

 

777 Post Oak Boulevard, Suite 500
Houston, Texas

 

77056

(Address of principal executive offices)

 

(Zip Code)

 

Registrant’s telephone number, including area code     (713) 830-9600

 

 

(Former name or former address, if changed since last report.)

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 

o  Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

o  Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

o  Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

o  Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

 



Item 7.01 Regulation FD Disclosure.

 

On the 3rd day of May, 2007, Comfort Systems USA, Inc., a Delaware corporation (the “Company”), a leading provider of commercial/industrial heating, ventilation and air conditioning services, posted to the “Investor” section of its Internet website (www.comfortsystemsusa.com) an investor presentation slideshow. The Company intends to use this presentation in making presentations to analysts, potential investors, and other interested parties.

 

The information included in the investor presentation includes financial information determined by methods other than in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The Company’s management uses these non-GAAP measures in its analysis of the Company’s performance. The Company believes that the presentation of certain non-GAAP measures provides useful supplemental information that is essential to a proper understanding of the operating results of the Company’s core businesses. These non-GAAP disclosures should not be viewed as a substitute for operating results determined in accordance with GAAP, nor are they necessarily comparable to non-GAAP performance measures that may be presented by other companies.

 

The information in this Form 8-K being furnished under Item 7.01 shall not be deemed to be “filed” for the purposes of Section 18 of the Securities and Exchange Act of 1934 (the “Exchange Act”), or otherwise subject to the liabilities of such section, nor shall such information be deemed incorporated by reference in any filing under the Securities Act of 1933 or the Exchange Act, except as shall be expressly set forth by specific reference in such a filing. The investor presentation contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based on the Company’s expectations and involve risks and uncertainties that could cause the Company’s actual results to differ materially from those set forth in the statements. These risks are discussed in the Company’s filings with the Securities and Exchange Commission, including an extensive discussion of these risks in the Company’s Annual Report on Form 10-K for the year ended December 31, 2006.

 

A copy of the presentation is furnished herewith as Exhibit 99.1

 

Item 9.01 Financial Statements and Exhibits

 

The following exhibit is included herein:

 

Exhibit 99.1 Slideshow presentation dated May 3, 2007

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

 

COMFORT SYSTEMS USA, INC.

 

 

 

 

 

By:

/s/ Trent T. McKenna

 

 

Trent T. McKenna

 

 

Vice President and General Counsel

 

 

 

Date:

May 4, 2007

 

 

 

2



EXHIBIT INDEX

 

Exhibit
Number

 

Description

 

 

 

99.1

 

Slideshow presentation dated May 3, 2007

 


Exhibit 99.1

 

 

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As of May 3, 2007

 


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This presentation contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based on the current plans and expectations of Comfort Systems USA, Inc. and involve risks and uncertainties that could cause actual future activities and results of operations to be materially different from those set forth in the forward-looking statements. Important factors that could cause actual results to differ include, among others, national or regional weakness in non-residential construction activity, difficulty in obtaining or increased costs associated with bonding, shortages of labor and specialty building materials, the use of incorrect estimates for bidding a fixed price contract, undertaking contractual commitments that exceed our labor resources, retention of key management, the Company’s backlog failing to translate into actual revenue or profits, errors in the Company’s percentage of completion method of accounting, the result of competition in the Company’s markets, seasonal fluctuations in the demand for HVAC 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 and other risks detailed in the Company’s reports filed with the Securities and Exchange Commission. Important factors that could cause actual results to differ are discussed under “Item 1A. Company Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2006. These forward-looking statements speak only as of the date of this filing. Comfort Systems USA, Inc. expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward-looking statement contained herein to reflect any change in Comfort Systems USA, Inc.’s expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based. Safe Harbor Statement

 


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To be the nation’s premier HVAC and mechanical systems installation and services provider. Vision

 


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Mission To provide the best value HVAC and mechanical systems installation and service, principally in the mid-market commercial, industrial, and institutional sectors, while caring for our customers, employees and the environment and realizing superior returns for our stockholders.

 


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Honesty and Integrity Respect for ALL Stakeholders Exceed Customer Expectations Seek “Win-Win” Solutions Entrepreneurial Spirit and Drive Premier Safety Performance Communicate Openly Positively Impact Our Communities Think National - Act Local Values

 


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Comfort Systems USA National Commercial, Industrial, Institutional HVAC/Piping/Plumbing Strong balance sheet Profitable/cash flow positive in tough 2001-2003 conditions Good results in 2004 Growth, increased profitability and strong cash flow in 2005-2006 58% new construction; 42% service, repair, retrofit Revenue run rate $1 billion +

 


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 Top 10 Specialty Contractors 1 1 Emcor Group Inc. (EME), Norwalk, CT 1 M/E 4,753.7 2 3 Quanta Services Inc. (PWR), Houston, TX E/U 1,858.6 3 2 Johnson Controls Inc. (JCI), Milwaukee, WI 3 O 1,840.0 4 4 Integrated Electrical Services, Inc. (IESC), Houston, TX E 1,102.8 5 7 Comfort Systems USA, Inc. (FIX), Houston, TX 5 M/O 899.5 6 6 Siemens Building Technologies (SI), Buffalo Grove, IL 6 O 850.0 7 5 Mastec Inc. (MTZ), Coral Gables, FL 7 O 848.0 8 8 Infrasource Services Inc. (IFS), Media, PA 8 U/E 818.0 9 9 Henkels & McCoy Inc., Blue Bell, PA U 709.1 10 10 Performance Contracting Group Inc., Lenexa, KS 10 W/O 627.9 Source: ENR, Oct. 16, 2006 Key to Specialty Type: M=Mechanical; E=Electrical; U=Utility; W=Wall/ceiling; O=Other Numbered Footnotes Show Specialty Revenue in the “Other” (O) Category: 1=Facilities; 3=Integrated Systems: Bundled Mech., Elec., Security Systems; 5=Plumbing, Controls, Others; 6=HVAC Control Sys./Security Sys./Bldg Automation, Fire Suppr., Energy/Safety Sys.,; 7=Infrastructure Construction; 8=Paving; 10=Insulation, Rigging Rank Type 2005 Rev. 2006 2005 Firm of Firm ($Mil.)

 


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Comfort Today Over $20M $10M - $20M Under $10M Comfort Systems USA – Multi-Family Comfort Systems USA National Accounts ANNUAL REVENUES Region 3 Region 1 Region 2

 


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What We Do Commercial HVAC Quality People. Building Solutions. Piping Service, Repair, Retrofit Applied Systems

 


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What We Do

 


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Long Term Industry Growth The Dodge Index for Nonresidential Building Construction 1996=100 Building comfort a “necessity” Mechanical equipment – requires service, repair, replacement Increasing technical content and building automation Energy efficiency and IAQ emerging Outsourcing Commercial, Industrial, Institutional HVAC – A $40B+ Industry D R I V E R S 4% 60 80 100 120 140 160 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006

 


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Industry Trend Toward Service & Replacement (Recurring Revenue) 5+ million commercial buildings (DOE) Recurring service 20 year replacement cycle “Inventory” of future business OEMs note significant deferred maintenance & replacement over recent years Source: The Trane Company NEW CONSTRUCTION 70% 30% 0% 50% 100% 1980 Share of Industry Revenues Time 70% 30% SERVICE & REPLACEMENT

 


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13% 29% 58% Revenues by Activity New Construction/ Installation Replacement Service and Maintenance YTD March 2007

 


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PROJECT SIZE # OF PROJECTS (As of Mar. 31, 2007) Diverse Project Mix Average Project Size $445,000 Average Project Length 6-9 months Value of Projects >$1M $968.4M Value of Projects <$1M $674.1M 3,436 196 43 11 4 TOTAL PROJECTS = 3,690 0 2,000 4,000 0-1M 1-5M 5-10M 10-15M 15+M

 


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Select General Contractors *Trademarks and logos are the property of their respective owners.

 


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Healthcare Schools Government Manufacturing Office Building Multi-Family Retail Distribution Other Residential 14% 7% 12% 12% 17% 8% 1% 12% 2% 1% Top Ten Customers Diverse End-Use Base Served by 10 different Comfort operating units Largest customer = less than 5% of revenues Hotels YTD Mar. 2007 14%

 


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Diverse End-Use Base Omni Orlando Resort at Championsgate Orlando, Florida HarborWalk Village Destin, Florida University Hospital Little Rock, Arkansas University United Methodist Church Syracuse, New York

 


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Competitive Advantages High quality operations Ability to leverage and proliferate technical expertise Ability to collaborate on large jobs and share labor National multi-location service capability Purchasing economics Financing Bonding and insurance

 


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Financial Overview

 


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History 1997 to 1999 – IPO, rapid acquisition growth, strong organic growth 2000 – Integration challenges, trough in profits, high leverage, start of rationalization of operations 2001 – Working capital conservation increases cash flow/reduces debt 2002 to 2003 – Sale of assets; smaller stronger platform weathers worst industry conditions in 30 years 2004 – Renewed growth 2005 – Increased growth and profitability 2006 – Increased productivity and growth; push to increase service, repair, retrofit

 


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Capital Structure Management $ Revenue Revenues 298 854 1370 1591 1546 2,000 1,500 1,000 500 0 819 Acquisition Phase and Industry Growth 785 820 1057 900 400 300 200 $ Debt Debt –– EBITDA 0.6 346 275 205 15 10 4.0 3.0 2.0 1.0 3.6 3.9 2.7 0.7 9 0.3 0.0 0.0 Sharpest downturn in 30 years Best-ever industry growth History – Financial Nonresidential Construction Spending (FW Dodge) 9/11/01 Dec 06 0.0 0 100 0 Sale of Assets 2000 2001 2002 1997 1998 1999 2003 2004 2005 2006 May 00 Dec 00 Dec 01 Dec 02 Dec 03 Dec 04 Dec 05 0 Sale of Assets 60 80 100 120 140 160 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006

 


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Project Review and Controls If project > 10% TTM revenues or new technical application Then Senior Vice President review required prior to bid process This may include blind estimate by another Comfort unit experienced in type/size of project Bonding qualification Project management training Sarbanes/Oxley compliant Monthly POC Review COO, CFO, Controller, SRVP and Regional Controller Review POC detail for 15 largest projects at each of 38 operating units Focus on underbillings and estimate changes Cost-to-complete reviews at units SRVP or Regional Controller participates in cost-to-complete for every unit at least once a quarter SRVP and Regional Controller participate in multiple units’ cost-to-completes at quarter-end

 


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Backlog (in millions) Note: Excludes all divested and discontinued operations Backlog remains strong Multi-family backlog has decreased from a year ago All other categories have continued to grow 447.1 507.8 569.1 618.7 634.1 726.7 680.6 690.0 678.9 653.8 700.5 0 200 400 600 800 Sept. 04 Dec. 04 Mar. 05 Jun. 05 Sept. 05 Dec. 05 Mar. 06 Jun. 06 Sept. 06 Dec. 06 Mar. 07

 


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Safe employees Valued by customers Lost time accident rate is 80% less than industry average Claims cost per payroll dollar down from 4.6% to 1.7% We can change behavior OSHA Recordable Rate Source: Bureau of Labor Statistics, Standard Industry Classification (SIC) Code 20 1710 – Specialty Trades Contractors – HVAC and Plumbing & North American Industry Classification System (NAICS) Code 23822 Safety 50% Difference 20% Difference Industry Average Comfort Systems USA Our safety record is no accident. 0.0 5.0 10.0 15.0 1998 1999 2000 2001 2002 2003 2004 2005 2006

 


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 Financial Profile – Ongoing Operations(1) Revenues $ 249.6 $ 236.4 $ 1,056.5 $ 892.5 Adjusted EBITDA $ 3.7 $ 8.3 $ 49.6 $ 39.3 % Revenue 1.5% 3.5% 4.7% 4.4% Operating Income $ 2.2 $ 7.0 $ 44.5 $ 34.9 % Revenue 0.9% 3.0% 4.2% 3.9% Net Income - Contg Ops $ 1.8 $ 4.5 $ 28.7 $ 19.6 % Revenue 0.7% 1.9% 2.7% 2.2% Diluted EPS - Contg Ops $ 0.04 $ 0.11 $ 0.70 $ 0.49 Free Cash Flow $ (15.3) $ (15.4) $ 17.1 $ 32.0 Debt $ 0.0 $ 0.0 Cash $ 69.0 $ 58.4 Backlog. $ 700.5 $ 726.7 (1) Excludes goodwill impairment and write-off of debt costs in 2005. 1Q YTD 4Q 07 06 06 05

 


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Revenues (2002 – 2006) Revenues $500 $600 $700 $800 $900 $1,000 $1,100 2002 2003 2004 2005 2006

 


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Operating Margins (a) Annual Operating Margin (a) This table includes non-GAAP financial information as the information provided excludes goodwill impairment charges of $0.2 million, $2.7 million, $0.6 million and $33.9 million for 2002, 2003, 2004 and 2005, respectively. No goodwill impairment charge was recorded for 2006. 0% 1% 2% 3% 4% 5% 6% 2002 2003 2004 2005 2006

 


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Financial Strengths Market share up – revenue and profit performance better than industry Commitment to cost containment $69.0 million cash at 3/31/07; substantial credit capacity if needed Positive free cash flow for last eight calendar years

 


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Profile For Growth T I M E E A R N I N G S Service ACQUISITIONS INCREMENTAL SERVICE GROWTH Commercial HVAC CURRENT OPERATIONS (CONSTRUCTION AND SERVICE)

 


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Strategy Increase Productivity Education Leadership Project Managers Superintendents Service Sales Service Operations Craft Best Practices Project Loop Estimating Cooperation with suppliers Prefabrication New materials and methods Focus Leadership Management

 


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Job Loop Constant feedback Continuous improvement process Core HVAC – Job Loop Post Project Review Project Management Project Qualification Project Estimating Project Pricing

 


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The only things that evolve by themselves in an organization are disorder, friction and malperformance. -Peter Drucker

 


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Strategy Increase Service* Grow Maintenance Base Education Sales Sales Management Service Operations Benchmarking Target Retrofit Projects Energy Efficiency IAQ * Maintenance, service, repair, retrofit

 


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Higher margin opportunity Full maintenance contracts/ life of installation Recurring revenue National accounts $2.50+ of repair and replacement for every $1.00 of maintenance Increase Service T I M E E A R N I N G S Service ACQUISITIONS INCREMENTAL SERVICE GROWTH Commercial HVAC CURRENT OPERATIONS (CONSTRUCTION AND SERVICE)

 


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Select Customers ® *Trademarks and logos are the property of their respective owners.

 


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Strategy Grow Internal Growth More of what we do best Service Step Out Growth Start ups in new geographies New locations for existing companies Techs “on their own” Targeted acquisitions

 


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$20 million in revenue Full service mechanical In a growing market where we are not now Company that has performed well in the past and has continuing demonstrable upside Organizational structure capable of sustaining/improving the company Ownership/management that wants to stay on to operate company The Ideal Candidate

 


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Boston, MA Providence, RI Ft. Lauderdale, FL Norfolk, VA Richmond, VA Raleigh/Durham, NC Savannah, GA Charleston, SC Columbia/Florence, SC Tampa, FL Spartanburg/Greenville, SC Pittsburgh, PA Atlanta, GA (Service) Target Cities (Listed East to West) Cincinnati, OH Nashville, TN Tulsa, OK Omaha, NE Dallas/Fort Worth, TX San Antonio, TX El Paso, TX Albuquerque, NM Boise, ID Los Angeles, CA Seattle, WA Portland, OR

 


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Industry Activity 20 year CAGR – 4% (F.W. Dodge) Nonresidential new construction increasing (U.S. Census Bureau - Construction Put In Place) Deferred maintenance and replacement Dodge Forecast March 07 06 +17% 07 +4% 08 +1%

 


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Outlook Long-Term $40+ billion fragmented industry HVAC is a basic necessity Commercial construction strong Growing installed base for recurring maintenance, service, repair and retrofit Scale opportunities – service, purchasing, bonding, best practices Diverse customer base and geography Energy efficiency and IAQ Financially and operationally sound – ready to grow

 


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C O N T A C T: Bill George Executive Vice President and CFO 1-800-723-8431 bgeorge@comfortsystemsusa.com www.comfortsystemsusa.com