Monday, August 4, 2008

KSW Reports

KSW, Inc. (Nasdaq1: KSW) is the HVAC contractor we discussed in a recent post ("Revisiting Return on Invested Capital" -- see also the comments, which include color from KSW's CFO and corporate counsel). Today it reported a solid second quarter. From the company's release:

Financial Highlights for the quarter ended June 30, 2008 include:

Financial Highlights for the quarter ended June 30, 2008 include:

* Total revenue increased 13.9% in second quarter 2008 to $22 million as compared to $19.3 million in second quarter 2007;

* Net income in second quarter 2008 was $1.1 million, or $0.17 per basic and fully diluted shares, up from $860,000, or $0.14 per basic and fully diluted shares in the same period of the prior year;

* Backlog set a record at $139.1 million as of June 30, 2008;

* As of June 30, 2008, cash, cash equivalents and marketable equity securities totaled $17.9 million;

* On April 30, 2008, the Company’s Board of Directors declared a cash dividend of 20 cents per share. The aggregate amount of the dividend was $1.26 million, and was paid on June 17, 2008 to shareholders of record as of May 26, 2008.

Financial Highlights for the six months ended June 30, 2008 include:

* Total revenues increased by $5.2 million, or 13.9%, to $42.5 million, as compared to $37.3 million for the six months ended June 30, 2007;

* Net income rose to $1.9 million, or $0.31 per share-basic and $0.30 per share-diluted, as compared to net income of $1.76 million, or $0.29 per share-basic and $0.28 per share-diluted for the six months ended June 30, 2007;

* Since January 1, 2008, KSW has been awarded $70 million in new contracts.



KSW is one of the companies I had in mind when I wrote this recent post, "Why Worry About Small, Thinly-Traded Stocks?", particularly the part where I questioned the conventional wisdom about risk (i.e., large is less risky than small, etc.). KSW may be a micro cap, but it seems to have a lot less risk than many much larger companies. This is a $31 million market cap company with no debt and nearly $18 million in cash, and a backlog of business about 1.75x its revenue over the last twelve months. As with many companies, KSW's business can be vulnerable to weakness in the overall economy, but the size of its backlog -- and the amount it increased by in the first half of this year -- are encouraging. Other risks plaguing many larger companies don't affect KSW directly. Since it isn't a consumer business, the weakness of the U.S. consumer doesn't affect it directly; since it is self-financing (KSW's general counsel mentioned to me on Friday that the company has never borrowed money), it isn't affected directly by the credit crisis2, etc.

After cash and stock dividends over the last year and a half, my average cost on KSW is about $5.80 per share, so I'm down on this one, but I am content to hold it.

1KSW recently switched its listing to the Nasdaq from the American Stock Exchange, and was allowed to keep its three-letter symbol.

2Of course, the credit crunch can of course affect KSW indirectly, if a lack of financing prevents its clients from initiating construction projects. So far, thankfully, that hasn't been the case.

4 comments:

zidane09 said...

Well, I'm probably an idiot, but I can't find anyway to drop you an email, so I'm just posting here.

I got here through your comments on Megan McCardle's blog, which comments I always found well-reasoned and calm (the latter often in short demand in comments' sections).

I found the same here, was glad to see that it concerns one of my own interests and will definitely be making this one of my daily (or so) stops.

DaveinHackensack said...

Zidane,

Thanks for the kind words and welcome. It's probably my fault you couldn't find my e-mail address -- I'm still getting the hang of Blogger. Here it is though: impossibledistances@yahoo.com

johnjlee2000 said...

There is a lack of construciton financing (debt and equity) for privately funded construction projects. Since bids for things like HVAC are normally sewn up at the beginning of construction jobs and construction is generally a lagging indicator, the drop off in business will likely prove to be substantial. Hopefully they do a lot of civic projects but even this business will likely prove to be down due to local governments and agencies suffering from funding shortfalls.

DaveinHackensack said...

Johnjlee,

The credit crunch is a legitimate concern re financing construction projects. KSW does do some civic work as well. Hopefully, their backlog will keep them busy until economic conditions improve. KSW's current backlog is 1.75x its revenue over the last 12 months.