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) June 2, 2006
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 |
|
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 2nd day of June, 2006, 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 Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended. 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, 2005.
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 June 2, 2006.
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: |
June 2, 2006 |
|
|
|
2
EXHIBIT INDEX
|
Exhibit |
|
Description |
|
|
|
99.1 |
|
Slideshow presentation dated June 2, 2006. |
3
Searchable text section of graphics shown above
Safe Harbor Statement
This presentation includes certain statements that may be deemed to be “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as Amended. 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. Such risks, uncertainties and other important factors include, among others, the retention of key management, 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, seasonal fluctuations in the demand for HVAC systems, the use of incorrect estimates for bidding a fixed price contract, 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, and the imposition of past and future liability from environmental, safety and health regulations. The foregoing and other factors are discussed in the Company’s filings with the Securities and Exchange Commission, including the Company’s Annual Report on Form 10-K for the year ended December 31, 2005.
2
Vision
To be the nation’s premier HVAC and mechanical systems installation and services provider.
[GRAPHIC]
3
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.
4
Values
• 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
[GRAPHIC]
5
Comfort Systems USA
• National
• Commercial, Industrial, Institutional
• HVAC/Piping/Plumbing
• Strong balance sheet
• Profitable/cash flow positive in tough 01-03 conditions
• Good results in 04
• Increased growth, profitability and cash flow in 05/06
• 2005 - $900 million revenues
• 62% new construction; 38% service, repair, retrofit
• Current run rate approximately $1 billion
[GRAPHIC]
6
What We Do
[GRAPHIC]
Commercial HVAC
[GRAPHIC]
Applied Systems
[GRAPHIC]
Piping
[GRAPHIC]
Service, Repair, Retrofit
Quality People.
Building Solutions.
8
Long Term Industry Growth
Commercial, Industrial, Institutional HVAC – A $40B+ Industry
[CHART]
The Dodge Index for Nonresidential Building Construction
1996=100
DRIVERS
• Building comfort a “necessity”
• Mechanical equipment – requires service, repair, replacement
• Increasing technical content and building automation
• Energy efficiency and IAQ emerging
• Outsourcing
10
Nonresidential Construction Spending ($ in billions)
|
|
|
|
|
|
|
3-Year |
|
|
|
3-Year |
|
|||
|
|
|
2002 |
|
2005 |
|
CAGR |
|
2008 |
|
CAGR |
|
|||
|
Manufacturing |
|
$ |
13.2 |
|
$ |
18.8 |
|
12.5 |
% |
$ |
29.7 |
|
16.5 |
% |
|
Office |
|
32.3 |
|
28.5 |
|
(4.1 |
)% |
40.9 |
|
12.8 |
% |
|||
|
Lodging |
|
8.4 |
|
8.9 |
|
1.9 |
% |
11.7 |
|
9.5 |
% |
|||
|
Health Care |
|
14.1 |
|
13.4 |
|
(1.7 |
)% |
14.7 |
|
3.1 |
% |
|||
|
Religious |
|
6.7 |
|
5.5 |
|
(6.4 |
)% |
6.1 |
|
3.5 |
% |
|||
|
Educational |
|
10.5 |
|
8.8 |
|
(5.7 |
)% |
10.6 |
|
6.4 |
% |
|||
|
Commercial(1) |
|
42.8 |
|
42.0 |
|
(0.6 |
)% |
50.3 |
|
6.2 |
% |
|||
|
Miscellaneous |
|
6.0 |
|
6.1 |
|
0.6 |
% |
6.5 |
|
2.1 |
% |
|||
|
Total |
|
$ |
134.0 |
|
$ |
132.0 |
|
(0.5 |
)% |
$ |
170.5 |
|
8.9 |
% |
Notes:
(1) Commercial includes Farm, Automotive, Food & Beverage, Multi-Retail, Warehouses and Other Commercial
Source: US Department of Commerce and Portland Cement Association Estimates
11
Industry Trend Toward Service & Replacement (Recurring Revenue)
[CHART]
Source: The Trane Company
• 5+ million commercial buildings (DOE)
• Recurring service
• 20 year replacement cycle
• “Inventory” of future business
• OEMs note significant deferred maintenance & replacement over recent years
12
Diverse Project Mix
# OF PROJECTS (As of March 31, 2006)
[CHART]
PROJECT SIZE
Average Project Size
$320,000
Average Project Length
3-6 months
Value of Projects >$1M
$829.4M
Value of Projects <$1M
$658.3M
14
Select General Contractors
[LOGO]
*Trademarks and logos are the property of their respective owners.
15
Diverse End-Use Base
YTD March 2006
[CHART]
Top Ten Customers
• Served by ten different Comfort operating units
• Largest customer = less than 5% of revenues
16
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
[GRAPHIC]
17
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
[GRAPHIC]
19
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 early compliance
• Monthly POC Review
• COO, CFO, Controller, RVP and Regional Controller
• Review POC detail for 15 largest projects at each of 40 operating units
• Focus on underbillings and estimate changes
• Cost-to-complete reviews at units
• RVP or Regional Controller participates in cost-to-complete for every unit at least once a quarter
• RVP and Regional Controller participate in multiple units’ cost-to-completes at quarter-end
[GRAPHIC]
21
Backlog (in millions)
[CHART]
Note: Excludes all divested and discontinued operations
• 9 consecutive record backlog quarters
• Includes $16 million of acquired backlog in 1Q05
22
Safety
[CHART]
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
Our safety record is no accident.
• 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
23
Financial Profile – Ongoing Operations
|
|
|
1Q |
|
Full Year |
|
||||||||
|
|
|
06 |
|
05 |
|
05(1) |
|
04(1) |
|
||||
|
|
|
|
|
|
|
|
|
|
|
||||
|
Revenues |
|
$ |
237.9 |
|
$ |
195.3 |
|
$ |
899.5 |
|
$ |
778.6 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Adjusted EBITDA |
|
$ |
8.0 |
|
$ |
2.2 |
|
$ |
37.0 |
|
$ |
25.5 |
|
|
% Revenue |
|
3.3 |
% |
1.1 |
% |
4.1 |
% |
3.3 |
% |
||||
|
Operating Income |
|
$ |
6.7 |
|
$ |
1.3 |
|
$ |
32.6 |
|
$ |
21.1 |
|
|
% Revenue |
|
2.8 |
% |
0.7 |
% |
3.6 |
% |
2.7 |
% |
||||
|
Net Income - Contg Ops |
|
$ |
4.3 |
|
$ |
0.6 |
|
$ |
18.1 |
|
$ |
12.0 |
|
|
% Revenue |
|
1.8 |
% |
0.3 |
% |
2.0 |
% |
1.5 |
% |
||||
|
Diluted EPS - Contg Ops |
|
$ |
0.11 |
|
$ |
0.01 |
|
$ |
0.45 |
|
$ |
0.30 |
|
|
Free Cash Flow |
|
$ |
(15.4 |
) |
$ |
(7.4 |
) |
$ |
32.0 |
|
$ |
21.7 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Debt |
|
$ |
0.0 |
|
$ |
8.3 |
|
|
|
|
|
||
|
Cash |
|
$ |
58.4 |
|
$ |
22.5 |
|
|
|
|
|
||
|
Backlog |
|
$ |
727.2 |
|
$ |
573.3 |
|
|
|
|
|
||
(1) This table includes non-GAAP financial information as the information provided excludes goodwill impairment and the expensing of financing costs.
24
Operating Margins (a)
[CHART]
(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.
[GRAPHIC]
26
Financial Strengths
• Market share up – revenue and profit performance better than industry
• Commitment to cost containment
• $58 million cash at 3/31/06; substantial credit capacity if needed
• Positive free cash flow for last seven calendar years
[GRAPHIC]
27
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
29
Core HVAC – Job Loop
[GRAPHIC]
|
|
Project |
|
|
|
|
|
|
Project |
|
|
Post Project |
|
|
|
|
|
|
Project |
|
|
Project |
|
|
Job Loop
• Constant feedback
• Continuous improvement process
30
The only things that evolve by themselves in an organization are disorder, friction and malperformance.
-Peter Drucker
31
Strategy
Increase Service*
• Grow Maintenance Base
• Education
• Sales
• Sales Management
• Service Operations
• Target Retrofit Projects
• Energy Efficiency
• IAQ
* Maintenance, service, repair, retrofit
[GRAPHIC]
32
Increase Service
• 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
[GRAPHIC]
33
Strategy
Grow
• Internal Growth
• More of what we do best
• Service
• Step Out Growth
• New locations for existing companies
• Techs “on their own”
• Targeted acquisitions
[GRAPHIC]
35
The Ideal Candidate
• $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
[GRAPHIC]
36
Target Cities
(Listed East to West)
• Boston, MA
• Providence, RI
• Norfolk, VA
• Richmond, VA
• Raleigh/Durham, NC
• Charleston, SC
• Columbia, SC
• Tampa, FL
• Charlotte, NC
• Spartanburg/Greenville, SC
• Pittsburgh, PA
• Atlanta, GA (Service)
• Cincinnati, OH
• Nashville, TN
• Tulsa, OK
• Dallas/Fort Worth, TX
• San Antonio, TX
• El Paso, TX
• Albuquerque, NM
• Boise, ID
• Tucson, AZ
• Las Vegas, NV
• Los Angeles, CA
• Seattle, WA
• Portland, OR
37
Industry Activity
• 25 year CAGR – 5%
(F.W. Dodge)
• Nonresidential new construction increasing
(U.S. Census Bureau - Construction Put In Place)
• Deferred maintenance and replacement
Dodge Forecast March 06
|
06 |
|
+9 |
% |
|
|
|
|
|
|
07 |
|
+7 |
% |
|
|
|
|
|
|
08 |
|
+2 |
% |
38
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
[GRAPHIC]
39