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Comfort Systems, Inc. (FIX)
Q4 2008 Earnings Call
February 27, 2009 11:00 am ET
William George, III – Chief Financial Officer & Executive Vice President
William F. Murdy – Chairman of the Board & Chief Executive Officer
Brian E. Lane – Chief Operating Officer & Executive Vice President
Matt Duncan – Stephens, Inc.
Richard Wesolowski – Sidoti & Company, LLC
John Rogers – D. A. Davidson & Co.
Clint Fendley – Davenport & Company, LLC
Tahira Afzal – Keybanc Capital Markets
[Barry Hayes – Sage Asset Management]
David Yuschak – Sanders, Morris Harris
Terry McMahon – McMahon Technology Associates
Previous Statements by FIX
» Comfort Systems USA Inc. Q3 2009 Earnings Call Transcript
» Comfort Systems USA Inc. Q3 2008 Earnings Call Transcript
» Comfort Systems USA, Inc. Q2 2008 Earnings Call Transcript
William George, III
Welcome to Comfort Systems USA fourth quarter and yearend earnings call. Our comments this morning as well as our press release contains forward-looking statements within the meaning of the Private Securities Litigation Act of 1995. What we say is based on the current plans and expectations of Comfort Systems USA. Those plans and expectations involve risks and uncertainties that could cause actual or future activities and results of our operations to be materially different from those set forth in our comments.
You can read a more detailed listing and commentary concerning our specific risk factors in our Form 10K which we published last night as well as in our press release that covers these earnings. On our call with me this morning are Bill Murdy, Comfort System USA’s CEO and Brian Lane, our new Chief Operating Officer. Bill Murdy will open our remarks.
William F. Murdy
We’re very pleased to announce record fourth quarter and full year results for Q4. Our earnings increased by 44% over Q4 of ’07 and for the full year we’re reporting almost $50 million of net income, $49.7 million or 3.7% of revenues compared to 2.9% in 2007. Measured on a per share basis we earned $1.24 in ’08 versus $0.79 in ’07, a 57% increase in EPS. Our revenues in Q4 were $329 million versus $293 in Q4 of ’07 and revenues for the full year were $1.33 billion versus $1.1 billion in ’07. That’s an increase of about 20%.
Our project backlog at the close of 2008 stood at $752 million and that is down from the $105 million at the end of Q3 and down from the $787 million at the end of ’07. Although our backlog is down as the market weakens in the non-residential construction sector, it remains at high levels compared to our history on any basis.
Cash remains a very, very positive story for us. We had $32 million in free cash flow for Q4 and free cash flow for the year was over $69 million. That cash will provide us with additional cushion and flexibility as we move in 2009. Our yearend cash, by the way, was $117 million and notable in the sense that we used in excess of $50 million of cash for dividend, stock buybacks and the cash portion of acquisitions that we made in 2008.
I’ll have some remarks to close out but we’ll turn this back to Bill. But, before even doing that I’d like to introduce and welcome Brian Lane our new COO to the call. Brian has led our large and very successful Region One for the last five years and prior to that he has had a long career in the construction sector including about 15 years with Halliburton and Kellogg Brown & Root. After Bill George addresses financial matters further, Brian will have some remarks on operations. But first, Bill George.
William George, III
As Bill just noted, we posted very strong fourth quarter and full year results in view of challenging economic and industry conditions. Gross profit was very strong in the quarter and for the year. Overall our gross profit improved from 17.8% in 2007 to 19.7% in 2008. Full year operating income margins increased from 4.5% to 6% for the full year in 2008.
For the quarter, gross profit percentage was a very strong 22.1% eclipsing the 18.6% gross margin in the fourth quarter of 2007. These increases result from broad based improvement in execution and results particularly in our large project companies as they closed out a multitude of very successful projects.
Revenue increased by $36 million in the fourth quarter as compared to the same quarter in 2007. Coincidentally, acquisitions during 2008 contributed $36 million to the fourth quarter so same store revenues were approximately equal to the strong fourth quarter we reported in 2007. Acquisitions also affected our backlog comparison.
As Bill mentioned, year-over-year backlog decreased by $34 million however, because we acquired operations that had backlog, the same store backlog comparison reflected a $126 million increase with about a fourth of that decrease arising from our planned downsizing at our Atlas subsidiary. Although our backlog has come down as non-residential construction market fundamentals have weakened, backlog remains at very high levels compared to historical trends and totals.
SG&A expense as a percentage of revenues increased both in the quarter and for the full year. These increases however resulted in large part from incremental incentives that were incurred due to our extraordinary results, additional receivables allowances which we judged to be prudent in light of changes in overall market conditions and also the requirement that we value and amortize intangibles arising from our acquisitions.