FIX 10-Q

Comfort Systems USA Inc (FIX)

10-Q 2022-04-27 For: 2022-03-31

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Added on April 03, 2026

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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		29
Item 4—Controls and Procedures		30
Part II—Other Information		31
Item 1—Legal Proceedings		31
Item 1A—Risk Factors		31
Item 2—Unregistered Sales of Equity Securities and Use of Proceeds		31
Item 6—Exhibits		33
Signatures		34


	March 31,		December 31,
	2022		2021
	(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	115,615	$	58,776
Billed accounts receivable, less allowance for credit losses of $8,694 and $8,808, respectively		804,832		773,716
Unbilled accounts receivable, less allowance for credit losses of $751 and $715, respectively		70,901		61,881
Other receivables, less allowance for credit losses of $498 and $503, respectively		73,677		57,491
Inventories		24,918		21,853
Prepaid expenses and other		31,373		23,704
Costs and estimated earnings in excess of billings, less allowance for credit losses of $53 and $84, respectively		18,313		29,900
Total current assets		1,139,629		1,027,321
PROPERTY AND EQUIPMENT, NET		127,711		128,554
LEASE RIGHT-OF-USE ASSET		124,936		124,756
GOODWILL		593,947		592,114
IDENTIFIABLE INTANGIBLE ASSETS, NET		291,990		304,781
DEFERRED TAX ASSETS		20,577		22,905
OTHER NONCURRENT ASSETS		9,623		8,683
Total assets	$	2,308,413	$	2,209,114
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt	$	407	$	2,788
Accounts payable		267,246		254,788
Accrued compensation and benefits		121,990		129,971
Billings in excess of costs and estimated earnings		316,478		307,380
Accrued self-insurance		22,410		22,227
Other current liabilities		128,668		119,400
Total current liabilities		857,199		836,554
LONG-TERM DEBT, NET		412,079		385,242
LEASE LIABILITIES		107,033		107,701
DEFERRED TAX LIABILITIES		1,745		1,745
OTHER LONG-TERM LIABILITIES		51,949		72,206
Total liabilities		1,430,005		1,403,448
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, 5,170,410 and 5,032,311 shares, respectively		(164,844)		(150,580)
Additional paid-in capital		331,978		327,061
Retained earnings		710,863		628,774
Total stockholders’ equity		878,408		805,666
Total liabilities and stockholders’ equity	$	2,308,413	$	2,209,114


	Three Months Ended
	March 31,
	2022		2021
REVENUE	$	885,216	$	669,761
COST OF SERVICES		732,072		546,292
Gross profit		153,144		123,469
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES		117,776		88,214
GAIN ON SALE OF ASSETS		(323)		(350)
Operating income		35,691		35,605
OTHER INCOME (EXPENSE):
Interest income		3		3
Interest expense		(2,129)		(1,497)
Changes in the fair value of contingent earn-out obligations		4,088		1,186
Other		56		(69)
Other income (expense)		2,018		(377)
INCOME BEFORE INCOME TAXES		37,709		35,228
PROVISION (BENEFIT) FOR INCOME TAXES		(49,053)		8,737
NET INCOME	$	86,762	$	26,491

INCOME PER SHARE:
Basic	$	2.40	$	0.73
Diluted	$	2.40	$	0.73

SHARES USED IN COMPUTING INCOME PER SHARE:
Basic		36,076		36,286
Diluted		36,188		36,499


(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)


	Three Months Ended
	March 31, 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 ($0.115 per share)	—		—	—		—		—		(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


	Three Months Ended
	March 31, 2022
							Additional				Total
	Common Stock			Treasury Stock			Paid-In		Retained		Stockholders’
	Shares	Amount		Shares	Amount		Capital		Earnings		Equity
BALANCE AT DECEMBER 31, 2021	41,123,365	$	411	(5,032,311)	$	(150,580)	$	327,061	$	628,774	$	805,666
Net income	—		—	—		—		—		86,762		86,762
Issuance of Stock:
Issuance of shares for options exercised	—		—	—		—		—		—		—
Issuance of restricted stock & performance stock	—		—	38,863		1,232		2,312		—		3,544
Shares received in lieu of tax withholding payment on vested restricted stock	—		—	(15,348)		(1,399)		—		—		(1,399)
Stock-based compensation	—		—	—		—		2,605		—		2,605
Dividends ($0.13 per share)	—		—	—		—		—		(4,673)		(4,673)
Share repurchase	—		—	(161,614)		(14,097)		—		—		(14,097)
BALANCE AT MARCH 31, 2022	41,123,365	$	411	(5,170,410)	$	(164,844)	$	331,978	$	710,863	$	878,408


	Three Months Ended March 31,
Revenue by Service Provided	2022				2021
Mechanical Services	$	682,511	77.1	%	$	565,620	84.5	%
Electrical Services		202,705	22.9	%		104,141	15.5	%
Total	$	885,216	100.0	%	$	669,761	100.0	%

	Three Months Ended March 31,
Revenue by Type of Customer	2022				2021
Industrial	$	410,184	46.3	%	$	269,583	40.3	%
Education		89,446	10.1	%		92,457	13.8	%
Office Buildings		75,115	8.5	%		78,996	11.8	%
Healthcare		134,795	15.2	%		95,091	14.2	%
Government		57,465	6.5	%		43,165	6.4	%
Retail, Restaurants and Entertainment		65,582	7.4	%		44,576	6.7	%
Multi-Family and Residential		24,442	2.8	%		24,660	3.7	%
Other		28,187	3.2	%		21,233	3.1	%
Total	$	885,216	100.0	%	$	669,761	100.0	%

	Three Months Ended March 31,
Revenue by Activity Type	2022				2021
New Construction	$	429,418	48.5	%	$	302,061	45.1	%
Existing Building Construction		259,285	29.3	%		216,601	32.3	%
Service Projects		76,252	8.6	%		60,060	9.0	%
Service Calls, Maintenance and Monitoring		120,261	13.6	%		91,039	13.6	%
Total	$	885,216	100.0	%	$	669,761	100.0	%


	Three Months Ended March 31,					Year Ended December 31,
	2022				2021
	Contract		Contract		Contract		Contract
	Assets		Liabilities		Assets		Liabilities
Balance at beginning of period	$	29,900	$	307,380	$	18,622	$	226,237
Change due to acquisitions / disposals		(10)		52		10,356		36,523
Change related to credit allowance		31		—		(5)		—
Other changes in the period		(11,608)		21,135		927		44,620
Balance at end of period	$	18,313	$	328,567	$	29,900	$	307,380


	Fair Value Measurements at March 31, 2022
	Level 1		Level 2		Level 3		Total
Cash and cash equivalents	$	115,615	$	—	$	—	$	115,615
Life insurance—cash surrender value	$	—	$	6,358	$	—	$	6,358
Contingent earn-out obligations	$	—	$	—	$	28,275	$	28,275

	Fair Value Measurements at December 31, 2021
	Level 1		Level 2		Level 3		Total
Cash and cash equivalents	$	58,776	$	—	$	—	$	58,776
Life insurance—cash surrender value	$	—	$	6,643	$	—	$	6,643
Contingent earn-out obligations	$	—	$	—	$	34,114	$	34,114


	Three Months Ended		Year Ended
	March 31, 2022		December 31, 2021
Balance at beginning of period	$	34,114	$	25,979
Issuances		—		19,949
Settlements		(1,751)		(3,994)
Adjustments to fair value		(4,088)		(7,820)
Balance at end of period	$	28,275	$	34,114


	Mechanical Services		Electrical Services
	Segment		Segment		Total
Balance at December 31, 2020	$	307,448	$	156,944	$	464,392
Acquisitions and purchase price adjustments (See Note 5)		52,771		74,951		127,722
Impact of segment reorganization		1,101		(1,101)		—
Balance at December 31, 2021		361,320		230,794		592,114
Acquisitions and purchase price adjustments (See Note 5)		1,833		—		1,833
Balance at March 31, 2022	$	363,153	$	230,794	$	593,947


Year ending December 31—
2022 (remainder of the year)	$	33,715
2023		34,532
2024		32,343
2025		30,156
2026		29,312
Thereafter		131,932
Total	$	291,990


	Three Months Ended
	March 31,
	2022		2021
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	86,762	$	26,491
Adjustments to reconcile net income to net cash provided by operating activities—
Amortization of identifiable intangible assets		12,791		8,925
Depreciation expense		8,046		7,051
Change in right-of-use assets		4,734		4,377
Bad debt expense (benefit)		25		(1,018)
Deferred tax provision (benefit)		2,328		(410)
Amortization of debt financing costs		133		133
Gain on sale of assets		(323)		(350)
Changes in the fair value of contingent earn-out obligations		(4,088)		(1,186)
Stock-based compensation		3,996		4,711
Changes in operating assets and liabilities, net of effects of acquisitions and divestitures—
(Increase) decrease in—
Receivables, net		(52,701)		49,684
Inventories		(3,104)		(2,181)
Prepaid expenses and other current assets		(2,803)		(390)
Costs and estimated earnings in excess of billings and unbilled accounts receivable		2,562		6,840
Other noncurrent assets		181		(284)
Increase (decrease) in—
Accounts payable and accrued liabilities		1,899		(33,087)
Billings in excess of costs and estimated earnings		9,046		20,550
Other long-term liabilities		(5,755)		(5,209)
Net cash provided by operating activities		63,729		84,647
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment		(9,192)		(4,812)
Proceeds from sales of property and equipment		1,056		498
Cash paid for acquisitions, net of cash acquired		3		(10,716)
Payments for investments		(1,236)		—
Net cash used in investing activities		(9,369)		(15,030)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from revolving credit facility		50,000		10,000
Payments on revolving credit facility		(10,000)		(70,000)
Payments on term loan		(7,500)		(7,500)
Payments on other debt		(7,797)		—
Payments on finance lease liabilities		(253)		—


	March 31,		December 31,
	2022		2021
Revolving credit facility	$	260,000	$	220,000
Term loan		112,500		120,000
Notes to former owners		40,157		47,954
Finance lease liabilities (See Note 8)		—		266
Total principal amount		412,657		388,220
Less—unamortized debt issuance costs		(171)		(190)
Total debt, net of unamortized debt issuance costs		412,486		388,030
Less—current portion		(407)		(2,788)
Total long-term portion of debt, net	$	412,079	$	385,242


	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	%


	Balance at		Range of Stated
	March 31, 2022		Interest Rates
2022	$	407	2.5 - 3.5	%
2023		9,400	2.5	%
2024		10,800	2.5 - 3.0	%
2025		19,550	2.3 - 2.5	%
Total	$	40,157


	March 31, 2022		December 31, 2021
Operating lease right-of-use assets	$	124,936	$	124,756
Operating lease liabilities:
Other current liabilities	$	19,571	$	19,050
Long-term operating lease liabilities		107,033		107,701
Total operating lease liabilities	$	126,604	$	126,751


Year ending December 31—
2022 (excluding the three months ended March 31, 2022)	$	18,388
2023		22,243
2024		19,735
2025		18,638
2026		15,646
Thereafter		55,274
Total Lease Payments		149,924
Less—Present Value Discount		(23,320)
Present Value of Operating Lease Liabilities	$	126,604


	Three Months Ended March 31, 2022
	Mechanical Services		Electrical Services		Corporate		Consolidated
Revenue	$	682,511	$	202,705	$	—	$	885,216
Gross Profit	$	126,728	$	26,416	$	—	$	153,144

	Three Months Ended March 31, 2021
	Mechanical Services		Electrical Services		Corporate		Consolidated
Revenue	$	565,620	$	104,141	$	—	$	669,761
Gross Profit	$	108,128	$	15,341	$	—	$	123,469


		Aggregate
		Contract
	No. of	Price Value
Contract Price of Project	Projects	(millions)
Under $1 million	7,381	$	873.9
$1 million - $5 million	688		1,573.0
$5 million - $10 million	147		999.8
$10 million - $15 million	54		666.7
Greater than $15 million	89		2,526.6
Total	8,359	$	6,640.0


				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
January 1 - January 31	52,203	$	89.68	9,727,000	566,751
February 1 - February 28	82,012	$	86.07	9,809,012	484,739
March 1 - March 31	27,399	$	86.05	9,836,411	457,340
	161,614	$	87.23	9,836,411	457,340


		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
10.1	Resignation and General Release Agreement between Comfort Systems USA, Inc. and Terrence Young, dated as of January 18, 2022.	10.1	January 19, 2022 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.

April 27, 2022	By:	/s/ Brian E. Lane
		Brian E. Lane
		President, Chief Executive Officer and Director

April 27, 2022	By:	/s/ William George
		William George
		Executive Vice President and Chief Financial Officer

April 27, 2022	By:	/s/ Julie S. Shaeff
		Julie S. Shaeff
		Senior Vice President and Chief Accounting Officer