Comfort Systems USA Inc (FIX) 2011 Q3 法說會逐字稿

Good day, ladies and gentlemen. Welcome to the Third-Quarter Comfort Systems USA Earnings conference call. My name is LaTasha, and I will be your coordinator for today. At this time, all participants are in a listen-only mode. We will facilitate a Question-and-Answer session towards the end of this conference.

(Operator Instructions)

I would now like to turn the call over to Mr. Bill George, Chief Financial Officer. Please proceed.

Good morning, everyone, and thanks LaTasha. Welcome to Comfort Systems USA's Third-Quarter Earnings call.

Our comments this morning, as well as our press releases, contain forward-looking statements, within the meaning of the Private Securities Litigation Act of 1995. What we will say today 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 these earnings. On our call with me this morning, are Bill Murdy, Comfort Systems USA's of CEO and Brian Lane, our President and Chief Operating Officer. And Bill Murdy will open our remarks.

Thanks Bill, and thanks, everyone, for being on the call. Of course, the first line of our earnings release, here, is arresting. Showing a substantial loss, per share, after the GAAP accounting effect of reduction in our goodwill balances. Bill George will have a good bit more to say, not only about goodwill, but also the accounting effect of the future benefits of prior tax-losses, and the accounting relating to value of existing earn-out obligations.

Underlying all of these non-cash adjustments, however, are solid earnings from operations. $0.14 per share, versus $0.13 a share, in Q3 of 2010. That $0.14 a share, in Q3, drives our 9 months-to-date, adjusted non-GAAP net, to $0.28 a share. Additionally and importantly, we are reporting an increase in revenue for Q3 2011, versus Q3 2010, both on an absolute and a same-store basis. Further, our backlog is up, Q3 to Q3, and on a sequential-basis. Backlog has, we believe, stabilized, but we continue to operate in a challenging environment, no question.

The nonresidential construction environment is challenging. The commercial side of that, by the way, is down 30% to 40% from the peak of a few years ago, and we are certainly not immune to that, although I think we are dealing with it in a very, very fine way, relatively. In Q3, we advantageously amended and extended our credit line, originally, we previously announced that, and that is out, now, to 2016. That gives us additional flexibility, despite these challenging conditions, and will allow us to take on opportunities as they arise.

And speaking of one of those, in a separate release we have announced the very positive addition of Environmental Air Systems, EAS, to Comfort. EAS, with revenues of about $100 million, has a long history of successful operations in HVAC contracting, and service, and controls. And features a sophisticated capability for prefabrication, of a large HVAC mechanical systems, at its plant in Greensboro, North Carolina. We believe EAS adds, significantly, to our capabilities and at Comfort overall, and our various operations will be able to collaborate, with EAS, to mutual benefit. The other thing here is, and I think notable, that we closed this transaction without borrowing. And in his comments, which are about to come, Bill George will comment on this new edition to Comfort Systems, as well as, I mentioned, the effective goodwill on our current reporting. Bill?

Thank you, Bill. As Bill mentioned, this quarter included a number of significant items. Including, most notably, a very large impairment of goodwill balances, that resulted in our reporting a $36.6 million quarterly loss. Excluding the goodwill impairment, as Bill mentioned, we had solid earnings from operations in the midst of a weak market. And I want to spend a bit more time than usual, so I can review both of those underlying results, and the significant items that were really specific to this quarter.

I also want to mention that we expect to file our quarterly report on Form 10-Q, on Monday, and, as usual, you can get additional detail by referring to that document. We had a good quarter on the top-line. Total revenue increased by $20 million this quarter, compared to a year ago, including 1 additional month this year, of ColonialWebb. You will recall, we purchased ColonialWebb, at the end of July last year, so we had 2 months of ColonialWebb in our numbers, a year ago. Without that acquisition, quarterly same-store revenues, nevertheless increased, significantly, rising by 5%, compared with the third-quarter of 2010. Gross profit declined this quarter, compared to last year, dropping from 16.4% in the third-quarter of 2010, to 15% this quarter. That decrease in gross margins was generally broad-based, and it is a result of a weak pricing environment.

Total SG&A expense decreased $0.4 million for the third-quarter, compared to the same period in 2010. But if we look at a same-store SG&A, we were helped significantly by lower costs, as excluding amortization expense same-store SG&A decreased by $1.6 million, which is at 4.6% decrease. And as a percentage of revenues, SG&A dropped from 13.6% in 2010, to 12.6% in 2011, which was obviously crucial to our results. I will now take a few minutes and describe some of the significant items, within the quarter, which were more unusual in nature.

First item I want to describe, for a few minutes, is our goodwill impairment. During the third-quarter of 2011, we concluded that impairment indicators existed within 4 reporting units, based upon year-to-date results, and recent forecasts. These reporting units had a total goodwill balance of $75.7 million. And as a result of our impairment assessment, based on recent results in these units and their current outlook, we did an impairment analysis. And ultimately recognized an approximately $55.1 million, pretax non-cash goodwill impairment charge, for a loss, just from that item, of $1.20 per diluted share, after-tax.

This is significant amount of work involved in assessing goodwill with valuation firms. And in light of the timing for recording a quarter, that work and related sign-offs have not been completely finalized, so the $5.1 million will appear in our Form 10-Q as an estimate. If an adjustment is necessary, after all the work is finalized, that adjustment would be recognized in the fourth-quarter. The second item, is an analysis of previous estimates, we had made, of the likely value of an earn-out, that we entered into, in connection with the ColonialWebb acquisition. At the time of the transaction, we estimated the likely value of the earn-out, the amount we thought we would have to pay, and recorded it, as required by GAAP. During this quarter, we have reassessed the value, in light of the changes we discussed up above, and we reduced the liability that relates to that obligation, which resulted in a reported-gain of $5.1 million in the quarter, for a pick-up $0.13 per share, after tax.

The last of the 3 items that were unusual in the quarter, that I want to point out, specifically relates to the increase in valuation allowances against certain deferred tax-assets. The same economic and outlook factors that lead us to conclude goodwill impairment was necessary, also led to our examining future tax benefits, that we had booked, relating to historical losses in certain locations. The net-impact of the increase in valuation allowances, that we concluded were appropriate, as a result of these judgements, was a loss of $0.05 a share. If you eliminate the foregoing unusual items, which are the losses relating to the goodwill impairment, and the tax-related adjustment, and you also eliminate the gain, from the change in earn-out value, EPS, for the quarter, was $0.14 a share. And we have $0.08 a share, of profitability for the first 9 months. You will recall we had a loss, in the first quarter.

Now that I have reviewed the charges that were unique to this quarter, I also want to say a few things about the financial aspects of our investment in Environmental Air Systems, based in Greensboro, North Carolina. I am sure you have looked at our press release, and noted that, for the first time, we did an acquisition, where we did not buy 100% of an entity. We actually bought 60%. The reason we only bought part of EAS, was not because we were not willing to make that investment, in fact we were. It was because of, the sellers were insistent on keeping a share of the Company's future. And like us, they believe, that as a part of Comfort, the future is brighter for both entities.

We have determined that our interest in EAS meets the accounting standards, to require that we account for EAS using the consolidation method. Most of you are familiar with that method, but in a nutshell, it means that we will include the access, liabilities, and results of the EAS, throughout our financial statements, from the top-line of the income statement, down to net earnings, and in our balance sheet accounts. But then we will subtract net income, attributable to our interest, still held by the sellers, which is 40%, when we calculate the bottom-line for our shareholders. We will also identify the minority-interest on our balance sheet. Overall, we are very, very excited about the possibilities of this new partnership.

I want to end my comments, by running through a few more items, which are more routine in nature. Our tax rate, for the quarter, was not really routine. It was 14.7%, and 16.2% for the first 9 months of 2011. It is coming in at unusual levels, as a result of the developments described above. Keep in mind, that the tax rate is actually a benefit to the numbers, in this case.

For the full year, our reported tax rate is hard to predict. We think it may be in the 15% to 25% range, but going forward, what's important to understand is that, without these unusual items, we expect our tax rate to return to historical ranges. It has been in the upper 30%s, 37% to 40%, over the years, and we think that is still the right tax-rate to use, when thinking about Comfort Systems USA's return. I also want to mention our stock repurchase program, because it was active in the quarter. Our stock dipped a few times, along with the entire market.

We took advantage of that. We purchased 280,000 shares, and since we began buying shares, we have purchased 5.5 million shares over the course of the recession. We have returned $61 million, to our shareholders, and we believe that will be a great benefit to us, when markets recover. Cash flow for the third-quarter was slightly negative. $800,000, as we continue to experience industry headwinds. We have generated positive free cash flow, for the last 12 calendar years, and we are working to continue that streak. We absolutely expect to earn money for 2011, and we believe, we continue to believe, that we can achieve positive free cash flow, for the full year.

During the quarter we amended our credit agreement, as Bill mentioned. Our new agreement has been extended to 5 years, maturing in September of 2016. Within the agreement, our banks agreed to further relax all of our 2 financial covenants, in order to provide additional flexibility and stability. We're very happy with the acquisition we announced, last evening. The change in our credit agreement made that a very comfortable thing for us to do, and leaves us in a position to continue to consider investments, although in light of industry conditions, we plan to be very protective of our balance sheet, just as we have been for many years.

Overall Comfort Systems USA remains financially and operationally sound. Our balance sheet is still rock solid. Despite tough market conditions, we continue to search for, and implement strategies to prudently use our strength to compete, improve, and grow. That is what I have on financial. I will introduce Brian Lane, our President and Chief Operating Officer. Brian?

Thanks Bill. Good morning everyone, and thank you all for joining us. I want to start by thanking each of our talented team members for their efforts. We appreciate everyone's hard work and dedication in this tough market. We will discuss the non-cash charges, including the goodwill impairment charge, that we recorded this quarter. I'd like to turn the focus to the core operations.

Despite tough conditions, we had a sound operational results for the third-quarter of 2011. Our focus on project selection, estimating, pricing and execution, along with a disciplined cost structure, have allowed us to earn solid profits this quarter. Amidst our recessionary conditions, substantially all of our operating locations executed work extremely well. We are also encouraged by increased activity levels, as same-store revenue grew 5.1% for the quarter, and 5.2% for the first 9 months of the year, compared to 2010.

Although the market for nonresidential construction is facing challenges, across the United States, there are regional differences. The Northeast remains stable and is the most profitable region. We have a strong market position in Northeast, and we compete, based on expertise, and not just on price. The Northeast region also includes our companies in the upper Midwest. The majority of these companies, and most notably, the operations in Maine, Michigan, Wisconsin, New York, Ohio, and northern Maryland continue to report good results.

We had lower profitability, at the Washington DC area operations, due to a combination of the close-out of large projects in 2010, that were bid prior to the recession, combined with job under-performance this year. This operation is led by an experienced Company President. We are confident that this operation will return to profitability in the near-term.

Conditions in the Southeast, and most notably, in the mid-Atlantic region, continues to experience pricing and nonresidential construction. Despite the tough climate, we had strong execution and solid results from the Alabama, Arkansas, central Florida, Florida Panhandle, and Tennessee operations. Additionally, ColonialWebb posted improved results this quarter. Softness continues in the West, although most Western markets have stabilized and a few are beginning to show some stress. We are encouraged by the strong performance of the Washington, Montana, and Iowa operations. The operations of the West were the first to be impacted, by the recession. We are hopeful that this signals an overall improvement in this market.

Comfort's Investment Service continues to pay off. We had strong results from service, during the quarter. Pure service, which is maintenance and repair, was 18% of revenue for the first 9 months of 2011, compared to 17% in 2010. We continue to invest in service sales-efforts and this has translated into a steady maintenance base. We are committed to a strong safety culture. Thanks to a continued operational focus, OSHA recordable-rate is 28% below the industry average. Backlog, at the end of the third-quarter of 2011, was $636 million, up $15 million, on a sequential basis, and flat with the third-quarter of 2010. Although this increase is modest, this is the third consecutive quarterly-increase in backlog, and the book-to-burn ratio has been above 1, for the past 3 quarters.

The institutional markets; government, healthcare, and education, are active and comprise 66% of the backlog. The private commercial sectors remain weak But we continue to win our fair share of smaller and mid-size projects. While large projects awards are few and far between, we are happy to report that ColonialWebb booked a sizable commercial job, during the third-quarter. ColonialWebb's expertise and local market presence was a key differentiator in winning this job. Overall, although margins remain tight, we remain cautiously optimistic that activity levels, in most market sectors are stable.

From an industry standpoint, the recovery is slow. Industry forecasts are signaling gradual, but delayed improvement in nonresidential construction. We continue to experience pricing pressure, as the anticipated recovery has taking longer to develop. When markets improve, the effect on us will, as unusual, be somewhat delayed. Comfort's strong financial position and bonding capacity remained a competitive advantage. Acquisitions remain a key, strategic objective.

Today, we announced the acquisition of a majority interest in EAS. EAS increases Comfort's geographic footprint, in the mid-Atlantic region, and more importantly, expand Comfort's product offerings in the custom off-site commercial business. We welcome EAS's employees to Comfort Systems, and we look forward to building a strong and successful future together. Having spent a good bit of time over the past several months at EAS, I am very optimistic about the strength and potential of their outstanding Team. I was especially impressed by the people of EAS, and their commitment and longevity, in a strong and innovative organization.

In summary, we are cautiously optimistic that activity levels are stable. Margins remain tight, but we are winning our fair share of work. Project execution remains a top priority, and I am confident in our ability to execute and deliver positive operating results, as we maintain the core strength, of the best workforce in an industry that is crucial to our Nation's future. Get ready for strong performance, when our markets improve. Then I would like to thank all of their 6500 Team members for their efforts. I will turn it back over to Bill for his wrap-up and then questions. Thank you.

Thank you, Brian. With the alarming headline, related to goodwill impairment out of the way, underlying this, as I mentioned are solid earnings; a very significant addition to Comfort Systems with EAS; an extended and amended and improved credit line; a strong balance sheet currently, that will stay strong. We are optimistic about the future. We, as a mentioned, are not immune from the current market, and while we are no-doubt gaining market share, on a relative basis, it is the absolute that matters. We await a better market. So with that I will throw it open to questions and answers. I will bet there will be a few for Bill on the accounting matters that have been surfaced here.

(Operator Instructions)

Rich Wesolowski with Sidoti & Company

Are the big margins on the work the Company is booking today materially different from what was booked 6 to 12 months ago?

This is Brian.

I would say it is steady and stable, but not deteriorating.

Okay, that is good news.

Yes.

As you look at your end-markets from a very high level, do you share the view that Comfort can, at least, maintain this level of revenue and earnings for as long as the ongoing recession, in building activity -- less? Or, are there end markets in that institutional bucket that is a growing share of your backlog that you can envision actually falling, materially, before that private pick-up commences.

We are in the midst of end-of-year planning right now, so we are actually talking about that a lot with our operations. It certainly appears that we have firm footing, stabilization at low levels. So, I think the view would have to be -- and I will defer to Brian on this -- but I think the view would have to be something additional, negative, would have to happen for us to have an outlook that had deterioration in it.

If you look at what we are bidding, it is pretty much the same sector. It is about the same amount, so I agree with Bill, it is pretty stable right now. Unless something materially changes, I see it to be the same.

Rich, this is Bill Murdy.

You may have concerns about the fiscal strength of the public sector -- cities, towns, counties. We haven't seen that effect yet. Of course, we have a tremendous amount of schools-work, both public and private, going on and bidding. The healthcare sector doesn't seem to show any weakening here. We are alert for what you are talking about, but we just aren't seeing it yet.

Are you at liberty to say what the Company paid for the majority interest in EAS?

Yes, because that will be subject to public disclosure. Approximately $30 million. They have a share, obviously, because they own 40% of it, in the future earnings, but there is also a small contingent part of that.

In the $30 million, Bill?

There is $30 million-plus. If they have performance that exceeds the assumptions on which we valued them on, there would be some incremental purchase price. But what that will do is, similar to ColonialWebb, that will force us to value that. And when we record our purchase price, it will probably show up in our financial statements a little bit above the number I just gave.

Okay, then lastly -- the construction and service appear self-explanatory for EAS, similar to what Comfort does; but the prefab looks like something different. Can you give us a few examples of where that capability comes into play, and discuss the extent to which you can incorporate that into some of your other projects?

What they do is, they believe that an awful lot of the hardest and most mission-critical work that has to be done in building a building, can be done better in the controlled environment of -- they have 2 very impressive plants. So, they essentially build mechanical penthouses. They build --they assemble and create, in a prefabricated way, the hardest parts of what goes into the building of a building's mechanical system. They assemble that in their factory, then they break it down, to some extent, and ship it to the site, and reassemble it.

They also will incorporate elements that go beyond the mechanical systems. So if you need a data center, they can include -- because the data center is such a high proportion of what a data center is, is the mechanical part of it, they can just build the entire data center, in a sense, and deliver that. Also, they have a number of other really -- what it does is, it reduces the time-to-market, in a way. And it creates, it obviates the need to shut a business down if you're going to do a retrofit. It also allows things to be done to meet, say, FDA requirements in a very clean facility, without some of the risks that happen in an open-construction job.

There's a lot of ways, in which what they do brings a ton of value to their customers. At Comfort Systems, many of our Companies are really good at prefabrication. That is becoming more and more important in our industry. But the reality is, what they do at EAS, I believe, is the best in our industry. We believe, over a long period of time, we can help grow their business because of the access we have to customers, and because there still is an install portion of what they do. But we think also, even more importantly, they can help our Companies to be competent in something that is going to become more and more important in our industry, as time passes.

Appreciate it. Best of luck.

John Rogers with D.A. Davidson.

Couple of things -- Bill George, back to your comments on the no change in the forecast. But you did take a big goodwill write-down, partially because the expectations for those Businesses changed.

What happened, I think, the 4 Businesses were businesses located in the Mid-Atlantic and the upper Mid-Atlantic. What has happened is, the recession has finally reached the Mid-Atlantic; and, so, I agree with you that, essentially the change is a change that relates more to the fact that '12 looks like another tough year. If you look at earlier in the year, I think most people thought that 2012 would be coming back.

When you have to test goodwill, the reality of what an accountant can rely on in collaborating with you on deciding what your goodwill is worth, is they are really going to have a hard time looking past the last year or 2, and past the next year or 2. So what you have to do is, there is a heavy weighting of looking at very immediate results, when you assume what cash flows in the future might be. And because we are in a cyclical business, where we worry -- when we buy a company, we worry about what it is going to do over 10 years and 20 years. We know it is going to have good times and bad times. You just can't -- you are forced to sometimes value the goodwill on a company that you probably would buy again today, frankly.

Exactly.

Frankly, there is not a company involved in this goodwill write-off, that we are not really thrilled to be in those markets with those people.

Okay. And then, I assume this will be out in the Q as well -- but can you tell us what EAS's trailing earnings have been?

That is hard to do, but I would say --

--the multiple?

The multiple that would be paid -- if you were to look at a strict 3-year historical average multiple, it would be in the 4 to 4.5 range. If you were to look at the multiple we paid of their long-term average, it would be in the 5 to 5.5 range that we have typically paid for virtually every company that we have bought since I've been here, which is forever. I think the premium we paid, in this case, was only buying a part of it, and then growing together. As you know, in our industry, it is hard to pay a big premium for something, simply because you guys won't give us the premium we deserve. (laughter)

Okay. And that is based on roughly a $50 million valuation.

Yes, roughly.

Okay. And then, also one other number -- in terms of your backlog growth, Bill Murdy, you mentioned that it grew in the quarter; but my numbers show a decline relative to what was reported last year, and I think the difference there being the disposition of some businesses, I think, but to --

Actually, it grew sequentially. We have this problem of acquiring ColonialWebb, and part of it was accounted in the third quarter of last year. Bill George, you can correct this, if you need to. We counted part of ColonialWebb in that quarter, and part not. It is kind of hard to, when you close something mid-quarter, it is hard to come up with a same-store comparison.

Okay -- but will you report an organic number?

Because backlog is measured at the last day of the quarter, ColonialWebb was in it a year ago, so there is no distinction between same-store and organic. We had a distinction -- because ColonialWebb, on the revenue side, was only in for 2 months of the quarter, we had to give a same-store. But because we are comparing September 30, 2010 to September 30 of 2011, when we talk about backlog, that already is same-store, because we owned ColonialWebb on September 30, 2010, and their backlog was in our number.

Okay -- so what was the organic?

Flat.

It was $636 million to $635 million. And then $621 million was the sequential. So, flat, barely up, again.

Okay

Three quarters in a row, of barely up.

Which it feels a lot better.

Feels a lot better than 13 to 15 quarters of significantly-down.

Yes. And to that point -- are the length of projects changing? Just going into backlog.

Only because there is a lower proportion of new construction. They are not changing. The same type of project takes the same amount of time to construct, more or less. But what has happened is there's less big projects.

We have more jobs, Brian, we have got more retrofit replacement work, right now, and that is just sure to work. You will see in our Q, that 42% of our revenues came from new construction, through 9 months. That is a change. You followed us for years, right? What that means is new construction. But for new construction, we are doing pretty well; but that new construction number is a tough -- it is a war out there.

I guess that is what I'm getting to -- the smaller project business, Brian, that you referred to, is that growing? The maintenance-type work?

Yes. And you are going to see by the charts that are going to go out, on our revenue side, John, that has increased pretty significantly.

Without, it we would be in a bad place.

Normally, that's what we should see before the larger projects are going to come through.

I think that's true. I would agree with that.

Thank you very much.

Tahira Afzal with KeyBanc.

It is [Sagri] on for Tahira. Real quick -- and I don't think this is anything major; you guys did not touch on it too much -- but that Washington DC region, you said, it was a little bit weaker. How much of an impact was that, really, on gross margins? Anything major, or just pretty small?

You know, they average in at lower levels, than they had been. The Mid-Atlantic, if you think about it, in the Mid-Atlantic we are really talking about DC and areas that are within 200 miles -- little over 100 miles -- both of our larger Companies, south of DC. Those hadn't really felt the recession compared to what other people in our Company had felt. It has finally come to call, in the last few quarters, in the Mid-Atlantic. I don't think, though -- it has not come to call in the way it has in a place like Phoenix, or South Florida, or Vegas, and Southern California, a year or 2 earlier. It has come to call, in the way it has come to call in the Southeast, generally, which is the normal recession, but still a recession. They have been walking on water until recently.

Okay. And then just looking at margins going forward -- I know last time we talked on the call, you guys said, expect the margins that you are seeing right now, in the 15% to 16% range. And expect them going forward, and that is what you guys delivered on. Should we expect that same range going forward? You said, the pricing on the work that you are booking now is relatively similar?

Yes.

I would say yes. From what we are bidding right now.

It looks as if there is at least a few quarters between us and that starting to go up.

Okay, just wanted to make sure.

Adam Thalhimer with BB&T Capital Markets

Just wanted to ask, in terms of energy efficiency projects -- what is the appetite among your customers to do those types of upgrades right now?

Brian, do want to take that on?

Okay. Adam, it's Brian.

Right now, our Energy Group is actually swamped with opportunities. It takes a long time to drive those fruition. So what we're seeing is not a question of opportunities, it is a question of our customers actually pulling the trigger to do it. But there's no shortage of opportunities. They take a long time. What is interesting, is that I was at an organization yesterday, and they are seeing tremendous opportunities and it is just continuing to grow, to be honest.

And my other question was on the outlook for additional M&A. You, obviously, with the most recent acquisition, your cash balance will be down to $10 million. What is the appetite to tap the revolver to do an additional acquisition?

We had a very reasonable cash month here, and our cash balances aren't anywhere near as low as $10 million. The appetite for us to borrow, is driven by what the opportunity for the use of capital is. Acquisitions, yes. I would not think we are going to borrow to pay dividends; we are not going to borrow to buy stock. I don't think that is in our DNA currently, but it is a matter of opportunity. Bill, you might embroider on that from the bank agreement side.

For a long time we have not borrowed, but that has just been because our cash was ahead of our needs. I would say we will never -- I don't expect we would ever borrow more than a turn, or a turn and a half at the bottom of the cycle EBITDA, as we view it. But I think we would absolutely, for the right opportunity. If there was something else out there as good as what we just did, we would be willing to take on a reasonable amount of debt; and we have configured our credit agreement to make that a comfortable thing to do. We get credit in our credit agreement for the pre-acquisition EBITDA of anyone that we buy.

We got nearly 3-year forbearance by our banks on our 2 covenants, in a way that essentially, they recognize that this is a recession, that tough things can happen, but that at the end of the day, people are not going to stop needing buildings cooled and heated. And we have a huge part of the best workforce that can do that in the United States. So our banks, if you were to dig into that agreement, gave us really a nice relationship-based vote of confidence to allow us, not just to borrow money, but to keep very wide safety margins if we borrow money. We meet our covenants today, even in the context of low amounts of net debt, by multiple 100% kind of ranges. I think most of the people on this call, as I look up at the list -- they know us well enough to know we are not going to borrow money unless we feel very comfortable.

And the other thing that could increase our willingness to borrow money is, if we developed an opinion that any more than insignificant improvement was coming, right, because if you developed an opinion that our EBITDA is the lowest it is likely to go? Well, we still have quite a bit of EBITDA when you multiply that by 3. So I think we are going to be prudent. We are going to keep our eye on it, we are going to keep very broad, very wide safety margins to keep our bonding company and you guys happy. But at the end of the day, absolutely, for the right opportunities, we're willing to do some borrowing.

Okay. Thanks for that, Bill. And Bill Murdy -- congrats on your upcoming retirement, and I really enjoyed working with you over the last two years.

Thank you.

I would now like to turn the call over to Bill Murdy for closing remarks.

I think we have covered a good number of things. As people dig into the goodwill accounting -- and you may have other questions for us, and probably ought to be directed to Bill George -- we remain optimistic here, in a cautious way. I think our emphasis on service is showing very good results, and our willingness and ability to adjust to what construction sector we're going to focus on, as well. And so we are well-positioned.

It is a cliche to say that the economy is in trouble. We think it is stabilizing for us, and we think see upside out there; we just can't book it yet. So, with that, I will conclude my remarks, and thank all of you, for being on the call.

Thank you for your participation on today's conference. This concludes the presentation, and you may all now disconnect.