Comfort Systems USA Inc 10-Q for FY2023 Q3

Comfort Systems USA Inc (FIX)

10-Q 2023-10-26 For: 2023-09-30

Added on April 03, 2026

About this 10-Q

Comfort Systems USA Inc filed this 10-Q on October 26, 2023, covering the quarter ended September 30, 2023 (FY2023 Q3).

Headline figures

Quarter ended September 30, 2023, as reported in this filing, compared with the same period a year earlier where the filing states it.

Revenue: $1.38B; up 23.0% from $1.12B a year earlier
Net income: $105.13M; up 70.9% from net income of $61.52M a year earlier
Diluted EPS: $2.93; up 71.3% from $1.71 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		6
Condensed Notes to Consolidated Financial Statements		7
Item 2—Management’s Discussion and Analysis of Financial Condition and Results of Operations		21
Item 3—Quantitative and Qualitative Disclosures about Market Risk		32
Item 4—Controls and Procedures		33
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		34
Item 6—Exhibits		36
Signatures		37


	September 30,		December 31,
	2023		2022
	(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	137,623	$	57,214
Billed accounts receivable, less allowance for credit losses of $10,343 and $10,640, respectively		1,254,798		1,024,082
Unbilled accounts receivable, less allowance for credit losses of $1,093 and $1,011, respectively		78,566		77,030
Other receivables, less allowance for credit losses of $514 and $510, respectively		212,105		38,369
Inventories		53,899		35,309
Prepaid expenses and other		42,687		48,456
Costs and estimated earnings in excess of billings, less allowance for credit losses of $94 and $80, respectively		32,554		27,211
Total current assets		1,812,232		1,307,671
PROPERTY AND EQUIPMENT, NET		186,864		143,949
LEASE RIGHT-OF-USE ASSET		209,138		130,666
GOODWILL		637,487		611,789
IDENTIFIABLE INTANGIBLE ASSETS, NET		274,128		273,901
DEFERRED TAX ASSETS		5,959		115,665
OTHER NONCURRENT ASSETS		14,811		13,837
Total assets	$	3,140,619	$	2,597,478
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt	$	13,333	$	9,000
Accounts payable		441,128		337,385
Accrued compensation and benefits		174,425		127,765
Billings in excess of costs and estimated earnings and deferred revenue		775,302		548,293
Accrued self-insurance		25,913		27,644
Other current liabilities		198,886		120,715
Total current liabilities		1,628,987		1,170,802
LONG-TERM DEBT		33,932		247,245
LEASE LIABILITIES		191,451		111,744
DEFERRED TAX LIABILITIES		6,649		—
OTHER LONG-TERM LIABILITIES		72,438		67,764
Total liabilities		1,933,457		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, 5,363,300 and 5,362,224 shares, respectively		(197,085)		(187,212)
Additional paid-in capital		338,830		332,080
Retained earnings		1,065,006		854,644
Total stockholders’ equity		1,207,162		999,923
Total liabilities and stockholders’ equity	$	3,140,619	$	2,597,478


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2023		2022		2023		2022
REVENUE	$	1,378,124	$	1,120,012	$	3,849,194	$	3,023,176
COST OF SERVICES		1,100,625		917,788		3,138,370		2,492,816
Gross profit		277,499		202,224		710,824		530,360
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES		142,935		121,194		414,397		357,694
GAIN ON SALE OF ASSETS		(579)		(406)		(1,683)		(1,112)
Operating income		135,143		81,436		298,110		173,778
OTHER INCOME (EXPENSE):
Interest income		952		5		2,441		14
Interest expense		(1,886)		(3,609)		(9,880)		(8,764)
Changes in the fair value of contingent earn-out obligations		(8,727)		(3,443)		(14,207)		530
Other		(44)		46		1		101
Other income (expense)		(9,705)		(7,001)		(21,645)		(8,119)
INCOME BEFORE INCOME TAXES		125,438		74,435		276,465		165,659
PROVISION (BENEFIT) FOR INCOME TAXES		20,313		12,920		44,648		(24,864)
NET INCOME	$	105,125	$	61,515	$	231,817	$	190,523

INCOME PER SHARE:
Basic	$	2.93	$	1.72	$	6.47	$	5.30
Diluted	$	2.93	$	1.71	$	6.46	$	5.28

SHARES USED IN COMPUTING INCOME PER SHARE:
Basic		35,820		35,853		35,819		35,966
Diluted		35,917		35,972		35,910		36,078


(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)


	Nine Months Ended
	September 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
Net income	—		—	—		—		—		61,515		61,515
Issuance of Stock:
Issuance of shares for options exercised	—		—	29,862		1,023		(79)		—		944
Issuance of restricted stock & performance stock	—		—	—		—		—		—		—
Shares received in lieu of tax withholding on vested stock	—		—	—		—		—		—		—
Stock-based compensation	—		—	—		—		414		—		414
Dividends ($0.14 per share)	—		—	—		—		—		(5,013)		(5,013)
Share repurchase	—		—	(36,546)		(3,573)		—		—		(3,573)
BALANCE AT SEPTEMBER 30, 2022	41,123,365	$	411	(5,349,349)	$	(185,574)	$	331,710	$	804,585	$	951,132


	Nine Months Ended
	September 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
Net income	—		—	—		—		—		105,125		105,125
Issuance of Stock:
Issuance of shares for options exercised	—		—	—		—		—		—		—
Issuance of restricted stock & performance stock	—		—	761		28		(28)		—		—
Shares received in lieu of tax withholding on vested stock	—		—	(185)		(36)		—		—		(36)
Stock-based compensation	—		—	—		—		445		—		445
Dividends ($0.225 per share)	—		—	—		—		—		(8,049)		(8,049)
Share repurchase	—		—	(10,250)		(1,787)		—		—		(1,787)
BALANCE AT SEPTEMBER 30, 2023	41,123,365	$	411	(5,363,300)	$	(197,085)	$	338,830	$	1,065,006	$	1,207,162


	Three Months Ended September 30,								Nine Months Ended September 30,
Revenue by Service Provided	2023				2022				2023				2022
Mechanical Segment	$	1,031,310	74.8	%	$	858,768	76.7	%	$	2,925,848	76.0	%	$	2,318,036	76.7	%
Electrical Segment		346,814	25.2	%		261,244	23.3	%		923,346	24.0	%		705,140	23.3	%
Total	$	1,378,124	100.0	%	$	1,120,012	100.0	%	$	3,849,194	100.0	%	$	3,023,176	100.0	%

	Three Months Ended September 30,								Nine Months Ended September 30,
Revenue by Type of Customer	2023				2022				2023				2022
Manufacturing	$	469,173	34.0	%	$	376,505	33.6	%	$	1,271,348	33.0	%	$	1,029,647	34.1	%
Technology		303,847	22.0	%		165,717	14.8	%		795,327	20.7	%		393,250	13.0	%
Healthcare		133,130	9.7	%		147,234	13.2	%		431,329	11.2	%		423,142	14.0	%
Education		139,206	10.1	%		133,422	11.9	%		376,637	9.8	%		342,116	11.3	%
Office Buildings		104,937	7.6	%		94,931	8.5	%		299,103	7.8	%		255,963	8.5	%
Retail, Restaurants and Entertainment		77,802	5.6	%		84,354	7.5	%		234,779	6.1	%		230,370	7.6	%
Government		85,220	6.3	%		63,070	5.6	%		227,232	5.9	%		186,747	6.2	%
Multi-Family and Residential		45,523	3.3	%		34,310	3.1	%		136,825	3.5	%		88,924	2.9	%
Other		19,286	1.4	%		20,469	1.8	%		76,614	2.0	%		73,017	2.4	%
Total	$	1,378,124	100.0	%	$	1,120,012	100.0	%	$	3,849,194	100.0	%	$	3,023,176	100.0	%

	Three Months Ended September 30,								Nine Months Ended September 30,
Revenue by Activity Type	2023				2022				2023				2022
New Construction	$	798,289	57.9	%	$	524,122	46.8	%	$	2,108,153	54.8	%	$	1,438,453	47.6	%
Existing Building Construction		305,795	22.2	%		346,683	31.0	%		974,085	25.3	%		910,284	30.1	%
Service Projects		117,202	8.5	%		103,439	9.2	%		335,053	8.7	%		273,663	9.0	%
Service Calls, Maintenance and Monitoring		156,838	11.4	%		145,768	13.0	%		431,903	11.2	%		400,776	13.3	%
Total	$	1,378,124	100.0	%	$	1,120,012	100.0	%	$	3,849,194	100.0	%	$	3,023,176	100.0	%


	September 30, 2023		December 31, 2022
Contract assets:
Costs and estimated earnings in excess of billings, less allowance for credit losses	$	32,554	$	27,211
Contract liabilities:
Billings in excess of costs and estimated earnings and deferred revenue	$	775,302	$	548,293


	Fair Value Measurements at September 30, 2023
	Level 1		Level 2		Level 3		Total
Cash and cash equivalents	$	137,623	$	—	$	—	$	137,623
Life insurance—cash surrender value	$	—	$	7,104	$	—	$	7,104
Contingent earn-out obligations	$	—	$	—	$	33,956	$	33,956

	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


	Nine Months Ended		Year Ended
	September 30, 2023		December 31, 2022
Balance at beginning of period	$	32,317	$	34,114
Issuances		3,449		—
Settlements		(16,017)		(6,616)
Adjustments to fair value		14,207		4,819
Balance at end of period	$	33,956	$	32,317



	Mechanical Segment		Electrical 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 September 30, 2023	$	363,929	$	273,558	$	637,487


	Nine Months Ended
	September 30,
	2023		2022
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	231,817	$	190,523
Adjustments to reconcile net income to net cash provided by operating activities—
Amortization of identifiable intangible assets		32,273		36,602
Depreciation expense		27,717		24,643
Change in right-of-use assets		19,630		15,873
Bad debt expense		2,849		1,471
Deferred tax provision		116,355		11,578
Amortization of debt financing costs		512		613
Gain on sale of assets		(1,683)		(1,112)
Changes in the fair value of contingent earn-out obligations		14,207		(530)
Stock-based compensation		9,128		7,479
Changes in operating assets and liabilities, net of effects of acquisitions and divestitures—
(Increase) decrease in—
Receivables, net		(376,282)		(275,848)
Inventories		(18,272)		(16,335)
Prepaid expenses and other current assets		2,504		1,513
Costs and estimated earnings in excess of billings and unbilled accounts receivable		(5,326)		(17,180)
Other noncurrent assets		(247)		(86)
Increase (decrease) in—
Accounts payable and accrued liabilities		185,382		89,701
Billings in excess of costs and estimated earnings and deferred revenue		217,148		112,482
Other long-term liabilities		8,848		(11,863)
Net cash provided by operating activities		466,560		169,524
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment		(69,574)		(34,793)
Proceeds from sales of property and equipment		5,093		2,151
Cash paid for acquisitions, net of cash acquired		(53,404)		(48,507)
Payments for investments		(1,240)		(1,610)
Net cash used in investing activities		(119,125)		(82,759)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from revolving credit facility		285,000		495,000
Payments on revolving credit facility		(500,000)		(380,000)
Payments on term loan		—		(120,000)
Payments on other debt		(1,980)		(7,834)
Payments on finance lease liabilities		—		(820)


Year ending December 31—
2023 (remainder of the year)	$	10,314
2024		37,006
2025		34,525
2026		33,681
2027		31,699
Thereafter		126,903
Total	$	274,128


	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
	September 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



	September 30, 2023		December 31, 2022
Operating lease right-of-use assets	$	209,138	$	130,666
Operating lease liabilities:
Other current liabilities	$	23,346	$	21,151
Long-term operating lease liabilities		191,451		111,744
Total operating lease liabilities	$	214,797	$	132,895


Year ending December 31—
2023 (excluding the nine months ended September 30, 2023)	$	8,058
2024		34,816
2025		33,412
2026		29,808
2027		25,817
Thereafter		169,579
Total Lease Payments		301,490
Less—Present Value Discount		(86,693)
Present Value of Operating Lease Liabilities	$	214,797


	Three Months Ended September 30, 2023
	Mechanical Segment		Electrical Segment		Corporate		Consolidated
Revenue	$	1,031,310	$	346,814	$	—	$	1,378,124
Gross Profit	$	210,147	$	67,352	$	—	$	277,499

	Three Months Ended September 30, 2022
	Mechanical Segment		Electrical Segment		Corporate		Consolidated
Revenue	$	858,768	$	261,244	$	—	$	1,120,012
Gross Profit	$	150,872	$	51,352	$	—	$	202,224

	Nine Months Ended September 30, 2023
	Mechanical Segment		Electrical Segment		Corporate		Consolidated
Revenue	$	2,925,848	$	923,346	$	—	$	3,849,194
Gross Profit	$	547,695	$	163,129	$	—	$	710,824

	Nine Months Ended September 30, 2022
	Mechanical Segment		Electrical Segment		Corporate		Consolidated
Revenue	$	2,318,036	$	705,140	$	—	$	3,023,176
Gross Profit	$	416,205	$	114,155	$	—	$	530,360


		Aggregate
		Contract
	No. of	Price Value
Contract Price of Project	Projects	(millions)
Under $2 million	9,514	$	1,693.7
$2 million - $10 million	674		2,973.9
$10 million - $20 million	112		1,616.8
$20 million - $40 million	83		2,337.8
Greater than $40 million	29		1,847.3
Total	10,412	$	10,469.5


				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
July 1 - July 31	500	$	154.60	10,170,746	773,379
August 1 - August 31	—	$	—	10,170,746	773,379
September 1 - September 30	9,750	$	175.37	10,180,496	763,629
	10,250	$	174.36	10,180,496	763,629


		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.

October 26, 2023	By:	/s/ Brian E. Lane
		Brian E. Lane
		President, Chief Executive Officer and Director

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

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


Date: October 26, 2023	/s/ Brian E. Lane
	Brian E. Lane President and Chief Executive Officer


	/s/ William George
Date: October 26, 2023	William George Executive Vice President and Chief Financial Officer