Comfort Systems USA Inc 10-Q for FY2021 Q2

Comfort Systems USA Inc (FIX)

10-Q 2021-07-28 For: 2021-06-30

Added on April 03, 2026

About this 10-Q

Comfort Systems USA Inc filed this 10-Q on July 28, 2021, covering the quarter ended June 30, 2021 (FY2021 Q2).

Headline figures

Quarter ended June 30, 2021, as reported in this filing, compared with the same period a year earlier where the filing states it.

Revenue: $713.9M; down 4.0% from $743.47M a year earlier
Net income: $32.97M; down 16.5% from net income of $39.5M a year earlier
Diluted EPS: $0.90; down 16.7% from $1.08 a year earlier

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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		20
Item 3—Quantitative and Qualitative Disclosures about Market Risk		30
Item 4—Controls and Procedures		31
Part II—Other Information		31
Item 1—Legal Proceedings		31
Item 1A—Risk Factors		32
Item 2—Unregistered Sales of Equity Securities and Use of Proceeds		32
Item 6—Exhibits		33
Signatures		34


	June 30,		December 31,
	2021		2020
	(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	53,659	$	54,896
Billed accounts receivable, less allowance for credit losses of $8,648 and $9,087, respectively		630,446		619,544
Unbilled accounts receivable, less allowance for credit losses of $815 and $784, respectively		53,624		45,596
Other receivables, less allowance for credit losses of $549 and $759, respectively		38,515		44,212
Inventories		18,837		13,472
Prepaid expenses and other		11,350		15,510
Costs and estimated earnings in excess of billings, less allowance for credit losses of $34 and $79, respectively		12,969		18,622
Total current assets		819,400		811,852
PROPERTY AND EQUIPMENT, NET		113,589		117,206
LEASE RIGHT-OF-USE ASSET		95,532		94,727
GOODWILL		472,046		464,392
IDENTIFIABLE INTANGIBLE ASSETS, NET		221,584		231,807
DEFERRED TAX ASSETS		23,952		29,401
OTHER NONCURRENT ASSETS		8,847		7,970
Total assets	$	1,754,950	$	1,757,355
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt	$	4,235	$	—
Accounts payable		207,453		204,145
Accrued compensation and benefits		115,797		121,864
Billings in excess of costs and estimated earnings		255,357		226,237
Accrued self-insurance		47,359		49,166
Other current liabilities		91,209		91,492
Total current liabilities		721,410		692,904
LONG-TERM DEBT, NET		156,272		235,733
LEASE LIABILITIES		81,060		80,576
DEFERRED TAX LIABILITIES		1,339		1,339
OTHER LONG-TERM LIABILITIES		42,857		50,374
Total liabilities		1,002,938		1,060,926
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, 4,774,785 and 4,935,186 shares, respectively		(128,503)		(129,243)
Additional paid-in capital		326,179		322,451
Retained earnings		553,925		502,810
Total stockholders’ equity		752,012		696,429
Total liabilities and stockholders’ equity	$	1,754,950	$	1,757,355


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2021		2020		2021		2020
REVENUE	$	713,895	$	743,468	$	1,383,656	$	1,443,599
COST OF SERVICES		587,440		597,773		1,133,732		1,180,811
Gross profit		126,455		145,695		249,924		262,788
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES		87,549		85,045		175,763		177,969
GAIN ON SALE OF ASSETS		(491)		(312)		(841)		(866)
Operating income		39,397		60,962		75,002		85,685
OTHER INCOME (EXPENSE):
Interest income		3		28		6		92
Interest expense		(1,360)		(2,554)		(2,857)		(5,171)
Changes in the fair value of contingent earn-out obligations		4,581		(3,871)		5,767		(1,599)
Other		161		—		92		25
Other income (expense)		3,385		(6,397)		3,008		(6,653)
INCOME BEFORE INCOME TAXES		42,782		54,565		78,010		79,032
PROVISION FOR INCOME TAXES		9,817		15,070		18,554		21,821
NET INCOME	$	32,965	$	39,495	$	59,456	$	57,211

INCOME PER SHARE:
Basic	$	0.91	$	1.08	$	1.64	$	1.56
Diluted	$	0.90	$	1.08	$	1.63	$	1.55

SHARES USED IN COMPUTING INCOME PER SHARE:
Basic		36,403		36,581		36,345		36,628
Diluted		36,566		36,737		36,533		36,821
DIVIDENDS PER SHARE	$	0.115	$	0.105	$	0.230	$	0.210


(Mark One)
☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to

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)


	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

	Six Months Ended
	June 30, 2021
							Additional				Total
	Common Stock			Treasury Stock			Paid-In		Retained		Stockholders’
	Shares	Amount		Shares	Amount		Capital		Earnings		Equity
BALANCE AT DECEMBER 31, 2020	41,123,365	$	411	(4,935,186)	$	(129,243)	$	322,451	$	502,810	$	696,429
Net income	—		—	—		—		—		26,491		26,491
Issuance of Stock:
Issuance of shares for options exercised	—		—	61,454		1,616		(211)		—		1,405
Issuance of restricted stock & performance stock	—		—	29,544		777		1,431		—		2,208
Shares received in lieu of tax withholding payment on vested restricted stock	—		—	(11,424)		(854)		—		—		(854)
Stock-based compensation	—		—	—		—		2,472		—		2,472
Dividends	—		—	—		—		—		(4,163)		(4,163)
Share repurchase	—		—	(13,250)		(885)		—		—		(885)
BALANCE AT MARCH 31, 2021	41,123,365		411	(4,868,862)		(128,589)		326,143		525,138		723,103
Net income	—		—	—		—		—		32,965		32,965
Issuance of Stock:
Issuance of shares for options exercised	—		—	69,342		1,853		191		—		2,044
Issuance of restricted stock & performance stock	—		—	71,816		1,904		(1,904)		—		—
Shares received in lieu of tax withholding payment on vested restricted stock	—		—	(19,989)		(1,509)		—		—		(1,509)
Stock-based compensation	—		—	—		—		1,749		—		1,749
Dividends	—		—	—		—		—		(4,178)		(4,178)
Share repurchase	—		—	(27,092)		(2,162)		—		—		(2,162)
BALANCE AT JUNE 30, 2021	41,123,365	$	411	(4,774,785)	$	(128,503)	$	326,179	$	553,925	$	752,012


	Three Months Ended June 30,								Six Months Ended June 30,
Revenue by Service Provided	2021				2020				2021				2020
Mechanical Services	$	611,796	85.7	%	$	626,706	84.3	%	$	1,177,416	85.1	%	$	1,197,457	82.9	%
Electrical Services		102,099	14.3	%		116,762	15.7	%		206,240	14.9	%		246,142	17.1	%
Total	$	713,895	100.0	%	$	743,468	100.0	%	$	1,383,656	100.0	%	$	1,443,599	100.0	%

	Three Months Ended June 30,								Six Months Ended June 30,
Revenue by Type of Customer	2021				2020				2021				2020
Industrial	$	311,075	43.6	%	$	300,870	40.5	%	$	580,658	42.0	%	$	576,068	39.9	%
Education		92,381	12.9	%		130,004	17.5	%		184,838	13.4	%		239,588	16.6	%
Office Buildings		73,014	10.2	%		75,594	10.2	%		152,010	11.0	%		151,166	10.5	%
Healthcare		96,004	13.4	%		96,050	12.9	%		191,095	13.8	%		195,309	13.5	%
Government		42,506	6.0	%		39,832	5.4	%		85,671	6.2	%		78,813	5.5	%
Retail, Restaurants and Entertainment		48,933	6.9	%		64,628	8.7	%		93,509	6.7	%		125,831	8.7	%
Multi-Family and Residential		28,341	4.0	%		20,555	2.8	%		53,001	3.8	%		39,286	2.7	%
Other		21,641	3.0	%		15,935	2.0	%		42,874	3.1	%		37,538	2.6	%
Total	$	713,895	100.0	%	$	743,468	100.0	%	$	1,383,656	100.0	%	$	1,443,599	100.0	%

	Three Months Ended June 30,								Six Months Ended June 30,
Revenue by Activity Type	2021				2020				2021				2020
New Construction	$	329,890	46.2	%	$	377,433	50.8	%	$	631,951	45.7	%	$	724,833	50.2	%
Existing Building Construction		215,317	30.2	%		225,103	30.3	%		431,918	31.2	%		432,269	29.9	%
Service Projects		66,263	9.3	%		58,378	7.8	%		126,323	9.1	%		110,026	7.6	%
Service Calls, Maintenance and Monitoring		102,425	14.3	%		82,554	11.1	%		193,464	14.0	%		176,471	12.3	%
Total	$	713,895	100.0	%	$	743,468	100.0	%	$	1,383,656	100.0	%	$	1,443,599	100.0	%


	Six Months Ended June 30,					Year Ended December 31,
	2021				2020
	Contract		Contract		Contract		Contract
	Assets		Liabilities		Assets		Liabilities
Balance at beginning of period	$	18,622	$	226,237	$	2,736	$	166,918
Change due to acquisitions / disposals		472		1,610		9,509		39,885
Change related to credit allowance		45		—		(79)		—
Other changes in the period		(6,170)		27,510		6,456		19,434
Balance at end of period	$	12,969	$	255,357	$	18,622	$	226,237


	Fair Value Measurements at June 30, 2021
	Level 1		Level 2		Level 3		Total
Cash and cash equivalents	$	53,659	$	—	$	—	$	53,659
Life insurance—cash surrender value	$	—	$	6,510	$	—	$	6,510
Contingent earn-out obligations	$	—	$	—	$	22,602	$	22,602
Interest rate swap liability	$	—	$	48	$	—	$	48

	Fair Value Measurements at December 31, 2020
	Level 1		Level 2		Level 3		Total
Cash and cash equivalents	$	54,896	$	—	$	—	$	54,896
Life insurance—cash surrender value	$	—	$	5,420	$	—	$	5,420
Contingent earn-out obligations	$	—	$	—	$	25,979	$	25,979
Interest rate swap liability	$	—	$	42	$	—	$	42


	Six Months Ended		Year Ended
	June 30, 2021		December 31, 2020
Balance at beginning of period	$	25,979	$	28,497
Issuances		3,255		16,715
Settlements		(865)		(10,114)
Adjustments to fair value		(5,767)		(9,119)
Balance at end of period	$	22,602	$	25,979


	Mechanical Services		Electrical Services
	Segment		Segment		Total
Balance at December 31, 2019	$	234,660	$	97,787	$	332,447
Acquisitions and purchase price adjustments (See Note 5)		72,788		59,157		131,945
Balance at December 31, 2020		307,448		156,944		464,392
Acquisitions and purchase price adjustments (See Note 5)		7,725		(71)		7,654
Impact of segment reorganization		1,101		(1,101)		—
Balance at June 30, 2021	$	316,274	$	155,772	$	472,046


	Six Months Ended
	June 30,
	2021		2020
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	59,456	$	57,211
Adjustments to reconcile net income to net cash provided by operating activities—
Amortization of identifiable intangible assets		17,749		17,141
Depreciation expense		13,925		13,633
Change in right-of-use assets		8,554		8,687
Bad debt expense (benefit)		(429)		4,593
Deferred tax provision (benefit)		5,449		(2,980)
Amortization of debt financing costs		267		270
Gain on sale of assets		(841)		(866)
Changes in the fair value of contingent earn-out obligations		(5,767)		1,599
Stock-based compensation		6,860		5,188
Changes in operating assets and liabilities, net of effects of acquisitions and divestitures—
(Increase) decrease in—
Receivables, net		(6,841)		30,258
Inventories		(5,365)		(220)
Prepaid expenses and other current assets		13,037		13,382
Costs and estimated earnings in excess of billings and unbilled accounts receivable		(2,752)		(6,185)
Other noncurrent assets		(1,105)		(228)
Increase (decrease) in—
Accounts payable and accrued liabilities		(10,964)		(1,984)
Billings in excess of costs and estimated earnings		27,510		22,082
Other long-term liabilities		(8,674)		2,205
Net cash provided by operating activities		110,069		163,786
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment		(10,762)		(14,539)
Proceeds from sales of property and equipment		1,530		1,378
Cash paid for acquisitions, net of cash acquired		(11,742)		(101,998)
Net cash used in investing activities		(20,974)		(115,159)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from revolving credit facility		25,000		178,000
Payments on revolving credit facility		(80,000)		(151,000)
Payments on term loan		(15,000)		(11,250)
Payments on other debt		(8,765)		(32,449)
Payments of dividends to stockholders		(8,341)		(7,674)
Share repurchase		(3,047)		(11,006)


Year ended December 31—
2021 (remainder of the year)	$	16,914
2022		28,400
2023		24,217
2024		22,867
2025		20,680
Thereafter		108,506
Total	$	221,584


	June 30,		December 31,
	2021		2020
Revolving credit facility	$	15,000	$	70,000
Term loan		120,000		135,000
Notes to former owners		25,735		31,000
Total principal amount		160,735		236,000
Less—unamortized debt issuance costs		(228)		(267)
Total debt, net of unamortized debt issuance costs		160,507		235,733
Less—current portion		(4,235)		—
Total long-term portion of debt, net	$	156,272	$	235,733


	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	%


	June 30, 2021		December 31, 2020
Lease right-of-use assets	$	95,532	$	94,727
Lease liabilities:
Other current liabilities	$	16,769	$	16,586
Long-term lease liabilities		81,060		80,576
Total lease liabilities	$	97,829	$	97,162


Year ending December 31—
2021 (excluding the six months ended June 30, 2021)	$	10,625
2022		18,930
2023		16,355
2024		14,413
2025		13,521
Thereafter		40,038
Total Lease Payments		113,882
Less—Present Value Discount		(16,053)
Present Value of Lease Liabilities	$	97,829


	Three Months Ended June 30, 2021
	Mechanical Services		Electrical Services		Corporate		Consolidated
Revenue	$	611,796	$	102,099	$	—	$	713,895
Gross Profit	$	112,405	$	14,050	$	—	$	126,455

	Three Months Ended June 30, 2020
	Mechanical Services		Electrical Services		Corporate		Consolidated
Revenue	$	626,706	$	116,762	$	—	$	743,468
Gross Profit	$	136,708	$	8,987	$	—	$	145,695

	Six Months Ended June 30, 2021
	Mechanical Services		Electrical Services		Corporate		Consolidated
Revenue	$	1,177,416	$	206,240	$	—	$	1,383,656
Gross Profit	$	220,533	$	29,391	$	—	$	249,924

	Six Months Ended June 30, 2020
	Mechanical Services		Electrical Services		Corporate		Consolidated
Revenue	$	1,197,457	$	246,142	$	—	$	1,443,599
Gross Profit	$	246,692	$	16,096	$	—	$	262,788


		Aggregate
		Contract
	No. of	Price Value
Contract Price of Project	Projects	(millions)
Under $1 million	5,434	$	658.9
$1 million - $5 million	588		1,304.7
$5 million - $10 million	111		781.0
$10 million - $15 million	41		504.6
Greater than $15 million	68		1,908.0
Total	6,242	$	5,157.2


				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	3,500	$	75.45	9,328,751	965,000
May 1 - May 31	8,721	$	80.49	9,337,472	956,279
June 1 - June 30	14,871	$	80.39	9,352,343	941,408
	27,092	$	79.79	9,352,343	941,408


		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 28, 2021	By:	/s/ Brian E. Lane
		Brian E. Lane
		President, Chief Executive Officer and Director

July 28, 2021	By:	/s/ William George
		William George
		Executive Vice President and Chief Financial Officer

July 28, 2021	By:	/s/ Julie S. Shaeff
		Julie S. Shaeff
		Senior Vice President and Chief Accounting Officer