Comfort Systems USA Inc 10-Q for FY2020 Q2

Comfort Systems USA Inc (FIX)

10-Q 2020-07-27 For: 2020-06-30

Added on April 03, 2026

About this 10-Q

Comfort Systems USA Inc filed this 10-Q on July 27, 2020, covering the quarter ended June 30, 2020 (FY2020 Q2).

Headline figures

Quarter ended June 30, 2020, as reported in this filing, compared with the same period a year earlier where the filing states it.

Revenue: $743.47M; up 14.3% from $650.3M a year earlier
Net income: $39.5M; up 63.4% from net income of $24.17M a year earlier
Diluted EPS: $1.08; up 66.2% from $0.65 a year earlier

Search and read filings like this one from Claude or ChatGPT with the SEC filings MCP server →


(Mark One)
☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2020
OR
☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.01 par value	FIX	New York Stock Exchange

Large accelerated filer ⌧	Accelerated filer ◻	Non-accelerated filer ◻	Smaller reporting company ☐	Emerging growth company ☐


		Page
Part I—Financial Information		2
Item 1—Financial Statements		2
Consolidated Balance Sheets		2
Consolidated Statements of Operations		3
Consolidated Statements of Stockholders’ Equity		4
Consolidated Statements of Cash Flows		5
Condensed Notes to Consolidated Financial Statements		6
Item 2—Management’s Discussion and Analysis of Financial Condition and Results of Operations		22
Item 3—Quantitative and Qualitative Disclosures about Market Risk		33
Item 4—Controls and Procedures		34
Part II—Other Information		34
Item 1—Legal Proceedings		34
Item 1A—Risk Factors		34
Item 2—Unregistered Sales of Equity Securities and Use of Proceeds		35
Item 6—Exhibits		36
Signatures		37


	June 30,		December 31,
	2020		2019
	(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	53,253	$	50,788
Billed accounts receivable, less allowance for credit losses of $9,998 and $6,907, respectively		624,526		619,037
Unbilled accounts receivable, less allowance for credit losses of $684 and $0, respectively		47,654		55,542
Other receivables, less allowance for credit losses of $884 and $0, respectively		20,892		37,632
Inventories		12,212		10,053
Prepaid expenses and other		10,453		14,396
Costs and estimated earnings in excess of billings, less allowance for credit losses of $79 and $0, respectively		23,515		2,736
Total current assets		792,505		790,184
PROPERTY AND EQUIPMENT, NET		121,569		109,796
LEASE RIGHT-OF-USE ASSET		97,586		84,073
GOODWILL		420,782		332,447
IDENTIFIABLE INTANGIBLE ASSETS, NET		210,164		159,974
DEFERRED TAX ASSETS		25,833		21,923
OTHER NONCURRENT ASSETS		7,004		6,615
Total assets	$	1,675,443	$	1,505,012
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt	$	85	$	20,817
Accounts payable		202,075		196,195
Accrued compensation and benefits		101,243		102,891
Billings in excess of costs and estimated earnings		226,047		166,918
Accrued self-insurance		46,099		39,546
Other current liabilities		105,937		81,630
Total current liabilities		681,486		607,997
LONG-TERM DEBT, NET		231,442		205,318
LEASE LIABILITIES		83,753		72,697
DEFERRED TAX LIABILITIES		3,365		1,425
OTHER LONG-TERM LIABILITIES		46,964		32,271
Total liabilities		1,047,010		919,708
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS’ EQUITY:
Preferred stock, $.01 par, 5,000,000 shares authorized, none issued and outstanding		—		—
Common stock, $.01 par, 102,969,912 shares authorized, 41,123,365 and 41,123,365 shares issued, respectively		411		411
Treasury stock, at cost, 4,620,071 and 4,465,448 shares, respectively		(112,104)		(103,960)
Additional paid-in capital		322,419		320,168
Retained earnings		417,707		368,685
Total stockholders’ equity		628,433		585,304
Total liabilities and stockholders’ equity	$	1,675,443	$	1,505,012

Delaware (State or other jurisdiction of Incorporation or Organization)	76-0526487 (I.R.S. Employer Identification No.)
675 Bering Drive Suite 400 Houston, Texas 77057 (Address of Principal Executive Offices) (Zip Code)


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2020		2019		2020		2019
REVENUE	$	743,468	$	650,302	$	1,443,599	$	1,188,775
COST OF SERVICES		597,773		530,286		1,180,811		962,094
Gross profit		145,695		120,016		262,788		226,681
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES		85,045		84,506		177,969		163,411
GAIN ON SALE OF ASSETS		(312)		(192)		(866)		(411)
Operating income		60,962		35,702		85,685		63,681
OTHER INCOME (EXPENSE):
Interest income		28		67		92		92
Interest expense		(2,554)		(3,050)		(5,171)		(4,112)
Changes in the fair value of contingent earn-out obligations		(3,871)		(1,762)		(1,599)		(1,920)
Other		—		149		25		164
Other income (expense)		(6,397)		(4,596)		(6,653)		(5,776)
INCOME BEFORE INCOME TAXES		54,565		31,106		79,032		57,905
PROVISION FOR INCOME TAXES		15,070		6,933		21,821		13,866
NET INCOME	$	39,495	$	24,173	$	57,211	$	44,039

INCOME PER SHARE:
Basic	$	1.08	$	0.65	$	1.56	$	1.19
Diluted	$	1.08	$	0.65	$	1.55	$	1.18

SHARES USED IN COMPUTING INCOME PER SHARE:
Basic		36,581		36,943		36,628		36,933
Diluted		36,737		37,223		36,821		37,228
DIVIDENDS PER SHARE	$	0.105	$	0.100	$	0.210	$	0.195


	Six Months Ended
	June 30, 2019
							Additional				Total
	Common Stock			Treasury Stock			Paid-In		Retained		Stockholders’
	Shares	Amount		Shares	Amount		Capital		Earnings		Equity
BALANCE AT DECEMBER 31, 2018	41,123,365	$	411	(4,229,653)	$	(87,747)	$	316,479	$	268,904	$	498,047
Net income	—		—	—		—		—		19,866		19,866
Issuance of Stock:
Issuance of shares for options exercised	—		—	41,103		861		(61)		—		800
Issuance of restricted stock & performance stock	—		—	38,539		817		1,189		—		2,006
Shares received in lieu of tax withholding payment on vested restricted stock	—		—	(15,013)		(781)		—		—		(781)
Stock-based compensation	—		—	—		—		2,084		—		2,084
Dividends	—		—	—		—		—		(3,506)		(3,506)
Share repurchase	—		—	(67,394)		(3,321)		—		—		(3,321)
BALANCE AT MARCH 31, 2019	41,123,365		411	(4,232,418)		(90,171)		319,691		285,264		515,195
Net income	—		—	—		—		—		24,173		24,173
Issuance of Stock:
Issuance of shares for options exercised	—		—	1,408		31		(11)		—		20
Issuance of restricted stock & performance stock	—		—	69,067		1,486		(1,486)		—		—
Shares received in lieu of tax withholding payment on vested restricted stock	—		—	(13,573)		(717)		—		—		(717)
Stock-based compensation	—		—	—		—		1,685		—		1,685
Dividends	—		—	—		—		—		(3,692)		(3,692)
Share repurchase	—		—	(93,468)		(4,576)		—		—		(4,576)
BALANCE AT JUNE 30, 2019	41,123,365	$	411	(4,268,984)	$	(93,947)	$	319,879	$	305,745	$	532,088


	Six Months Ended
	June 30, 2020
							Additional				Total
	Common Stock			Treasury Stock			Paid-In		Retained		Stockholders’
	Shares	Amount		Shares	Amount		Capital		Earnings		Equity
BALANCE AT DECEMBER 31, 2019	41,123,365	$	411	(4,465,448)	$	(103,960)	$	320,168	$	368,685	$	585,304
Net income	—		—	—		—		—		17,716		17,716
Cumulative-effect adjustment (1)	—		—	—		—		—		(515)		(515)
Issuance of Stock:
Issuance of shares for options exercised	—		—	—		—		—		—		—
Issuance of restricted stock & performance stock	—		—	43,902		1,054		801		—		1,855
Shares received in lieu of tax withholding payment on vested restricted stock	—		—	(14,722)		(622)		—		—		(622)
Stock-based compensation	—		—	—		—		2,134		—		2,134
Dividends	—		—	—		—		—		(3,844)		(3,844)
Share repurchase	—		—	(237,359)		(8,985)		—		—		(8,985)
BALANCE AT MARCH 31, 2020	41,123,365		411	(4,673,627)		(112,513)		323,103		382,042		593,043
Net income	—		—	—		—		—		39,495		39,495
Issuance of Stock:
Issuance of shares for options exercised	—		—	34,562		836		(280)		—		556
Issuance of restricted stock & performance stock	—		—	84,987		2,048		(2,048)		—		—
Shares received in lieu of tax withholding payment on vested restricted stock	—		—	(13,002)		(454)		—		—		(454)
Stock-based compensation	—		—	—		—		1,644		—		1,644
Dividends	—		—	—		—		—		(3,830)		(3,830)
Share repurchase	—		—	(52,991)		(2,021)		—		—		(2,021)
BALANCE AT JUNE 30, 2020	41,123,365	$	411	(4,620,071)	$	(112,104)	$	322,419	$	417,707	$	628,433


	Three Months Ended June 30,								Six Months Ended June 30,
Revenue by Service Provided	2020				2019				2020				2019
Mechanical Services	$	622,700	83.8	%	$	553,031	85.0	%	$	1,188,164	82.3	%	$	1,087,616	91.5	%
Electrical Services		120,768	16.2	%		97,271	15.0	%		255,435	17.7	%		101,159	8.5	%
Total	$	743,468	100.0	%	$	650,302	100.0	%	$	1,443,599	100.0	%	$	1,188,775	100.0	%

	Three Months Ended June 30,								Six Months Ended June 30,
Revenue by Type of Customer	2020				2019				2020				2019
Industrial	$	300,870	40.5	%	$	198,002	30.5	%	$	576,068	39.9	%	$	366,662	30.8	%
Education		130,004	17.5	%		100,220	15.4	%		239,588	16.6	%		166,963	14.1	%
Office Buildings		75,594	10.2	%		105,483	16.2	%		151,166	10.5	%		171,695	14.4	%
Healthcare		96,050	12.9	%		87,878	13.5	%		195,309	13.5	%		179,901	15.1	%
Government		39,832	5.4	%		44,443	6.8	%		78,813	5.5	%		76,722	6.5	%
Retail, Restaurants and Entertainment		64,628	8.7	%		58,086	8.9	%		125,831	8.7	%		117,477	9.9	%
Multi-Family and Residential		20,555	2.8	%		29,061	4.5	%		39,286	2.7	%		59,296	5.0	%
Other		15,935	2.0	%		27,129	4.2	%		37,538	2.6	%		50,059	4.2	%
Total	$	743,468	100.0	%	$	650,302	100.0	%	$	1,443,599	100.0	%	$	1,188,775	100.0	%

	Three Months Ended June 30,								Six Months Ended June 30,
Revenue by Activity Type	2020				2019				2020				2019
New Construction	$	377,433	50.8	%	$	291,479	44.8	%	$	724,833	50.2	%	$	515,439	43.4	%
Existing Building Construction		225,103	30.3	%		199,398	30.7	%		432,269	29.9	%		381,694	32.1	%
Service Projects		58,378	7.8	%		58,808	9.0	%		110,026	7.6	%		109,192	9.2	%
Service Calls, Maintenance and Monitoring		82,554	11.1	%		100,617	15.5	%		176,471	12.3	%		182,450	15.3	%
Total	$	743,468	100.0	%	$	650,302	100.0	%	$	1,443,599	100.0	%	$	1,188,775	100.0	%


	Service		Construction		Other		Total
Balance at beginning of year	$	3,192	$	3,400	$	315	$	6,907
Impact of new accounting standard		310		331		54		695
Bad debt expense (benefit)		2,384		2,219		(10)		4,593
Deductions for uncollectible receivables written off, net of recoveries		(728)		(81)		—		(809)
Credit allowance of acquired companies on the acquisition date		—		502		—		502
Purchase accounting adjustments		—		72		—		72
Reclass to other current liabilities		—		—		(315)		(315)
Balance at June 30, 2020	$	5,158	$	6,443	$	44	$	11,645


	Six Months Ended June 30,					Year Ended December 31,
	2020				2019
	Contract		Contract		Contract		Contract
	Assets		Liabilities		Assets		Liabilities
Balance at beginning of period	$	2,736	$	166,918	$	10,213	$	130,986
Change due to acquisitions / disposals		7,469		37,047		6,573		31,556
Change due to conditional versus unconditional		13,389		—		(14,050)		—
Change in timing for performance obligation to be satisfied		—		22,082		—		4,376
Change related to credit allowance		(79)		—		—		—
Balance at end of period	$	23,515	$	226,047	$	2,736	$	166,918


	June 30, 2020		December 31, 2019
Lease right-of-use assets	$	97,586	$	84,073
Lease liabilities:
Other current liabilities		16,701		14,016
Long-term lease liabilities		83,753		72,697
Total lease liabilities	$	100,454	$	86,713


Year ending December 31—
2020 (excluding the six months ended June 30, 2020)	$	10,598
2021		19,113
2022		16,138
2023		13,767
2024		12,294
Thereafter		46,744
Total Lease Payments		118,654
Less—Present Value Discount		(18,200)
Present Value of Lease Liabilities	$	100,454


	Fair Value Measurements at June 30, 2020
	Level 1		Level 2		Level 3		Total
Cash and cash equivalents	$	53,253	$	—	$	—	$	53,253
Life insurance—cash surrender value	$	—	$	4,298	$	—	$	4,298
Contingent earn-out obligations	$	—	$	—	$	29,385	$	29,385
Interest rate swaps	$	—	$	62	$	—	$	62

	Fair Value Measurements at December 31, 2019
	Level 1		Level 2		Level 3		Total
Cash and cash equivalents	$	50,788	$	—	$	—	$	50,788
Life insurance—cash surrender value	$	—	$	3,905	$	—	$	3,905
Contingent earn-out obligations	$	—	$	—	$	28,497	$	28,497


	Six Months Ended		Year Ended
	June 30, 2020		December 31, 2019
Balance at beginning of period	$	28,497	$	7,375
Issuances		9,155		19,500
Settlements		(9,866)		(1,369)
Adjustments to fair value		1,599		2,991
Balance at end of period	$	29,385	$	28,497


	Six Months Ended
	June 30,
	2020		2019
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	57,211	$	44,039
Adjustments to reconcile net income to net cash provided by operating activities—
Amortization of identifiable intangible assets		17,141		13,006
Depreciation expense		13,633		12,013
Change in right-of-use assets		8,687		7,150
Bad debt expense		4,593		784
Deferred tax provision (benefit)		(2,980)		458
Amortization of debt financing costs		270		191
Gain on sale of assets		(866)		(411)
Changes in the fair value of contingent earn-out obligations		1,599		1,920
Stock-based compensation		5,188		4,679
Changes in operating assets and liabilities, net of effects of acquisitions and divestitures—
(Increase) decrease in—
Receivables, net		30,258		(13,081)
Inventories		(220)		(197)
Prepaid expenses and other current assets		13,382		(735)
Costs and estimated earnings in excess of billings and unbilled accounts receivable		(6,185)		(3,070)
Other noncurrent assets		(228)		(275)
Increase (decrease) in—
Accounts payable and accrued liabilities		(1,984)		(37,849)
Billings in excess of costs and estimated earnings		22,082		2,699
Other long-term liabilities		2,205		(4,721)
Net cash provided by operating activities		163,786		26,600
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment		(14,539)		(15,680)
Proceeds from sales of property and equipment		1,378		632
Cash paid for acquisitions, net of cash acquired		(101,998)		(196,298)
Net cash used in investing activities		(115,159)		(211,346)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from revolving credit facility		178,000		307,000
Payments on revolving credit facility		(151,000)		(111,000)
Payments on term loan		(11,250)		—
Payments on other debt		(32,449)		(3,221)
Payments of dividends to stockholders		(7,674)		(7,198)
Share repurchase		(11,006)		(7,897)


Consideration transferred:
Cash paid at closing	$	105,950
Working capital adjustment		39,715
Notes issued to former owners		14,000
Estimated fair value of contingent earn-out payments		9,100
	$	168,765


	Valuation Method	Estimated Useful Life		Estimated Fair Value
Backlog	Excess earnings	1 year	$	5,200
Trade Name	Relief-from-royalty	25 years		8,200
Customer Relationships	Excess earnings	10 years		40,000
Total			$	53,400


	Mechanical Services		Electrical Services
	Segment		Segment		Total
Balance at December 31, 2018	$	235,182	$	—	$	235,182
Acquisitions and purchase price adjustments (See Note 4)		579		96,686		97,265
Impact of segment reorganization		(1,101)		1,101		—
Balance at December 31, 2019		234,660		97,787		332,447
Acquisitions and purchase price adjustments (See Note 4)		73,409		14,926		88,335
Balance at June 30, 2020	$	308,069	$	112,713	$	420,782

Recognized amounts of identifiable assets acquired and liabilities assumed:
Cash and cash equivalents	$	47,460
Billed and unbilled accounts receivable		18,702
Other current assets		15,634
Other long-term assets		935
Property and equipment		7,709
Goodwill		73,409
Identifiable intangible assets		53,400
Lease right-of-use asset		19,736
Accounts payable		(16,453)
Billings in excess of costs and estimated earnings		(24,196)
Current lease liabilities		(2,337)
Accrued expenses and other current liabilities		(4,849)
Long-term lease liabilities		(17,398)
Other long-term liabilities		(2,987)
	$	168,765


	Estimated	June 30, 2020				December 31, 2019
	Useful Lives	Gross Book		Accumulated		Gross Book		Accumulated
	in Years	Value		Amortization		Value		Amortization
Customer relationships	1 - 15	$	231,492	$	(91,882)	$	183,061	$	(80,813)
Backlog	1 - 2		12,600		(10,822)		7,400		(6,388)
Tradenames	2 - 25		85,695		(16,919)		71,995		(15,281)
Total		$	329,787	$	(119,623)	$	262,456	$	(102,482)


Year ended December 31—
2020 (remainder of the year)	$	15,557
2021		24,610
2022		21,989
2023		20,535
2024		19,185
Thereafter		108,288
Total	$	210,164


	Consolidated Total Indebtedness to
	Credit Facility Adjusted EBITDA
	Less than 1.00		1.00 to 1.75		1.75 to 2.50		2.50 or greater
Additional Per Annum Interest Margin Added Under:
Base Rate Loan Option	0.25	%	0.50	%	0.75	%	1.00	%
Eurodollar Rate Loan Option	1.25	%	1.50	%	1.75	%	2.00	%


	Three Months Ended June 30, 2020
	Mechanical Services		Electrical Services		Corporate		Consolidated
Revenue	$	622,700	$	120,768	$	—	$	743,468
Gross Profit	$	135,757	$	9,938	$	—	$	145,695

	Three Months Ended June 30, 2019
	Mechanical Services		Electrical Services		Corporate		Consolidated
Revenue	$	553,031	$	97,271	$	—	$	650,302
Gross Profit	$	110,279	$	9,737	$	—	$	120,016

	Six Months Ended June 30, 2020
	Mechanical Services		Electrical Services		Corporate		Consolidated
Revenue	$	1,188,164	$	255,435	$	—	$	1,443,599
Gross Profit	$	244,679	$	18,109	$	—	$	262,788

	Six Months Ended June 30, 2019
	Mechanical Services		Electrical Services		Corporate		Consolidated
Revenue	$	1,087,616	$	101,159	$	—	$	1,188,775
Gross Profit	$	216,131	$	10,550	$	—	$	226,681


		Aggregate
		Contract
	No. of	Price Value
Contract Price of Project	Projects	(millions)
Under $1 million	4,835	$	650.8
$1 million - $5 million	592		1,309.9
$5 million - $10 million	112		797.9
$10 million - $15 million	52		641.7
Greater than $15 million	54		1,606.9
Total	5,645	$	5,007.2


				Total Number of Shares	Maximum Number of
				Purchased as Part of	Shares that May Yet Be
	Total Number of	Average Price		Publicly Announced Plans	Purchased Under the Plans
Period	Shares Purchased	Paid Per Share		or Programs (1)	or Programs
April 1 - April 30	—	$	—	8,864,726	683,443
May 1 - May 31	3,000	$	36.72	8,867,726	680,443
June 1 - June 30	49,991	$	38.22	8,917,717	630,452
	52,991	$	38.14	8,917,717	630,452


		Incorporated by Reference to the Exhibit Indicated Below and to the Filing with the Commission Indicated Below
Exhibit Number	Description of Exhibits	Exhibit Number	Filing or File Number
3.1	Second Amended and Restated Certificate of Incorporation of the Registrant	3.1	333-24021
3.2	Certificate of Amendment dated May 21, 1998	3.2	1998 Form 10-K
3.3	Certificate of Amendment dated July 9, 2003	3.3	2003 Form 10-K
3.4	Certificate of Amendment dated May 20, 2016	3.1	May 20, 2016 Form 8-K
3.5	Amended and Restated Bylaws of Comfort Systems USA, Inc.	3.1	March 25, 2016 Form 8-K
31.1*	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2*	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1**	Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2**	Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS*	Inline XBRL Instance Document
101.SCH*	Inline XBRL Taxonomy Extension Schema Document
101.CAL*	Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF*	Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB*	Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE*	Inline XBRL Taxonomy Extension Presentation Linkbase
104	Cover Page Interactive Data File (the cover page XBRL tags are embedded in the Inline XBRL document)


	Comfort Systems USA, Inc.

July 27, 2020	By:	/s/ Brian E. Lane
		Brian E. Lane
		President, Chief Executive Officer and Director

July 27, 2020	By:	/s/ William George
		William George
		Executive Vice President and Chief Financial Officer

July 27, 2020	By:	/s/ Julie S. Shaeff
		Julie S. Shaeff
		Senior Vice President and Chief Accounting Officer


Date: July 27, 2020	/s/ Brian E. Lane
	Brian E. Lane President and Chief Executive Officer


	/s/ William George
Date: July 27, 2020	William George Executive Vice President and Chief Financial Officer