Comfort Systems USA Reports First Quarter 2023 Results

Rhea-AI Summary

Comfort Systems USA reported its first-quarter 2023 results, showing a net income of $57.2 million or $1.59 per diluted share, down from $86.8 million or $2.40 per diluted share from the previous year. Total revenue rose significantly to $1,174.6 million from $885.2 million in Q1 2022. The quarter benefited from a diluted per-share net gain of $0.12, primarily due to a tax change and favorable litigation resolutions. Operating cash flow doubled to $126.9 million, reflecting strong operational performance. The backlog increased to $4.44 billion from $4.06 billion at the end of 2022, demonstrating ongoing demand in construction sectors. CEO Brian Lane expressed optimism about continued growth and profitability, attributing success to operational excellence and market demand.

Positive

• Revenue increased to $1,174.6 million from $885.2 million YoY.
• Operating cash flow improved significantly to $126.9 million compared to $63.7 million in 2022.
• Backlog rose to $4.44 billion, up from $4.06 billion at December 31, 2022.

Negative

• Net income declined to $57.2 million from $86.8 million YoY.
• Earnings per share decreased to $1.59 from $2.40 YoY.

HOUSTON--(BUSINESS WIRE)-- Comfort Systems USA, Inc. (NYSE: FIX) (the “Company”) today reported results for the quarter ended March 31, 2023.

For the quarter ended March 31, 2023, net income was $57.2 million, or $1.59 per diluted share, as compared to $86.8 million, or $2.40 per diluted share, for the quarter ended March 31, 2022. The first quarter of 2023 included a diluted per share net gain of $0.12, including $0.08 related to prior tax years, due to a tax change and $0.15 from the favorable resolution of certain litigation matters. The first quarter of 2022 included a diluted per share net tax gain of $1.49 related to prior years. Revenue for the first quarter of 2023 was $1,174.6 million compared to $885.2 million in 2022. The Company reported operating cash flow of $126.9 million in the current quarter compared to $63.7 million in 2022.

Backlog as of March 31, 2023 was $4.44 billion as compared to $4.06 billion as of December 31, 2022 and $2.73 billion as of March 31, 2022. On a same-store basis, backlog increased from $2.73 billion as of March 31, 2022 to $4.32 billion as of March 31, 2023.

Brian Lane, Comfort Systems USA’s President and Chief Executive Officer, said, “We started 2023 on a very positive note, with remarkable increases in revenue and earnings per share. Our mechanical operations again performed at high levels and our electrical segment continued its trend of improving profitability. Cash flow was unusually strong, especially for a first quarter, and our backlog increased yet again, reflecting good ongoing demand in traditional and modular construction. Our already strong quarterly earnings were further increased by favorable resolution of certain litigation matters.”

Mr. Lane concluded, “Our teams across the country continue to execute. Thanks to their excellence, and in light of the strong ongoing demand that we are experiencing, we remain optimistic about our prospects for continued growth and strong profitability in 2023.”

The Company will host a webcast and conference call to discuss its financial results and position on Thursday, April 27, 2023 at 10:30 a.m. Central Time. To register for the call, please visit https://register.vevent.com/register/BI9b57002f12ed44b78143f9dedccc3592. Upon registering, participants will receive dial-in information and a unique PIN to join the call. 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 leading provider of commercial, industrial and institutional heating, ventilation, air conditioning and electrical contracting services, with 173 locations in 132 cities across 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 applicable securities laws and regulations. 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, and the Company’s actual results of operations, financial condition and liquidity, and the development of the industry in which the Company operates, may differ materially from those made in or suggested by the forward-looking statements contained in this press release. In addition, even if our results of operations, financial condition and liquidity, and the development of the industry in which we operate, are consistent with the forward-looking statements contained in this press release, those results or developments may not be indicative of our results or developments in subsequent periods. 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 its acquisition of Eldeco 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; rising inflation and fluctuations in interest rates; shortages of labor and specialty building materials or material increases to the cost thereof; the Company’s business being negatively affected by health crises or outbreaks of disease, such as epidemics or pandemics (and related impacts, such as supply chain disruptions); 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 cost-to-cost input 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; retention of key management; seasonal fluctuations in the demand for mechanical and electrical 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; a material information technology failure or a material cyber security breach; risks associated with acquisitions, such as challenges to our ability to integrate those companies into our internal control environment; our ability to manage growth and geographically-dispersed operations; our ability to obtain financing on acceptable terms; extreme weather conditions (such as storms, droughts, extreme heat or cold, wildfires and floods), including as a result of climate change, and any resulting regulations or restrictions related thereto; and other risks detailed in our reports filed with the Securities and Exchange Commission (the “SEC”).

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 because 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
		March 31,
		(Unaudited)
		2023			%			2022			%
Revenue		$	1,174,640		100.0	%		$	885,216		100.0	%
Cost of services			969,235		82.5	%			732,072		82.7	%
Gross profit			205,405		17.5	%			153,144		17.3	%
SG&A			135,032		11.5	%			117,776		13.3	%
Gain on sale of assets			(512)		—				(323)		—
Operating income			70,885		6.0	%			35,691		4.0	%
Interest expense, net			(2,679)		(0.2)	%			(2,126)		(0.2)	%
Changes in the fair value of contingent earn-out obligations			(2,382)		(0.2)	%			4,088		0.5	%
Other income (expense)			1		—				56		—
Income before income taxes			65,825		5.6	%			37,709		4.3	%
Provision (benefit) for income taxes			8,609						(49,053)
Net income		$	57,216		4.9	%		$	86,762		9.8	%
Income per share
Basic		$	1.60					$	2.40
Diluted		$	1.59					$	2.40
Shares used in computing income per share:
Basic			35,812						36,076
Diluted			35,907						36,188
Dividends per share		$	0.175					$	0.130

Supplemental Non-GAAP Information — (Unaudited) (In Thousands, Except per Share Amounts)
	Three Months Ended
	March 31,
	2023			2022
Net income	$	57,216		$	86,762
Tax gains related to prior years		(3,368)			(57,255)
Tax-related SG&A costs, net of tax		333			3,519
Net income excluding tax gains	$	54,181		$	33,026
Diluted income per share	$	1.59		$	2.40
Tax gains related to prior years		(0.09)			(1.59)
Tax-related SG&A costs, net of tax		0.01			0.10
Diluted income per share excluding tax gains	$	1.51		$	0.91

Note: Net income excluding tax gains and diluted income per share excluding tax gains are presented because the Company believes they reflect the results of the core ongoing operations of the Company, and we believe they are responsive to frequent questions we receive from third parties. These amounts, however, are not considered primary measures of an entity’s financial results under generally accepted accounting principles, and accordingly, they should not be considered an alternative to operating results as determined under generally accepted accounting principles and as reported by the Company.

Supplemental Non-GAAP Information — Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization (“Adjusted EBITDA”) — (Unaudited) (In Thousands)
		Three Months Ended
		March 31,
		2023			%		2022			%
Net income		$	57,216				$	86,762
Provision (benefit) for income taxes			8,609					(49,053)
Other expense (income), net			(1)					(56)
Changes in the fair value of contingent earn-out obligations			2,382					(4,088)
Interest expense, net			2,679					2,126
Gain on sale of assets			(512)					(323)
Tax-related SG&A costs			421					4,455
Amortization			10,331					12,791
Depreciation			9,187					8,046
Adjusted EBITDA		$	90,312		7.7	%	$	60,660		6.9	%

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, other one-time expenses or gains 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)
		March 31,			December 31,
		2023			2022
		(Unaudited)
Cash and cash equivalents		$	48,560		$	57,214
Billed accounts receivable, net			1,176,378			1,024,082
Unbilled accounts receivable, net			81,151			77,030
Costs and estimated earnings in excess of billings, net			26,820			27,211
Other current assets, net			126,115			122,134
Total current assets			1,459,024			1,307,671
Property and equipment, net			155,021			143,949
Goodwill			637,434			611,789
Identifiable intangible assets, net			296,070			273,901
Other noncurrent assets			291,922			260,168
Total assets		$	2,839,471		$	2,597,478
Current maturities of long-term debt		$	11,468		$	9,000
Accounts payable			351,509			337,385
Billings in excess of costs and estimated earnings and deferred revenue			717,294			548,293
Other current liabilities			326,388			276,124
Total current liabilities			1,406,659			1,170,802
Long-term debt			197,761			247,245
Other long-term liabilities			181,561			179,508
Total liabilities			1,785,981			1,597,555
Total stockholders’ equity			1,053,490			999,923
Total liabilities and stockholders’ equity		$	2,839,471		$	2,597,478

Selected Cash Flow Data (Unaudited) (In Thousands)
		Three Months Ended
		March 31,
		2023			2022
Cash provided by (used in):
Operating activities		$	126,909		$	63,729
Investing activities		$	(68,945)		$	(9,369)
Financing activities		$	(66,618)		$	2,479
Free cash flow:
Cash from operating activities		$	126,909		$	63,729
Purchases of property and equipment			(16,520)			(9,192)
Proceeds from sales of property and equipment			622			1,056
Free cash flow		$	111,011		$	55,593

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.

View source version on businesswire.com: https://www.businesswire.com/news/home/20230426005761/en/

Julie Shaeff, Chief Accounting Officer

ir@comfortsystemsusa.com; 713-830-9687

Source: Comfort Systems USA, Inc.

FAQ

What were Comfort Systems USA's Q1 2023 earnings?

Comfort Systems USA reported a net income of $57.2 million for Q1 2023.

How much revenue did Comfort Systems USA generate in Q1 2023?

The company generated $1,174.6 million in revenue for the first quarter of 2023.

What is the backlog for Comfort Systems USA as of March 31, 2023?

The backlog was $4.44 billion as of March 31, 2023.

How did the earnings per share change for Comfort Systems USA in Q1 2023?

Earnings per share decreased to $1.59 in Q1 2023 from $2.40 in Q1 2022.

What factors contributed to Comfort Systems USA's first-quarter performance?

The performance was driven by increased revenue, strong cash flow, and favorable litigation resolutions.