[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)

[Financial Highlights](index=1&type=section&id=Financial%20Highlights) Comfort Systems USA reported a record-breaking second quarter for 2024, with revenue increasing to $1.81 billion and net income more than doubling to $134.0 million, or $3.74 per diluted share Q2 2024 vs Q2 2023 Performance | Metric | Q2 2024 | Q2 2023 | Change | | :--- | :--- | :--- | :--- | | Revenue | $1.81 billion | $1.30 billion | +39.2% | | Net Income | $134.0 million | $69.5 million | +92.8% | | Diluted EPS | $3.74 | $1.93 | +93.8% | | Operating Cash Flow | $189.9 million | $125.4 million | +51.4% | Six Months Ended June 30, 2024 vs 2023 Performance | Metric | H1 2024 | H1 2023 | Change | | :--- | :--- | :--- | :--- | | Revenue | $3.35 billion | $2.47 billion | +35.6% | | Net Income | $230.3 million | $126.7 million | +81.8% | | Diluted EPS | $6.43 | $3.53 | +82.2% | | Operating Cash Flow | $336.4 million | $252.3 million | +33.3% | - The quarterly dividend per share was increased from **$0.200** in Q2 2023 to **$0.300** in Q2 2024[25](index=25&type=chunk) [Business Outlook and Backlog](index=1&type=section&id=Business%20Outlook%20and%20Backlog) The company maintains a strong business outlook, supported by an extremely high backlog of $5.77 billion as of June 30, 2024 Backlog Trend (in billions) | Date | Total Backlog | Same-Store Backlog | | :--- | :--- | :--- | | June 30, 2024 | $5.77 | $5.22 | | March 31, 2024 | $5.91 | N/A | | June 30, 2023 | $4.19 | $4.19 | - CEO Brian Lane noted that same-store backlog is **25%** above last year, demand continues at unprecedented levels, and job pipelines are robust, leading to optimism for continued strong results[2](index=2&type=chunk) [Consolidated Financial Statements](index=4&type=section&id=Consolidated%20Financial%20Statements) [Consolidated Statements of Operations](index=4&type=section&id=Consolidated%20Statements%20of%20Operations) The company's statements of operations show significant year-over-year growth for the three and six months ended June 30, 2024, with revenue increasing by 39.2% for the quarter and profitability improving Income Statement Highlights (in thousands) | Metric | Q2 2024 (in thousands) | Q2 2023 (in thousands) | H1 2024 (in thousands) | H1 2023 (in thousands) | | :--- | :--- | :--- | :--- | :--- | | Revenue | $1,810,290 | $1,296,430 | $3,347,306 | $2,471,070 | | Gross Profit | $363,596 | $227,920 | $660,959 | $433,325 | | Operating Income | $184,670 | $92,082 | $320,130 | $162,967 | | Net Income | $134,009 | $69,476 | $230,328 | $126,692 | - Gross profit margin improved to **20.1%** in Q2 2024 from **17.6%** in Q2 2023, and operating income margin increased to **10.2%** from **7.1%** in the same period[18](index=18&type=chunk) [Condensed Consolidated Balance Sheets](index=8&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) As of June 30, 2024, total assets grew to $4.21 billion from $3.31 billion at year-end 2023, primarily driven by significant growth in goodwill and identifiable intangible assets Balance Sheet Summary (in thousands) | Account | June 30, 2024 (in thousands) | Dec 31, 2023 (in thousands) | | :--- | :--- | :--- | | Total Current Assets | $2,323,371 | $1,911,100 | | Goodwill | $874,947 | $666,834 | | Total Assets | $4,213,984 | $3,305,579 | | Total Current Liabilities | $2,334,948 | $1,721,205 | | Total Liabilities | $2,731,690 | $2,027,750 | | Total Stockholders' Equity | $1,482,294 | $1,277,829 | [Selected Cash Flow Data](index=9&type=section&id=Selected%20Cash%20Flow%20Data) The company generated strong cash flow from operations, reporting $189.9 million for the second quarter and $336.4 million for the first six months of 2024, both representing significant increases from the prior year Cash Flow Summary (in thousands) | Activity | Q2 2024 (in thousands) | Q2 2023 (in thousands) | H1 2024 (in thousands) | H1 2023 (in thousands) | | :--- | :--- | :--- | :--- | :--- | | Operating | $189,858 | $125,410 | $336,415 | $252,319 | | Investing | $(60,786) | $(24,683) | $(282,434) | $(93,628) | | Financing | $(30,445) | $(89,280) | $(59,712) | $(155,898) | [Non-GAAP Financial Measures](index=6&type=section&id=Non-GAAP%20Financial%20Measures) [Adjusted EBITDA Reconciliation](index=7&type=section&id=Adjusted%20EBITDA%20Reconciliation) Adjusted EBITDA, a non-GAAP measure, nearly doubled to $222.7 million in Q2 2024 from $111.6 million in Q2 2023, and increased to $392.5 million for the six-month period Adjusted EBITDA (in thousands) | Period | 2024 (in thousands) | 2023 (in thousands) | Change | | :--- | :--- | :--- | :--- | | Three Months Ended June 30 | $222,739 | $111,576 | +99.6% | | Six Months Ended June 30 | $392,546 | $201,888 | +94.4% | - Adjusted EBITDA is calculated by taking net income and adding back items such as provision for income taxes, interest expense, depreciation, amortization, and changes in the fair value of contingent earn-out obligations[6](index=6&type=chunk)[28](index=28&type=chunk) [Free Cash Flow Reconciliation](index=9&type=section&id=Free%20Cash%20Flow%20Reconciliation) Free cash flow, defined as cash from operations less capital expenditures plus proceeds from asset sales, increased significantly to $167.3 million in Q2 2024 and $289.9 million for the first six months Free Cash Flow (in thousands) | Period | 2024 (in thousands) | 2023 (in thousands) | Change | | :--- | :--- | :--- | :--- | | Three Months Ended June 30 | $167,289 | $102,264 | +63.6% | | Six Months Ended June 30 | $289,908 | $213,275 | +35.9% | - The company defines free cash flow as cash flow from operating activities less customary capital expenditures, plus the proceeds from asset sales[10](index=10&type=chunk) [Forward-Looking Statements](index=2&type=section&id=Forward-Looking%20Statements) This section provides a standard safe harbor statement, cautioning that the press release contains forward-looking statements based on current management expectations, subject to numerous risk factors - The report contains forward-looking statements regarding future business expectations, which are subject to significant risks and uncertainties that could cause actual results to differ materially[24](index=24&type=chunk) - The company undertakes no obligation to publicly update or revise any forward-looking statements after they are made[11](index=11&type=chunk)

The Zacks Construction sector is poised to release its second-quarter results amid a challenging environment marked by high interest rates and rising material and labor costs. Although the shortage of existing homes for sale is somewhat driving single-family residential construction, the uncertainty surrounding the Federal Reserve's rate cuts remains a significant obstacle. Nevertheless, the sector is benefiting from a substantial infrastructure drive led by the U.S. government, as well as growth in the tel ...

Comfort Systems has an impressive track record of surpassing earnings expectations, exceeding the consensus mark in each of the last four quarters. The average surprise over this period is 20%, as shown in the chart below. The Zacks Consensus Estimate for the second-quarter EPS has increased to $3.11 from $3.04 over the past seven days. The estimated figure indicates a 61.1% increase from the year-ago EPS of $1.93. Also, the consensus mark for revenues is $1.66 billion, indicating 27.7% year-over-year growt ...

For those looking to find strong Construction stocks, it is prudent to search for companies in the group that are outperforming their peers. Comfort Systems (FIX) is a stock that can certainly grab the attention of many investors, but do its recent returns compare favorably to the sector as a whole? By taking a look at the stock's year-to-date performance in comparison to its Construction peers, we might be able to answer that question. The Zacks Rank is a proven system that emphasizes earnings estimates an ...

Core Viewpoint - Comfort Systems has a strong track record of exceeding earnings estimates, with an average surprise of 18.82% over the last two quarters [1] Earnings Performance - For the last reported quarter, Comfort Systems achieved earnings of $2.69 per share, surpassing the Zacks Consensus Estimate of $2.26 per share, resulting in a surprise of 19.03% [6] - In the previous quarter, the company was expected to report earnings of $2.15 per share but delivered $2.55 per share, yielding a surprise of 18.60% [6] Earnings ESP and Analyst Sentiment - Comfort Systems currently has an Earnings ESP of +2.25%, indicating a bullish outlook from analysts regarding the company's earnings prospects [3] - The positive Earnings ESP, combined with a Zacks Rank of 3 (Hold), suggests a high likelihood of another earnings beat in the upcoming report [3][7] Importance of Earnings ESP - The Earnings ESP is a critical metric to assess before a company's quarterly release, as it can enhance the probability of success in predicting earnings outcomes [4] - The Zacks Earnings ESP compares the Most Accurate Estimate to the Zacks Consensus Estimate, reflecting the latest analyst revisions which may provide more accurate predictions [8]

The Construction group has plenty of great stocks, but investors should always be looking for companies that are outperforming their peers. Has Comfort Systems (FIX) been one of those stocks this year? By taking a look at the stock's year-to-date performance in comparison to its Construction peers, we might be able to answer that question. Comfort Systems is one of 94 companies in the Construction group. The Construction group currently sits at #3 within the Zacks Sector Rank. The Zacks Sector Rank consider ...

Shares of the heating, ventilation and air conditioning company have depreciated by 7.22% over the course of the past month, underperforming the Construction sector's loss of 5% and the S&P 500's gain of 3.38%. The upcoming earnings release of Comfort Systems will be of great interest to investors. The company's earnings per share (EPS) are projected to be $3.04, reflecting a 57.51% increase from the same quarter last year. It's also important for investors to be aware of any recent modifications to analyst ...

Comfort Systems USA, Inc.'s (FIX) shares have surged 56.1% in the year-to-date period, outperforming the Zacks Building Products - Air Conditioner and Heating industry's 17.7% growth. The share price trend can be compared with a few similar companies including Watsco, Inc. (WSO) , AAON, Inc. (AAON) , and EMCOR Group, Inc. (EME) , whose shares gained 8.9%, 14.3%, and 75.7%, respectively. Image Source: Zacks Investment Research Despite consistent investment activities and increased expense scenario, FIX focus ...

Core Viewpoint - Comfort Systems USA is positioned for long-term growth due to strong demand in the mechanical, electrical, and plumbing market, particularly from the technology sector, which is expected to drive revenue growth [2][4]. Company Background - Comfort Systems USA provides mechanical and electrical installation and maintenance services, focusing on HVAC systems, plumbing, electrical, construction, monitoring, and fire protection [3]. - The company operates two segments: Mechanical (78% of revenue) and Electrical (22% of revenue) [3]. Growth Catalysts - The technology sector is a significant growth driver, with the global AI market projected to grow at 19% annually, necessitating data center construction, which Comfort Systems is involved in [4]. - Recent acquisitions, including Summit Industrial and J&S Mechanical, are expected to contribute significantly to revenue and EBITDA, enhancing the company's modular construction capabilities [5]. - Comfort Systems has a record backlog of $5.9 billion, a 33% increase from the previous year, indicating strong future revenue potential [5]. Valuation - The company has a forward PE ratio of 26, higher than the industry average of 20.5, but a PEG ratio of 1.7 suggests reasonable valuation given its expected earnings growth [6]. - Consensus estimates project a 39% EPS growth for 2024, supported by acquisitions and organic growth, with a revenue increase of 28% anticipated [6]. - Profitability metrics are strong, with a ROE of 30% and ROIC of about 20%, alongside improved gross and operating margins [6]. Technical Perspective - The stock is currently in bullish territory, with a recent pullback from overbought conditions, and the upcoming Q2 earnings report is a potential catalyst for further stock appreciation [7]. - Positive guidance or new contracts could drive the stock higher, while missing estimates could lead to a sell-off [7]. Long-Term Investment Outlook - The combination of a strong backlog, recent acquisitions, and favorable market trends is expected to drive Comfort Systems' stock higher in the coming years [10].