Comfort Systems USA Reports Second Quarter Results

-- Solid Earnings and Cash Flows --

HOUSTON--(BUSINESS WIRE)--Jul. 30, 2009-- Comfort Systems USA, Inc. (NYSE: FIX), a leading provider of commercial, industrial and institutional heating, ventilation and air conditioning (“HVAC”) services, today announced net income of $10,098,000 or $0.26 per diluted share, for the quarter ended June 30, 2009, as compared to net income of $15,193,000 or $0.38 per diluted share, in the second quarter of 2008. Net income from continuing operations for the quarter was $10,398,000 or $0.27 per diluted share as compared to $15,169,000 or $0.38 per diluted share in the second quarter of 2008.

Bill Murdy, Comfort Systems USA’s Chairman and CEO, said, “During the second quarter our operations achieved solid profitability in a challenging environment. Although revenues declined noticeably as compared to our extraordinary levels in 2008, our continued focus on profitability helped us to maintain margins at favorable levels. The commitment and excellence demonstrated at all levels of our workforce were the keys to our successful quarter.”

The Company reported revenues from continuing operations of $300,349,000 in the current quarter, as compared to $353,349,000 in 2008. The Company also reported free cash flow of $21,321,000 in the current quarter, as compared to $22,843,000 in 2008. Backlog as of June 30, 2009 was $639,769,000 compared to $716,551,000 as of March 31, 2009. Backlog as of June 30, 2008 was $778,202,000.

Murdy continued, “Our absolute backlog level continues to be strong by historic standards, however, backlog declined during the quarter as we experienced weak bookings, especially in certain of our larger and more urban operations. Free cash flow was $21 million in the quarter and cash balances increased to $120 million as of June 30, 2009. We continue to expect positive cash performance as the year progresses. Our industry leading team, solid balance sheet, and core operational strength give us confidence that we can earn more than our share of available business and achieve success during the coming quarters.”

The Company reported net income for the six months ended June 30, 2009 of $17,040,000 or $0.44 per diluted share, as compared to net income of $23,434,000 or $0.58 per diluted share in 2008. Net income from continuing operations for the six months ended June 30, 2009 was $17,520,000 or $0.45 per diluted share as compared to $23,347,000 or $0.58 per diluted share for the first six months of 2008. The Company also reported revenues of $580,623,000 from continuing operations for the first six months of 2009, as compared to $647,157,000 in 2008. Free cash flow for the six months ended June 30, 2009 was $15,691,000 as compared to free cash flow of $19,125,000 in 2008.

Bill Murdy concluded, “We expect weakness in nonresidential construction to continue to develop and we remain committed to execution, cash discipline and cost control. We look forward to continued profitability and positive cash flow in 2009. Importantly, we believe that challenging industry conditions create an opportunity for us to improve our competitive position in existing markets, and we are optimistic that in coming quarters we will find additional opportunities to prudently invest in new operations and geographies.”

As previously announced, the Company will host a conference call to discuss its financial results and position in more depth on Friday, July 31, 2009 at 10:00 a.m. Central Time. The call-in number for this conference call is 1-888-713-4218 and enter 96945836 as the passcode. Participants may pre-register for the call at https://www.theconferencingservice.com/prereg/key.process?key=PHTRFB68F. Pre-registrants will be issued a pin number to use when dialing into the live call which will provide quick access to the conference by bypassing the operator upon connection. The call can also be accessed on the Company’s website at www.comfortsystemsusa.com under the Investor tab. A replay of the entire call will be available until 6:00 p.m. Central Time, Friday, August 7, 2009 by calling 1-888-286-8010 with the conference passcode of 70857257, and will also be available on our website on the next business day following the call.

Comfort Systems USA^® is a premier provider of business solutions addressing workplace comfort, with 76 locations in 68 cities around the nation. For more information, visit the Company’s website at www.comfortsystemsusa.com.

This press release 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 future events 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, the use of incorrect estimates for bidding a fixed-price contract, undertaking contractual commitments that exceed our 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, difficulty in obtaining or increased costs associated with bonding and insurance, shortages of labor and specialty building materials, retention of key management, our backlog failing to translate into actual revenue or profits, errors in our percentage-of-completion method of accounting, the result of competition in our 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 our reports filed with the Securities and Exchange Commission. A further list and description of these risks, uncertainties and other factors are discussed under “Item 1A. Company Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2008. 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 our expectations with regard thereto or any change in events, developments, conditions or circumstances on which any such statement is based.

– Financial tables follow –

Comfort Systems USA, Inc. Consolidated Statements of Operations For the Three Months and Six Months Ended June 30, 2009 and 2008 (in thousands, except per share amounts) (unaudited)

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2009		%	2008		%	2009		%	2008		%
Revenues	$	300,349	100.0%	$	353,349	100.0%	$	580,623	100.0%	$	647,157	100.0%
Cost of services		242,028	80.6%		285,937	80.9%		467,149	80.5%		526,773	81.4%
Gross profit		58,321	19.4%		67,412	19.1%		113,474	19.5%		120,384	18.6%

SG&A		41,276	13.7%		43,000	12.2%		84,462	14.5%		83,319	12.9%
(Gain) loss on sale of assets		5	―		(97)	―		3	―		(128)	―
Operating income		17,040	5.7%		24,509	6.9%		29,009	5.0%		37,193	5.7%

Interest income (expense), net		(160)	(0.1)%		137	―		(270)	―		816	0.1%
Other income		9	―		52	―		2	―		158	―
Income before income taxes		16,889	5.6%		24,698	7.0%		28,741	5.0%		38,167	5.9%
Income tax expense		6,491			9,529			11,221			14,820
Income from continuing operations		10,398	3.5%		15,169	4.3%		17,520	3.0%		23,347	3.6%

Discontinued operations: Operating income (loss), net of income tax (expense) benefit of $60, $(39), $133, and $(100)		(207)			24			(387)			87
Estimated loss on disposition, net of tax of $—, $—, $—, and $—		(93)			—			(93)		―

Net income	$	10,098		$	15,193		$	17,040		$	23,434

Income per share:
Basic-
Income from continuing operations	$	0.27		$	0.38		$	0.46		$	0.59
Discontinued operations -
Income (loss) from operations		(0.01)		―				(0.01)		―
Estimated loss on disposition	―			―			―			―
Net income	$	0.26		$	0.38		$	0.45		$	0.59

Diluted -
Income from continuing operations	$	0.27		$	0.38		$	0.45		$	0.58
Discontinued operations -
Income (loss) from operations		(0.01)		―				(0.01)		―
Estimated loss on disposition	―			―			―			―
Net income	$	0.26		$	0.38		$	0.44		$	0.58

Shares used in computing income per share:
Basic		38,136			39,634			38,207			39,737
Diluted		38,533			40,359			38,610			40,422

Note 1: The diluted earnings per share data presented above reflects the dilutive effect, if any, of stock options and contingently issuable restricted stock which were outstanding during the periods presented.

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

	Three Months Ended										Six Months Ended
	June 30,										June 30,
	2009			%		2008			%		2009			%		2008			%
Net income	$	10,098				$	15,193				$	17,040				$	23,434
Discontinued operations		300					(24	)				480					(87	)
Income taxes		6,491					9,529					11,221					14,820
Other income		(9	)				(52	)				(2	)				(158	)
Interest (income) expense, net		160					(137	)				270					(816	)
(Gain) loss on sale of assets		5					(97	)				3					(128	)
Depreciation and amortization		3,307					3,318					6,552					5,835
Adjusted EBITDA	$	20,352		6.8	%	$	27,730		7.8	%	$	35,564		6.1	%	$	42,900		6.6	%

Note 1: The Company defines adjusted earnings before interest, taxes, depreciation and amortization (“Adjusted EBITDA”) as net income, excluding discontinued operations, income taxes, other income, interest (income) expense, net, (gain) loss on sale of assets 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)

	June 30,		December 31,
	2009		2008
	(unaudited)

Cash and cash equivalents	$	120,415	$	117,015
Accounts receivable, net		257,077		266,602
Costs and estimated earnings in excess of billings		16,321		19,123
Other current assets		43,236		40,905
Assets related to discontinued operations		438		1,544
Total current assets		437,487		445,189
Property and equipment, net		35,000		35,650
Goodwill		95,666		90,940
Identifiable intangible assets, net		14,551		16,281
Other noncurrent assets		8,070		10,432
Total assets	$	590,774	$	598,492

Current maturities of long-term debt	$	―	$	—
Current maturities of notes to former owners		1,018		1,336
Accounts payable		84,972		98,190
Billings in excess of costs and estimated earnings		100,211		97,505
Other current liabilities		95,009		100,957
Liabilities related to discontinued operations		—		397
Total current liabilities		281,210		298,385
Long-term debt, net of current maturities	―			―
Notes to former owners, net of current maturities		7,972		9,363
Other long-term liabilities		4,996		4,273
Total liabilities		294,178		312,021
Total stockholders’ equity		296,596		286,471
Total liabilities and stockholders’ equity	$	590,774	$	598,492

Selected Cash Flow Data (in thousands) (unaudited):

	Three Months Ended June 30,						Six Months Ended June 30,
	2009			2008			2009			2008
Cash provided by (used in):
Operating activities	$	23,884		$	27,059		$	19,951		$	26,013
Investing activities	$	(5,368	)	$	(1,302	)	$	(5,803	)	$	(45,607	)
Financing activities	$	(6,250	)	$	(12,885	)	$	(10,748	)	$	(18,529	)

Free cash flow:
Cash from operating activities	$	23,884		$	27,059		$	19,951		$	26,013
Purchases of property and equipment		(2,662	)		(4,253	)		(4,434	)		(7,005	)
Proceeds from sales of property and equipment		99			37			174			117

Free cash flow	$	21,321		$	22,843		$	15,691		$	19,125

Note 1: 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.

Source: Comfort Systems USA, Inc.

Comfort Systems USA, Inc.
William George, 713-830-9600
Chief Financial Officer

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Comfort Systems USA Reports Second Quarter Results

Our company went public in June 1997, with the intention of becoming a nationwide provider of building systems installation and maintenance.