Comfort Systems USA Inc (FIX) 2016 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Q4 2016 Comfort Systems USA Earnings Conference Call. My name is Joyce, and I will be the operator for today.

(Operator Instructions) As a reminder, this conference is being recorded for replay purposes.

I will now like to turn the call over to your host for today, Julie Shaeff, Chief Accounting Officer. Please proceed.

Thanks, Joyce. Good morning. Welcome to Comfort Systems USA's Fourth Quarter Earnings Call. Our comments this morning as well as 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 commentaries concerning our specific risk factors in our most recent Form 10-K as well as in our press release covering these earnings. A slide presentation will accompany the prepared remarks and is posted on the Investor Relations section of the company's website found at comfortsystemsusa.com.

Joining me on the call today is Brian Lane, our President and Chief Executive Officer; and Bill George, our Chief Financial Officer. Brian will open our remarks.

Okay. Thanks, Julie. Good morning, everyone, and thank you for joining us. I will start by thanking all of the Comfort Systems USA employees for their continued hard work and commitment. Today, I am pleased to report the best fourth quarter and full year results in our history. 2016 was another great year for Comfort Systems, thanks to fantastic execution from our skilled workforce. Many of our operating companies, particularly those in Northeast, Upper Midwest and Southeast had a record year. Thanks again for all your contributions.

Both our full year and fourth quarter revenue were up in 2016. With full-year revenue coming in at $1.6 billion, a 3.4% increase compared to 2015. We earned $0.45 per share in the fourth quarter as compared to $0.35 per share in the fourth quarter last year. For the full year, EPS was a record $1.72 per share compared to $1.30 per share a year ago.

Free cash flow for the quarter was $36 million, which aggregates to $69 million for the full year. We have generated positive free cash flow for the past 18 calendar years.

I am also pleased to announce that we have signed a definitive agreement to acquire BCH Mechanical and its affiliates. BCH is a well-established regional mechanical contractor based in Largo, Florida. BCH has a strong construction presence in Tampa, Florida, and the surrounding areas, serving health care, research laboratories, industrial and manufacturing facilities and institutional facilities. BCH's conserved billing servicing group has an extensive service network with operations across numerous states in the Southeast. BCH brings excellent resources and leadership at every level, and we expect that they will help us strengthen our market leadership and customer offerings throughout the Southeast and mid-Atlantic markets.

We currently expect to close this transaction at the beginning of April, and we look forward to welcoming BCH's employees to Comfort Systems and to a strong and successful future together. Bill?

Thanks, Brian. Good morning, everyone. You can use Slides 2 through 6 as a resource as I provide additional information regarding our financial results. Revenues this quarter was $392 million compared to $384 million last year. Revenue for the full year was $1.63 billion, which represents an increase of $54 million over last year. ShoffnerKalthoff, our newest company, contributed approximately $72 million of revenue during the year.

Gross profit was 22.5% for the fourth quarter of 2016, a continued improvement from the very strong 21.9% we achieved in the fourth quarter of 2015. The increase was broad-based, reflecting solid project execution and improved service performance.

SG&A expense was $63 million for the fourth quarter of 2016 compared to $60 million for the fourth quarter of 2015. SG&A as a percentage of revenue was 16.1% in the current quarter, which compares to 15.6% in the fourth quarter of 2015. The increase is a result of increased compensation accruals as a result of improved results, and also reflects expanded service activities in multiple locations.

As Brian described, profits were notably higher this year compared to last year. Net income for the fourth quarter was $16.9 million or $0.45 per share compared to $13.2 million or $0.35 per share in the fourth quarter of last year. Our full-year tax rate was 35.8%, which is up from the prior year tax rate of 35.2%. Our tax rate increased as a result of our acquisition of the remaining interest in EAS at the beginning of this year. We had expected an even larger increase to more normalized level, such as 37% or 38%. However, for 2016, the increase was partially offset by a tax benefit from the adoption of a new accounting standard relating to equity awards as well as by benefits from some other small discreet items.

We finished 2016 with very strong cash performance. For the quarter, our free cash flow was $36 million, which compares to $18 million for the same period in 2015. For the full year, our free cash flow was $69 million, and by year end, we had retired the debt that we incurred for the two large strategic transactions that we closed in the first quarter of 2016.

I also want to update you on our stock buyback program. We have been opportunistically repurchasing our share since 2007. During the fourth quarter of 2016, we purchased 76,000 shares, and for the full year, we've now purchased 460,000 shares. On a cumulative basis, since our program began, we have repurchased over 7 million shares at an average price per share of $13.02, and over that period, we have returned approximately $95.6 million in cash to our shareholders.

Before I finish, I would like to briefly talk about some of the financial characteristics relating to our decision to acquire the BCH family of companies. BCH is expected to contribute annualized revenues of approximately $100 million to $110 million at profitability levels that are generally equal to or above those currently experienced by our existing operations. If the transaction closes at the beginning of April as expected, we will own BCH for nine months this year. In light of the required amortization expense related to intangibles, such as backlog, as well as other costs associated with the transaction, the acquisition is expected to make a roughly neutral contribution to earnings per share during 2017, and BCH should be modestly accretive in 2018.

The upfront transaction expenses relating to this purchase will be incurred in expense in 2017, largely during the first quarter, before we close the transaction. And I currently expect that those expenses will cost us as much as $0.01 to $0.02 per share.

Seasonally, the first quarter is our lowest quarter of the year, every year, and we had some discreet positive developments in the same quarter last year. And so, bearing those expenses before we own BCH will affect our first quarter.

We have been in touch with the ownership of BCH for over 10 years. We're really delighted that they've agreed to join Comfort Systems USA. BCH will be a first-class addition to our organization. And I agree with Brian that we will be even better together.

Overall, we're pleased with strong results for the quarter and optimistic that improved activity levels will continue in 2017. That's what I have on financials, Brian.

All right. Thanks, Bill. Let me start with backlog and activity in various sectors and markets. Please refer to Slides 7 to 9.

Backlog at year end was $763 million, an increase of $44 million or 6% compared to the third quarter of 2016. Compared to a year ago, our backlog increased $52 million, a 7% increase. The February 2016 acquisition of ShoffnerKalthoff contributed to the year-over-year increase in backlog, but did not affect the sequential increase. And even without the acquired backlog, our backlog is up from last year by about $16 million. These increases give us additional confidence that our backlog and prospects are consistent with continuing strong results in 2017.

Overall, we have seen robust activity in most of our markets. The Northeast and Upper Midwest is our most profitable region and is operating at full capacity. We have seen improvement in the South. Additionally, our Colorado operation had a tremendous year.

Pricing is still stable in the majority of our markets, and we continue to book good projects. Larger projects, while still less common, have slowly started coming back in a few select markets.

Let's now look at our end use sectors on Slide 8. Institutional markets made up 41% of our revenue in 2016. The commercial sector was 36% of our revenues, and industrial and distribution represented 20% of our year-to-date activity. We are happy with the trends in the various sectors, and at this point, no individual sector stands out as a primary driver or as a particular challenge.

Please turn to Slide 9 for revenue mix. For the full year, 40% of revenue was construction projects for new buildings, and 31% of our revenue was construction projects in existing buildings. The combined 71% of our revenues that arise from the activities we referred to as construction are the revenues that are primarily supported by our backlog. Service-related projects provided 11% of revenue. And pure service, made up of repair, maintenance agreements and other hourly work, was 18% of revenue.

Our service business had a fantastic year. We continue to benefit from the investments that we've made, and we remain strongly committed to those investments. Our maintenance base is growing and we are seeing improvements in margins in many locations. We are optimistic about our ability to grow this profitable business as we move forward.

Our ongoing investments in our people continue to lift our results, and we believe our recent productivity and growth initiatives will further benefit us over the next year. Our balance sheet is strong, and as we demonstrated with our announcement last night, our long history of cash flow gives us confidence to invest in new businesses, while continuing to return capital to our shareholders. We believe that the majority of our markets are likely to remain active and supportive during the coming year, especially demand for work in existing buildings. We remain positive for 2017, especially in light of our backlog increases and the expected addition of our new partners in Central Florida. We are optimistic about 2017 and beyond.

In closing, I want to again thank our 8,000 employees for their hard work and dedication. I'll now turn it back over to Joyce for questions. Thank you.

(Operator Instructions) The first question comes from the line of Adam Thalhimer with Thompson Davis. Please proceed.

Brian, you mentioned that the large projects are slowly starting to come back in a few markets. Can you provide a little bit more color there?

Yes. Adam, you followed us a long time, so we went through pretty much a five-year dearth of anything -- of any significance with the exception of Environmental Air Systems, really. But I think we're starting to see a few pick up here in Texas. Recently we picked up a good-sized project. So when I consider that, maybe five being greater, pretty much in different sectors, not one dominated. But we have seen some larger stuff start to come through, Adam.

Okay. And then, I was curious, with Shoffner, you picked up a little bit of exposure to electrical construction. How is that going so far? And what will be your thoughts on expanding that?

Well, I'll start, and Bill, you might want to chime in. The electrical business at Shoffner has just been outstanding. Again, it's exceeded our expectations when they joined us. It's a really solid business. I think, we know a lot more about the electrical business today than we did before we had them. That's a terrific business. I'm a big fan of it. And hopefully, in the future, we'll continue to look into it.

Bill, do you to add anything?

I agree. This is a -- just proportionally, we don't have much electrical, but we do have electrical exposure in other places. We've traditionally done some electrical in Tennessee. There's electricians on the staff at our company in Greensboro, North Carolina. It's a good business. It's a lot like ours -- skilled workforce that -- I don't know, it's a great place to invest in people, and that's our favorite thing to do, which is invest in people.

And Adam, it's very similar to what -- same customers. Skills are a little different, but it's all the same type of work we do in terms of managing projects and servicing it.

Okay. And lastly, I was just curious, I mean, it's been awfully mild, at least on the East Coast, I'm not sure about the rest of the country, but what are you seeing so far in 2017?

Yes, the magic weather question, I never really worry too much about the weather because it helps one part, they might hurt another. I think we're doing a little bit more construction, particularly up north with the temperatures that they've recently had, and service might be a little bit down. But it balances out over the course of the year throughout the country. I mean it shouldn't affect us in the first quarter negatively.

Your next question comes from the line of Joe Mondillo with Sidoti & Company. Please proceed.

So I was wondering if you could just comment on sort of the end -- different end markets that you're selling to. Looks like a few of them had a pretty good year in 2016. And one of those is including health care, seems it picked up in 2016 as a percent of your revenue, at least. Could you comment on how -- where you're seeing strength and if that translates into better, bigger, more complex projects or vice versa? And how that may affect your sort of gross margins and profitability of your projects?

Joe, we -- what's really notable about this sector is how it's sort of become broad-based without any sector kind of leading the way. We had industrial for a couple of years that gave us our lift up until about a year ago. Industrial stayed strong, but there's just like a decent amount of activity in every level.

The most notable thing is that so much of the work is in existing but not new build, new build is still pretty absent. We swung from 44% new construction in '15 to 40% new construction in '16, and yet, our total construction was within 100 basis points of the same. So the existing building work is, really, if you look over 20 years, that's the thing that's the most amazing to me. The sectors are really well-balanced.

Yes, they really are. Joe, Bill and I were talking about that this morning that the balance we've seen is really refreshing. But you're talking about gross margins, so I'm just going to jump on that while I can. Doing 22.5% gross margin a quarter, I've been doing this longer than I care to remember, but that's a really impressive number for the folks that are working out in the field just for efficiency and productivity. And I don't think we could be happier with the performance and what they delivered. And we're getting it pretty much balanced in all the sectors, which is really impressive as I speak on their behalf.

So regarding gross margin, what would you say are the one or two biggest factors that are contributing to the expansion of gross margin? And how do you think of gross margin going into 2017 relative to -- I mean, you saw a 90 basis point expansion in 2016, pretty good expansion in 2015 as well. Do you think you can continue to expand gross margins? So what were the biggest factors and what's your sort of outlook in 2017?

Yes, Joe, we talked about this a long time, and there's no one answer. It starts with the folks doing the work. We're able -- we trained them as we talked about throughout the recession, we never decreased the amount of money we spent on training. I think, we're getting benefit from that, plus we got -- we just have a skilled workforce that are good folks and managed well. We improved our selectivity about the work that is in our sweet spot. And plus, the mix is a little bit different.

As Bill talked about, we got a lot of work in existing buildings. Our service component is greater. So when you add all that up in the mix, it has improved our gross margin. And finally, we've been able to stay away from the large bad problem. The job that goes south on you, we've had probably 18 months now, a lack of a serious event, which is, knock on wood, everybody gets their time in the barrel, but right now, we've been a bit lucky as well. But Bill, do you want to add on to that?

Yes. And I agree completely with everything Brian said, especially seconding the mix thing, right? We have a unique mix we've never seen before. It's unique in two ways. One in the higher level of service, and even outside of service, such a high level of work in existing buildings. That creates headwind for same-store revenue growth, but it creates lift for margins.

And so as far as prognosticating about what's coming, I would say, uncharacteristically for us, we feel really positive about our prospects within each segment to continue to do very, very well to have a another great year in '17. How the mix develops, you have new construction comes back, that's going to drive our gross margin down, but it should increase our gross profit per man-hour, it should increase our EPS if that demand were to come back.

So gross -- fantastic numbers, higher in every way you can slice the business up. But obviously, when you do slice the business up, the mix is an awfully important mathematical component to how that comes out.

Okay. And then, in regard to that as well, could you comment on pricing? It looked like in your 10-K that you filed last night showed a little bit of improvement on the average project contract price that you mentioned in there. Could you comment on pricing in general?

And then, also, regarding pricing, if we do see tax reform, which you, as well as most of your competitors are going to fully benefit from most likely, still up in the air on how much or whatnot, but if you do see some tax reform that benefits you, do you think that the industry or yourselves will be at all more competitive with bidding and pricing? And so do you think pricing would come down given the higher net margins that you and your other competitors will be running at if the current demand levels maintain where we're at right now?

I think, so for that last little bit, I think it's just the opposite, but let me start with your first thing. Pricing is really good. I mean, 22.5% gross margin, there's a lot of execution in that, but a lot of that execution is the guys selling the work as well, obviously. And there, the market is willing to pay for quality right now. We have to pay our people well, reward them, and so we have to charge for quality in that. There's an overall supportive environment with that and it looks as good as it's been since 2008 from where I sit, 2009. So that's good.

As far as the tax rate goes, the nice thing is the math is really simple for us on the tax rate, right? There's only one moving piece, and that's what they call the DPAD, the qualifying activities credit, that is the one thing that could be taken away from us. That's worth a couple of percentage points to us if they start doing. Other than that, we're straight dollar for dollar when -- if they cut our tax rate, we should benefit from it dollar for dollar. And not only that, if they cut our tax rate, the acquisitions that we've done recently, the IRRs go up very quickly on those, the simple cash paybacks go back.

So who knows what's going to happen, we're running the business without expecting a tax cut. But we will benefit from a tax cut. And finally, I think, a tax cut almost certainly increases demand. I don't know why it would have a negative effect on pricing. The scarcity of skilled labor will not be improved by a tax cut. So I think, pricing should be as good or better in the future.

But if they want to cut taxes, we'll take it.

Yes.

The next question comes from the line of Tahira Afzal with KeyBanc Capital Markets. Please proceed.

This is Sean on for Tahira today. I just wanted to give you a big congratulations for a really strong finish to a really great year for you guys, so nice work.

I think, my first question would just be just trying to dig into the visibility you have around new construction. Bill, you pointed out how the new construction mix came down quite a bit from '15 to '16. And it seems like you guys don't have a lot of -- or it's hard to predict how each kind of segment is going to grow in '17. But I was just wondering, what kind of visibility you have on new construction coming back? And maybe you could talk about your kind of pursuits, your near-term pursuits, and how you're kind of expecting backlog to trend through the year?

So hopefully, the one important, the 44% down to 40% comparison is going to force me to mention something I hope I'm mentioning for the last time, which is we had a fantastic bulge of work in the North Carolina market in 2015. Those giant data center projects that we had and some other big works they had in the pharma area were all new construction. So if you were to back that out, you would find that, actually, the percentage is almost the same between the [two]. But still very -- our lowest -- tied for our lowest ever.

Having said that, that's also the explanation for our same-store revenue, mild headwind, right? That company, after those big projects ended, they were down by $50 million of revenue plus. Whereas Comfort was down by $18 million. So if you take the rest of Comfort and you see what we're up, low single digits, just like we talked about.

So there are a lot of things like that, that really needs comparisons, which are now, this should be the last time these are important in this conversation. But they really are important to that.

As far as the trend for backlog, Comfort, over a long period of time, in a steady market, we will typically have net bookings of greater than one book-to-bill in the fourth and first quarters, and we will typically burn a little bit more than we took in the second and third quarters. And then, that has obviously been augmented by either a declining or an increasing market.

Right now, I'd say the market is steady at decent levels, so I would expect us to follow our usual patterns. We should have -- continue to have good backlog, maybe a bit up at the end of the first quarter, and maybe we'll burn a little more than we book in the second and third, unless new project work starts to come back.

I mean, Sean, what we're looking at right now, the activity is good. I'm not concerned at all. I think, there's a lot of good work out there right now.

Okay. Great. I mean, so I guess, to ask in a different way, if we assume sort of a mid-single-digit type growth outlook for this year, you guys would sort of expect that mix to look pretty much the same in that kind of growth framework?

I think, for what you're going to use it for, I would use those same percentages, Sean.

Right.

Okay. Go ahead.

I was just saying, anything that pushes you off those percentages should be pretty apparent as it's happening, right?

Got it.

I mean, if the markets are getting better, you know what that will mean.

Okay. And then, just looking at growth, I mean, you guys mentioned some of your stronger geographies are at full capacity. So I would assume that if you guys are going to get some healthy growth this year, there's some of the softer, quieter area that are going to be picking up some steam this year. So if you have any comments on that dynamic, that would be helpful.

Yes. I mean, I actually think we are going to get some improvements, some growth from places that we haven't had. And I think, certain areas are picking up. I think in bringing on our friend in Central Florida is going to help us. So I think the mid-single-digit number that Bill referenced, I think, that's where we'll be at, Sean.

And that will be an organic number?

Yes. (Inaudible - microphone inaccessible).

Okay. Great.

The estimate for organics would be 4, 5, something like that.

Okay. Great. I mean, what would kind of be the biggest risk to that sort of outlook? I know you guys have talked about some of the challenges around the labor capacity. Is that sort of kind of biggest governor on growth at this point?

I think, it's clearly the first one, right? You got to make sure you have the folks to do the work. You always have risk of what comes out of Washington, right? But that could set something back. But I think, for us, what we control is bringing quality folks in and to do the work. I think that's -- that's what we just want to make sure we monitor.

And for us, keep in mind, the standard deviation is probably more than 1%, it might be 2%. So frankly, some of it is just random. We don't know -- billings get delayed for reasons. We have big projects somewhere and equipment gets delivered by the end of the year or not, right? This is -- unfortunately, it's not as much of a science as you guys have to [know]. So I think there's a range of good outcomes is what I would say. I'll also say, if new construction comes back, that will be very important in revenue.

One of the reasons our revenues looks like it hasn't grown is because we've been shifting into work in existing buildings. There just isn't as much materials that pass through and create revenue. When you're building a new building, all the materials you bring in are new. When you're working on an existing building, you keep a lot of the duct work and a lot of the pipes and just not as much money (technical difficulty) it's very profitable, you see high margins, you look like a genius on the margin line, but you look like you're kind of slow on the growth line, and that's just because less stuff is passing through.

Sean, still, as it's always been, we focus on profitability first.

Yes, I understand. So how does -- given that new construction would be such a big swing factor for growth, I mean, how do you guys feel about it entering this year versus this time last year, just in terms of your visibility?

No, I feel better about new construction today than I've had probably since 2009. (Inaudible), I mean, we're not, trees aren't growing to the sky, but I think we're having steady improvement, low-single digit last year, mid-single-digit this year. But a steady state improvement, which, quite frankly, is better for us considering the labor situation, able to staff them up and manage them. It's just a better pace of us.

Okay. Great. And just one last thing for me. To what extent is kind of labor cost inflation a risk to Comfort Systems? I mean, just in the event that we get some of the other civil sectors picking up and just generally more construction activity?

It's only -- the only thing that is a risk in that area is unexpected labor inflation, right? Because we -- and I would say, our guys are pretty aware and conscious about that. You can never say never. But I think, most scenarios where labor gets more scarce, we should make more money, and we should happily be able to reward our workers more, right? We had midyear raises in some places in the last couple of years. Hasn't happened in a long time. It's good for us. It's good for them. We're happy to pay our guys what the market will permit us to pay them. And we think everybody benefits. It's good guys doing good work, our customers are happy.

The next question comes from the line of Brent Thielman with the D.A. Davidson. Please proceed.

When you -- another way to ask this, I guess, but when you look at the backlog today and all the sectors represented in there, do you see any sort of deviation toward more complex sectors or anything like that, that might be better for you? I guess, I'm thinking about like data centers, health care, and stuff like that?

Not really. I think it's pretty much the same mix, Brent, we've seen over the last few years, a little data center in there. The health care, that's picked up is what I -- end of life care as opposed to a major new build hospital. But I think the sectors and the complexity have been pretty stable for the last few years.

Right. The good news is there was that deviation a couple of years ago. And when industrial came back first, complex space came back first, and the good news is that it's maintained. But as far as further deviation in that direction? I don't think so. But it is a good time. We don't rely on retailer, we don't rely on a lot of very general office commercial space, we don't do a lot of for rent kind of -- especially like garden apartments, and for once, we're in the right place.

Okay. Good to hear. And then, congrats on the announced acquisition. Do you see any deals of similar size in the pipeline right now? I mean, this looks relatively larger, I guess, how does that pipeline look?

I would say, we're always looking. And we -- I don't know, I certainly am not -- this is the winter, we usually get a deal done in the winter. Our goal is to always get something done in the winter. We can't always do it. But I don't think you should look for an announcement next week or the week after that.

Yes. We've only got (inaudible) this one for a few weeks.

This is a company we are really happy to be -- we're really happy to be associated with this company. This is one we felt would be a great partner for many, many years. And we're just thrilled that they're a part of us, and we hope we can make them be glad that they joined up with us.

But Brent, we're still in the market looking for good companies, yes.

So if you got one --

Let us know.

Anybody on the phone?

We're here.

If you got -- if your uncle, you know.

The next question comes from the line of John D'Angelo with Macquarie. Please proceed.

So I guess, first off, I just want to make sure I had heard you guys right that BCH will not be accretive in '17 but it will be in '18?

I think that's my best guess. I don't think -- if it is, it will be such -- it will be $0.01 or $0.02. Like that company that we bought a year ago, I think we ended up actually getting $0.01 out of it or $0.02, or maybe $0.01, I think. There's so much amortization at first that they make us put a value on the backlog and then just run it off against the earnings that's in that backlog, right? And so I don't know why, accounting thinks that's a good way to look at something you own, but we just do what we're told and maybe we did say things are not very accretive. Having said that, a year or two later, they kicked in and it's fantastic and we looked like geniuses.

But John, just to add on, we think their performance is still going to be terrific. It's just --

Right. And think about it, we're still going to get the cash flow.

Yes.

A lot of cash that's going to go up today, we buy them, but they're going to cash flowing immediately. You'll see it in the EBITDA line and stuff, and honestly, we don't make our money with EPS. We make our money with cash flow, handing it over to you guys and making good investments. And that's -- so we're buying them for their cash flow, not for their EPS accretion in the short run.

Right. Thank you for that. And then, last question for me. So I mean it seems like you guys will have to take on some debt to finance the acquisition. So I'm sort of wondering what's your plans to pay that down or if there was any plans at all or maybe you guys want to keep that in the capital structure now. Just how do you guys sort of view that?

So we will borrow maybe -- the day after that deal closes, we'll have borrowed two-thirds of a turn of EBITDA, maybe. Our EBITDA is now twice as high as it was two years ago, so we have more room to borrow. Well, we should immediately start paying it down. Over the summer, we usually have a little bit of working capital because we get a little busy in the summer. By year end, we hope to have paid down a lot of it.

This past year, we borrowed something, a good -- I don't know, more than $50 million to do the deals we did at the beginning of the year, plus the cash we had. I thought we paid down two-thirds of it. We got it all paid down by the end of the year. We're borrowing a little more for this deal. But we hope to make a big -- pay a big chunk of it down by year end.

What would keep us having debt in our capital structure is more good deals. That's certainly what my board is looking for from us to do. So that's what we're looking for. But we're only going to do it if we find good deals, and we're never going to lever out past stuff that our bonding company is going to be very happy with. We're going to keep -- we're a construction company and you can go back to the Bible and read about how you got to have the money to build, finish something if you're going to start it. So people like for construction companies to have a strong balance sheet and we're going to keep one.

When we use the Bible, we have a good year.

We have a follow-up question from the line of Joe Mondillo with Sidoti. Please proceed.

Just one follow-up question, if you will. Just wondering what -- how the EAS business, and I believe, a couple other businesses, like your Arizona operation, all those sort of contributed to a tough comparison in 2016. So I'm just wondering, sort of what the outlook of those particular businesses looked once we've anniversaried those tough comps, are those businesses due to sort of get back to growth in 2017?

Joe, I'll start first, I'll talk about Arizona, and Bill will deal with EAS. Arizona has come back really strong, had a really solid year last year. And we're anticipating the same in 2017. So I don't think Arizona or anything out west quite frankly is going to be a tough comparable for us. Bill, on EAS?

EAS had a fantastic '15, so they created a nightmarish comparable for us for '16 because we bought the rest of it, we got more -- we actually got more EPS from EAS than the year before. This year, I think they'll have a year that's comparable to the prior year. But let me just use this and say, this year is a tough comparable, right? Last year, we had tough comparable, this year is a tough comparable. The first quarter a year ago was a tough comparable. We had a first quarter, I think, we made $0.26, but we had like some litigation settle that gave us a couple pennies. We actually collected some old receivables in Puerto Rico and gave us like some tax-free earnings of a couple pennies.

So I think -- we think we're going to have another fantastic year. We think we'll do as well or better than last year. But that's saying something because last year was a great year.

There are no further questions in queue. I will now turn the call back over to Brian Lane for closing remarks.

Okay. Thank you, Joyce, and thank you, everyone, for joining the call and your interest in Comfort Systems. 2016 was a phenomenal year, and I am very proud of this organization and our terrific people. I'm very optimistic that 2017 will deliver very good results as well. We'll see you all on the road shortly, and I hope you all have a great weekend. Thank you.

Ladies and gentlemen, this concludes today's conference. Thank you for your participation. You may now disconnect. Have a great day.