Comfort Systems USA, Inc. (FIX)

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Comfort Systems USA Inc. (FIX)

Q3 2009 Earnings Call

November 4, 2009; 11:00 am ET


Bill George - Chief Financial Officer

Bill Murdy - Chief Executive Officer

Brian Lane - Chief Operating Officer


Matt Duncan - Stephens Inc.

Richard Wesolowski - Sidoti & Co.

Clint Fendley - Davenport

Matt Tucker - KeyBanc Capital Markets

David Yuschak - SMH Capital

John Rogers - D. A. Davidson



Good day, ladies and gentlemen and welcome to the Q3, 2009 Comfort Systems USA earnings conference call. My name is Caitlyn and I will be the operator for today. At this time, all participants are in listen only mode. Later we will conduct a question-and-answer session. (Operator Instructions)

I would now like to turn the conference over to your host for today’s call, Mr. Bill George, Comfort Systems Chief Financial Officer; please proceed.

Bill George

Thanks, Caitlyn. Good morning everyone. Welcome to Comfort Systems USA third quarter 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 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 10-Q as well as in our press release covering this earnings. On our call with me this morning are Bill Murdy, Comfort System USA’s CEO; and Brian Lane, our Chief Operating Officer and Bill Murdy will open our remarks.

Bill Murdy

Thanks Bill. Welcome everyone. After the close yesterday, we reported $0.25 of share versus $0.34 of share in our record setting third quarter of ‘08. On a year-to-date basis we’re at $0.69 of share versus $0.92 of share last year and revenues were down 14% quarter-to-quarter and 12% on a year-to-date basis. Our on a percentage of revenue basis we’re still showing of very respectable 5.4% net pre-tax and all of the forgoing, we feel it would be a very good performance let’s say a challenging economy here.

Our backlog on a project side of our business is down about $85 million from last quarters, so backlog were about $554 million here. We voluntarily dropped one large project out of backlog and that will be some further comments on that I think, but most of the reduction is again due do decreased economic activity.

We are seeing a reasonable pipeline of new work, possible work, but in other words much slower in coming to us or anyone then they have been and we should use. We believe going forward that we will get at least of their share of that work, that’s out there, when the triggers are eventually called.

By the way of full 50% of our construction work and backlog is in the healthcare, schools and government sectors and new construction overall is now slightly less than 50% of our revenues for lots of year even trying to grow the service side of our business, which include the retrofit to 50% of our revenues there, as service revenues have declined nearly as much as construction revenues. As a last comment before turning this over to Bill, we continue to close attention to expense control and cost reduction and our diligent and expert workforce around the country has increased productivity in this very challenging period.

Bill, once you take sometime with some financial comments.

Bill George

Thanks, Bill. As Bill noted, we posted solid third quarter results in a challenging environment. Revenue was $292 million during the third quarter and the plan decease in multifamily activities continue to be the single largest contributor to the year-over-year revenue decline. Additionally, we experienced noticeable declines in activity levels in our Phoenix, Virginia subsidiaries. In comparison, our work in the institutional sector remains strong and we continue to see good service and small projects availability virtually all of our markets.

Gross profit remains strong in the quarter improving from 19.2% in the third quarter of 2008 to 19.7% this quarter. Operating income margins, as Bill said, remained a very favorable levels coming in at 5.4% for the third quarter and there above 5% year-to-date. These positive results are thing to solid execution and include very strong results in Maryland, Central Florida and our operation based in Syracuse, New York.

Since last quarter, our backlog is decreased to $554 million. We’ve seen the largest backlog decline that are subsidiaries, that specialist in large projects and the decline in this quarter include the unusual element of a removable of $21 million in backlog as we were replaced under our contractual convenience provision, when we decline to reduce our pricing on a large ongoing project in the Southeast. The largest element in our year-over-year backlog decreased as the intentional decrease in multifamily activities, which accounts for $82 million of the year-over-year decline.

SG&A expenses decreased by $3.4 million or 7.5% as compared to the third quarter of 2008, as a percentage of revenue, the SG&A increased due to our lower revenue base. During the quarter we had higher medical cost of approximately $1 million compared to the third quarter of 2008 that higher medical cost resulted primarily from changes to COBRA loss and resulting increased in our COBRA sensing cost. Overall we are pleased with results of cost control efforts and we feel that these efforts will continue to benefit as we move forward.

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