William F. Murdy,
Chairman, CEO and, Chairman of Fin. Committee
Brian E. Lane, President and COO
William George III, Executive VP and CFO
Comfort Systems USA, Inc. (NYSE: FIX), is a leading provider of
commercial, industrial and institutional heating, ventilation and air
conditioning (“HVAC”) services.
Chairman, CEO and
Chairman of Fin. Committee
William F. Murdy is Chairman
and Chief Executive Officer of Comfort Systems USA (NYSE:FIX), a $1 billion
company providing heating, ventilation, air conditioning (HVAC) installation
and services in the commercial/industrial sector countrywide. Comfort
Systems operates from over 75 locations employing more than 6,000 people.
Prior to Comfort he was
President and Chief Executive Officer of Club Quarters, a privately owned,
rapidly growing chain of membership hotels catering to corporate travelers
to major cities in the U.S. and Europe. Until July of 1999, he was Chairman,
President and CEO of LandCare USA, Inc. (NYSE: GRW). LandCare
grew to be the country’s largest commercial landscape and tree services
company ($500 MM revenues) before merging with ServiceMaster (NYSE:SVM) in
1999. Prior to LandCare, Mr. Murdy was President and Chief Executive
Officer for 8 years of General Investment and Development, a large,
privately held, diversified real estate investment, development and
operating company, and before that, from 1981 to 1989, Managing General
Partner of the Morgan Stanley Venture Capital Fund and President of its
associated management company. From 1974 to 1981 he served in a number of
positions including chief operating officer of Pacific Resources (NYSE:
PRI), a rapidly growing $1 billion company in the oil and gas sector.
He is a graduate of the
Harvard Business School and the United States Military Academy at West
Point. He served in the United States Army from 1964 to 1974, including two
tours of duty in Viet Nam and three years teaching at West Point. He serves
on the Board of Directors, as well as, the Audit and Compensation Committees
of UIL Holdings (NYSE: UIL) and the Board and is the Chairman of the
Compensation Committee of Kaiser Aluminum (NASDAQ: KALU). He is a member of
the National Board and Executive Committee of Business Executives for
National Security, the Vietnam Veterans Memorial Corporate Council and the
Council of Foreign Relations. He is married with two grown children and
resides in New Canaan, Connecticut and Houston, Texas.
Comfort Systems USA Inc.
675 Bering Drive, Suite 400
Houston, TX 77057
conducted by: Bud Wayne, Editorial Executive, CEOCFOinterviews.com,
Published - April 15, 011
CEOCFO: Mr. Murdy, we last talked last
February, 2010; would you fill us in as to any changes that have taken place
at Comfort Systems USA?
Mr. Murdy: Probably the biggest single
event for Comfort Systems USA this pas year is the acquisition of an entity
called ColonialWebb, an approximately $180 million revenue HVAC mechanical
contractor headquartered in Richmond, Virginia. They do work throughout
Virginia and North Carolina. ColonialWebb is a major addition to Comfort
Systems USA. Our strategy has not changed. We still are pursuing the vision
of becoming the nation’s premier HVAC and mechanical systems instillation
and services provider. We notably are sticking to our focus. Though tempted,
we are staying in the HVAC mechanical business as opposed to moving off into
CEOCFO: How has the acquisition of
ColonialWebb changed your business?
Mr. Murdy: Notably by about $180 million
in revenues, although we did not close that transaction until August, so
there are only five months of those revenues in our 2010 numbers. We believe
that ColonialWebb will be a major contributor and is right on our strategy.
It is a combination of new construction and mechanical services in an area
where we were not represented specifically. In addition, it works well with
the adjacent operations in that area.
CEOCFO: Has your geographic footprint
changed much over the past year?
Mr. Murdy: No, as the only major
acquisition was of ColonialWebb. We made some other smaller additions, but
they are adjunct to current platforms.
CEOCFO: When you made that acquisition,
what was your financial position and did it affect you much as to your
ability to spend money going forward?
Mr. George: We have very substantial
cash balances. The business that we are in is a very good cash flow business
and it requires a strong balance sheet, because you are creating substantial
things over long periods of time, and you have to provide bonding.
Therefore, you always have to have a strong balance sheet. We were able to
fund the transaction out of net cash balances and we still have substantial,
although smaller net cash balance -- we have more cash on our balance sheet
than we have debt. We actually think that we have enough capital to continue
to make acquisitions and I think that right now it is a good time to do so.
CEOCFO: Mr. Lane, what about the
integration of your ColonialWebb acquisition; how is that going?
Mr. Lane: The integration is going very
well. ColonialWebb is an extremely professional company. It has a lot of
capabilities and their basic skill sets are the same that we have throughout
the organization. Therefore, the integration, both on an operational and on
a financial administration basis has gone extremely smoothly. We are still
working on it, but we are pretty much close to being complete.
CEOCFO: What about the management
structure with the integration; did you maintain any of the management or
staff from the prior company?
Mr. Lane: Luckily, we were able to
maintain the leadership and management structure that was in place. The
primary owners have since moved on, but the folks that were actually running
the company before hand are still there and we have them in employment
agreements. That has been a real plus for us with regard to the integration.
CEOCFO: We have had some economic
turmoil over the past two years; how has Comfort Systems USA faired?
Mr. Murdy: We are not immune, although
we have not suffered a revenue downturn as great as the sector. We are in
the non-residential construction and construction services sector, which has
been hit very hard as the business was down 25% to 30%.from 2006/2007; and
we are not down that much. On a same store basis our revenues though are
down, although we have made the acquisition of ColonialWebb and that has
buoyed our revenue and will continue to do so. Inductively, you get to the
point that we are where we are taking market share since we have not gone
down as much as the sector.
Mr. George: A couple of other quick
things. When you think of Comfort Systems USA, we are what is known in our
industry as a late cycle player. The new construction part of our business
ranges about half of our business over time; a little less right now. There
is a substantial cyclical component to the construction part of our
business, so over a period of time our business volume and our margins due
to pricing will bear the effects of the business cycle and bear it on a
little bit of a lag from other vehicles. People looking at the company need
to be aware of that. Having said that, throughout this cycle, we are very
happy with the fact that we have been able to stay solidly profitable and
continue to flow very good cash. A good construction company can make money
in a downturn. A great construction company can make good money in a
downturn, and flow cash. Obviously, a downturn is the best time to make
investments and after years of our cash building up on us, during this
downturn we were able to make some very substantial acquisition investments
that will make us even more important in our industry when the markets
CEOCFO: Has there been any changes with
regard to new technologies?
Mr. Murdy: Yes, a lot has changed.
Remember that we are in the contracting, design, construction and
installation services business. The new technology comes from the equipment
manufacturers, such as Train, Carrier, York, and Lenox. They build the
equipment and we try to incorporate and adopt those things into what we do.
There have been, for example, substantial technological advances in the
energy efficiency of HVAC equipment, which is very important. HVAC uses a
lot of electric energy in a building, and to the extent that a unit is more
efficient, you will save on electricity. Therefore, we are constantly
incorporating that kind of equipment into what we do.
CEOCFO: How do you reach new customers?
Mr. Lane: It is a combination of a lot
of things. One is that we have really increased our sales staff here over
the last five or six years, particularly in the service side of the
business, which has grown. We also bring in new customers through
acquisitions. In addition, if one entity in one part of the country has a
relationship, we use that relationship to get a synergistic benefit from
that customer relationship that we have in one place. So there are three or
four places where we are growing our customer base.
CEOCFO: Is reaching potential investors
important for you and if so, what is your outreach strategy?
Mr. Murdy: First, we are listed on the
New Your Stock Exchange (NYSE), and we have a fairly active program of
maintaining contact with our current investors. We are 95% institutionally
held, with a lot of long term holders and a lot of major holders that you
would recognize. We attend conferences and we are followed by a half dozen
analysts who know us pretty well. We meet with investors, both current and
potential, all of the time. At the same time, we are not a news release
machine. We do not have a department the cranks out new releases anytime
something happens. This is a fundamental business, it is a necessary
business, we have perhaps the best position in the business and we enjoy a
fair amount of respect from our current investors and a lot of interest from
CEOCFO: In closing, what would you say
to potential investors who are considering Comfort Systems USA?
Mr. Murdy: This is a very good basic
business; building comfort, heating, ventilating, air-conditioning is a
necessity. Beyond that, it requires after the installation, service, repair
and replacement. Further than that, there is an energy efficiency aspect
here that is very important that is going to require a lot of replacement of
existing equipment to achieve that energy efficiency. The other thing is
that we are really 3% or 4% of the market, so there is a lot that we can
bring into Comfort Systems USA and we are constantly doing that. We have as
our goal to grow substantially, in part by acquisitions.
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This is a very
good basic business; building comfort, heating, ventilating,
air-conditioning is a necessity. Beyond that, it requires after the
installation, service, repair and replacement. Further than that, there is
an energy efficiency aspect here that is very important that is going to
require a lot of replacement of existing equipment to achieve that energy
efficiency. - William F. Murdy
The integration is going very well. ColonialWebb is an extremely
professional company. It has a lot of capabilities and their basic skill
sets are the same that we have throughout the organization. Therefore, the
integration, both on an operational and on a financial administration basis
has gone extremely smoothly. We are still working on it, but we are pretty
much close to being complete. - Brian E. Lane
We are very happy with the fact that we have been able to stay solidly
profitable and continue to flow very good cash. A good construction company
can make money in a downturn. A great construction company can make good
money in a downturn, and flow cash. Obviously, a downturn is the best time
to make investments and after years of our cash building up on us, during
this downturn we were able to make some very substantial acquisition
investments that will make us even more important in our industry when the
markets recover. - William George III