Company Performance - Comfort Systems (FIX) ended the recent trading session at $388.18, demonstrating a +0.18% swing from the preceding day's closing price, which was less than the S&P 500's daily gain of 0.25% [1] - The company's shares have seen an increase of 14.81% over the last month, surpassing the Construction sector's gain of 3.49% and the S&P 500's gain of 1.65% [1] Earnings Forecast - The company is predicted to post an EPS of $4.05, indicating a 47.81% growth compared to the equivalent quarter last year [2] Analyst Sentiment - Investors should monitor any recent revisions to analyst forecasts for Comfort Systems, as such modifications usually signify changing near-term business trends [3] - Upbeat changes in estimates indicate analysts' favorable outlook on the company's business health and profitability [3] Valuation Metrics - Comfort Systems is presently trading at a Forward P/E ratio of 28.1, which signifies a discount compared to the average Forward P/E of 35.92 for its industry [6] - The Building Products - Air Conditioner and Heating industry, part of the Construction sector, holds a current Zacks Industry Rank of 17, ranking in the top 7% of all industries [6] Zacks Rank - Comfort Systems holds a Zacks Rank of 1 (Strong Buy), with the Zacks Consensus EPS estimate remaining unchanged over the last 30 days [5] - The Zacks Rank system has an impressive track record of outperformance, with 1 ranked stocks yielding an average annual return of +25% since 1988 [5]

The most recent trading session ended with Comfort Systems (FIX) standing at $339.02, reflecting a +1.49% shift from the previouse trading day's closing. The stock outpaced the S&P 500's daily gain of 0.75%. At the same time, the Dow added 0.58%, and the tech-heavy Nasdaq gained 1%. Heading into today, shares of the heating, ventilation and air conditioning company had gained 1.34% over the past month, lagging the Construction sector's gain of 2.7% and the S&P 500's gain of 4.03% in that time. Analysts and ...

Group 1 - Comfort Systems (FIX) stock closed at $353.52, with a daily increase of +1.78%, outperforming the S&P 500's gain of 1.01% [1] - The stock has risen by 6.32% over the past month, significantly exceeding the Construction sector's gain of 0.3% and the S&P 500's gain of 2.5% [1] Group 2 - The upcoming earnings report for Comfort Systems is projected to show an EPS of $3.80, reflecting a 38.69% increase year-over-year, with revenue expected to reach $1.77 billion, indicating a 28.36% growth [2] - For the full year, earnings are projected at $13.19 per share and revenue at $6.74 billion, representing increases of +50.92% and +29.44% respectively from the previous year [3] Group 3 - Recent analyst estimate revisions for Comfort Systems suggest confidence in the company's business performance and profit potential [3] - The Zacks Rank system, which incorporates estimate changes, currently ranks Comfort Systems as 1 (Strong Buy), indicating strong potential for share price momentum [5] Group 4 - Comfort Systems has a Forward P/E ratio of 26.33, which is lower than the industry's Forward P/E of 33.74, suggesting a valuation discount [6] - The Building Products - Air Conditioner and Heating industry, part of the Construction sector, holds a Zacks Industry Rank of 12, placing it in the top 5% of over 250 industries [6][7]

Group 1: Company Performance - Comfort Systems (FIX) has gained approximately 60.8% year-to-date, significantly outperforming the average gain of 14.6% in the Construction sector [4] - The Zacks Consensus Estimate for Comfort Systems' full-year earnings has increased by 10.8% over the past three months, indicating improved analyst sentiment and a stronger earnings outlook [4] - Comfort Systems holds a Zacks Rank of 1 (Strong Buy), suggesting a favorable investment outlook [3] Group 2: Industry Comparison - Comfort Systems is part of the Building Products - Air Conditioner and Heating industry, which has an average gain of 22.7% this year, indicating that FIX is performing well within its specific industry [6] - In contrast, Construction Partners (ROAD), another outperforming stock, is in the Building Products - Miscellaneous industry, which has only gained 11.8% year-to-date [7] - The Construction sector ranks 3 in the Zacks Sector Rank, reflecting a strong overall performance among its constituents [2]

Core Viewpoint - Investing in growth stocks with the potential for significant returns requires thorough research and patience, particularly in sectors poised for expansion by the end of the decade [2][3]. Group 1: Growth Sectors - Key sectors identified for potential multibagger opportunities include artificial intelligence, renewable energy, healthcare, and infrastructure [2]. - Companies in these sectors may experience revenue, earnings, and free cash flow growth due to industry-specific tailwinds [2]. Group 2: Company Highlights - **GoDaddy (GDDY)**: - The company has seen over a 50% increase in stock price year-to-date, driven by expanding revenue, earnings, and free cash flow [4]. - In Q2, revenue grew by 7% year-over-year, with net earnings increasing by 76% to $146.3 million [4]. - GoDaddy is investing in its AI-powered platform, GoDaddy Airo, enhancing customer experience through features like AI logo generation and SEO capabilities [4]. - **Texas Roadhouse (TXRH)**: - The restaurant chain is expanding its operations, which is expected to significantly boost revenue and earnings through 2030 [5][6]. - In Q2, revenue rose by 14.5% year-over-year to $1.34 billion, and net earnings increased by 46% to $120 million [6]. - The company plans to open 15 company restaurants and six franchises in 2024, indicating strong future growth potential [6]. - **Comfort Systems USA (FIX)**: - The company is positioned to benefit from increasing global infrastructure spending [7]. - In Q2, revenue surged by 40% year-over-year, and net earnings soared by 93% to $134 million [8]. - Comfort Systems has a record backlog of $5.77 billion, reflecting strong demand for its HVAC services [8].

Core Viewpoint - Comfort Systems (FIX) has been upgraded to a Zacks Rank 1 (Strong Buy), indicating a positive outlook on its earnings estimates, which is a significant factor influencing stock prices [1][2]. Earnings Estimates and Stock Price Movement - The change in a company's future earnings potential, as indicated by earnings estimate revisions, is strongly correlated with near-term stock price movements [3]. - Institutional investors utilize earnings estimates to determine the fair value of a company's shares, leading to buying or selling actions that affect stock prices [3]. Comfort Systems' Earnings Outlook - For the fiscal year ending December 2024, Comfort Systems is expected to earn $13.19 per share, reflecting a 50.9% increase from the previous year [7]. - Over the past three months, the Zacks Consensus Estimate for Comfort Systems has risen by 10.8%, indicating a positive trend in earnings estimates [7]. Zacks Rank System - The Zacks Rank system classifies stocks into five groups based on earnings estimates, with Zacks Rank 1 stocks historically generating an average annual return of +25% since 1988 [6]. - The upgrade of Comfort Systems to a Zacks Rank 1 places it in the top 5% of Zacks-covered stocks, suggesting potential for higher stock movement in the near term [9].

Financial Data and Key Metrics Changes - Revenue for Q2 2024 was $1.8 billion, an increase of $514 million or 40% compared to last year [44] - Net income for Q2 2024 was $134 million or $3.74 per share, a 90% improvement from last year [47] - Operating income increased by over 100% from $92 million in Q2 2023 to $185 million in Q2 2024 [46] - EBITDA doubled to $223 million this quarter from $112 million in Q2 2023 [33] Business Line Data and Key Metrics Changes - Mechanical segment revenue increased by 49%, benefiting from organic construction and service growth [44] - Electrical segment revenue increased by 12%, with margins in this segment jumping to 23.6% from 17% last year [45] - Modular construction accounted for 18% of total revenue, with service revenue at 16% [65] Market Data and Key Metrics Changes - Industrial customers accounted for 60% of total revenue in the first half of 2024, driving pipeline and backlog [2] - The company reported a backlog of $5.8 billion, a 38% increase year-over-year [64] - Technology, included in industrial, represented 31% of revenue, up from 20% the prior year [36] Company Strategy and Development Direction - The company is focusing on project selection to maintain margins and is optimistic about future growth due to strong demand in various sectors [28][11] - Management emphasized the importance of maintaining good working conditions and selecting projects with favorable margins [58] - The company is not planning significant new commitments to space but aims to improve productivity in existing operations [6] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the current market, describing it as one of the best in over 40 years [11] - The company expects same-store revenue growth in the low to mid 20% range for the full year 2024 [60] - Management noted that demand remains strong, particularly in the industrial sector, and backlog levels are high [58] Other Important Information - Free cash flow for the first six months of 2024 was $290 million, with operating cash flow exceeding earnings by about $300 million [63] - SG&A expenses for the quarter were $180 million, or 9.9% of revenue, compared to 10.5% in Q2 2023 [61] - The company has successfully retired all bank debt as of June 30, 2024, with cash balances exceeding debt [1] Q&A Session Summary Question: Sustainability of Margins - Management believes that the factors contributing to current margins are strong and may continue to improve [5] Question: Demand and Pipeline Strength - Management indicated that the demand and pipeline are robust across all markets served, with no signs of slowdown [11] Question: Project Selection Impact on Margins - Management confirmed that project selection is crucial for maintaining margins and that they are being selective in a strong market [28] Question: Future of Data Center Construction - Management reassured that data center construction remains strong, with ongoing investments in technology and infrastructure [17] Question: SG&A Leverage Outlook - Management noted that while SG&A expenses have increased, they expect to maintain solid leverage moving forward [29]

Certain measures in this presentation are not measures calculated in accordance with generally accepted accounting principles ("GAAP"). They should not be considered a replacement for GAAP results. Non-GAAP financial measures appearing in these slides are identified in the footnote. See the Appendices for a reconciliation of these non-GAAP measures to the most comparable GAAP financial measures. Gross Profit percentage increased to 20.1% vs. 17.6% in Q2 2023 Q2 2024 Backlog was $5.77 billion compared to $5. ...

Core Viewpoint - Comfort Systems (FIX) reported quarterly earnings of $3.74 per share, exceeding the Zacks Consensus Estimate of $3.11 per share, and significantly up from $1.93 per share a year ago [1][6] Earnings Performance - The company has surpassed consensus EPS estimates in all four of the last quarters [2] - The recent quarterly report represents an earnings surprise of 20.26% [6] - Previous quarter's earnings were expected to be $2.26 per share, but the actual earnings were $2.69, resulting in a surprise of 19.03% [6] Revenue Performance - Comfort Systems reported revenues of $1.81 billion for the quarter ended June 2024, which is 9.36% above the Zacks Consensus Estimate and an increase from $1.3 billion year-over-year [7] - The company has topped consensus revenue estimates only once in the last four quarters [7] Future Outlook - The current consensus EPS estimate for the upcoming quarter is $3.55 on revenues of $1.77 billion, and for the current fiscal year, it is $12.25 on revenues of $6.74 billion [5] - The estimate revisions trend for Comfort Systems is currently favorable, leading to a Zacks Rank 2 (Buy) for the stock, indicating expected outperformance in the near future [4] Industry Context - Comfort Systems operates within the Zacks Building Products - Air Conditioner and Heating industry, which is currently ranked in the top 14% of over 250 Zacks industries [9] - The industry’s performance can significantly impact the stock's performance, with research indicating that the top 50% of Zacks-ranked industries outperform the bottom 50% by more than 2 to 1 [9] Stock Performance - Comfort Systems shares have increased approximately 45.8% since the beginning of the year, compared to a 13.8% gain in the S&P 500 [12]

[PART I—FINANCIAL INFORMATION](index=4&type=section&id=PART%20I%E2%80%94FINANCIAL%20INFORMATION) This part provides unaudited consolidated financial statements, management's discussion, and market risk disclosures for Comfort Systems USA, Inc [Item 1. Financial Statements](index=4&type=section&id=Item%201.%20Financial%20Statements) This section presents Comfort Systems USA, Inc.'s unaudited consolidated financial statements and explanatory notes for Q2 and H1 2024 [Consolidated Balance Sheets](index=4&type=section&id=Consolidated%20Balance%20Sheets) This section provides a snapshot of the company's financial position, detailing assets, liabilities, and equity as of June 30, 2024, and December 31, 2023 Consolidated Balance Sheet Highlights (in thousands) | Metric | June 30, 2024 | December 31, 2023 | Change (vs. Dec 31, 2023) | | :-------------------------------- | :------------ | :---------------- | :-------------------------- | | Total Assets | $4,213,984 | $3,305,579 | +27.5% | | Total Current Assets | $2,323,371 | $1,911,100 | +21.6% | | Total Liabilities | $2,731,690 | $2,027,750 | +34.7% | | Total Current Liabilities | $2,334,948 | $1,721,205 | +35.6% | | Total Stockholders' Equity | $1,482,294 | $1,277,829 | +16.0% | [Consolidated Statements of Operations](index=6&type=section&id=Consolidated%20Statements%20of%20Operations) This section details the company's financial performance, including revenue, gross profit, operating income, and net income for the periods presented Consolidated Statements of Operations Highlights (in thousands, except per share data) | Metric | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | YoY Change | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | YoY Change | | :--------------------------------- | :------------------------------- | :------------------------------- | :--------- | :----------------------------- | :----------------------------- | :--------- | | Revenue | $1,810,290 | $1,296,430 | +39.6% | $3,347,306 | $2,471,070 | +35.5% | | Gross profit | $363,596 | $227,920 | +59.5% | $660,959 | $433,325 | +52.5% | | Operating income | $184,670 | $92,082 | +100.5% | $320,130 | $162,967 | +96.4% | | Net income | $134,009 | $69,476 | +92.9% | $230,328 | $126,692 | +81.8% | | Basic EPS | $3.75 | $1.94 | +93.3% | $6.44 | $3.54 | +82.0% | | Diluted EPS | $3.74 | $1.93 | +93.8% | $6.43 | $3.53 | +82.2% | [Consolidated Statements of Stockholders' Equity](index=7&type=section&id=Consolidated%20Statements%20of%20Stockholders%27%20Equity) This section outlines changes in stockholders' equity, reflecting net income, dividends, and share repurchases for the period Consolidated Statements of Stockholders' Equity Highlights (in thousands) | Metric | June 30, 2024 | December 31, 2023 | Change (6M 2024) | | :--------------------------------- | :------------ | :---------------- | :--------------- | | Total Stockholders' Equity | $1,482,294 | $1,277,829 | +$204,465 | | Net income | $230,328 | N/A | +$230,328 | | Dividends | $(19,634) | N/A | -$(19,634) | | Share repurchase | $(11,139) | N/A | -$(11,139) | [Consolidated Statements of Cash Flows](index=8&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) This section presents the cash inflows and outflows from operating, investing, and financing activities for the periods Consolidated Statements of Cash Flows Highlights (in thousands) | Metric | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | YoY Change | | :------------------------------------ | :----------------------------- | :----------------------------- | :--------- | | Net cash provided by operating activities | $336,415 | $252,319 | +33.3% | | Net cash used in investing activities | $(282,434) | $(93,628) | +201.6% | | Net cash used in financing activities | $(59,712) | $(155,898) | -61.7% | | Net increase (decrease) in cash and cash equivalents | $(5,731) | $2,793 | -305.2% | | Cash and cash equivalents, end of period | $199,419 | $60,007 | +232.3% | [Condensed Notes to Consolidated Financial Statements](index=10&type=section&id=Condensed%20Notes%20to%20Consolidated%20Financial%20Statements) This section provides detailed explanations and disclosures supporting the consolidated financial statements [Note 1. Business and Organization](index=10&type=section&id=Note%201.%20Business%20and%20Organization) This note describes Comfort Systems USA, Inc.'s core business activities and organizational structure - Comfort Systems USA, Inc. provides comprehensive mechanical and electrical contracting services, including HVAC, plumbing, electrical, piping, controls, off-site construction, monitoring, and fire protection, across the United States[20](index=20&type=chunk) [Note 2. Summary of Significant Accounting Policies and Estimates](index=10&type=section&id=Note%202.%20Summary%20of%20Significant%20Accounting%20Policies%20and%20Estimates) This note outlines the critical accounting policies and estimates used in preparing the financial statements - The company is evaluating ASU 2023-07 (Segment Reporting) and ASU 2023-09 (Income Tax Disclosures), but these standards are not expected to impact consolidated financial position, results of operations, or cash flows[24](index=24&type=chunk)[26](index=26&type=chunk) - Revenue is recognized over time, primarily using a cost-to-cost input method, as control continuously transfers to the customer[27](index=27&type=chunk)[28](index=28&type=chunk) - Credit losses are estimated using a loss-rate method for construction, service, and other portfolio segments, with construction assets generally having lower loss rates due to lien rights[31](index=31&type=chunk) - The Inflation Reduction Act's corporate alternative minimum tax and excise tax on stock repurchases were not material to current year financial results[36](index=36&type=chunk) - The company filed for a **$107.1 million refund** for the 2022 tax year based on IRS guidance for research and experimental expenditures[37](index=37&type=chunk) [Note 3. Revenue from Contracts with Customers](index=14&type=section&id=Note%203.%20Revenue%20from%20Contracts%20with%20Customers) This note details the company's revenue recognition policies and disaggregates revenue by service, customer, and activity type - Net revenue recognized from performance obligations partially satisfied in previous periods positively impacted revenue by **2.4%** for the three months ended June 30, 2024, and **3.2%** for the six months ended June 30, 2024, due to changes in estimates[52](index=52&type=chunk) Revenue by Service Provided (in thousands) | Service Provided | Three Months Ended June 30, 2024 | % | Three Months Ended June 30, 2023 | % | | :----------------- | :------------------------------- | :- | :------------------------------- | :- | | Mechanical Segment | $1,451,679 | 80.2 | $975,923 | 75.3 | | Electrical Segment | $358,611 | 19.8 | $320,507 | 24.7 | | Total | $1,810,290 | 100.0 | $1,296,430 | 100.0 | | Service Provided | Six Months Ended June 30, 2024 | % | Six Months Ended June 30, 2023 | % | | :----------------- | :----------------------------- | :- | :----------------------------- | :- | | Mechanical Segment | $2,636,688 | 78.8 | $1,894,538 | 76.7 | | Electrical Segment | $710,618 | 21.2 | $576,532 | 23.3 | | Total | $3,347,306 | 100.0 | $2,471,070 | 100.0 | Revenue by Type of Customer (in thousands) | Customer Type | Three Months Ended June 30, 2024 | % | Three Months Ended June 30, 2023 | % | | :-------------- | :------------------------------- | :- | :------------------------------- | :- | | Technology | $561,313 | 31.0 | $265,231 | 20.5 | | Manufacturing | $526,215 | 29.0 | $435,819 | 33.6 | | Education | $193,433 | 10.7 | $127,178 | 9.8 | | Healthcare | $140,747 | 7.8 | $138,384 | 10.7 | | Office Buildings | $115,012 | 6.4 | $95,971 | 7.4 | | Retail, Restaurants and Entertainment | $114,501 | 6.3 | $80,783 | 6.2 | | Government | $91,073 | 5.0 | $77,597 | 6.0 | | Multi-Family and Residential | $36,181 | 2.0 | $46,295 | 3.6 | | Other | $31,815 | 1.8 | $29,172 | 2.2 | | Total | $1,810,290 | 100.0 | $1,296,430 | 100.0 | | Customer Type | Six Months Ended June 30, 2024 | % | Six Months Ended June 30, 2023 | % | | :-------------- | :----------------------------- | :- | :----------------------------- | :- | | Technology | $1,026,127 | 30.7 | $491,480 | 19.9 | | Manufacturing | $987,615 | 29.5 | $802,175 | 32.5 | | Education | $327,416 | 9.8 | $237,431 | 9.6 | | Healthcare | $274,476 | 8.2 | $298,199 | 12.1 | | Office Buildings | $216,904 | 6.5 | $194,166 | 7.9 | | Retail, Restaurants and Entertainment | $195,086 | 5.8 | $156,977 | 6.3 | | Government | $178,874 | 5.3 | $142,012 | 5.7 | | Multi-Family and Residential | $77,032 | 2.3 | $91,302 | 3.7 | | Other | $63,776 | 1.9 | $57,328 | 2.3 | | Total | $3,347,306 | 100.0 | $2,471,070 | 100.0 | Revenue by Activity Type (in thousands) | Activity Type | Three Months Ended June 30, 2024 | % | Three Months Ended June 30, 2023 | % | | :-------------- | :------------------------------- | :- | :------------------------------- | :- | | New Construction | $1,082,272 | 59.8 | $681,912 | 52.6 | | Existing Building Construction | $446,574 | 24.7 | $358,807 | 27.7 | | Service Projects | $126,280 | 6.9 | $114,746 | 8.8 | | Service Calls, Maintenance and Monitoring | $155,164 | 8.6 | $140,965 | 10.9 | | Total | $1,810,290 | 100.0 | $1,296,430 | 100.0 | | Activity Type | Six Months Ended June 30, 2024 | % | Six Months Ended June 30, 2023 | % | | :-------------- | :----------------------------- | :- | :----------------------------- | :- | | New Construction | $1,981,248 | 59.2 | $1,309,864 | 53.0 | | Existing Building Construction | $836,943 | 25.0 | $668,290 | 27.1 | | Service Projects | $230,394 | 6.9 | $217,851 | 8.8 | | Service Calls, Maintenance and Monitoring | $298,721 | 8.9 | $275,065 | 11.1 | | Total | $3,347,306 | 100.0 | $2,471,070 | 100.0 | Contract Assets and Liabilities (in thousands) | Metric | June 30, 2024 | December 31, 2023 | | :------------------------------------------------- | :------------ | :---------------- | | Costs and estimated earnings in excess of billings | $69,391 | $28,084 | | Billings in excess of costs and estimated earnings and deferred revenue | $1,149,896 | $909,538 | - Remaining performance obligations totaled **$5.77 billion** as of June 30, 2024, with **65-75%** expected to be recognized as revenue over the next 12 months[59](index=59&type=chunk) [Note 4. Fair Value Measurements](index=20&type=section&id=Note%204.%20Fair%20Value%20Measurements) This note provides information on assets and liabilities measured at fair value, including valuation methodologies Fair Value Measurements (in thousands) | Asset/Liability | June 30, 2024 | December 31, 2023 | | :-------------------------- | :------------ | :---------------- | | Cash and cash equivalents | $199,419 | $205,150 | | Life insurance—cash surrender value | $8,457 | $7,473 | | Contingent earn-out obligations | $85,984 | $44,222 | - Contingent earn-out obligations, valued using a probability-weighted discounted cash flow method (Level 3 input), increased significantly from **$44.2 million** at December 31, 2023, to **$85.9 million** at June 30, 2024, primarily due to new issuances and fair value adjustments[65](index=65&type=chunk)[66](index=66&type=chunk) [Note 5. Acquisitions](index=22&type=section&id=Note%205.%20Acquisitions) This note details significant business acquisitions, including consideration paid and goodwill recognized - On February 1, 2024, Comfort Systems acquired Summit Industrial Construction, LLC for a total consideration of **$359.8 million**, recognizing **$155.3 million** in goodwill and **$170.1 million** in identifiable intangible assets[67](index=67&type=chunk)[69](index=69&type=chunk) - On February 1, 2024, the company acquired J & S Mechanical Contractors, Inc. for a total consideration of **$120.6 million**, recognizing **$40.7 million** in goodwill and **$63.3 million** in identifiable intangible assets[74](index=74&type=chunk)[75](index=75&type=chunk) - Other acquisitions include a plumbing service provider in North Carolina (May 2024, **$40.0 million**), DECCO, Inc. (October 2023, **$59.8 million**), and Eldeco, Inc. (February 2023, **$74.0 million**)[80](index=80&type=chunk)[81](index=81&type=chunk)[82](index=82&type=chunk) [Note 6. Goodwill and Identifiable Intangible Assets, Net](index=30&type=section&id=Note%206.%20Goodwill%20and%20Identifiable%20Intangible%20Assets%2C%20Net) This note presents the carrying amounts of goodwill and identifiable intangible assets by segment and their amortization schedule Goodwill by Segment (in thousands) | Segment | December 31, 2023 | June 30, 2024 | Change (6M 2024) | | :----------------- | :---------------- | :------------ | :--------------- | | Mechanical Segment | $393,276 | $601,189 | +$207,913 | | Electrical Segment | $273,558 | $273,758 | +$200 | | Total | $666,834 | $874,947 | +$208,113 | Future Amortization Expense of Identifiable Intangible Assets (in thousands) | Year Ending December 31 | Amount | | :------------------------ | :----- | | 2024 (remainder) | $46,463 | | 2025 | $66,576 | | 2026 | $55,961 | | 2027 | $53,650 | | 2028 | $52,103 | | Thereafter | $206,127 | | Total | $480,880 | [Note 7. Debt Obligations](index=30&type=section&id=Note%207.%20Debt%20Obligations) This note details the company's debt structure, including revolving credit facilities and notes to former owners Debt Obligations (in thousands) | Debt Type | June 30, 2024 | December 31, 2023 | | :---------------------- | :------------ | :---------------- | | Revolving credit facility | $— | $— | | Notes to former owners | $90,270 | $44,070 | | Other debt | $793 | $142 | | Total debt | $91,063 | $44,212 | | Long-term portion | $73,377 | $39,345 | - The company has an **$850.0 million** revolving credit facility, with no outstanding borrowings as of June 30, 2024, and **$768.5 million** of credit available[88](index=88&type=chunk) - Notes to former owners totaled **$90.3 million** as of June 30, 2024, with principal payments extending through 2028[94](index=94&type=chunk) [Note 8. Leases](index=32&type=section&id=Note%208.%20Leases) This note provides information on operating lease assets, liabilities, and their maturity schedule Operating Lease Assets and Liabilities (in thousands) | Metric | June 30, 2024 | December 31, 2023 | | :-------------------------- | :------------ | :---------------- | | Operating lease right-of-use assets | $226,721 | $205,712 | | Total operating lease liabilities | $235,283 | $212,562 | - The weighted average discount rate for operating leases was **6.0%** as of June 30, 2024, with a weighted average remaining lease term of **11.3 years**[97](index=97&type=chunk)[98](index=98&type=chunk) Maturities of Operating Lease Liabilities (in thousands) | Year Ending December 31 | Total Lease Payments | | :------------------------ | :------------------- | | 2024 (remainder) | $20,095 | | 2025 | $37,975 | | 2026 | $34,201 | | 2027 | $29,730 | | 2028 | $25,888 | | Thereafter | $187,309 | | Total Lease Payments | $335,198 | | Less—present value discount | $(99,915) | | Present value of operating lease liabilities | $235,283 | [Note 9. Commitments and Contingencies](index=36&type=section&id=Note%209.%20Commitments%20and%20Contingencies) This note discloses the company's legal, insurance, and surety bond commitments and potential contingent liabilities - The company recorded a pre-tax gain of **$6.8 million** in the first quarter of 2023 from legal developments and settlements related to customer disputes and subcontract obligations[104](index=104&type=chunk) - The company is substantially self-insured for workers' compensation, employer's liability, auto liability, general liability, and employee group health claims, with estimated losses reviewed quarterly by a third-party actuary[108](index=108&type=chunk)[109](index=109&type=chunk)[110](index=110&type=chunk) - Surety bonds are required for **10% to 20%** of the company's business, and strong surety relationships are maintained[107](index=107&type=chunk) [Note 10. Stockholders' Equity](index=38&type=section&id=Note%2010.%20Stockholders%27%20Equity) This note details changes in stockholders' equity, including shares used in EPS calculations and repurchase activities Shares Used in Computing EPS (in thousands) | Metric | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Shares used in computing EPS—basic | 35,746 | 35,822 | 35,742 | 35,817 | | Shares used in computing EPS—diluted | 35,828 | 35,906 | 35,828 | 35,907 | - During the six months ended June 30, 2024, the company repurchased less than **0.1 million shares** for approximately **$11.1 million** at an average price of **$305.23 per share** under its stock repurchase program[115](index=115&type=chunk) [Note 11. Segment Information](index=40&type=section&id=Note%2011.%20Segment%20Information) This note provides disaggregated financial information for the company's mechanical and electrical operating segments Segment Revenue and Gross Profit (in thousands) | Segment | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :----------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | **Revenue:** | | | | | | Mechanical Segment | $1,451,679 | $975,923 | $2,636,688 | $1,894,538 | | Electrical Segment | $358,611 | $320,507 | $710,618 | $576,532 | | **Gross Profit:** | | | | | | Mechanical Segment | $278,972 | $173,481 | $496,684 | $337,548 | | Electrical Segment | $84,624 | $54,439 | $164,275 | $95,777 | [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=41&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on the company's financial condition, operational results, and future outlook [Introduction and Overview](index=41&type=section&id=Introduction%20and%20Overview) This section introduces Comfort Systems USA's business as a national provider of mechanical and electrical contracting services - Comfort Systems USA is a national provider of comprehensive mechanical and electrical installation, renovation, maintenance, repair, and replacement services, operating in commercial, industrial, and institutional markets[119](index=119&type=chunk) [Nature and Economics of Our Business](index=41&type=section&id=Nature%20and%20Economics%20of%20Our%20Business) This section describes the project-based nature of the business, contract values, and lien rights - Approximately **91.1%** of revenue is derived from project-based installation services in new or existing facilities, typically under fixed-price contracts[123](index=123&type=chunk) - As of June 30, 2024, the company had **8,292 projects** in process with an aggregate contract value of **$14.12 billion**, with an average project duration of six to nine months and an average contract price of **$1.7 million**[127](index=127&type=chunk)[129](index=129&type=chunk) - The company has legal rights to attach liens to buildings or related funding sources for unpaid services, except for some government buildings[127](index=127&type=chunk) [Profile and Management of Our Operations](index=45&type=section&id=Profile%20and%20Management%20of%20Our%20Operations) This section highlights the company's operational management focus on profitability, cash flow, and talent retention - The company manages **47 operating units**, emphasizing profitability, cash flow, working capital, project selection, safety, labor utilization, and backlog composition[133](index=133&type=chunk) - Attracting and retaining effective operating unit managers is critical due to market uniqueness, customer relationships, and high competition[134](index=134&type=chunk) [Economic and Industry Factors](index=45&type=section&id=Economic%20and%20Industry%20Factors) This section discusses how national nonresidential construction trends and macroeconomic factors influence company performance - The company's performance is influenced by trends in the national nonresidential construction sector and macroeconomic factors such as GDP, interest rates, business investment, and government fiscal conditions[135](index=135&type=chunk) - Spending decisions for building construction, renovation, and system replacement are discretionary and significantly affected by economic uncertainty[136](index=136&type=chunk) [Operating Environment and Management Emphasis](index=45&type=section&id=Operating%20Environment%20and%20Management%20Emphasis) This section addresses ongoing challenges like labor costs and supply constraints, alongside strong demand and competitive advantages - Despite recovering from the COVID-19 pandemic, the company continues to experience increased labor costs, supply constraints, and delivery delays, particularly for skilled labor, which are expected to persist throughout 2024[137](index=137&type=chunk) - The company expects strong demand in 2024, especially from manufacturing and technology customers (e.g., data centers, chip plants, food, pharmaceuticals)[137](index=137&type=chunk) - Competitive advantages include a strong balance sheet, an **$850.0 million** credit facility with **$768.5 million** available as of June 30, 2024, and robust surety relationships[138](index=138&type=chunk)[139](index=139&type=chunk) [Cyclicality and Seasonality](index=47&type=section&id=Cyclicality%20and%20Seasonality) This section explains the impact of business cycles and seasonal demand fluctuations on the construction industry - The construction industry is subject to business cycle fluctuations, and the mechanical and electrical contracting industries experience seasonality, with lower demand in the first calendar quarter and higher demand in the second and third quarters[141](index=141&type=chunk)[142](index=142&type=chunk) [Critical Accounting Estimates](index=47&type=section&id=Critical%20Accounting%20Estimates) This section confirms no significant changes to critical accounting estimates for the three months ended June 30, 2024 - Management reported no significant changes to critical accounting estimates during the three months ended June 30, 2024, as compared to those disclosed in the 2023 Annual Report on Form 10-K[143](index=143&type=chunk) [Results of Operations](index=48&type=section&id=Results%20of%20Operations) This section provides a detailed analysis of revenue, gross profit, expenses, and net income for the reporting periods Key Financial Performance Metrics (in thousands, except percentages) | Metric | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | YoY Change | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | YoY Change | | :--------------------------------- | :------------------------------- | :------------------------------- | :--------- | :----------------------------- | :----------------------------- | :--------- | | Revenue | $1,810,290 | $1,296,430 | +39.6% | $3,347,306 | $2,471,070 | +35.5% | | Gross profit | $363,596 | $227,920 | +59.5% | $660,959 | $433,325 | +52.5% | | Gross profit margin | 20.1% | 17.6% | +2.5 pp | 19.7% | 17.5% | +2.2 pp | | SG&A | $179,537 | $136,430 | +31.6% | $342,260 | $271,462 | +26.1% | | SG&A as % of revenue | 9.9% | 10.5% | -0.6 pp | 10.2% | 11.0% | -0.8 pp | | Operating income | $184,670 | $92,082 | +100.5% | $320,130 | $162,967 | +96.4% | | Net income | $134,009 | $69,476 | +92.9% | $230,328 | $126,692 | +81.8% | - Revenue growth was driven by strong market conditions, particularly in the technology and manufacturing sectors (data centers, chip plants, food, pharmaceuticals), and contributions from recent acquisitions (Summit, J&S, DECCO, Eldeco)[148](index=148&type=chunk)[153](index=153&type=chunk) - Gross profit margin improved due to higher revenues and improved operational execution, especially in the electrical segment[159](index=159&type=chunk)[160](index=160&type=chunk) - SG&A as a percentage of revenue decreased due to leverage from increased revenue, despite higher compensation costs and amortization expense from acquisitions[161](index=161&type=chunk)[162](index=162&type=chunk)[163](index=163&type=chunk) - Interest expense decreased due to a lower average outstanding debt balance, while expense from changes in the fair value of contingent earn-out obligations increased significantly due to higher actual and projected earnings at Summit and J&S[166](index=166&type=chunk)[167](index=167&type=chunk) Operating Segment Backlog (in thousands, except percentages) | Segment | June 30, 2024 | % | December 31, 2023 | % | June 30, 2023 | % | | :----------------- | :------------ | :- | :---------------- | :- | :------------ | :- | | Mechanical Segment | $4,486,999 | 77.7 | $4,027,927 | 78.1 | $3,156,378 | 75.4 | | Electrical Segment | $1,285,221 | 22.3 | $1,129,449 | 21.9 | $1,029,155 | 24.6 | | Total | $5,772,220 | 100.0 | $5,157,376 | 100.0 | $4,185,533 | 100.0 | - Backlog as of June 30, 2024, was **$5.77 billion**, representing a **37.9% increase** year-over-year but a **2.4% decrease** sequentially from March 31, 2024, primarily due to project completions offset by new bookings[158](index=158&type=chunk) [Outlook](index=53&type=section&id=Outlook) This section provides management's expectations for future performance, including earnings, cash flow, and operational strategies - The company anticipates solid earnings and cash flow for 2024, driven by strong ongoing demand, particularly from manufacturing and technology customers[172](index=172&type=chunk) - Management is actively addressing increased labor costs, supply constraints, and delivery delays through job planning, earlier material ordering, and customer collaboration[171](index=171&type=chunk) [Liquidity and Capital Resources](index=55&type=section&id=Liquidity%20and%20Capital%20Resources) This section discusses the company's cash flow, borrowing capacity, and overall financial flexibility Cash Flow and Free Cash Flow (in thousands) | Metric | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | YoY Change | | :------------------------------------ | :----------------------------- | :----------------------------- | :--------- | | Cash provided by operating activities | $336,415 | $252,319 | +33.3% | | Cash used in investing activities | $(282,434) | $(93,628) | +201.6% | | Cash used in financing activities | $(59,712) | $(155,898) | -61.7% | | Net increase (decrease) in cash and cash equivalents | $(5,731) | $2,793 | -305.2% | | Free cash flow | $289,908 | $213,275 | +36.0% | - Cash provided by operating activities increased by **$84.1 million**, primarily due to higher earnings before non-cash expenses and a **$143.7 million** benefit from increases in accounts payable and accrued liabilities[176](index=176&type=chunk) - Cash used in investing activities increased by **$188.8 million**, mainly due to higher cash paid for acquisitions[177](index=177&type=chunk) - Cash used in financing activities decreased by **$96.2 million**, primarily due to lower net repayments of debt in the current year[178](index=178&type=chunk) - The company has generated positive net free cash flow for the last twenty-five calendar years and maintains significant borrowing capacity under its credit facility, ensuring sufficient liquidity for the foreseeable future[190](index=190&type=chunk) - As of June 30, 2024, the company had **$768.5 million** of credit available under its **$850.0 million** revolving credit facility and **$81.5 million** in letters of credit outstanding[182](index=182&type=chunk) [Item 3. Quantitative and Qualitative Disclosures about Market Risk](index=61&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) This section details the company's exposure to market risks, primarily interest rate risk, and outlines its risk management strategies - The company's primary market risk exposure is related to potential adverse changes in interest rates, particularly under its revolving credit facility, which had no outstanding borrowings as of June 30, 2024[195](index=195&type=chunk)[196](index=196&type=chunk) - The valuation of contingent earn-out payments is determined using a probability-weighted discounted cash flow method, reflecting contractual terms and assumptions about future cash flows and discount rates[198](index=198&type=chunk) [Item 4. Controls and Procedures](index=61&type=section&id=Item%204.%20Controls%20and%20Procedures) This section confirms the effectiveness of disclosure controls and procedures and reports no material changes in internal control over financial reporting - The Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective as of June 30, 2024[199](index=199&type=chunk) - There were no material changes in the company's internal control over financial reporting during the three months ended June 30, 2024[200](index=200&type=chunk) [PART II—OTHER INFORMATION](index=62&type=section&id=PART%20II%E2%80%94OTHER%20INFORMATION) This part covers legal proceedings, risk factors, equity sales, other information, and exhibits for Comfort Systems USA, Inc [Item 1. Legal Proceedings](index=62&type=section&id=Item%201.%20Legal%20Proceedings) This section addresses legal and regulatory claims, noting accruals for probable losses and no material impact on financial results - The company is subject to legal and regulatory claims in the normal course of business, with accruals made for probable losses, which management believes will not materially affect financial results[202](index=202&type=chunk)[204](index=204&type=chunk) - A pre-tax gain of **$6.8 million** was recorded in the first quarter of 2023 from legal developments and settlements[203](index=203&type=chunk) [Item 1A. Risk Factors](index=62&type=section&id=Item%201A.%20Risk%20Factors) This section refers readers to the Annual Report on Form 10-K for a comprehensive discussion of potential business risks - Readers are directed to the Annual Report on Form 10-K for the year ended December 31, 2023, for a detailed discussion of risk factors that could materially affect the company's business, financial condition, or future results[205](index=205&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=62&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This section reports no unregistered equity sales and details the company's stock repurchase program for the quarter - No unregistered sales of equity securities occurred during the period[206](index=206&type=chunk) - During the six months ended June 30, 2024, the company repurchased less than **0.1 million shares** for approximately **$11.1 million** at an average price of **$305.23 per share**[208](index=208&type=chunk) Issuer Purchases of Equity Securities (Quarter Ended June 30, 2024) | Period | Total Number of Shares Purchased | Average Price Paid Per Share | | :---------------- | :------------------------------- | :--------------------------- | | April 1 - April 30 | — | $— | | May 1 - May 31 | 13,650 | $307.97 | | June 1 - June 30 | 21,347 | $311.09 | | Total Quarter | 34,997 | $309.87 | [Item 5. Other Information](index=64&type=section&id=Item%205.%20Other%20Information) This section confirms no Rule 10b5-1 or non-Rule 10b5-1 trading arrangements were adopted or terminated by directors or officers - No directors or officers adopted or terminated Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during the three months ended June 30, 2024[212](index=212&type=chunk) [Item 6. Exhibits](index=65&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed with the Form 10-Q, including corporate documents and certifications - The exhibits include corporate organizational documents (Certificate of Incorporation, Bylaws), certifications from the Chief Executive Officer and Chief Financial Officer (pursuant to Sections 302 and 906 of Sarbanes-Oxley Act), and Inline XBRL documents[214](index=214&type=chunk)[215](index=215&type=chunk) [Signatures](index=66&type=section&id=Signatures) This section contains the required signatures of the Registrant's authorized officers, certifying the report's filing - The report was signed on July 25, 2024, by Brian E. Lane (President, Chief Executive Officer and Director), William George (Executive Vice President and Chief Financial Officer), and Julie S. Shaeff (Senior Vice President and Chief Accounting Officer)[217](index=217&type=chunk)[218](index=218&type=chunk)