Comfort Systems USA Q1 2008 Earnings Conference Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Jack Atkins - Stephens, Inc. - Analyst : Hi, guys. This is Jack Atkins, I'm on the call for Matt. How are you all doing?

Question: Jack Atkins - Stephens, Inc. - Analyst : Congratulations on the great quarter. Just had a couple of questions for you. First of all, you mention your backlog excluding acquisitions was down a little bit sequentially, how much of that was due to the strong construction water you had versus maybe a sign of demand?

Question: Jack Atkins - Stephens, Inc. - Analyst : Yes, absolutely. And I guess kind of to that point, what does bid activity look right now and should we expect to see backlog go up sequentially go up in the second quarter? LSEG STREETEVENTS | www.lseg.com | Contact Us consent of LSEG. 'LSEG' and the LSEG logo are registered trademarks of LSEG and its affiliated companies.

Question: Jack Atkins - Stephens, Inc. - Analyst : Okay. Great, thanks for that. And you guys have done a good job putting your strong balance sheet to work by making acquisitions. I was wondering what acquisition pipeline looks like now after you just closed three deals.

Question: Jack Atkins - Stephens, Inc. - Analyst : Okay. And the three acquisitions you made -- I guess that you just made, how accretive should those be in '08 and '09? Any idea?

Question: Jack Atkins - Stephens, Inc. - Analyst : Okay. Great. And one last thing here and I'll jump back in queue. What were Atlas sales in the quarter and what were they versus the fourth quarter of '07?

Question: Jack Atkins - Stephens, Inc. - Analyst : And Bill, if you could look up the Atlas backlog in the fourth quarter trying to see if there's a sequential down tick in Atlas backlog there too, so --

Question: Jack Atkins - Stephens, Inc. - Analyst : Okay. Great, thanks, guys.

Question: Jack Atkins - Stephens, Inc. - Analyst : Okay. Great. Thanks.

Question: Clint Fendley - Davenport & Company - Analyst : Good morning, everybody. Congratulations on the nice quarter here.

Question: Clint Fendley - Davenport & Company - Analyst : Bill Murdy, I guess if we looked at projects by size and comparison to maybe a year ago, it looks like most of the growth, apart from maybe a couple of projects in the $15 million to $30 million range, has been in some smaller projects, $1 million to $5 million or so. What kind of impact should we expect that to have on the margins going forward?

Question: Clint Fendley - Davenport & Company - Analyst : Is there any impact on working capital from the smaller projects?

Question: Clint Fendley - Davenport & Company - Analyst : Okay. And I guess on the pricing. How are you seeing that holding up currently and any color on just the commodity prices, the effect that they might be having here on the cost side?

Question: Clint Fendley - Davenport & Company - Analyst : Okay. And Tom, on the weakness that you had mentioned within the San Diego market, is there -- you give any more color on that? What vertical were you seeing that weakness in? LSEG STREETEVENTS | www.lseg.com | Contact Us consent of LSEG. 'LSEG' and the LSEG logo are registered trademarks of LSEG and its affiliated companies.

Question: Clint Fendley - Davenport & Company - Analyst : Okay. And Bill George, I guess on the $2.2 million decrease that we saw in the accrual for the asserted back charges, how much of that was in cash?

Question: Clint Fendley - Davenport & Company - Analyst : Okay.

Question: Clint Fendley - Davenport & Company - Analyst : So is your outlook for sort of break even performance for Atlas is that was a heavy dose of conservatism for the unit given that things are appearing to be better?

Question: Clint Fendley - Davenport & Company - Analyst : Okay. Okay, that's helpful. And then final question. Bill, did you have a DSO number for the quarter and how that might have changed from last quarter? LSEG STREETEVENTS | www.lseg.com | Contact Us consent of LSEG. 'LSEG' and the LSEG logo are registered trademarks of LSEG and its affiliated companies.

Question: Clint Fendley - Davenport & Company - Analyst : Great. Thanks, guys, appreciate it.

Question: Tahira Afzal - Key Banc Capital Markets - Analyst : Good morning, gentlemen. Congratulations on the quarter.

Question: Tahira Afzal - Key Banc Capital Markets - Analyst : Just had a couple of broad macro-ish things I wanted to run by you. When you look back in your experience and look at the prior slowdowns, is there any kind of pattern that we should look for in terms of how the slowdowns have occurred in the past? Are there any specific regions that you watch more closely and markets that you watch more closely?

Question: Tahira Afzal - Key Banc Capital Markets - Analyst : No, that is actually very helpful. So thank you very much on that. I guess the only other question I had was, as you see backlog and walk-in work proceeding with the growth of this year, if there is a slowdown, which one do you think would get impacted first, and what would you be looking out for if that's the case?

Question: Tahira Afzal - Key Banc Capital Markets - Analyst : Okay. Thank you very much. That's very helpful.

Question: David Yuschak - SMH Capital - Analyst : Great quarter, guys. Let me just spend -- can you hear me.

Question: David Yuschak - SMH Capital - Analyst : Let me just spend a little tight on outlook for nonresidential construction and this whole idea of lending ultimately is going to have an impact on business because one of the things I do find interesting is as well respected as Dodge has been about their outlook they've been calling for substantial weakness for six, nine months because of lending practices tightening and certainly hasn't shown up yet. But I'm wondering from your point of view, the business in the first part of this year is probably better than most people expected. From your point of view as you talk to potential client about the business, how do they see lending issues being an issue with them?

Question: David Yuschak - SMH Capital - Analyst : As far as the backlog, as you look at your current quarters' revenue that you produced out of backlog plus where you were at the end of the year for backlog and where you think you can be in way of new business coming in, is there anything that is shifting in that way of you're booking and burning here that would cause some concern in backlog and issues that you could kind of describe could weaken from here versus staying in pace of increasing because of the potential surprises to the upside? Just kind of curious where your concerns would be as you look at that book to bill?

Question: David Yuschak - SMH Capital - Analyst : Yes. What I was encouraged was on some of the comments you made, Tom, and you might just expand upon it a little bit. When you were describing some of the operations who turned in excellent results some of those places were where you not expected it to be like Syracuse and Michigan, wasn't it you said and a couple of the places in the upper midwest that would not have been thought of as good execution opportunities. Could you help us explain where some of those pleasant surprises were then?

Question: David Yuschak - SMH Capital - Analyst : Okay. And just one last question as far -- as you indicated in this quarter, you had done a lot of things and closing out a lot of projects which basically says beginning -- coming into your seasonally-strong period, you're releasing resources to take care of other new opportunities. But you also indicated like in San Diego others are seeing some resource releases because of wind downs in project and said some things are competitive there. I can look at resource releases two different ways. One is, it could suggest things are getting more competitive around the country, or resource release says, I got more releases earlier in the year than I would normally have had over the last couple of years to go take advantage of other new opportunities. How do you read yourself today on the competitive factor becoming more of a problem versus giving you the opportunity to do more work?

Question: David Yuschak - SMH Capital - Analyst : Making -- taking Bill George's comments earlier about being somewhat pessimistic, but it sounds like what you're describing, Tom, you're hiring people not laying them off or not worried about utilizing them. So -- LSEG STREETEVENTS | www.lseg.com | Contact Us consent of LSEG. 'LSEG' and the LSEG logo are registered trademarks of LSEG and its affiliated companies.

Question: David Yuschak - SMH Capital - Analyst : I guess it goes back to what you said earlier, Bill George, about managing that backlog to profitability rather than just managing it to grow it I guess, is kind of what you say. Is it that you wind it down, rev it back up, making sure the profitability is there and not so much to stay focus on growing it as rapidly as some people may want you to do, I guess. Is that fair to say?

Question: Richard Wesolowski - Sidoti & Company - Analyst : Thanks a lot. Good morning.

Question: Richard Wesolowski - Sidoti & Company - Analyst : Just to get it straight in my own head. You booked $2.2 million accrual for close out for Atlas and the active backlog made about that much money?

Question: Richard Wesolowski - Sidoti & Company - Analyst : The contingency was used. LSEG STREETEVENTS | www.lseg.com | Contact Us consent of LSEG. 'LSEG' and the LSEG logo are registered trademarks of LSEG and its affiliated companies.

Question: Richard Wesolowski - Sidoti & Company - Analyst : And the active backlog was about break even.

Question: Richard Wesolowski - Sidoti & Company - Analyst : Okay. If we look at the revenue from just the five acquisitions you made in in the last year from Madera to the most recent Air Mechanical, I have an incremental '08 revenue estimate of about $105 million. Is that in the ballpark of what you're expecting?

Question: Richard Wesolowski - Sidoti & Company - Analyst : Okay. And finally, Tom mentioned cost reduction initiatives in response to the market, but also that 50% of your companies are hiring. As a group of merit contractors, can you discuss the flexibility of your SG&A over the next few years at the market changes?

Question: Richard Wesolowski - Sidoti & Company - Analyst : I was just wondering if it forces you to make a call on the direction of the business further out than your normal six-month visibility range? LSEG STREETEVENTS | www.lseg.com | Contact Us consent of LSEG. 'LSEG' and the LSEG logo are registered trademarks of LSEG and its affiliated companies.

Question: Richard Wesolowski - Sidoti & Company - Analyst : Okay. Great.

Question: Richard Wesolowski - Sidoti & Company - Analyst : Okay, thanks, and thanks for the detailed call.