Comfort Systems USA(FIX) - 2025 Q1 - Quarterly Report

PART I—FINANCIAL INFORMATION Item 1—Financial Statements Unaudited consolidated financial statements for Q1 2025, including Balance Sheets, Operations, Equity, Cash Flows, and significant accounting notes Consolidated Balance Sheets - Cash and cash equivalents decreased significantly from $549,939 thousand at December 31, 2024, to $204,758 thousand at March 31, 2025[11] - Goodwill increased from $875,270 thousand at December 31, 2024, to $905,843 thousand at March 31, 2025, primarily due to acquisitions[11] | Metric | March 31, 2025 (Unaudited) | December 31, 2024 | | :----------------------------------- | :-------------------------- | :------------------ | | Total current assets | $2,597,499 | $2,790,241 | | Total assets | $4,569,218 | $4,711,088 | | Total current liabilities | $2,411,244 | $2,582,770 | | Total liabilities | $2,792,205 | $3,006,412 | | Total stockholders' equity | $1,777,013 | $1,704,676 | Consolidated Statements of Operations - Gross profit margin improved from 19.3% in Q1 2024 to 22.0% in Q1 2025[13] - Selling, General and Administrative Expenses increased from $162,723 thousand in Q1 2024 to $194,874 thousand in Q1 2025[13] | Metric | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | Change (YoY) | | :----------------------------------- | :-------------------------------- | :-------------------------------- | :----------- | | Revenue | $1,831,286 | $1,537,016 | +19.1% | | Gross profit | $403,416 | $297,363 | +35.7% | | Operating income | $209,098 | $135,460 | +54.4% | | Net income | $169,289 | $96,319 | +75.8% | | Basic income per share | $4.77 | $2.70 | +76.7% | | Diluted income per share | $4.75 | $2.69 | +76.6% | Consolidated Statements of Stockholders' Equity - The company repurchased 264,054 shares of treasury stock for $92,243 thousand during the three months ended March 31, 2025[16] - Dividends of $0.40 per share were paid, totaling $14,162 thousand, in Q1 2025, an increase from $0.25 per share ($8,921 thousand) in Q1 2024[16] | Metric | March 31, 2025 | December 31, 2024 | | :----------------------------------- | :------------- | :---------------- | | Total Stockholders' Equity | $1,777,013 | $1,704,676 | | Retained Earnings | $1,782,457 | $1,627,330 | | Treasury Stock (Amount) | $(367,508) | $(273,799) | | Treasury Stock (Shares) | (5,815,389) | (5,562,453) | Consolidated Statements of Cash Flows - Cash used in operating activities increased significantly by $234.5 million YoY, primarily due to a $431.3 million decrease in accounts payable and other current liabilities and a federal tax payment[19][154] - Cash used in investing activities decreased by $124.9 million YoY, mainly due to lower cash paid for acquisitions[19][156] - Cash used in financing activities increased by $131.2 million YoY, driven by a $91.1 million increase in share repurchases[19][157] | Cash Flow Activity | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :----------------------------------- | :-------------------------------- | :-------------------------------- | | Operating Activities | $(87,950) | $146,557 | | Investing Activities | $(96,783) | $(221,648) | | Financing Activities | $(160,448) | $(29,267) | | Net Decrease in Cash and Cash Equivalents | $(345,181) | $(104,358) | | Cash and Cash Equivalents, end of period | $204,758 | $100,792 | Condensed Notes to Consolidated Financial Statements 1. Business and Organization - 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[21] 2. Summary of Significant Accounting Policies and Estimates Basis of Presentation - Interim financial statements are prepared using GAAP for interim financial information and SEC rules, and should be read with the Annual Report on Form 10-K for the year ended December 31, 2024[22][23] Use of Estimates - Significant estimates include revenue and cost recognition for construction contracts, self-insurance accruals, income taxes, fair value accounting for acquisitions, and goodwill impairment testing[24] Recent Accounting Pronouncements - ASU 2023-09 (Income Taxes) is effective for fiscal years beginning after December 15, 2024, requiring more detailed tax rate reconciliation and income tax disclosures, with no impact on financial position, results, or cash flows[25] - ASU 2024-03 (Expense Disaggregation) is effective for fiscal years beginning after December 15, 2026, requiring disaggregated income statement expense information, with no impact on financial position, results, or cash flows[26][27] Revenue Recognition - Revenue is recognized over time for all services using a cost-to-cost input method, as control continuously transfers to the customer and the company has a right to payment for work performed[28][29] - For service maintenance agreements, revenue is recognized over time based on the proportion of services provided out of the total contracted time[30] Accounts Receivable and Allowance for Credit Losses - Expected credit losses are estimated using a loss-rate method for construction, service, and other portfolio segments, considering historical data, customer financial strength, aging, macroeconomic trends, and specific high-risk receivables[31][32][33][34] Unbilled Accounts Receivable - Unbilled accounts receivable represent earned amounts where the right to payment is unconditional, expected to be billed and collected in the normal course of business[35] Income Taxes - The effective tax rate is influenced by profitability in various jurisdictions, discrete items like tax law changes, and the tax treatment of goodwill impairment and acquisition-related assets/liabilities[36] - In Q1 2025, the provision for income taxes was reduced by $8.9 million (net of tax) from interest income on a $107.1 million federal tax overpayment refund received in April 2025[37] Financial Instruments - Financial instruments include cash, U.S. Treasury bills, receivables, payables, notes to former owners, and a revolving credit facility; carrying values approximate fair values for short-term instruments[38] Investments - The company holds a $6.8 million investment in a construction-focused technology fund recorded at cost and a $7.3 million investment in U.S. Treasury bills (maturities 90 days to one year) recorded at amortized cost[39] 3. Revenue from Contracts with Customers Revenue Recognition Principles - Revenue is recognized when control of goods/services transfers to customers, based on fixed or variable consideration, with variable amounts included if a significant reversal of cumulative revenue is improbable[40][41][44][45] - Contract modifications are recognized as cumulative adjustments to revenue, and management periodically reviews estimates at completion, recognizing adjustments quarterly[46][47][48][50] - Net revenue from performance obligations partially satisfied in the previous period positively impacted revenue by 5.8% in Q1 2025 (vs. 4.1% in Q1 2024) due to changes in estimates[51] Disaggregation of Revenue Revenue by Service Provided | Service Provided | Three Months Ended March 31, 2025 | % of Total | Three Months Ended March 31, 2024 | % of Total | | :----------------- | :-------------------------------- | :--------- | :-------------------------------- | :--------- | | Mechanical Segment | $1,402,215 | 76.6% | $1,185,009 | 77.1% | | Electrical Segment | $429,071 | 23.4% | $352,007 | 22.9% | | Total | $1,831,286 | 100.0% | $1,537,016 | 100.0% | Revenue by Type of Customer | Customer Type | Three Months Ended March 31, 2025 | % of Total | Three Months Ended March 31, 2024 | % of Total | | :------------------------------ | :-------------------------------- | :--------- | :-------------------------------- | :--------- | | Technology | $677,553 | 37.0% | $464,814 | 30.2% | | Manufacturing | $452,786 | 24.7% | $461,400 | 30.0% | | Healthcare | $182,542 | 10.0% | $133,729 | 8.7% | | Education | $161,242 | 8.8% | $133,983 | 8.7% | | Office Buildings | $122,526 | 6.7% | $101,892 | 6.6% | | Government | $96,281 | 5.3% | $87,801 | 5.7% | | Retail, Restaurants and Entertainment | $77,009 | 4.2% | $80,585 | 5.2% | | Multi-Family and Residential | $28,353 | 1.5% | $40,851 | 2.7% | | Other | $32,994 | 1.8% | $31,961 | 2.2% | | Total | $1,831,286 | 100.0% | $1,537,016 | 100.0% | Revenue by Activity Type | Activity Type | Three Months Ended March 31, 2025 | % of Total | Three Months Ended March 31, 2024 | % of Total | | :------------------------------ | :-------------------------------- | :--------- | :-------------------------------- | :--------- | | New Construction | $1,065,084 | 58.2% | $898,976 | 58.5% | | Existing Building Construction | $492,603 | 26.9% | $390,369 | 25.4% | | Service Projects | $119,214 | 6.5% | $104,114 | 6.8% | | Service Calls, Maintenance and Monitoring | $154,385 | 8.4% | $143,557 | 9.3% | | Total | $1,831,286 | 100.0% | $1,537,016 | 100.0% | Contract Assets and Liabilities - Contract assets (costs in excess of billings) increased from $91,681 thousand at December 31, 2024, to $227,678 thousand at March 31, 2025[55] - Contract liabilities (billings in excess of costs and deferred revenue) increased from $1,149,257 thousand at December 31, 2024, to $1,267,373 thousand at March 31, 2025[55] - Revenue recognized from contract liabilities at January 1, 2025, was $655.7 million, up from $547.5 million in the prior year[55] Remaining Performance Obligations - As of March 31, 2025, remaining performance obligations totaled $6.89 billion, with 65-75% expected to be recognized over the next 12 months[57] 4. Fair Value Measurements Interest Rate Risk Management and Derivative Instruments - The company uses derivative instruments, such as interest rate swaps, to manage interest rate risk, with gains/losses recorded in interest expense; currently, no derivatives are accounted for as hedges[58] Fair Value Measurement Hierarchy Fair Value Measurements at March 31, 2025 | Asset/Liability | Level 1 | Level 2 | Level 3 | Total | | :------------------------ | :------ | :------ | :------ | :------ | | Cash and cash equivalents | $204,758 | $— | $— | $204,758 | | U.S. Treasury bills | $— | $7,274 | $— | $7,274 | | Contingent earn-out obligations | $— | $— | $63,768 | $63,768 | Fair Value Measurements at December 31, 2024 | Asset/Liability | Level 1 | Level 2 | Level 3 | Total | | :------------------------ | :------ | :------ | :------ | :------ | | Cash and cash equivalents | $549,939 | $— | $— | $549,939 | | Contingent earn-out obligations | $— | $— | $140,156 | $140,156 | - Contingent earn-out obligations are Level 3 measurements, valued using a probability-weighted discounted cash flow method with a weighted average cost of capital of 19.5% as of March 31, 2025[62] Reconciliation of Level 3 Fair Value Measurements Contingent Earn-out Obligations (Level 3) Reconciliation | Metric | Three Months Ended March 31, 2025 | Year Ended December 31, 2024 | | :------------------------ | :-------------------------------- | :----------------------------- | | Balance at beginning of period | $140,156 | $44,222 | | Issuances | $218 | $51,784 | | Settlements | $(80,364) | $(43,996) | | Adjustments to fair value | $3,758 | $88,146 | | Balance at end of period | $63,768 | $140,156 | 5. Acquisitions Summit Industrial Construction, LLC Acquisition - On February 1, 2024, Comfort Systems acquired Summit Industrial Construction, LLC for $359.8 million, including $267.5 million cash, $35.0 million in notes, and $42.7 million in contingent earn-out payments[64][66] - The acquisition resulted in $155.3 million in goodwill and $170.1 million in identifiable intangible assets (backlog, trade name, customer relationships), with fair values estimated using excess earnings and relief-from-royalty methods[66][67][68] J & S Mechanical Contractors, Inc. Acquisition - On February 1, 2024, Comfort Systems acquired J & S Mechanical Contractors, Inc. for $120.6 million, including $100.0 million cash, $10.0 million in notes, and $9.1 million in contingent earn-out payments[71][72] - The acquisition resulted in $40.7 million in goodwill and $63.3 million in identifiable intangible assets (backlog, trade name, customer relationships), valued similarly to Summit's acquisition[72][73][75] Other Acquisitions - On January 1, 2025, Century Contractors, LLC was acquired for a preliminary price of $84.2 million ($73.1 million cash, $5.5 million notes, earn-out), specializing in mechanical installation and pipe fabrication[76] - On May 1, 2024, a North Carolina plumbing service provider was acquired for a preliminary price of $39.9 million[77] 6. Goodwill and Identifiable Intangible Assets, Net Goodwill - Goodwill increased by $30,573 thousand in Q1 2025 due to acquisitions and purchase price adjustments, primarily in the Mechanical Segment[79] Goodwill Carrying Amount | Segment | December 31, 2023 | December 31, 2024 | March 31, 2025 | | :----------------- | :------------------ | :------------------ | :------------- | | Mechanical Segment | $393,276 | $601,512 | $632,085 | | Electrical Segment | $273,558 | $273,758 | $273,758 | | Total | $666,834 | $875,270 | $905,843 | Identifiable Intangible Assets, Net Future Amortization Expense of Identifiable Intangible Assets (as of March 31, 2025) | Year Ending December 31 | Amount (in thousands) | | :------------------------ | :-------------------- | | 2025 (remainder) | $51,221 | | 2026 | $58,766 | | 2027 | $56,282 | | 2028 | $54,735 | | 2029 | $48,468 | | Thereafter | $172,030 | | Total | $441,502 | 7. Debt Obligations Revolving Credit Facility - The company has an $850.0 million senior credit facility expiring in July 2027, with no outstanding borrowings as of March 31, 2025, and $766.8 million of credit available[83][84] - As of March 31, 2025, $83.2 million in letters of credit were outstanding, primarily for self-funded insurance programs, with $61.2 million expiring in 2025 and $22.0 million in 2026[83][166][85] - The facility includes floating interest rates (Base Rate Loan or SOFR Loan options) with additional margins based on Net Leverage Ratio, and commitment fees on unused capacity[84][86] Notes to Former Owners Future Principal Payments of Notes to Former Owners (as of March 31, 2025) | Maturity Year | Balance (in thousands) | Range of Stated Interest Rates | | :-------------- | :--------------------- | :----------------------------- | | 2026 | $30,625 | 2.5% - 5.5% | | 2027 | $31,500 | 4.3% - 5.5% | | 2028 | $5,000 | 5.5% | | Total | $67,125 | | 8. Leases - The company leases facilities, vehicles, and equipment, primarily under noncancelable operating leases, with a weighted average discount rate of 6.1% for operating leases[88] - Operating lease expense for Q1 2025 was $36.9 million, up from $28.2 million in Q1 2024, with variable and short-term lease expenses aggregating to $25.8 million[88] Operating Lease Assets and Liabilities (in thousands) | Metric | March 31, 2025 | December 31, 2024 | | :-------------------------- | :------------- | :---------------- | | Operating lease right-of-use assets | $226,620 | $229,106 | | Total operating lease liabilities | $238,332 | $240,265 | 9. Commitments and Contingencies Claims and Lawsuits - The company is subject to legal and regulatory claims, with accruals for probable losses deemed immaterial to operating results, cash flows, or financial condition[95][96] Surety - Performance and payment bonds are required by many customers, with the company reimbursing sureties for any outlays; 10-20% of business historically requires bonds[97][98] Self-Insurance - The company is substantially self-insured for workers' compensation, employer's liability, auto liability, general liability, and employee group health claims, with losses estimated and accrued based on facts, trends, and actuarial reviews[99] 10. Stockholders' Equity Earnings Per Share - Basic EPS is calculated by dividing net income by weighted average common shares outstanding; diluted EPS considers the dilutive effect of stock options, restricted stock, and performance stock units[100][101] Shares Used in Computing Income Per Share (in thousands) | Metric | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :----------------------------------- | :-------------------------------- | :-------------------------------- | | Shares used in computing earnings per share—basic | 35,524 | 35,739 | | Shares used in computing earnings per share—diluted | 35,605 | 35,828 | Share Repurchase Program - The Board approved a stock repurchase program for 11.4 million shares since inception; as of March 31, 2025, 10.7 million shares have been repurchased at an average price of $39.26 per share[104] - During Q1 2025, the company repurchased 0.3 million shares for approximately $92.2 million at an average price of $349.34 per share[105] 11. Segment Information - The company operates in two reportable segments: Mechanical Services and Electrical Services, with financial information reviewed by the CODM based on revenue, gross profit, and operating income[106] Segment Revenue and Operating Income (Three Months Ended March 31, 2025) | Segment | Revenue | Operating Income | | :----------------- | :---------- | :--------------- | | Mechanical Segment | $1,402,215 | $172,601 | | Electrical Segment | $429,071 | $55,055 | | Corporate | $— | $(18,558) | | Consolidated | $1,831,286 | $209,098 | Segment Revenue and Operating Income (Three Months Ended March 31, 2024) | Segment | Revenue | Operating Income | | :----------------- | :---------- | :--------------- | | Mechanical Segment | $1,185,009 | $107,304 | | Electrical Segment | $352,007 | $46,017 | | Corporate | $— | $(17,861) | | Consolidated | $1,537,016 | $135,460 | Item 2—Management's Discussion and Analysis of Financial Condition and Results of Operations Management's discussion and analysis of Q1 2025 financial condition and results, covering business, operations, economic factors, performance, and future outlook Introduction and Overview - Comfort Systems USA is a national provider of mechanical and electrical installation, renovation, maintenance, repair, and replacement services, operating in commercial, industrial, and institutional markets[109] Nature and Economics of Our Business - The mechanical segment focuses on HVAC, plumbing, piping, and controls, while the electrical segment handles electrical construction, engineering, logistics, and service work[110][111] - Approximately 91.6% of revenue comes from project-based installation services, typically fixed-price contracts, with labor, materials, and overhead as major cost components[113][116] Stratification of Projects in Progress by Contract Price (as of March 31, 2025) | Contract Price of Project | No. of Projects | Aggregate Contract Price Value (millions) | | :------------------------ | :-------------- | :---------------------------------------- | | Under $2 million | 7,567 | $1,690.4 | | $2 million - $10 million | 831 | $3,588.6 | | $10 million - $20 million | 136 | $1,922.7 | | $20 million - $40 million | 130 | $3,679.6 | | Greater than $40 million | 86 | $5,547.5 | | Total | 8,750 | $16,428.8 | Profile and Management of Our Operations - Operations are managed across 48 units, emphasizing profitability, cash flow, working capital, SG&A, backlog, workforce, and growth, alongside operational factors like project selection, safety, and labor utilization[123][134] - Attracting and retaining effective operating unit managers is crucial due to local market uniqueness, customer relationships, and high competition[124] Economic and Industry Factors - The company operates in the nonresidential construction services industry, influenced by macroeconomic factors like GDP, interest rates, business investment, and government fiscal conditions[125] - Spending decisions for construction and renovation projects are significantly affected by economic uncertainty[126] Operating Environment and Management Emphasis - Demand increased in 2022-2024, with high demand expected in 2025, especially from manufacturing and technology customers, despite persistent labor cost increases and supply chain delays[127] - The company maintains a strong balance sheet, favorable credit facility, and surety relationships, which are considered competitive advantages[128][129] - Management emphasizes investing in service business, pursuing active market sectors, and growing regional and national account business amidst ongoing price competition[130] Cyclicality and Seasonality - The construction industry is subject to business cycle fluctuations, with demand for new installations and renovations potentially declining during economic weakness[131] - Seasonal variations lead to lower revenue and operating results in Q1 due to reduced construction activity and less air conditioning use, with higher demand in Q2 and Q3[132] Critical Accounting Estimates - No significant changes to critical accounting estimates were identified during the three months ended March 31, 2025, as disclosed in the 2024 Form 10-K[133] Results of Operations Revenue - Same-store revenue growth was driven by strong market conditions and increased backlog, particularly in the technology sector (data centers)[135] Revenue Performance (Three Months Ended March 31) | Metric | 2025 | 2024 | Change (YoY) | | :----------------- | :---------- | :---------- | :----------- | | Total Revenue | $1,831,286 | $1,537,016 | +19.1% | | Same-store revenue increase | | | +15.4% | | Acquisition-related revenue increase | | | +3.7% | Segment Revenue Growth (Three Months Ended March 31) | Segment | 2025 Revenue | 2024 Revenue | Change (YoY) | | :----------------- | :----------- | :----------- | :----------- | | Mechanical Segment | $1,402,215 | $1,185,009 | +18.3% | | Electrical Segment | $429,071 | $352,007 | +21.9% | Backlog Performance (in thousands) | Backlog | March 31, 2025 | December 31, 2024 | March 31, 2024 | Change (QoQ) | Change (YoY) | | :----------------- | :------------- | :---------------- | :------------- | :----------- | :----------- | | Mechanical Segment | $5,205,745 | $4,687,619 | $4,627,294 | +11.1% | +12.5% | | Electrical Segment | $1,683,073 | $1,306,347 | $1,284,354 | +28.8% | +31.0% | | Total Backlog | $6,888,818 | $5,993,966 | $5,911,648 | +14.9% | +16.5% | Gross Profit - Gross profit increased by $106.1 million (35.7%) to $403.4 million in Q1 2025, with a gross profit margin of 22.0% (up from 19.3% in Q1 2024)[142] - The increase was driven by higher revenues, improved operational execution in Texas and South Carolina operations, and increased volumes at the Texas electrical operation[142] Selling, General and Administrative Expenses ("SG&A") - SG&A increased by $32.2 million (19.8%) to $194.9 million in Q1 2025, remaining steady at 10.6% of revenue[143] - Same-store SG&A, excluding amortization, increased by $26.9 million (17.9%) due to higher revenue and increased compensation costs from headcount growth[143] SG&A Reconciliation (in thousands) | Metric | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :----------------------------------- | :-------------------------------- | :-------------------------------- | | SG&A | $194,874 | $162,723 | | Less: SG&A from acquired companies | $(3,295) | $— | | Less: Amortization expense | $(14,562) | $(12,609) | | Same-store SG&A, excluding amortization expense | $177,017 | $150,114 | Interest Income - Interest income increased by $2.7 million (166.2%) to $4.3 million in Q1 2025, driven by an increase in the average cash balance[145] Changes in the Fair Value of Contingent Earn-out Obligations - Expense from changes in fair value of contingent earn-out obligations decreased by $8.7 million (69.9%) in Q1 2025, primarily due to lower expenses at J&S and a South Carolina operation, and smaller changes in Summit's forecasted results[146] Provision for Income Taxes - The provision for income taxes was $38.7 million in Q1 2025, with an effective tax rate of 18.6%, down from 21.7% in Q1 2024[147] - The lower effective tax rate in 2025 was primarily due to $8.9 million net interest income on a federal tax overpayment and a $6.3 million R&D tax credit, partially offset by state income taxes and non-deductible items[147][148] Outlook - The company anticipates solid earnings for 2025, driven by strong demand and substantial advance bookings, despite ongoing labor cost increases and supply chain challenges[149][150] - Management is proactively addressing challenges through job planning, earlier material ordering, and customer collaboration to mitigate supply risks[149] Liquidity and Capital Resources Cash Flow - Cash used in operating activities increased by $234.5 million YoY, primarily due to a $431.3 million decrease in accounts payable and other current liabilities and an $80.0 million federal tax payment[154][155] Cash Flow Summary (in thousands) | Cash Flow Activity | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :----------------------------------- | :-------------------------------- | :-------------------------------- | | Operating activities | $(87,950) | $146,557 | | Investing activities | $(96,783) | $(221,648) | | Financing activities | $(160,448) | $(29,267) | | Net increase (decrease) in cash and cash equivalents | $(345,181) | $(104,358) | Free Cash Flow (in thousands) | Metric | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :----------------------------------- | :-------------------------------- | :-------------------------------- | | Cash provided by operating activities | $(87,950) | $146,557 | | Purchases of property and equipment | $(22,208) | $(24,952) | | Proceeds from sales of property and equipment | $1,095 | $1,014 | | Free cash flow | $(109,063) | $122,619 | Share Repurchase Program - The company repurchased 0.3 million shares for approximately $92.2 million in Q1 2025, contributing to a cumulative total of 10.7 million shares repurchased since the program's inception[159][160] Debt - As of March 31, 2025, the company had no outstanding borrowings on its $850.0 million revolving credit facility, with $766.8 million of credit available[161][163] - Outstanding notes to former owners totaled $67.1 million as of March 31, 2025, with principal payments scheduled through 2028[168] Outlook (Liquidity) - The company expects sufficient liquidity to fund operations for the foreseeable future, supported by a history of positive net free cash flow, significant borrowing capacity, and reasonable cash balances[169][170] Other Commitments - The company is required to post performance and payment bonds for many projects, with strong surety relationships currently supporting bonding needs[171][172] Item 3—Quantitative and Qualitative Disclosures about Market Risk This section outlines the company's exposure to market risks, primarily related to interest rates, and its approach to managing these risks, also discussing the valuation of assets measured at fair value on a nonrecurring basis and contingent earn-out payments - The company's primary market risk exposure is to potential adverse changes in interest rates, particularly under its revolving credit facility, which had no outstanding borrowings as of March 31, 2025[173][174] - Contingent earn-out payments are valued using a probability-weighted discounted cash flow method, reflecting contractual terms, future cash flows, probabilities, and a discount rate[176] Item 4—Controls and Procedures Evaluation of Disclosure Controls and Procedures - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of March 31, 2025, following an evaluation[177][178] Changes in Internal Control over Financial Reporting - There were no material changes in internal control over financial reporting during the three months ended March 31, 2025[179] PART II—OTHER INFORMATION Item 1—Legal Proceedings This section addresses legal and regulatory claims against the company, stating that any liabilities arising from these matters are not expected to materially affect its financial condition or results of operations - The company is subject to legal and regulatory claims in the normal course of business, with accruals for probable losses deemed immaterial to financial statements[182][183] Item 1A—Risk Factors This section refers readers to the comprehensive discussion of risk factors in the company's Annual Report on Form 10-K for the year ended December 31, 2024, which could materially affect its business, financial condition, or future results - Readers should consider risk factors discussed in the Annual Report on Form 10-K for the year ended December 31, 2024, as they could materially affect the business[184] Item 2—Unregistered Sales of Equity Securities and Use of Proceeds This section reports on the company's equity security transactions, specifically detailing the absence of unregistered sales and providing an update on the ongoing share repurchase program Recent Sales of Unregistered Securities - There were no recent sales of unregistered equity securities[185] Issuer Purchases of Equity Securities - The Board has approved repurchases of 11.4 million shares since the program's inception; as of March 31, 2025, 10.7 million shares have been repurchased at an average price of $39.26 per share[186] Common Share Purchases During Q1 2025 | Period | Total Number of Shares Purchased | Average Price Paid Per Share | | :---------------------- | :------------------------------- | :--------------------------- | | January 1 - January 31 | 3,000 | $426.13 | | February 1 - February 28 | 63,450 | $378.18 | | March 1 - March 31 | 197,604 | $338.91 | | Total (Q1 2025) | 264,054 | $349.34 | Item 5—Other Information This section confirms that no directors or officers adopted or terminated Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during the first three months of 2025 - No directors or officers adopted or terminated Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during the three months ended March 31, 2025[191] Item 6—Exhibits This section lists all exhibits filed with the Form 10-Q, including organizational documents, certifications (CEO, CFO), and Inline XBRL documents - Exhibits include the Second Amended and Restated Certificate of Incorporation, Amended and Restated Bylaws, CEO and CFO certifications (Sections 302 and 906 of Sarbanes-Oxley Act), and Inline XBRL documents[193] Signatures This section contains the required signatures from the company's President, Chief Executive Officer and Director, Executive Vice President and Chief Financial Officer, and Senior Vice President and Chief Accounting Officer, certifying the report's submission - The report is signed by Brian E. Lane (President, CEO, and Director), William George (EVP and CFO), and Julie S. Shaeff (SVP and Chief Accounting Officer) on April 24, 2025[196][197]