FIX 10-Q

Comfort Systems USA Inc (FIX)

10-Q 2023-07-26 For: 2023-06-30

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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		31
Item 4—Controls and Procedures		32
Part II—Other Information		33
Item 1—Legal Proceedings		33
Item 1A—Risk Factors		33
Item 2—Unregistered Sales of Equity Securities and Use of Proceeds		33
Item 6—Exhibits		35
Signatures		36


	June 30,		December 31,
	2023		2022
	(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	60,007	$	57,214
Billed accounts receivable, less allowance for credit losses of $9,972 and $10,640, respectively		1,177,550		1,024,082
Unbilled accounts receivable, less allowance for credit losses of $1,103 and $1,011, respectively		82,401		77,030
Other receivables, less allowance for credit losses of $518 and $510, respectively		59,710		38,369
Inventories		41,619		35,309
Prepaid expenses and other		50,482		48,456
Costs and estimated earnings in excess of billings, less allowance for credit losses of $80 and $80, respectively		28,554		27,211
Total current assets		1,500,323		1,307,671
PROPERTY AND EQUIPMENT, NET		170,089		143,949
LEASE RIGHT-OF-USE ASSET		135,532		130,666
GOODWILL		637,487		611,789
IDENTIFIABLE INTANGIBLE ASSETS, NET		285,057		273,901
DEFERRED TAX ASSETS		170,965		115,665
OTHER NONCURRENT ASSETS		15,664		13,837
Total assets	$	2,915,117	$	2,597,478
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt	$	13,334	$	9,000
Accounts payable		396,181		337,385
Accrued compensation and benefits		141,626		127,765
Billings in excess of costs and estimated earnings and deferred revenue		696,371		548,293
Accrued self-insurance		25,764		27,644
Other current liabilities		208,200		120,715
Total current liabilities		1,481,476		1,170,802
LONG-TERM DEBT		133,945		247,245
LEASE LIABILITIES		115,302		111,744
OTHER LONG-TERM LIABILITIES		72,930		67,764
Total liabilities		1,803,653		1,597,555
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, 5,353,626 and 5,362,224 shares, respectively		(195,290)		(187,212)
Additional paid-in capital		338,413		332,080
Retained earnings		967,930		854,644
Total stockholders’ equity		1,111,464		999,923
Total liabilities and stockholders’ equity	$	2,915,117	$	2,597,478


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2023		2022		2023		2022
REVENUE	$	1,296,430	$	1,017,948	$	2,471,070	$	1,903,164
COST OF SERVICES		1,068,510		842,956		2,037,745		1,575,028
Gross profit		227,920		174,992		433,325		328,136
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES		136,430		118,724		271,462		236,500
GAIN ON SALE OF ASSETS		(592)		(383)		(1,104)		(706)
Operating income		92,082		56,651		162,967		92,342
OTHER INCOME (EXPENSE):
Interest income		92		6		1,489		9
Interest expense		(3,918)		(3,026)		(7,994)		(5,155)
Changes in the fair value of contingent earn-out obligations		(3,098)		(115)		(5,480)		3,973
Other		44		(1)		45		55
Other income (expense)		(6,880)		(3,136)		(11,940)		(1,118)
INCOME BEFORE INCOME TAXES		85,202		53,515		151,027		91,224
PROVISION (BENEFIT) FOR INCOME TAXES		15,726		11,269		24,335		(37,784)
NET INCOME	$	69,476	$	42,246	$	126,692	$	129,008

INCOME PER SHARE:
Basic	$	1.94	$	1.17	$	3.54	$	3.58
Diluted	$	1.93	$	1.17	$	3.53	$	3.57

SHARES USED IN COMPUTING INCOME PER SHARE:
Basic		35,822		35,970		35,817		36,022
Diluted		35,906		36,073		35,907		36,130


(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, 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 on vested 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
Net income	—		—	—		—		—		42,246		42,246
Issuance of Stock:
Issuance of shares for options exercised	—		—	—		—		—		—		—
Issuance of restricted stock & performance stock	—		—	75,092		2,425		(2,425)		—		—
Shares received in lieu of tax withholding on vested stock	—		—	(20,658)		(1,848)		—		—		(1,848)
Stock-based compensation	—		—	—		—		1,822		—		1,822
Dividends ($0.14 per share)	—		—	—		—		—		(5,026)		(5,026)
Share repurchase	—		—	(226,689)		(18,757)		—		—		(18,757)
BALANCE AT JUNE 30, 2022	41,123,365	$	411	(5,342,665)	$	(183,024)	$	331,375	$	748,083	$	896,845


	Six Months Ended
	June 30, 2023
							Additional				Total
	Common Stock			Treasury Stock			Paid-In		Retained		Stockholders’
	Shares	Amount		Shares	Amount		Capital		Earnings		Equity
BALANCE AT DECEMBER 31, 2022	41,123,365	$	411	(5,362,224)	$	(187,212)	$	332,080	$	854,644	$	999,923
Net income	—		—	—		—		—		57,216		57,216
Issuance of Stock:
Issuance of shares for options exercised	—		—	1,000		36		(18)		—		18
Issuance of restricted stock & performance stock	—		—	31,960		1,131		3,384		—		4,515
Shares received in lieu of tax withholding on vested stock	—		—	(12,728)		(1,798)		—		—		(1,798)
Stock-based compensation	—		—	—		—		3,438		—		3,438
Dividends ($0.175 per share)	—		—	—		—		—		(6,254)		(6,254)
Share repurchase	—		—	(29,400)		(3,568)		—		—		(3,568)
BALANCE AT MARCH 31, 2023	41,123,365		411	(5,371,392)		(191,411)		338,884		905,606		1,053,490
Net income	—		—	—		—		—		69,476		69,476
Issuance of Stock:
Issuance of shares for options exercised	—		—	—		—		—		—		—
Issuance of restricted stock & performance stock	—		—	61,505		2,220		(2,220)		—		—
Shares received in lieu of tax withholding on vested stock	—		—	(19,739)		(2,891)		—		—		(2,891)
Stock-based compensation	—		—	—		—		1,749		—		1,749
Dividends ($0.20 per share)	—		—	—		—		—		(7,152)		(7,152)
Share repurchase	—		—	(24,000)		(3,208)		—		—		(3,208)
BALANCE AT JUNE 30, 2023	41,123,365	$	411	(5,353,626)	$	(195,290)	$	338,413	$	967,930	$	1,111,464


	Three Months Ended June 30,								Six Months Ended June 30,
Revenue by Service Provided	2023				2022				2023				2022
Mechanical Services	$	975,923	75.3	%	$	776,757	76.3	%	$	1,894,538	76.7	%	$	1,459,268	76.7	%
Electrical Services		320,507	24.7	%		241,191	23.7	%		576,532	23.3	%		443,896	23.3	%
Total	$	1,296,430	100.0	%	$	1,017,948	100.0	%	$	2,471,070	100.0	%	$	1,903,164	100.0	%

	Three Months Ended June 30,								Six Months Ended June 30,
Revenue by Type of Customer	2023				2022				2023				2022
Manufacturing	$	435,819	33.6	%	$	338,413	33.2	%	$	802,175	32.5	%	$	653,142	34.3	%
Technology		265,231	20.5	%		132,078	13.0	%		491,480	19.9	%		227,533	12.0	%
Healthcare		138,384	10.7	%		141,113	13.9	%		298,199	12.1	%		275,908	14.5	%
Education		127,178	9.8	%		119,248	11.7	%		237,431	9.6	%		208,694	11.0	%
Office Buildings		95,971	7.4	%		85,917	8.4	%		194,166	7.9	%		161,032	8.5	%
Retail, Restaurants and Entertainment		80,783	6.2	%		80,434	7.9	%		156,977	6.3	%		146,016	7.7	%
Government		77,597	6.0	%		66,212	6.5	%		142,012	5.7	%		123,677	6.5	%
Multi-Family and Residential		46,295	3.6	%		30,172	3.0	%		91,302	3.7	%		54,614	2.8	%
Other		29,172	2.2	%		24,361	2.4	%		57,328	2.3	%		52,548	2.7	%
Total	$	1,296,430	100.0	%	$	1,017,948	100.0	%	$	2,471,070	100.0	%	$	1,903,164	100.0	%

	Three Months Ended June 30,								Six Months Ended June 30,
Revenue by Activity Type	2023				2022				2023				2022
New Construction	$	681,912	52.6	%	$	484,913	47.7	%	$	1,309,864	53.0	%	$	914,331	48.1	%
Existing Building Construction		358,807	27.7	%		304,316	29.9	%		668,290	27.1	%		563,601	29.6	%
Service Projects		114,746	8.8	%		93,972	9.2	%		217,851	8.8	%		170,224	8.9	%
Service Calls, Maintenance and Monitoring		140,965	10.9	%		134,747	13.2	%		275,065	11.1	%		255,008	13.4	%
Total	$	1,296,430	100.0	%	$	1,017,948	100.0	%	$	2,471,070	100.0	%	$	1,903,164	100.0	%


	June 30, 2023		December 31, 2022
Contract assets:
Costs and estimated earnings in excess of billings, less allowance for credit losses	$	28,554	$	27,211
Contract liabilities:
Billings in excess of costs and estimated earnings and deferred revenue	$	696,371	$	548,293


	Fair Value Measurements at June 30, 2023
	Level 1		Level 2		Level 3		Total
Cash and cash equivalents	$	60,007	$	—	$	—	$	60,007
Life insurance—cash surrender value	$	—	$	7,814	$	—	$	7,814
Contingent earn-out obligations	$	—	$	—	$	26,639	$	26,639

	Fair Value Measurements at December 31, 2022
	Level 1		Level 2		Level 3		Total
Cash and cash equivalents	$	57,214	$	—	$	—	$	57,214
Life insurance—cash surrender value	$	—	$	9,315	$	—	$	9,315
Contingent earn-out obligations	$	—	$	—	$	32,317	$	32,317


	Six Months Ended		Year Ended
	June 30, 2023		December 31, 2022
Balance at beginning of period	$	32,317	$	34,114
Issuances		3,449		—
Settlements		(14,607)		(6,616)
Adjustments to fair value		5,480		4,819
Balance at end of period	$	26,639	$	32,317


	Mechanical Services		Electrical Services
	Segment		Segment		Total
Balance at December 31, 2021	$	361,320	$	230,794	$	592,114
Acquisitions and purchase price adjustments (See Note 5)		2,609		17,066		19,675
Balance at December 31, 2022		363,929		247,860		611,789
Acquisitions and purchase price adjustments (See Note 5)		—		25,698		25,698
Balance at June 30, 2023	$	363,929	$	273,558	$	637,487


Year ending December 31—
2023 (remainder of the year)	$	21,243
2024		37,006
2025		34,525
2026		33,681
2027		31,699
Thereafter		126,903
Total	$	285,057


	Six Months Ended
	June 30,
	2023		2022
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	126,692	$	129,008
Adjustments to reconcile net income to net cash provided by operating activities—
Amortization of identifiable intangible assets		21,344		25,158
Depreciation expense		18,260		16,295
Change in right-of-use assets		10,884		10,444
Bad debt expense		2,027		1,116
Deferred tax provision (benefit)		(55,300)		6,311
Amortization of debt financing costs		340		441
Gain on sale of assets		(1,104)		(706)
Changes in the fair value of contingent earn-out obligations		5,480		(3,973)
Stock-based compensation		8,248		6,430
Changes in operating assets and liabilities, net of effects of acquisitions and divestitures—
(Increase) decrease in—
Receivables, net		(147,726)		(179,871)
Inventories		(5,992)		(9,432)
Prepaid expenses and other current assets		(3,423)		839
Costs and estimated earnings in excess of billings and unbilled accounts receivable		(5,165)		(1,184)
Other noncurrent assets		(988)		23
Increase (decrease) in—
Accounts payable and accrued liabilities		134,296		42,557
Billings in excess of costs and estimated earnings and deferred revenue		138,217		73,243
Other long-term liabilities		6,229		(8,407)
Net cash provided by operating activities		252,319		108,292
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment		(41,130)		(20,215)
Proceeds from sales of property and equipment		2,086		1,559
Cash paid for acquisitions, net of cash acquired		(53,404)		(39,373)
Payments for investments		(1,180)		(1,236)
Net cash used in investing activities		(93,628)		(59,265)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from revolving credit facility		245,000		485,000
Payments on revolving credit facility		(360,000)		(345,000)
Payments on term loan		—		(120,000)
Payments on other debt		(1,966)		(7,821)
Payments on finance lease liabilities		—		(899)


	June 30,		December 31,
	2023		2022
Revolving credit facility	$	100,000	$	215,000
Notes to former owners		47,106		41,040
Other debt		173		205
Total debt		147,279		256,245
Less—current portion		(13,334)		(9,000)
Total long-term portion of debt	$	133,945	$	247,245


	Net Leverage Ratio
	Less than 1.00		1.00 to less than 1.75		1.75 to less than 2.50		2.50 to less than 3.00		3.00 or greater
Additional Per Annum Interest Margin Added Under:
Base Rate Loan Option	0.00	%	0.25	%	0.50	%	0.75	%	1.00	%
SOFR Loan Option	1.00	%	1.25	%	1.50	%	1.75	%	2.00	%


	Balance at		Range of Stated
	June 30, 2023		Interest Rates
2023	$	13,266	2.5 - 3.0	%
2024		1,000	2.5	%
2025		22,215	2.3 - 3.0	%
2026		10,625	2.5 - 3.8	%
Total	$	47,106



	June 30, 2023		December 31, 2022
Operating lease right-of-use assets	$	135,532	$	130,666
Operating lease liabilities:
Other current liabilities	$	22,037	$	21,151
Long-term operating lease liabilities		115,302		111,744
Total operating lease liabilities	$	137,339	$	132,895


Year ending December 31—
2023 (excluding the six months ended June 30, 2023)	$	14,241
2024		26,842
2025		25,168
2026		21,393
2027		17,168
Thereafter		63,105
Total Lease Payments		167,917
Less—Present Value Discount		(30,578)
Present Value of Operating Lease Liabilities	$	137,339


	Three Months Ended June 30, 2023
	Mechanical Services		Electrical Services		Corporate		Consolidated
Revenue	$	975,923	$	320,507	$	—	$	1,296,430
Gross Profit	$	173,481	$	54,439	$	—	$	227,920

	Three Months Ended June 30, 2022
	Mechanical Services		Electrical Services		Corporate		Consolidated
Revenue	$	776,757	$	241,191	$	—	$	1,017,948
Gross Profit	$	138,605	$	36,387	$	—	$	174,992

	Six Months Ended June 30, 2023
	Mechanical Services		Electrical Services		Corporate		Consolidated
Revenue	$	1,894,538	$	576,532	$	—	$	2,471,070
Gross Profit	$	337,548	$	95,777	$	—	$	433,325

	Six Months Ended June 30, 2022
	Mechanical Services		Electrical Services		Corporate		Consolidated
Revenue	$	1,459,268	$	443,896	$	—	$	1,903,164
Gross Profit	$	265,333	$	62,803	$	—	$	328,136


		Aggregate
		Contract
	No. of	Price Value
Contract Price of Project	Projects	(millions)
Under $2 million	9,013	$	1,631.9
$2 million - $10 million	634		2,791.8
$10 million - $20 million	117		1,698.5
$20 million - $40 million	84		2,417.7
Greater than $40 million	24		1,371.0
Total	9,872	$	9,910.9


				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	22,200	$	132.20	10,168,446	775,679
May 1 - May 31	300	$	149.28	10,168,746	775,379
June 1 - June 30	1,500	$	152.26	10,170,246	773,879
	24,000	$	133.67	10,170,246	773,879


		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	Form of Restricted Stock Unit Agreement with Revisions under the Company’s 2017 Omnibus Incentive Plan	10.1	First Quarter 2023 Form 10-Q
10.2	Form of Dollar-denominated Performance Restricted Stock Unit Agreement with Revisions under the Company’s 2017 Omnibus Incentive Plan	10.2	First Quarter 2023 Form 10-Q
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 26, 2023	By:	/s/ Brian E. Lane
		Brian E. Lane
		President, Chief Executive Officer and Director

July 26, 2023	By:	/s/ William George
		William George
		Executive Vice President and Chief Financial Officer

July 26, 2023	By:	/s/ Julie S. Shaeff
		Julie S. Shaeff
		Senior Vice President and Chief Accounting Officer