successful in mitigating these risks or realizing related opportunities, these adjustments may result in a decrease in operating income. Changes in estimates of revenue, cost of services and the related impact to operating income are recognized quarterly on a cumulative catch-up basis, meaning we recognize in the current period the cumulative effect of the changes on current and prior periods based on our progress towards complete satisfaction of a performance obligation. A significant change in one or more of these ~~instruments~~estimates could affect the profitability of one or more of our performance obligations. For projects in which estimates of total costs to be incurred on a performance obligation exceed total estimates of revenue to be earned, a provision for the entire loss on the ~~accompanying balance sheets approximate their fair values.~~performance obligation is recognized in the period the loss is determined.

~~Segment Disclosure~~In the first three months of 2024 and 2023, net revenue recognized from our performance obligations partially satisfied in the previous period positively impacted revenue by 4.1% and 2.2%, respectively, as a result of changes in estimates associated with performance obligations on contracts.

Disaggregation of Revenue

Our consolidated 2024 revenue was derived from contracts to provide service activities ~~are within~~in the mechanical ~~services industry, which is the single industry segment~~and electrical segments we serve. ~~Each operating unit represents an operating segment~~Refer to Note 11 “Segment Information” for additional information on our reportable segments. We disaggregate our revenue from contracts with customers by activity, customer type and ~~these segments have been aggregated,~~service provided, as we believe it best depicts how the ~~operating units meet all~~nature, amount, timing and uncertainty of our revenue and cash flows are affected by economic factors. See details in the following tables (dollars in thousands):


	Three Months Ended March 31,
Revenue by Service Provided	2024				2023
Mechanical Segment	$	1,185,009	77.1	%	$	918,615	78.2	%
Electrical Segment		352,007	22.9	%		256,025	21.8	%
Total	$	1,537,016	100.0	%	$	1,174,640	100.0	%

	Three Months Ended March 31,
Revenue by Type of Customer	2024				2023
Manufacturing	$	461,400	30.0	%	$	366,356	31.2	%
Technology		464,814	30.2	%		226,249	19.3	%
Healthcare		133,729	8.7	%		159,815	13.5	%
Education		133,983	8.7	%		110,253	9.4	%
Office Buildings		101,892	6.6	%		98,195	8.4	%
Retail, Restaurants and Entertainment		80,585	5.2	%		76,194	6.5	%
Government		87,801	5.7	%		64,415	5.5	%
Multi-Family and Residential		40,851	2.7	%		45,007	3.8	%
Other		31,961	2.2	%		28,156	2.4	%
Total	$	1,537,016	100.0	%	$	1,174,640	100.0	%

	Three Months Ended March 31,
Revenue by Activity Type	2024				2023
New Construction	$	898,976	58.5	%	$	627,952	53.5	%
Existing Building Construction		390,369	25.4	%		309,483	26.3	%
Service Projects		104,114	6.8	%		103,105	8.8	%
Service Calls, Maintenance and Monitoring		143,557	9.3	%		134,100	11.4	%
Total	$	1,537,016	100.0	%	$	1,174,640	100.0	%

Contract Assets and Liabilities

Contract assets include unbilled amounts typically resulting from sales under long term contracts when the cost-to-cost method of revenue recognition is used, revenue recognized exceeds the amount billed to the customer and right to payment is conditional or subject to completing a milestone, such as a phase of the ~~aggregation criteria.~~project. Contract assets are not considered to have a significant financing component, as they are intended to protect the customer in the event that we do not perform our obligations under the contract.

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Contract liabilities consist of advance payments and billings in excess of revenue recognized. Advanced payments from customers related to work not yet started are classified as deferred revenue. Contract liabilities are not considered to have a significant financing component, as they are used to meet working capital requirements that are generally higher in the early stages of a contract and are intended to protect us from the other party failing to meet its obligations under the contract. Our contract assets and liabilities are reported in a net position on a contract-by-contract basis at the end of each reporting period.

Contract assets and liabilities in the Consolidated Balance Sheet consisted of the following amounts as of March 31, 2024 and December 31, 2023 (in thousands):


	March 31, 2024		December 31, 2023
Contract assets:
Costs and estimated earnings in excess of billings, less allowance for credit losses	$	30,118	$	28,084
Contract liabilities:
Billings in excess of costs and estimated earnings and deferred revenue	$	1,131,928	$	909,538

In the first three months of 2024 and 2023, we recognized revenue of $547.5 million and $341.9 million related to our contract liabilities at January 1, 2024 and January 1, 2023, respectively.

We did not have any impairment losses recognized on our receivables or contract assets in the first three months of 2024 and 2023.

Remaining Performance Obligations

Remaining construction performance obligations represent the remaining transaction price of firm orders for which work has not been performed and exclude unexercised contract options. As of March 31, 2024, the aggregate amount of the transaction price allocated to remaining performance obligations was $5.91 billion. The Company expects to recognize revenue on approximately 65-75% of the remaining performance obligations over the next 12 months, with the remaining recognized thereafter. Our service maintenance agreements are generally one-year renewable agreements. We have adopted the practical expedient that allows us to not include service maintenance contracts with a total term of one year or less; therefore, we do not report unfulfilled performance obligations for service maintenance agreements.

4. Fair Value Measurements

Interest Rate Risk Management and Derivative Instruments

At times, we use derivative instruments to manage exposure to market risk, including interest rate risk. Unsettled amounts under our interest rate swaps, if any, are recorded in the Consolidated Balance Sheet at fair value in “Other Receivables” or “Other Current Liabilities.” Gains and losses on our interest rate swaps are recorded in the Consolidated Statement of Operations in “Interest Expense.” We currently do not have any derivatives that are accounted for as hedges under ASC 815.

Fair Value Measurement

We classify and disclose assets and liabilities carried at fair value in one of the following three categories:

●

Level 1—quoted prices in active markets for identical assets and liabilities;

●

Level 2—observable ~~market based~~market-based inputs or unobservable inputs that are corroborated by market data; and

●

Level 3—significant unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions.

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The following table summarizes the fair values, and levels within the fair value hierarchy in which the fair value measurements ~~fall,~~are included, for assets and liabilities measured on a recurring basis as of ~~September 30, 2017~~March 31, 2024 and December 31, 2023 (in thousands):



	Balance		Fair Value Measurements at Reporting Date
	September 30,
	2017		Level 1		Level 2		Level 3

									Fair Value Measurements at March 31, 2024
									Level 1		Level 2		Level 3		Total
Cash and cash equivalents	$	29,496	$	29,496	$	—	$	—	$	100,792	$	—	$	—	$	100,792
Life insurance—cash surrender value	$	3,180	$	—	$	3,180	$	—	$	—	$	7,721	$	—	$	7,721
Contingent earn-out obligations	$	9,863	$	—	$	—	$	9,863	$	—	$	—	$	71,296	$	71,296

									Fair Value Measurements at December 31, 2023
									Level 1		Level 2		Level 3		Total
Cash and cash equivalents									$	205,150	$	—	$	—	$	205,150
Life insurance—cash surrender value									$	—	$	7,473	$	—	$	7,473
Contingent earn-out obligations									$	—	$	—	$	44,222	$	44,222

Cash and cash equivalents consist primarily of highly rated money market funds at a variety of ~~well‑known~~well-known institutions with original maturities of three months or less. The original cost of these assets approximates fair value due to their short-term maturity. ~~The~~We believe the carrying value of our ~~borrowings~~debt associated with ~~the Revolving Credit Facility approximate~~our revolving credit facility approximates its fair value due to the variable rate on such debt.

~~One~~ We believe the carrying values of our ~~operations has~~notes to former owners approximate their fair values due to the relatively short remaining terms on these notes.

We have life insurance policies covering 44127 employees with a combined face value of ~~$37.3~~$86.7 million. The ~~policy is~~policies are invested in ~~mutual funds~~several investment vehicles, and the fair value measurement of the cash surrender balance associated with these policies is determined using Level 2 inputs within the fair value hierarchy and will vary with investment performance. The cash surrender value of these policies ~~was $3.2 million as of September 30, 2017 and $3.7 million as of December 31, 2016. These assets are~~is included in “Other Noncurrent Assets” in our ~~consolidated balance sheets.~~Consolidated Balance Sheets.

We value contingent earn-out obligations using a probability weighted discounted cash flow method. This fair value measurement is based on significant unobservable inputs in the market and thus represents a Level 3 measurement within the fair value hierarchy. This analysis reflects the contractual terms of the purchase agreements (e.g., minimum and maximum payments, length of earn-out periods, manner of calculating any amounts due, etc.) and utilizes assumptions with regard to future cash flows and operating income, probabilities of achieving such future cash flows and operating income and a ~~discount rate.~~weighted average cost of capital. Significant changes in any of these assumptions could result in a significantly higher or lower potential liability. The contingent earn-out obligations are measured at fair value each reporting period, and changes in estimates of fair value are recognized in earnings. As of March 31, 2024, cash flows were discounted using a weighted average cost of capital ranging from 15.0% to 19.0%.

The table below presents a reconciliation of the fair value of our contingent earn-out obligations that use significant unobservable inputs (Level 3) (in thousands).:


	Three Months Ended		Year Ended
	March 31, 2024		December 31, 2023
Balance at beginning of period	$	44,222	$	32,317
Issuances		51,784		4,315
Settlements		(37,201)		(16,017)
Adjustments to fair value		12,491		23,607
Balance at end of period	$	71,296	$	44,222

5. Acquisitions

Summit Industrial Construction, LLC Acquisition

On February 1, 2024, we acquired Summit Industrial Construction, LLC (“Summit”). Summit is headquartered in Houston, Texas and is a specialty industrial contractor offering engineering, design-assist and turnkey, direct hire

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construction services of systems serving the advanced technology, power, and industrial sectors. As a result of the acquisition, Summit is a wholly owned subsidiary of the Company reported in our mechanical segment.

The following summarizes the acquisition date fair value of consideration transferred and the acquisition date fair value of the identifiable assets acquired and liabilities assumed, including an amount for goodwill (in thousands):

Balance at beginning of year

$
2,531

Issuances

11,755

Settlements

(2,578)

Adjustments to fair value

(1,845)

Balance at September 30, 2017

$
9,863


Consideration transferred:
Cash paid at closing	$	267,500
Working capital adjustment		14,595
Notes issued to former owners		35,000
Estimated fair value of contingent earn-out payments		42,732
	$	359,827
Recognized amounts of identifiable assets acquired and liabilities assumed:
Cash and cash equivalents	$	171,027
Billed and unbilled accounts receivable		59,921
Prepaid expenses and other		1,476
Cost and estimated earnings in excess of billings		578
Property and equipment		2,528
Lease right-of-use asset		2,365
Goodwill		155,220
Identifiable intangible assets		170,100
Other noncurrent assets		136
Accounts payable		(15,138)
Billings in excess of costs and estimated earnings and deferred revenue		(179,895)
Current operating lease liabilities		(1,495)
Accrued expenses and other current liabilities		(6,243)
Long-term operating lease liabilities		(753)
	$	359,827

The allocation of the purchase price to the assets acquired and liabilities assumed is preliminary and, therefore, subject to change pending the completion of the final valuation of intangible assets and accrued liabilities. Goodwill represents the future economic benefits arising from other assets acquired that cannot be individually identified and separately recognized. The goodwill recognized as a result of the Summit acquisition is deductible for tax purposes.

In estimating the fair value of the acquired intangible assets, we utilized the valuation methodology determined to be the most appropriate for the individual intangible asset. In order to estimate the fair value of the backlog and customer relationships, we utilized an excess earnings methodology, which consisted of the projected cash flows attributable to these assets discounted to present value using a risk-adjusted discount rate that represented the required rate of return. The trade name value was determined based on the relief-from-royalty method, which applies a royalty rate to the revenue stream attributable to this asset, and the resulting royalty payment is tax effected and discounted to present value. Some of the more significant estimates and assumptions inherent in determining the fair value of the identifiable intangible assets are associated with forecasting cash flows and profitability, which represent Level 3 inputs. The primary assumptions used were generally based upon the present value of anticipated cash flows discounted at rates ranging from 18.5% to 20.5%. Estimated years of projected earnings generally follow the range of estimated remaining useful lives for each intangible asset class.

The acquired intangible assets include the following (dollars in thousands):


	Valuation Method	Estimated Useful Life		Estimated Fair Value
Backlog	Excess earnings	1.8 years	$	35,800
Trade Name	Relief-from-royalty	22.9 years		11,300
Customer Relationships	Excess earnings	10 years		123,000
Total			$	170,100

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The contingent earn-out obligation is associated with the achievement of four earnings milestones over a 47-month period, and the range of each estimated milestone payment is $2.6 million to $20.5 million. We ~~measure certain assets~~determined the initial fair value of the contingent earn-out obligation based on the Monte Carlo Simulation method, which represents a Level 3 measurement. Cash flows were discounted using discount rates ranging from 18.2% to 19.5%, which we believe is appropriate and representative of a market participant assumption. Subsequent to the acquisition date, the contingent earn-out obligation is remeasured at fair value ~~on a nonrecurring basis. These assets~~each reporting period. Changes in the estimated fair value of the contingent payments subsequent to the acquisition date are recognized at fair value when they are deemed to be other-than-temporarily impaired. During the first quarter of 2017, we recorded a goodwill impairment charge of $1.1 million based on Level 3 measurements. See Note 5 “Goodwill” for further discussion. We

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~~did not recognize any other impairments,~~immediately in ~~the first nine months of 2017, on those assets required to be measured at fair value on a nonrecurring basis.~~earnings.

~~4. Acquisitions~~J & S Mechanical Contractors, Inc. Acquisition

On ~~April~~February 1, ~~2017,~~2024, we acquired all of the issued and outstanding shares of capital stock of ~~BCH Holdings,~~J & S Mechanical Contractors, Inc. (“J&S”). J&S is headquartered in West Jordan, Utah, and provides mechanical construction services to commercial and industrial sectors, specializing in data center HVAC systems and hospital medical gas systems. As a result of the acquisition, J&S is a wholly owned subsidiary of the Company reported in our mechanical segment.


Consideration transferred:
Cash paid at closing	$	100,000
Working capital adjustment		1,531
Notes issued to former owners		10,000
Estimated fair value of contingent earn-out payments		9,052
	$	120,583
Recognized amounts of identifiable assets acquired and liabilities assumed:
Cash and cash equivalents	$	14,802
Billed and unbilled accounts receivable		38,411
Inventory		230
Prepaid expenses and other		326
Costs and estimated earnings in excess of billings		728
Property and equipment		2,674
Lease right-of-use asset		4,552
Goodwill		40,680
Identifiable intangible assets		63,300
Other noncurrent assets		10
Accounts payable		(20,612)
Billings in excess of costs and estimated earnings and deferred revenue		(19,188)
Current operating lease liabilities		(133)
Accrued expenses and other current liabilities		(826)
Long-term debt		(59)
Long-term operating lease liabilities		(4,312)
	$	120,583

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present value. Some of the more significant estimates and assumptions inherent in determining the fair value of the identifiable intangible assets are associated with forecasting cash flows and profitability, which represent Level 3 inputs. The primary assumptions used were generally based upon the present value of anticipated cash flows discounted at rates ranging from 15.5% to 17.0%. Estimated years of projected earnings generally follow the range of estimated remaining useful lives for each intangible asset class.

The acquired intangible assets include the following (dollars in thousands):


		Estimated	Estimated
	Valuation Method	Useful Life	Fair Value
Backlog	Excess earnings	1.8 years	$	12,900
Trade Name	Relief-from-royalty	22 years		10,600
Customer Relationships	Excess earnings	9 years		39,800
Total			$	63,300

The contingent earn-out obligation is associated with the achievement of ~~its wholly-owned subsidiaries (collectively “BCH”~~three earnings milestones over a 35-month period, and the range of each estimated milestone payment is $1.1 million to $4.7 million. We determined the initial fair value of the contingent earn-out obligation based on the Monte Carlo Simulation method, which represents a Level 3 measurement. Cash flows were discounted using a range of discount rates ranging from 15.4% to 16.5%, which we believe is appropriate and representative of a market participant assumption. Subsequent to the acquisition date, the contingent earn-out obligation is remeasured at fair value each reporting period. Changes in the estimated fair value of the contingent payments subsequent to the acquisition date are recognized immediately in earnings.

Other Acquisitions

On October 2, 2023, we acquired all of the issued and outstanding shares of capital stock of DECCO, Inc. (“DECCO”), headquartered in Nashua, New Hampshire, for ~~$100~~a total preliminary purchase price of $59.8 million, ~~comprised~~which included $48.8 million of ~~$85.7~~cash paid on the closing date, $7.0 million in ~~cash at closing and $14.3 million in a note~~notes payable to the former owners, ~~plus~~ an ~~earn‑out~~earn-out that we will ~~pay~~be paid if certain financial targets are met after the acquisition date and a working capital adjustment. ~~The preliminary~~DECCO operates in the Northeastern United States and performs mechanical and plumbing services with specialties in piping systems, steam, power, biotechnical processes and conveying systems, in addition to turnkey tool and equipment installation, critical equipment handling services and associated maintenance and support services. As a result of the acquisition, ~~date fair value~~DECCO is a wholly owned subsidiary of ~~consideration transferred~~the Company reported in our mechanical segment.

On February 1, 2023, we acquired all of the issued and outstanding shares of capital stock of Eldeco, Inc. (“Eldeco”), headquartered in South Carolina, for ~~this acquisition was $122.6~~a total purchase price of $74.0 million, which included $60.8 million of which $97.9 million was allocated to goodwill and identifiable intangible assets. Our consolidated operating results included revenue of $73.2 million for the six months from the acquisition date. BCH is an integrated, single-source provider of mechanical service, maintenance and construction with headquarters in Tampa, Florida and operations throughout the southeastern region of the United States, which reports as a separate operating location.

We completed two acquisitions in the first quarter of 2016. We acquired the remaining 40% noncontrolling interest in Environmental Air Systems, LLC (“EAS”) on January 1, 2016 for $46.6 million, including $42.0 million fundedcash paid on the closing date, ~~plus a holdback,~~$8.0 million in notes payable to the former owners, an earn-out that will be ~~earned~~paid if certain financial targets are met after the acquisition date and a working capital adjustment. ~~Due to our majority ownership~~Eldeco performs electrical design and ~~control over EAS on~~construction services in the Southeastern region of the United States. As a result of the acquisition, ~~date,~~Eldeco is a wholly owned subsidiary of the ~~difference between the purchase price and the noncontrolling interest liability was recorded in Additional Paid-In Capital~~Company reported in our ~~Balance Sheet.~~electrical segment.

Additionally in the first quarter of 2016, we acquired 100% of the ShoffnerKalthoff family of companies (collectively, “Shoffner”), which reports as a separate operating location in the Knoxville, Tennessee area. The acquisition date fair value of consideration transferred for this acquisition was $19.8 million, of which $14.8 million was allocated to goodwill and identifiable intangible assets. The purchase price included $15.5 million funded on the closing date plus a note payable to the former owners, an earn-out that we will pay if certain financial targets are met after the acquisition date and a working capital adjustment.

In addition to the BCH acquisition, we completed three additional acquisitions in the second quarter of 2017. We completed one acquisition in the third quarter of 2017. The total purchase price for these acquisitions, including earn-outs, was $9.6 million for the nine months ended September 30, 2017. These acquisitions were not material and were “tucked-in” with existing operations.

The results of operations of acquisitions are included in our consolidated financial statements from their respective acquisition dates. Our ~~consolidated balance sheet~~Consolidated Balance Sheet includes preliminary allocations of the purchase price to the assets acquired and liabilities assumed for the applicable ~~acquisition~~acquisitions pending the completion of the final valuation of intangible assets and accrued liabilities. The acquisitions completed in the current and prior year were not material, individually or in the aggregate. Additional contingent purchase price (“earn-out”) has been or will be paid if certain acquisitions achieve predetermined profitability targets.Such earn-outs, when they are not subject to the continued employment of the sellers,. are estimated as of the purchase date and included as part of the consideration paid for the acquisition. If we have an earn-out under which continued employment is a condition to receipt of payment, then the earn-out is recorded as compensation expense over the period earned.

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6. Goodwill and Identifiable Intangible Assets, Net

~~5. Goodwill~~

Goodwill

The changes in the carrying amount of goodwill are as follows (in thousands):

September 30,

December 31,

2017

2016

Balance at beginning of year

$
149,208

$
143,874

Additions (See Note 4)

55,668

5,334

Impairment adjustment

(1,105)

—

Balance at end of period

$
203,771

$
149,208



	Mechanical Segment		Electrical Segment		Total
Balance at December 31, 2022	$	363,929	$	247,860	$	611,789
Acquisitions and purchase price adjustments (See Note 5)		29,347		25,698		55,045
Balance at December 31, 2023		393,276		273,558		666,834
Acquisitions and purchase price adjustments (See Note 5)		195,900		200		196,100
Balance at March 31, 2024	$	589,176	$	273,758	$	862,934

~~We recorded a goodwill impairment charge~~Identifiable Intangible Assets, Net

At March 31, 2024, future amortization expense of ~~$1.1 million during the first quarter of 2017. Based on changes to our market strategy that occurred in March 2017 related to our reporting unit based in California, we reevaluated our~~

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~~projected future earnings for this operating location. When the carrying value of a given reporting unit exceeds its fair value, a goodwill impairment loss~~identifiable intangible assets is recorded for this difference, not to exceed the carrying amount of goodwill. Based upon our projected future earnings for this location, we could no longer support the related goodwill balance and therefore the goodwill associated with this location was fully impaired. The fair value was estimated using a discounted cash flow model.as follows (in thousands):


Year ending December 31—
2024 (remainder of the year)	$	71,121
2025		63,532
2026		52,948
2027		50,967
2028		50,806
Thereafter		200,510
Total	$	489,884

7. Debt Obligations

Debt obligations consist of the following (in thousands):


	September 30,		December 31,
	2017		2016

					March 31,		December 31,
					2024		2023
Revolving credit facility	$	66,000	$	—	$	—	$	—
Notes to former owners		15,330		2,250		89,070		44,070
Other debt		239		305		819		142
Capital lease obligations		123		256
Total debt		81,692		2,811		89,889		44,212
Less—current portion		(708)		(763)		(12,885)		(4,867)
Total long-term portion of debt	$	80,984	$	2,048	$	77,004	$	39,345

Revolving Credit Facility

We have ~~a $325.0~~an $850.0 million senior credit facility (the “Facility”) provided by a syndicate of banks, ~~with~~which is composed of a ~~$100 million accordion option.~~revolving credit line guaranteed by certain of our subsidiaries. The Facility ~~which is available~~also provides for ~~borrowings~~an accordion or increase option not to exceed the greater of (a) $250 million and (b) 1.0x Credit Facility Adjusted EBITDA (as defined below), as well as a sublimit of up to $175.0 million issuable in the form of letters of ~~credit,~~credit. The Facility expires in ~~February 2021~~July 2027 and is secured by a first lien on substantially all of our personal property except for assets related to projects subject to surety bonds and the equity of, and assets held by, certain unrestricted subsidiaries and our wholly owned captive insurance company, and a second lien on our assets related to projects subject to surety bonds. As of ~~September 30, 2017,~~March 31, 2024, we had ~~$66.0 million of~~no outstanding borrowings ~~$39.6~~on the revolving credit facility, $81.2 million in letters of credit outstanding and ~~$219.4~~$768.8 million of credit available.

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determined by the broad financial markets, meaning they can and do move up and down from time to time. Additional margins are then added to these two ~~rates.~~rates:


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

~~The following is a summary of~~There were no outstanding borrowings on the ~~additional margins:~~

Consolidated Total Indebtedness to

Credit Facility Adjusted EBITDA


Less than 0.75

0.75 to 1.50

1.50 to 2.25

2.25 or greater

Additional Per Annum Interest Margin Added Under:

Base Rate Loan Option

0.25
%
0.50
%
0.75
%
1.00
%
Eurodollar Rate Loan Option

1.25
%
1.50
%
1.75
%
2.00
%

~~The weighted average interest rate applicable to the borrowings under the Facility was approximately 2.6%~~revolving credit facility as of ~~September 30, 2017.~~March 31, 2024 and December 31, 2023.

Certain of our vendors require letters of credit to ensure reimbursement for amounts they are disbursing on our behalf, such as to beneficiaries under our self-funded insurance programs. We have also occasionally used letters of credit to guarantee performance under our contracts and to ensure payment to our subcontractors and vendors under those contracts. Our lenders issue such letters of credit through the ~~Facility~~Facility. A letter of credit commits the lenders to pay specified amounts to the holder of the letter of credit if the holder demonstrates that we have failed to perform specified actions. If this were to occur, we would be required to reimburse the lenders for ~~a fee. We have never had~~amounts they fund to honor the letter of credit holder’s claim. Absent a claim, ~~made against~~there is no payment or reserving of funds by us in connection with a letter of credit. However, because a claim on a letter of credit ~~that resulted in payments by a lender or~~would require immediate reimbursement by us ~~and believe such~~to our lenders, letters of credit are treated as a ~~claim is unlikely in the foreseeable future.~~use of Facility capacity. The letter of credit fees range from ~~1.25%~~1.00% to 2.00% per annum, based on the ~~ratio of Consolidated Total Indebtedness to Credit Facility Adjusted EBITDA, as defined in the credit agreement.~~Net Leverage Ratio.

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Commitment fees are payable on the portion of the revolving loan capacity not in use for borrowings or letters of credit at any given time. These fees range from ~~0.20%~~0.15% to ~~0.35%~~0.25% per annum, based on the ~~ratio of Consolidated Total Indebtedness to Credit Facility Adjusted EBITDA, as defined in the credit agreement.~~Net Leverage Ratio.

The Facility contains financial covenants defining various financial measures and the levels of these measures with which we must comply. Covenant compliance is assessed as of each quarter end.

~~The Facility’s principal financial covenants include:~~

~~Leverage Ratio~~—The Facility requires that the ratio of our Consolidated Total Indebtedness to our Credit Facility Adjusted EBITDA not exceed (i) 3.00 to 1.00 as of the end of each fiscal quarter through September 30, 2017, and (ii) 2.75 to 1.00 as of the end of each fiscal quarter thereafter through maturity. The leverage ratio as of September 30, 2017 was 0.5.

~~Fixed Charge Coverage Ratio~~—The Facility requires that the ratio of (a) Credit Facility Adjusted EBITDA, less non-financed capital expenditures, tax provision, dividends and amounts used to repurchase stock to (b) the sum of interest expense and scheduled principal payments of indebtedness be at least 2.00 to 1.00; provided that the calculation of the fixed charge coverage ratio excludes stock repurchases and the payment of dividends at any time that the Company’s Net Leverage Ratio does not exceed 1.50 to 1.00. The Facility also allows the fixed charge coverage ratio not to be reduced for stock repurchases through September 30, 2015 in an aggregate amount not to exceed $25 million and for stock repurchases made after February 22, 2016 but on or prior to December 31, 2017 in an aggregate amount not to exceed $25 million, if at the time of and after giving effect to such repurchase the Company’s Net Leverage Ratio was less than or equal to 1.50 to 1.00. Capital expenditures, tax provision, dividends and stock repurchase payments are defined under the Facility for purposes of this covenant to be amounts for the four quarters ending as of any given quarterly covenant compliance measurement date. The fixed charge coverage ratio as of September 30, 2017 was 29.5.

~~Other Restrictions~~—The Facility permits acquisitions of up to $30.0 million per transaction, provided that the aggregate purchase price of all such acquisitions in the same fiscal year does not exceed $65.0 million. However, these limitations only apply when the Company’s Total Leverage Ratio is greater than 2.00 to 1.00.

While the Facility’s financial covenants do not specifically govern capacity under the Facility, if our debt level under the Facility at a quarter-end covenant compliance measurement date were to cause us to violate the Facility’s leverage ratio covenant, our borrowing capacity under the Facility and the favorable terms that we currently have could be negatively impacted by the lenders.

We were in compliance with all of our financial covenants as of ~~September 30, 2017.~~March 31, 2024.

Notes to Former Owners

As part of the consideration used to acquire ~~two~~ten companies, we have outstanding notes to the former owners. ~~These~~Together, these notes had an outstanding balance of ~~$15.3~~$89.1 million as of ~~September 30, 2017. In conjunction with the BCH acquisition in the second quarter~~March 31, 2024. At March 31, 2024, future principal payments of ~~2017, we issued a promissory note~~notes to former owners by maturity year are as follows (dollars in thousands):


	Balance at		Range of Stated
	March 31, 2024		Interest Rates
2024	$	4,800	2.5	%
2025		21,645	2.3 - 3.0	%
2026		31,625	2.5 - 5.5	%
2027		26,000	5.5	%
2028		5,000	5.5	%
Total	$	89,070

8. Leases

We lease certain facilities, vehicles and equipment primarily under noncancelable operating leases. The most significant portion of these noncancelable operating leases is for the facilities occupied by our corporate office and our operating locations. Leases with an ~~outstanding balance~~initial term of ~~$14.3~~12 months or less are not recorded in the Consolidated Balance Sheet. We do not separate lease components from their associated non-lease components pursuant to lease accounting guidance. We have certain leases with variable payments based on an index as well as short-term leases on equipment and facilities. Variable lease expense and short-term lease expense aggregated to $17.9 million ~~as of September 30, 2017 that bears interest, payable quarterly, at a weighted average interest rate of 3.0%. The principal is due in equal installments in April 2020~~ and ~~2021. In conjunction with the Shoffner acquisition~~$10.2 million in the first

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three months of 2024 and 2023, respectively. These expenses were primarily related to short-term equipment rentals. Lease right-of-use assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As most of our leases do not provide an implicit rate, we generally use our incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The weighted average discount rate for our operating leases as of March 31, 2024 and December 31, 2023 was 6.0% and 5.8%, respectively. We recognize operating lease expense, including escalating lease payments and lease incentives, on a straight-line basis over the lease term. Operating lease expense for the three months ended March 31, 2024 and 2023 was $28.2 million and $17.3 million, respectively.

The lease terms generally range from three to ten years. Some leases include one or more options to renew, which may be exercised to extend the lease term. We include the exercise of lease renewal options in the lease term when it is reasonably certain that we will exercise the option and such exercise is at our sole discretion. In the third quarter of ~~2016,~~2023, we ~~issued a subordinated note~~commenced two large real estate leases to ~~former owners~~support our expected growth in off-site construction, with ~~an outstanding balance of $1.0 million as of September 30, 2017 that bears interest, payable quarterly, at a~~lease terms longer than our typical terms. The weighted average ~~interest rate of 3.0%. The principal is due in equal installments in February 2018~~remaining lease term for our operating leases was 11.5 years at March 31, 2024 and ~~2019.~~10.9 years at December 31, 2023.

~~Other Debt~~

~~As part~~A majority of the ~~Shoffner acquisition,~~Company’s real property leases are with individuals or entities with whom we ~~acquired debt~~have no other business relationship. However, in certain instances the Company enters into real property leases with ~~an outstanding balance at~~current or former employees. Rent paid to related parties for the ~~acquisition date~~three months ended March 31, 2024 and 2023 was approximately $2.1 million and $2.0 million, respectively.

If we decide to cancel or terminate a lease before the end of ~~$0.4 million with principal and interest due~~its term, we would typically owe the ~~last day of every month; ending on~~lessor the ~~December 30, 2019 maturity date. The interest rate is~~remaining lease payments under the ~~one month LIBOR rate plus 2.25%. As of September 30, 2017, $0.2 million~~term of the ~~note was outstanding,~~lease. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants. On rare occasions, we rent or sublease certain real estate assets that we no longer use to third parties.

The following table summarizes the operating lease assets and liabilities included in the Consolidated Balance Sheet as follows (in thousands):



	March 31, 2024		December 31, 2023
Operating lease right-of-use assets	$	227,157	$	205,712
Operating lease liabilities:
Other current liabilities	$	26,130	$	24,426
Long-term operating lease liabilities		209,717		188,136
Total operating lease liabilities	$	235,847	$	212,562

The maturities of ~~which $0.1 million was considered current.~~operating lease liabilities are as follows (in thousands):


Year ending December 31—
2024 (excluding the three months ended March 31, 2024)	$	29,282
2025		36,864
2026		33,144
2027		28,915
2028		25,252
Thereafter		183,669
Total lease payments		337,126
Less—present value discount		(101,279)
Present value of operating lease liabilities	$	235,847

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Supplemental information related to operating leases was as follows (in thousands):

In addition, with one of our acquisitions we acquired capital lease obligations. As of September 30, 2017, $0.1 million of capital lease obligations were outstanding, of which $0.1 million was considered current.


	Three Months Ended March 31,
	2024		2023
Cash paid for amounts included in the measurement of operating lease liabilities	$	9,466	$	7,024
Operating lease right-of-use assets obtained in exchange for lease liabilities	$	29,426	$	9,446

7.9. Commitments and Contingencies

Claims and Lawsuits

We are subject to certain legal and regulatory claims, including lawsuits arising in the normal course of business. We maintain various insurance coverages to minimize financial risk associated with these claims. We have estimated and provided accruals for probable losses and related legal fees associated with certain litigation in the accompanying consolidated financial statements. While we cannot predict the outcome of these proceedings, in management’s opinion and based on reports of counsel, any liability arising from these matters individually and in the aggregate will not have a material effect on our operating results, cash flows or financial condition, after giving effect to provisions already recorded.

~~Surety~~In the first quarter of 2023, we recorded a pre-tax gain of $6.8 million from legal developments and settlements that primarily relate to disputes with customers regarding the outcome of completed projects as well as an obligation to perform subcontract work under two executed letters of intent for subsequent projects that we believed were not enforceable. The pre-tax gain of $6.8 million was recorded as an increase in gross profit of $6.6 million, a reduction in SG&A of $0.7 million, an increase in interest income of $1.3 million and an increase in the change in fair value of contingent earn-out obligations expense of $1.8 million in our Consolidated Statements of Operations.

As of March 31, 2024, we recorded an accrual for unresolved matters, which is not material to our financial statements, based on our analysis of likely outcomes related to the respective matters; however, it is possible that the ultimate outcome and associated costs will deviate from our estimates and that, in the event of an unexpectedly adverse outcome, we may experience additional costs and expenses in future periods.

Surety

Many customers, particularly in connection with new construction, require us to post performance and payment bonds issued by a financial institution known as a surety. If we fail to perform under the terms of a contract or to pay subcontractors and vendors who provided goods or services under a contract, the customer may demand that the surety make payments or provide services under the bond. We must reimburse the surety for any expenses or outlays it incurs. ~~To date, we are not aware of any losses to our sureties in connection with bonds the sureties have posted on our behalf, and do not expect such losses to be incurred in the foreseeable future.~~

~~Surety~~Current market conditions ~~have seen some strengthening as the commercial construction~~for surety markets ~~have started to rebound. Bonding~~and bonding capacity ~~remains~~are adequate, ~~in the current market conditions along~~ with acceptable terms and conditions. Historically, approximately ~~20%~~10% to ~~30%~~20% of our business has required bonds. While we currently have strong surety relationships to support our bonding needs, future market conditions or changes in the sureties’ assessment of our operating and financial risk could cause the sureties to decline to issue bonds for our work. If that were to occur, the alternatives include doing more business that does not require bonds, posting other forms of collateral for project performance, such as letters of credit or cash, and seeking bonding capacity from other sureties. We would likely also encounter concerns from customers, suppliers and other market participants as to our creditworthiness. While we believe our general operating and financial characteristics would enable us to ultimately respond effectively to an interruption in the availability of bonding capacity, such an interruption would likely cause our revenue and profits to decline in the near term.

Self-Insurance

We are substantially ~~self‑insured~~self-insured for workers’ compensation, employer’s liability, auto liability, general liability and employee group health claims, in view of the relatively high ~~per‑incident~~per-incident deductibles we absorb under our insurance arrangements for these risks. Losses are estimated and accrued based upon known facts, historical trends and industry averages. Estimated losses in excess of our deductible, which have not already been paid, are included in our accrual with a corresponding receivable from our insurance carrier. Loss estimates associated with the larger and ~~longer‑developing~~

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longer-developing risks, such as workers’ compensation, auto liability and general liability, are reviewed by a ~~third‑party~~third-party actuary quarterly.

8.10. Stockholders’ Equity

Earnings Per Share

Basic earnings per share (“EPS”) is computed by dividing net income by the weighted average number of shares of common stock outstanding during the year. Diluted EPS is computed considering the dilutive effect of stock options, restricted stock, restricted stock units and performance stock units. The vesting of unvested, contingently issuable performance stock units is based on the achievement of certain earnings per share targets and total shareholder return. These shares are considered contingently issuable shares for purposes of calculating diluted earnings per share.

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These shares are not included in the diluted earnings per share denominator until the performance criteria are met, if it is assumed that the end of the reporting period was the end of the contingency period.

Unvested restricted stock, restricted stock units and performance stock units are included in diluted earnings per share, weighted outstanding until the shares and units vest. Upon vesting, the vested restricted stock, restricted stock units and performance stock units are included in basic earnings per share weighted outstanding from the vesting date.

There were ~~less than 0.1 million anti-dilutive stock options for the three and nine months ended September 30, 2017. There were approximately 0.1 million~~zero anti-dilutive stock options excluded from the calculation of diluted EPS for the three ~~and nine~~ months ended ~~September 30, 2016.~~ March 31, 2024 and 2023.

The following table reconciles the number of shares outstanding with the number of shares used in computing basic and diluted earnings per share for each of the periods presented (in thousands):


	Three Months Ended		Nine Months Ended
	September 30,		September 30,
	2017	2016	2017	2016

					Three Months Ended
					March 31,
					2024	2023
Common shares outstanding, end of period	37,134	37,230	37,134	37,230	35,695	35,752
Effect of using weighted average common shares outstanding	98	130	125	150	44	60
Shares used in computing earnings per share—basic	37,232	37,360	37,259	37,380	35,739	35,812
Effect of shares issuable under stock option plans based on the treasury stock method	293	319	312	331	29	26
Effect of restricted and contingently issuable shares	101	142	113	143	60	69
Shares used in computing earnings per share—diluted	37,626	37,821	37,684	37,854	35,828	35,907

Share Repurchase Program

On March 29, 2007, our Board of Directors (the “Board”) approved a stock repurchase program to acquire up to 1.0 million shares of our outstanding common stock. Subsequently, the Board has from time to time increased the number of shares that may be acquired under the program and approved extensions of the ~~program to acquire additional shares.~~program. Since the inception of the repurchase program, the Board has approved ~~8.1~~10.9 million shares to be repurchased. As of ~~September 30, 2017,~~March 31, 2024, we have repurchased a cumulative total of ~~7.6~~10.3 million shares at an average price of ~~$13.75~~$26.29 per share under the repurchase program.

The share repurchases will be made from time to time at our discretion in the open market or privately negotiated transactions, as permitted by securities laws and other legal requirements, and subject to market conditions and other factors. The Board may modify, suspend, extend or terminate the program at any time. During the ~~nine~~three months ended ~~September 30, 2017,~~March 31, 2024, we repurchased ~~0.3~~less than 0.1 million shares for approximately ~~$8.9~~$0.3 million at an average price of ~~$34.18~~$196.89 per share.

11. Segment Information

Our activities are within the mechanical services industry and the electrical services industry, which represent our two reportable segments. We aggregate our operating segments into two reportable segments, as the operating

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segments meet all of the aggregation criteria. The following tables present information about our reportable segments (in thousands):



	Three Months Ended March 31, 2024
	Mechanical Segment		Electrical Segment		Corporate		Consolidated
Revenue	$	1,185,009	$	352,007	$	—	$	1,537,016
Gross Profit	$	217,712	$	79,651	$	—	$	297,363

	Three Months Ended March 31, 2023
	Mechanical Segment		Electrical Segment		Corporate		Consolidated
Revenue	$	918,615	$	256,025	$	—	$	1,174,640
Gross Profit	$	164,067	$	41,338	$	—	$	205,405

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis should be read in conjunction with our historical Consolidated Financial Statements and related notes included elsewhere in this Form ~~10‑Q~~10-Q and the Annual Report on Form ~~10‑K~~10-K filed with the Securities and Exchange Commission for the year ended December 31, ~~2016~~2023 (the “Form ~~10‑K”~~10-K”). This discussion contains ~~“forward‑looking~~“forward-looking statements” regarding our business and industry within the meaning of ~~the Private Securities Litigation Reform Act of 1995.~~applicable securities laws and regulations. These statements are based on our current plans and expectations and involve risks and uncertainties that could cause our actual future activities and results of operations to be materially different from those set forth in the ~~forward‑looking~~forward-looking statements. Important factors that could cause actual results to differ include risks set forth in “Item 1A. Risk Factors” included in our Form ~~10‑K.~~10-K. We undertake no obligation to revise or publicly release the results of any revision to these ~~forward‑looking~~forward-looking statements, except as required by law. Given these risks and uncertainties, readers are cautioned not to place undue reliance on such ~~forward‑looking~~forward-looking statements. The terms “Comfort Systems,” “we,” “us,” or ~~“the Company,~~the “Company,” refer to Comfort Systems USA, Inc. or Comfort Systems USA, Inc. and its consolidated subsidiaries, as appropriate in the context.

Introduction and Overview

We are a national provider of comprehensive mechanical and electrical installation, renovation, maintenance, repair and replacement services within the mechanical and electrical services ~~industry.~~industries. We operate primarily in the commercial, industrial and institutional ~~HVAC~~ markets and perform most of our ~~services within office buildings, retail centers, apartment complexes,~~work in manufacturing, ~~plants, and~~ healthcare, education, office, technology, retail and government facilities. We operate our business in two business segments: mechanical and electrical.

Nature and Economics of Our Business

~~Approximately 80% of~~In our ~~revenue is earned on a project basis for installation of~~ mechanical ~~systems in newly constructed facilities or for replacement of systems in existing facilities. Customers~~business segment, customers hire us to ensure ~~such~~HVAC systems deliver specified or generally expected heating, cooling, conditioning and circulation of air in a facility. This entails installing core system equipment such as packaged heating and air conditioning units, or in the case of larger facilities, separate core components such as chillers, boilers, air handlers, and cooling towers. We also typically install connecting and distribution elements such as piping and ducting. ~~Our~~

In our electrical business segment, our principal business activity is electrical construction and engineering in the commercial and industrial field. We also perform electrical logistics services, electrical service work, and electrical construction and engineering services.

In both our mechanical and electrical business segments, our responsibilities usually require conforming the systems to ~~pre‑established~~pre-established engineering drawings and equipment and performance specifications, which we frequently participate in establishing. Our project management responsibilities include staging equipment and materials to project sites, deploying labor to perform the work, and coordinating with other service providers on the project, including any subcontractors we might use to deliver our portion of the work.

Approximately 90.7% of our revenue is earned on a project basis for installation services in newly constructed facilities or for replacement of systems in existing facilities. When competing for project business, we usually estimate the costs we will incur on a project, and then propose a bid to the customer that includes a contract price and other performance and payment terms. Our bid price and terms are intended to cover our estimated costs on the project and provide a profit margin to us commensurate with the value of the installed system to the customer, the risk that project costs or duration will vary from estimate, the schedule on which we will be paid, the opportunities for other work that we might forego by committing capacity to this project, and other costs that we incur to support our operations but which are not specific to the project. Typically, customers will seek pricing from competitors for a given project. While the criteria on which customers select a ~~service~~ provider vary widely and include factors such as quality, technical expertise, ~~on‑time~~on-time performance, ~~post‑project~~post-project support and service, and company history and financial strength, we believe that price for value is the most influential factor for most customers in choosing a mechanical or electrical installation and service provider.

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After a customer accepts our bid, we generally enter into a contract with the customer that specifies what we will deliver on the project, what our related responsibilities are and how much and when we will be paid. Our overall price for the project is typically set at a fixed amount in the contract, although changes in project specifications or work conditions that result in unexpected additional work are usually subject to additional payment from the customer via what are commonly known as change orders. Project contracts typically provide for periodic billings to the customer as we meet progress milestones or incur cost on the project. Project contracts in our industry also frequently allow for a small portion of progress billings or contract price to be withheld by the customer until after we have completed the work. Amounts withheld under this practice are known as retention or retainage.

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Labor, materials and overhead costs account for the majority of our cost of service. Accordingly, labor management and utilization have the most impact on our project performance. Given the fixed price nature of much of our project work, if our initial estimate of project costs is wrong or we incur cost overruns that cannot be recovered in change orders, we can experience reduced profits or even significant losses on fixed price project work. We also perform some project work on a ~~cost‑plus~~cost-plus or a time and materials basis, under which we are paid our costs incurred plus an ~~agreed‑upon~~agreed-upon profit margin, and such projects are sometimes subject to a guaranteed maximum cost. These margins are frequently less than ~~fixed‑price~~fixed-price contract margins because there is less risk of unrecoverable cost overruns in ~~cost‑plus~~cost-plus or time and materials work.

As of ~~September 30, 2017~~March 31, 2024, we had ~~5,210~~8,668 projects in process. Our average project takes six to nine months to complete, with an average contract price of approximately ~~$457,000.~~$1.6 million. Our projects generally require working capital funding of equipment and labor costs. Customer payments on periodic billings generally do not recover these costs until late in the job. Our average project duration, together with typical retention terms as discussed above, generally allow us to complete the realization of revenue and earnings in cash within one year. We have what we ~~believe is~~consider to be a ~~well‑diversified~~well-diversified distribution of revenue across ~~end‑use~~end-use sectors that we believe reduces our exposure to negative developments in any given sector. Because of the integral nature of ~~HVAC and related controls systems~~our services to most buildings, we have the legal right in almost all cases to attach liens to buildings or related funding sources when we have not been fully paid for installing systems, except with respect to some government buildings. The service work that we do, which is discussed further below, usually does not give rise to lien rights.

We also perform larger projects. Taken together, projects with contract prices of $2 million or more totaled $12.1 billion of aggregate contract value as of March 31, 2024, or approximately 88% of a total contract value for all projects in progress, totaling $13.7 billion. Generally, projects closer in size to $2 million will be completed in one year or less. It is unusual for us to work on a project that exceeds two years in length.

A stratification of projects in progress as of ~~September 30, 2017,~~March 31, 2024, by contract price, is as follows:

Aggregate

Contract

No. of

Price Value

Contract Price of Project

Projects

(millions)

Under $1 million

4,722

$
546.7

$1 million - $5 million

387

856.8

$5 million - $10 million

70

469.5

$10 million - $15 million

19

233.8

Greater than $15 million

12

273.7

Total

5,210

$
2,380.5


		Aggregate
		Contract
	No. of	Price Value
Contract Price of Project	Projects	(millions)
Under $2 million	7,639	$	1,608.7
$2 million - $10 million	739		3,359.5
$10 million - $20 million	134		1,902.9
$20 million - $40 million	97		2,773.7
Greater than $40 million	59		4,023.4
Total	8,668	$	13,668.2

In addition to project work, approximately ~~20%~~9.3% of our revenue represents maintenance and repair service on already installed HVAC, electrical, and controls systems. This kind of work usually takes from a few hours to a few days to perform. Prices to the customer are based on the equipment and materials used in the service as well as technician labor time. We usually bill the customer for service work when it is complete, typically with payment terms of up to thirty days. We also provide maintenance and repair service under ongoing contracts. Under these contracts, we are paid regular monthly or quarterly amounts and provide specified service based on customer requirements. These agreements typically are for one or more years and frequently contain ~~thirty‑~~thirty- to ~~sixty‑day~~sixty-day cancellation notice periods.

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A relatively small portion of our revenue comes from national and regional account customers. These customers typically have multiple sites and contract with us to perform maintenance and repair service. These contracts may also provide for us to perform new or replacement systems installation. We operate a national call center to dispatch technicians to sites requiring service. We perform the majority of this work with our own employees, with the balance being subcontracted to third parties that meet our performance qualifications.

Profile and Management of Our Operations

We manage our 3647 operating units based on a variety of factors. Financial measures we emphasize include profitability and use of capital as indicated by cash flow and by other measures of working capital principally involving project cost, billings and receivables. We also monitor selling, general, administrative and indirect project support expense, backlog, workforce size and mix, growth in revenue and profits, variation of actual project cost from original estimate, and overall financial performance in comparison to budget and updated forecasts. Operational factors we emphasize include project selection, estimating, pricing, safety, management and execution practices, labor utilization, ~~safety,~~

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training, and the ~~make‑up~~make-up of both existing backlog as well as new business being pursued, in terms of project size, technical application, ~~and~~ facility type, ~~end‑use~~end-use customers and industries and location of the work.

Most of our operations compete on a local or regional basis. Attracting and retaining effective operating unit managers is an important factor in our business, particularly in view of the relative uniqueness of each market and operation, the importance of relationships with customers and other market participants, such as architects and consulting engineers, and the high degree of competition and low barriers to entry in most of our markets. Accordingly, we devote considerable attention to operating unit management quality, stability, and contingency planning, including related considerations of compensation and ~~non‑competition~~non-competition protection where applicable.

Economic and Industry Factors

As a mechanical and ~~building controls~~electrical services provider, we operate in the broader nonresidential construction services industry and are affected by trends in this sector. While we do not have operations in all major cities of the United States, we believe our national presence is sufficiently large that we experience trends in demand for and pricing of our services that are consistent with trends in the national nonresidential construction sector. As a result, we monitor the views of major construction sector forecasters along with macroeconomic factors they believe drive the sector, including trends in gross domestic product, interest rates, business investment, employment, demographics and the ~~general~~ fiscal condition of federal, state and local governments.

Spending decisions for building construction, renovation and system replacement are generally made on a project basis, usually with some degree of discretion as to when and if projects proceed. With larger amounts of capital, time, and discretion involved, spending decisions are affected to a significant degree by uncertainty, particularly concerns about economic and financial conditions and trends. We have experienced periods of time when economic weakness caused a significant slowdown in decisions to proceed with installation and replacement project work.

Operating Environment and Management Emphasis

~~Nonresidential building~~In 2020, the advent of a global pandemic led to some delays in service and construction, including delayed project starts and ~~renovation activity, as reported~~air pockets or pauses during 2020 and 2021. We experienced increasing demand in 2022 and 2023, and we expect that the demand environment, especially for industrial and technology customers, will remain at high levels in 2024. Although we have largely recovered from negative impacts caused by the ~~federal government, declined steeply over the four year period from 2009~~COVID-19 pandemic, we continue to ~~2012,~~experience increased labor costs, supply constraints and ~~2013~~cost increases, and ~~2014 activity levels were relatively stable at the low levels~~delays in delivery of ~~the preceding years. During 2015~~various materials and ~~2016, there was an increase~~equipment. We expect that constraints and delays will continue to abate in ~~overall activity levels~~2024; however, we anticipate that pressure on cost and ~~these improved levels have continued during 2017.~~availability, especially for skilled labor, will continue throughout 2024.

~~As a result of our continued strong emphasis on cash flow, at September 30, 2017 we had a strong financial position, as discussed further in “Liquidity and Capital Resources” below.~~ We have a credit facility in place with ~~considerably less restrictive~~ terms ~~than those of our previous facilities; this facility~~we believe are favorable that does not expire until ~~February 2021.~~July 2027. As of March 31, 2024, we had $768.8 million of credit available to borrow under our credit facility. We have strong surety relationships to support our bonding needs, and we believe our relationships with the surety markets are strong and benefit from our ~~solid current results~~operating history and financial position. We have generated positive free cash flow in each of the last ~~eighteen~~twenty-five calendar years and will continue our emphasis in this area. We believe that the relative size and strength of

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our ~~balance sheet~~Balance Sheet and surety ~~support~~relationships, as compared to most companies in our industry, represent competitive advantages for us.

As discussed at greater length in “Results of Operations” below, we expect price competition to continue as ~~our customers and~~ local and regional ~~competitors respond cautiously to improved market conditions.~~industry participants compete for customers. We will continue ~~our efforts~~ to invest in our service business, to pursue the more active sectors in our markets, and to emphasize our regional and national account business. Our primary emphasis for 2017 has been on execution and cost control, but we are seeking growth based on our belief that industry conditions will continue to be strong in the near term, and we believe that activity levels will permit us to earn improved profits while preserving and developing our workforce. We continue to focus on project qualification, estimating, pricing and management; and we are investing in growth and improved performance.

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Cyclicality and Seasonality

~~Historically, the~~The construction industry ~~has been highly cyclical.~~is subject to business cycle fluctuation. As a result, our volume of business, particularly in new construction projects and renovation, may be adversely affected by declines in new installation and replacement projects in various geographic regions of the United States during periods of economic weakness.

The ~~HVAC industry is~~mechanical and electrical contracting industries are also subject to seasonal variations. The demand for new installation and replacement is generally lower during the winter months (the first quarter of the year) due to reduced construction activity during inclement weather and less use of air conditioning during the colder months. Demand for ~~HVAC~~our services is generally higher in the second and third calendar quarters due to increased construction activity and increased use of air conditioning during the warmer months. Accordingly, we expect our revenue and operating results generally will be lower in the first calendar quarter.

Critical Accounting Estimates

Management believes that there have been no significant changes during the three months ended March 31, 2024, to the items that we disclosed as our "Critical Accounting Estimates" in Management's Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023. A summary of significant accounting policies and a summary of recent accounting pronouncements applicable to our Consolidated Financial Statements are included in Note 2 “Summary of Significant Accounting Policies and Estimates.”

Results of Operations (dollars in thousands):


	Three Months Ended September 30,								Nine Months Ended September 30,
	2017				2016				2017				2016

																	Three Months Ended March 31,
																	2024				2023
Revenue	$	480,851	100.0	%	$	428,760	100.0	%	$	1,326,850	100.0	%	$	1,242,240	100.0	%	$	1,537,016	100.0	%	$	1,174,640	100.0	%
Cost of services		379,993	79.0	%		335,944	78.4	%		1,054,300	79.5	%		986,496	79.4	%		1,239,653	80.7	%		969,235	82.5	%
Gross profit		100,858	21.0	%		92,816	21.6	%		272,550	20.5	%		255,744	20.6	%		297,363	19.3	%		205,405	17.5	%
Selling, general and administrative expenses		66,707	13.9	%		61,032	14.2	%		196,553	14.8	%		180,245	14.5	%		162,723	10.6	%		135,032	11.5	%
Goodwill impairment		—	—			—	—			1,105	0.1	%		—	—
Gain on sale of assets		(184)	—			(166)	—			(464)	—			(523)	—			(820)	(0.1)	%		(512)	—
Operating income		34,335	7.1	%		31,950	7.5	%		75,356	5.7	%		76,022	6.1	%		135,460	8.8	%		70,885	6.0	%
Interest income		16	—			3	—			55	—			6	—			1,603	0.1	%		1,397	0.1	%
Interest expense		(961)	(0.2)	%		(563)	(0.1)	%		(2,392)	(0.2)	%		(1,870)	(0.2)	%		(1,633)	(0.1)	%		(4,076)	(0.3)	%
Changes in the fair value of contingent earn-out obligations		2,469	0.5	%		804	0.2	%		1,845	0.1	%		468	—			(12,491)	(0.8)	%		(2,382)	(0.2)	%
Other income (expense)		10	—			80	—			57	—			455	—			117	—			1	—
Income before income taxes		35,869	7.5	%		32,274	7.5	%		74,921	5.6	%		75,081	6.0	%		123,056	8.0	%		65,825	5.6	%
Income tax expense		13,585				11,803				27,188				27,052
Provision for income taxes																		26,737				8,609
Net income	$	22,284	4.6	%	$	20,471	4.8	%	$	47,733	3.6	%	$	48,029	3.9	%	$	96,319	6.3	%	$	57,216	4.9	%

We had 3544 operating locations as of December 31, ~~2016. We completed one acquisition in~~2023. In the ~~second~~first quarter of ~~2017, known as “BCH”, that reports as a separate location in the Tampa, Florida area. Other than the addition~~2024, we split one of ~~BCH, we did not make any changes to~~our operating locations ~~during~~into two separate operating locations. Additionally, we completed the ~~first nine months~~acquisitions of ~~2017. As~~Summit Industrial Construction, LLC (“Summit”) and J & S Mechanical Contractors, Inc. (“J&S”), which both report as separate operating locations. We had 47 operating locations as of ~~September 30, 2017, we had 36 operating locations.~~March 31, 2024. Acquisitions are included in our results of operations from the respective acquisition date. The ~~same‑store~~same-store comparison from ~~2017~~2024 to ~~2016,~~2023, as described below, excludes ~~six months~~Summit, which was acquired on February 1, 2024, J&S, which was acquired on February 1, 2024, DECCO, Inc. (“DECCO”), which was acquired on October 2, 2023, and one month of results for ~~BCH,~~Eldeco, Inc (“Eldeco”), which was acquired ~~in April 2017 as well as the first month of 2017 for Shoffner, which was acquired in~~on February ~~2016.~~1, 2023. An operating location is included in the ~~same‑store~~same-store comparison on the first day it has

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comparable prior year operating ~~data.~~data, except for immaterial acquisitions that are often absorbed and integrated with existing operations.

Revenue—Revenue for the first quarter of 2024 increased ~~$52.1~~$362.4 million, or ~~12.1%~~30.8%, to ~~$480.9 million for the third quarter of 2017~~$1.54 billion compared to the same period in ~~2016.~~2023. The increase included ~~an 8.0% increase related to the acquisition of BCH and~~ a ~~4.1%~~22.7% increase in revenue related to ~~same‑store~~same-store activity and an 8.1% increase related to the Summit, J&S, DECCO, and Eldeco acquisitions. The same-store revenue growth was largely driven by strong market conditions, including the increase in our backlog. The increase in demand has been particularly strong in the technology and manufacturing sectors, particularly for data centers, chip plants, food and pharmaceuticals.

The following table presents our operating segment revenue (in thousands, except percentages):


	Three Months Ended March 31,
	2024				2023
Revenue:
Mechanical Segment	$	1,185,009	77.1	%	$	918,615	78.2	%
Electrical Segment		352,007	22.9	%		256,025	21.8	%
Total	$	1,537,016	100.0	%	$	1,174,640	100.0	%

Revenue for our mechanical segment increased $266.4 million, or 29.0%, to $1,185.0 million for the first quarter of 2024 compared to the same period in 2023. Of this increase, $87.5 million resulted from the acquisition of Summit, J&S, and DECCO, and $178.9 million was attributable to same-store activity. The ~~same‑store~~same-store revenue increase is primarily ~~due to~~resulted from an increase in activity in the technology sector at one of our Texas operations ($44.0 million), at another one of our Texas operations ($41.2 million), at our North Carolina operation ($24.5 million) and in the Technology and Manufacturing sectors at one of our Virginia operations ($~~9.3~~24.8 million) ~~and our Wisconsin operation ($4.8 million)~~.

Revenue for our electrical segment increased ~~$84.6~~$96.0 million, or ~~6.8%~~37.5%,to ~~$1.33 billion~~$352.0 million for the first ~~nine months~~quarter of ~~2017~~2024 compared to the same period in ~~2016.~~2023. The increase ~~included a 6.4% increase related to the acquisitions of BCH and Shoffner and a 0.4%~~primarily resulted from an increase in ~~revenue related to same‑store activity. The same‑store revenue increase is primarily due to an increase~~activity in

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~~activity~~ the technology sector at our ~~New Hampshire~~Texas electrical operation ($~~16.3~~38.8 million) and ~~our Wisconsin operation ($11.4 million). This was partially offset by a decrease~~in the manufacturing sector at our North Carolina electrical operation ($~~11.7 million) and one of our Virginia operations ($9.1~~29.9 million).

Backlog reflects revenue still to be recognized under contracted or committed installation and replacement project work. Project work generally lasts less than one year. Service agreement revenue, ~~and~~ service work and short duration projects, which are generally billed as performed, do not flow through backlog. Accordingly, backlog represents only a portion of our revenue for any given future period, and it represents revenue that is likely to be reflected in our operating results over the next six to twelve months. As a result, we believe the predictive value of backlog information is limited to indications of general revenue direction over the near term, and should not be interpreted as indicative of ongoing revenue performance over several quarters.

The following table presents our operating segment backlog (in thousands, except percentages):


	March 31, 2024				December 31, 2023				March 31, 2023
Backlog:
Mechanical Segment	$	4,627,294	78.3	%	$	4,027,927	78.1	%	$	3,423,767	77.0	%
Electrical Segment		1,284,354	21.7	%		1,129,449	21.9	%		1,021,177	23.0	%
Total	$	5,911,648	100.0	%	$	5,157,376	100.0	%	$	4,444,944	100.0	%

Backlog as of ~~September 30, 2017~~March 31, 2024 was ~~$901.2 million,~~$5.91 billion, a ~~3.9% decrease~~14.6% increase from ~~June 30, 2017~~December 31, 2023 backlog of ~~$937.8 million,~~$5.16 billion, and a ~~25.3%~~33.0% increase from ~~September 30, 2016~~March 31, 2023 backlog of ~~$719.3 million. Sequential~~$4.44 billion. The sequential backlog ~~decreased~~increase included the acquisitions of Summit ($440.9 million) and J&S ($171.7 million) as well as a same-store increase of $141.7 million, or 2.7%. The same-store sequential backlog increase was primarily ~~due to the~~a result of an increase in project bookings at our Texas electrical operation ($170.0 million). The sequential backlog increase was partially offset by completion of project work at one of our Texas operations ($~~13.3~~136.1 million). The year-over-year backlog increase included the acquisitions of Summit ($440.9 million), J&S ($171.7 million) and DECCO ($52.1 million) as well as a same-store increase of $802.0 million, or 18.0%. Same-store year-over-year backlog growth was primarily attributable to increased project bookings at one of our Virginia operations ($~~10.4~~185.0 million), our Texas electrical operation ($164.3

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million), our North Carolina operations ($101.9 million), one of our Tennessee operations ($79.4 million) and one of our ~~Florida~~South Carolina operations ($10.4 million). The year‑over‑year backlog increase included the acquisition of BCH ($31.8 million) and a same-store increase of $150.1 million or 20.9%. Same-store backlog increased primarily due to increased project bookings at our Colorado operation ($50.6 million), one of our Virginia operations ($41.4 million), our North Carolina operation ($22.3 million) and our Arizona operation ($22.178.8 million).

Gross Profit—Gross profit increased ~~$8.0~~$92.0 million, or ~~8.7%~~44.8%, to ~~$100.9~~$297.4 million for the ~~third~~first quarter of ~~2017~~2024 as compared to the same period in ~~2016.~~2023. The increase included a ~~6.1%~~$4.8 million, or 2.4%, increase related to the ~~acquisition of BCH~~Summit, J&S, DECCO, and Eldeco acquisitions, as well as a ~~2.6%~~42.4% increase in ~~same‑store~~same-store activity. The ~~same‑store~~same-store increase in gross profit was ~~primarily due to increased volumes at one of our Virginia operations ($1.4 million) compared to~~driven by both higher revenues in the ~~prior~~current year as well as improved execution in our operations. We had increased volumes at our North Carolina operations ($15.4 million) and we achieved improvements in project execution at our Texas electrical operation ($22.8 million) and another one of our Texas operations ($~~1.2~~18.3 million). These increases were partially offset by an increase in the first quarter of 2023 of $6.6 million in gross profit related to positive developments on legal matters, which did not recur in 2024. As a percentage of revenue, gross profit ~~decreased from 21.6% in 2016 to 21.0% in 2017 due to an increase in backlog amortization as a result of the BCH acquisition.~~

~~Gross profit increased $16.8 million, or 6.6%, to $272.6 million~~ for the first ~~nine months of 2017 as compared~~quarter increased from 17.5% in 2023 to ~~the same period~~19.3% in ~~2016. The increase included a 5.5% increase related to the acquisitions of BCH and Shoffner and a 1.1% increase in same‑store activity. The same‑store increase in gross profit was~~2024, primarily due to ~~increased volumes at~~the factors discussed above and improvements in our ~~Wisconsin operation ($3.5 million). As a percentage of revenue,~~electrical segment gross profit ~~decreased slightly from 20.6% in 2016 to 20.5% in 2017 due to an increase in backlog amortization as a result of the BCH acquisition.~~margin.

Selling, General and Administrative Expenses (“SG&A”)—SG&A increased ~~$5.7~~$27.7 million, or ~~9.3%~~20.5%, to ~~$66.7~~$162.7 million for the ~~third~~first quarter of ~~2017~~2024 as compared to ~~2016.~~2023. On a ~~same‑store~~same-store basis, excluding amortization expense, SG&A increased ~~$0.6~~$18.7 million, or ~~1.0%~~14.9%. ~~This~~The same-store increase is primarily due to ~~the increase in~~higher same-store revenue ~~in the current year period.~~andincreased compensation costs ($13.7 million), largely attributable to increased headcount. Amortization expense increased ~~$1.9 million during the period as a result of the BCH acquisition. As a percentage of revenue, SG&A decreased from 14.2% in 2016 to 13.9% in 2017.~~

SG&A increased $16.3 million, or 9.0%, to $196.6 million for the first nine months of 2017 as compared to 2016. On a same‑store basis, excluding amortization expense, SG&A increased $5.4 million, or 3.1%. This increase is primarily due to $0.8 million in compensation costs related to leadership changes, investments in service and an increase in bad debt expense of $0.2 million due to the collection of aged receivables in the prior year period. Additionally, we incurred $0.4 million in expenses in the first quarter of 2017 related to the acquisition of BCH completed on April 1, 2017. Amortization expense increased $3.4$3.3 million during the period, primarily as a result of the ~~BCH acquisition.~~Summit, J&S, DECCO and Eldeco acquisitions. As a percentage of revenue, SG&A ~~increased~~for the first quarter decreased from ~~14.5%~~11.5% in ~~2016~~2023 to ~~14.8%~~10.6% in ~~2017 primarily~~2024 due to leverage resulting from the ~~factors discussed above.~~increase in revenue.

We have included ~~same‑store~~same-store SG&A, excluding amortization, because we believe it is an effective measure of comparative results of operations. However, ~~same‑store~~same-store SG&A, excluding amortization, is not considered under

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generally accepted accounting principles to be a primary measure of an entity’s financial results, and accordingly, should not be considered an alternative to SG&A as shown in our consolidated statements of operations.


									Three Months Ended
									March 31,
									2024		2023

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2017		2016		2017		2016
	(in thousands)				(in thousands)







									(in thousands)
SG&A	$	66,707	$	61,032	$	196,553	$	180,245	$	162,723	$	135,032
Less: SG&A from companies acquired		(3,185)		—		(7,516)		—		(5,684)		—
Less: Amortization expense		(3,394)		(1,515)		(8,072)		(4,649)		(12,609)		(9,295)
Same-store SG&A, excluding amortization expense	$	60,128	$	59,517	$	180,965	$	175,596	$	144,430	$	125,737

~~Goodwill Impairment~~Interest Expense—~~We recorded a goodwill impairment charge of $1.1~~Interest expense decreased $2.4 million, ~~during~~or 59.9%, to $1.6 million for the first quarter of 2017. Based on changes to our market strategy that occurred in March 2017 related to our reporting unit based in California, we reevaluated our projected future earnings for this operating location. When the carrying value of a given reporting unit exceeds its fair value, a goodwill impairment loss is recorded for this difference, not to exceed the carrying amount of goodwill. Based upon our projected future earnings for this location, we could no longer support the related goodwill balance and therefore the goodwill associated with this location was fully impaired. The fair value was estimated using a discounted cash flow model.

~~Interest Expense—Interest expense increased $0.4 million, or 70.7%, to $1.0 million for the third quarter of 2017~~2024 as compared to the same period in ~~2016. Interest~~2023. The decrease in interest expense ~~increased $0.5 million, or 27.9%, to $2.4 million~~ for the first ~~nine months~~quarter of ~~2017 as~~2024 is due to a decrease in our average outstanding debt balance compared to the same period in 2016. The increase reflects the increased borrowings on the revolving credit facility as well as notes to former owners used to fund the BCH acquisition during the second quarter of 2017.prior year.

Changes in the Fair Value of Contingent ~~Earn‑out~~Earn-out Obligations—The contingent ~~earn‑out~~earn-out obligations are measured at fair value each reporting period, and changes in estimates of fair value are recognized in earnings. ~~Income~~Expense from changes in the fair value of contingent ~~earn‑out~~earn-out obligations for the ~~third~~first quarter of ~~2017~~2024 increased ~~$1.7~~$10.1 million as compared to the same period in ~~2016. This~~2023. The increase in earn-out expense was ~~the result of reducing our obligation related to the BCH acquisition~~ primarily ~~due to third quarter results being below the initial estimate as a result of the impact of Hurricane Irma~~driven by higher actual and less project activity in the quarter than previously estimated. In the third quarter of 2016, based on updated measurements of estimated future cash flows for our contingent obligations, we reduced our obligation related to the EAS acquisition resulting in a gain of $0.8 million.

~~Income~~projected earning at Summit and J&S. Expense or income from changes in earn-out valuations may be more volatile in future periods due to large earn-out agreements for acquisitions that closed in the ~~fair value~~first quarter of ~~contingent earn‑out obligations~~2024.

Provision for Income Taxes—Our provision for income taxes for the first nine months of 2017 increased $1.4 million as compared to the same period in 2016. This increase was the result of reducing our obligation related to the BCH acquisition primarily due to third quarter results being below the initial estimate as a result of the impact of Hurricane Irma and less project activity in the quarter than previously estimated. In the third quarter of 2016, based on updated measurements of estimated future cash flows for our contingent obligations, we reduced our obligation related to the EAS acquisition resulting in a gain of $0.8 million.

~~Income Tax Expense~~—We perform work throughout the United States in virtually all fifty states. Our effective tax rate varies based on our relative profitability, or lack thereof, in states with varying tax rates and rules. In addition, discrete items, judgments and legal structures can change our effective tax rate. These items can include the tax treatment for impairment of goodwill and other intangible assets, changes in fair value of acquisition-related assets and liabilities, tax reserves for uncertain tax positions, accounting for losses associated with underperforming operations and noncontrolling interests.

~~For the nine~~three months ended ~~September 30, 2017, our income tax expense~~March 31, 2024 was ~~$27.2~~$26.7 million with an effective tax rate of ~~36.3%~~21.7% as compared to a provision for income ~~tax expense~~taxes of ~~$27.1~~$8.6 million with an effective tax rate of ~~36.0%~~13.1% for the same period in ~~2016.~~2023. The effective tax rate for ~~2017~~2024 was slightly higher than the ~~35.0% federal statutory rate primarily due to~~ ~~net state income taxes (3.6%) and nondeductible expenses (1.1%) partially offset by benefits from deductions for stock-based compensation (1.2%) and the domestic production activities deduction (1.9%). The effective tax rate for 2016 was higher than the 35.0%~~21% federal statutory rate primarily due to net state income taxes ~~(3.6%~~(3.7%) and nondeductible expenses ~~(0.8%~~(1.6%)

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partially offset by the ~~domestic production~~credit for increasing research activities ~~deduction (1.8%~~(the “R&D tax credit”) ~~and a decrease in valuation allowances (0.4%~~(4.4%). ~~We currently estimate our~~The effective tax rate for 2023 was lower than the ~~full~~21% federal statutory rate primarily due to the R&D tax credit (9.7%) and an increase in the R&D tax credit for the 2022 tax year ~~2017 will be between 35%~~(5.1%). These R&D tax credit benefits were partially offset by net state income taxes (4.3%) and ~~38%~~nondeductible expenses, including nondeductible expenses related to the TAS Energy Inc. acquisition (2.6%).

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As a result of conforming amendments made to the R&D tax credit in connection with the deferral of tax deductions for research and experimental (“R&E”) expenditures pursuant to the Tax Cuts and Jobs Act (2017), our provision for income taxes for the three months ended March 31, 2024 benefited from a $1.1 million increase in the R&D tax credit.

~~Outlook~~

Outlook

We experienced strong ongoing demand in the first quarter of 2024, and, although we have largely recovered from negative impacts caused by the COVID-19 pandemic, we continue to experience increased labor costs, supply constraints, and delays in delivery of various materials and equipment. We are recognizing these challenges in our job planning and pricing, and we are ordering materials on an earlier timeline and seeking to collaborate with customers to share supply risks and to mitigate the effects of these challenges. We have been generally successful in maintaining productivity and in procuring needed materials despite ongoing challenges.

We have ~~seen industry conditions improve during 2015~~a good pipeline of opportunities and ~~2016. Our emphasis~~potential backlog. Considering our substantial advance bookings, we currently anticipate solid earnings and cash flow for ~~2017 is on execution,~~2024. Although we are preparing for a wide range of challenges and economic circumstances, including ~~a focus on cost discipline and efficient project performance, labor force development, and investing in growth, particularly in service and small projects. Based on our recent acquisitions,~~an eventual recession, we currently expect that ~~our 2017 revenues will be above levels we experienced in 2016. Additionally, in light of economic~~supportive conditions for our industry, ~~we expect that profitability in 2017 will~~especially for our industrial and technology customers, are likely to continue ~~to be strong and at levels similar to what we experienced in 2016.~~throughout 2024.

Liquidity and Capital Resources (in thousands):


	Nine Months Ended
	September 30,
	2017		2016


					Three Months Ended
					March 31,
					2024		2023

Cash provided by (used in):
Operating activities	$	65,692	$	49,754	$	146,557	$	126,909
Investing activities		(110,906)		(74,920)		(221,648)		(68,945)
Financing activities		42,636		(5,961)		(29,267)		(66,618)
Net increase (decrease) in cash and cash equivalents	$	(2,578)	$	(31,127)	$	(104,358)	$	(8,654)
Free cash flow:
Cash provided by operating activities	$	65,692	$	49,754	$	146,557	$	126,909
Purchases of property and equipment		(16,830)		(17,257)		(24,952)		(16,520)
Proceeds from sales of property and equipment		784		847		1,014		622
Free cash flow	$	49,646	$	33,344	$	122,619	$	111,011

Cash Flow

Our business does not require significant amounts of investment in ~~long‑term~~long-term fixed assets. The substantial majority of the capital used in our business is working capital that funds our costs of labor and installed equipment deployed in project work until our customer pays us. Customary terms in our industry allow customers to withhold a small portion of the contract price until after we have completed the work, typically for six months. Amounts withheld under this practice are known as retention or retainage. Our average project duration, together with typical retention terms, generally allow us to complete the realization of revenue and earnings in cash within one year.

Cash Provided (Used in) by Operating Activities—Cash flow from operations is primarily influenced by demand for our services and operating margins but can also be influenced by working capital needs associated with the various types of services that we provide. In particular, working capital needs may increase when we commence large volumes of work under circumstances where project costs, primarily associated with labor, equipment and subcontractors, are required to be paid before the receivables resulting from the work performed are billed and collected. Working capital needs are generally higher during the late winter and spring months as we prepare and plan for the increased project demand when favorable weather conditions exist in the summer and fall months. Conversely, working capital assets are typically converted to cash during the late summer and fall months as project completion is underway. These seasonal trends are sometimes offset by changes in the timing of major projects, which can be impacted by the weather, project delays or accelerations and other economic factors that may affect customer spending.

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Cash provided by operating activities was ~~$65.7~~$146.6 million during the first ~~nine~~three months of ~~2017~~2024 compared ~~with $49.8~~to $126.9 million during the same period in ~~2016.~~2023. The ~~$15.9~~$19.6 million increase isin cash provided was primarily ~~due to~~driven by higher pre-tax income and a ~~$21.0~~$90.1 million ~~increase~~benefit from increases in accounts payable and accrued liabilities driven by the size and timing of payments. This increase was partially offset by a ~~$21.2~~$135.8 million ~~increase~~change in ~~billings~~billing in excess of costs and ~~estimated earnings, primarily~~deferred revenue due to more advance payments received in the ~~timing of billings~~prior year. We have received large advanced payments in the current and ~~various~~prior year that will reverse when project work. The $21.0 million increase in accounts payable and accrued liabilities included approximately $6.0 million for postponed income tax payments without penalty due to relief granted by the IRS for companies affected by Hurricane Harvey. This was offset by $33.8 million increase in receivables related to project work timing and the schedule for billings as well as the increase in revenue comparedcosts are incurred, except to the ~~same period in 2016.~~extent that additional advanced payments are received.

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Cash ~~Used in~~Provided by (Used in) Investing Activities—During the first ~~nine~~three months of ~~2017,~~2024, cash used in investing activities was ~~$110.9~~$221.6 million compared to ~~$74.9~~$68.9 million during the same period in ~~2016.~~2023. The ~~$36.0~~$152.7 million increase in cash used primarily relates to an increase in cash paid (net of cash acquired) for acquisitions in the ~~BCH acquisition in 2017 of $86.1 million~~current year compared to the ~~EAS and Shoffner acquisitions~~same period in ~~2016 ($56.3 million).~~2023.

Cash Provided by (Used in) Financing Activities—Cash ~~provided by~~used in financing activities was ~~$42.6~~$29.3 million for the first ~~nine~~three months of ~~2017~~2024 compared to cash used ~~in financing activities~~ of ~~$6.0~~$66.6 million during the same period in ~~2016.~~2023. The ~~$48.6~~$37.4 million ~~increase~~decrease in cash ~~provided by financing activities~~used is primarily due to ~~$51.0~~higher repayments of debt in the prior year as operating cash flows were used to pay down outstanding debt. This decrease was partially offset by $18.6 million ~~of additional net proceeds from~~payments for contingent consideration related to acquisitions in the ~~revolving line of credit during the first nine months of 2017.~~current year.

Free Cash Flow—We define free cash flow as cash provided by operating activities, less customary capital expenditures, plus the proceeds from asset sales. We believe free cash flow, by encompassing both profit margins and the use of working capital over our approximately one year working capital cycle, is an effective measure of operating effectiveness and efficiency. We have included free cash flow information here for this reason, and because we are often asked about it by third parties evaluating us. However, free cash flow is not considered under generally accepted accounting principles to be a primary measure of an entity’s financial results, and accordingly free cash flow should not be considered an alternative to operating income, net income, or amounts shown in our consolidated statements of cash flows as determined under generally accepted accounting principles. Free cash flow may be defined differently by other companies.

Share Repurchase Program

Debt

Revolving Credit Facility

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2024, we had ~~$66.0 million of~~no outstanding borrowings ~~$39.6~~on the revolving credit facility, $81.2 million in letters of credit outstanding and ~~$219.4~~$768.8 million of credit available.

There are two interest rate options for borrowings under the Facility, the Base Rate Loan ~~Option~~(as defined in the Facility) option and the ~~Eurodollar~~Secured Overnight Financing Rate (“SOFR”) Loan ~~Option.~~option. These rates are floating rates determined by the broad financial markets, meaning they can and do move up and down from time to time. Additional margins are then added to these two rates.

Certain of our vendors require letters of credit to ensure reimbursement for amounts they are disbursing on our behalf, such as to beneficiaries under our ~~self‑funded~~self-funded insurance programs. We have also occasionally used letters of credit to guarantee performance under our contracts and to ensure payment to our subcontractors and vendors under those contracts. Our lenders issue such letters of credit through the ~~Facility for a fee. We have never had a claim made against a letter of credit that resulted in payments by a lender or by us and believe such a claim is unlikely in the~~

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foreseeable future. The letter of credit fees range from 1.25% to 2.00% per annum, based on the ratio of Consolidated Total Indebtedness to Credit Facility Adjusted EBITDA, as defined in the credit agreement.

Commitment fees are payable on the portion of the revolving loan capacity not in use for borrowings or letters of credit at any given time. These fees range from 0.20% to 0.35% per annum, based on the ratio of Consolidated Total Indebtedness to Credit Facility Adjusted EBITDA, as defined in the credit agreement.

~~The Facility contains financial covenants defining various financial measures and the levels of these measures with which we must comply. Covenant compliance is assessed as of each quarter end.~~

~~The Facility’s principal financial covenants include:~~

~~Fixed Charge Coverage Ratio~~—The Facility requires that the ratio of (a) Credit Facility Adjusted EBITDA, less non‑financed capital expenditures, tax provision, dividends and amounts used to repurchase stock to (b) the sum of interest expense and scheduled principal payments of indebtedness be at least 2.00 to 1.00; provided that the calculation of the fixed charge coverage ratio excludes stock repurchases and the payment of dividends at any time that the Company’s Net Leverage Ratio does not exceed 1.50 to 1.00. The Facility also allows the fixed charge coverage ratio not to be reduced for stock repurchases through September 30, 2015 in an aggregate amount not to exceed $25 million and for stock repurchases made after February 22, 2016 but on or prior to December 31, 2017 in an aggregate amount not to exceed $25 million, if at the time of and after giving effect to such repurchase the Company’s Net Leverage Ratio was less than or equal to 1.50 to 1.00. Capital expenditures, tax provision, dividends and stock repurchase payments are defined under the Facility for purposes of this covenant to be amounts for the four quarters ending as of any given quarterly covenant compliance measurement date. The fixed charge coverage ratio as of September 30, 2017 was 29.5.

While the Facility’s financial covenants do not specifically govern capacity under the Facility, if our debt level under the Facility at a quarter‑end covenant compliance measurement date were to cause us to violate the Facility’s leverage ratio covenant, our borrowing capacity under the Facility and the favorable terms that we currently have could be negatively impacted by the lenders.

~~We were in compliance with all of our financial covenants as of September 30, 2017.~~

~~Notes to Former Owners~~

As part of the consideration used to acquire two companies, we have outstanding notes to the former owners. These notes had an outstanding balance of $15.3 million as of September 30, 2017. In conjunction with the BCH acquisition in the second quarter of 2017, we issued a promissory note to former owners with an outstanding balance of $14.3 million as of September 30, 2017 that bears interest, payable quarterly, at a weighted average interest rate of 3.0%. The principal is due in equal installments in April 2020 and 2021. In conjunction with the Shoffner acquisition in the first quarter of 2016, we issued a subordinated note to former owners with an outstanding balance of $1.0 million as of September 30, 2017 that bears interest, payable quarterly, at a weighted average interest rate of 3.0%. The principal is due in equal installments in February 2018 and 2019.

~~Other Debt~~

As part of the Shoffner acquisition, we acquired debt with an outstanding balance at the acquisition date of $0.4 million with principal and interest due the last day of every month; ending on the December 30, 2019 maturity date. The

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~~interest rate is the one month LIBOR rate plus 2.25%. As of September 30, 2017, $0.2 million of the note was outstanding, of which $0.1 million was considered current.~~

~~Outlook~~

We have generated positive net free cash flow for the last eighteen calendar years, much of which occurred during challenging economic and industry conditions. We also continue to have significant borrowing capacity under our credit facility, and we maintain what we feel are reasonable cash balances. We believe these factors will provide us with sufficient liquidity to fund our operations for the foreseeable future.

~~Off‑Balance Sheet Arrangements and Other Commitments~~

As is common in our industry, we have entered into certain off‑balance sheet arrangements in the ordinary course of business that result in risks not directly reflected in our balance sheets. Our most significant off‑balance sheet transactions include liabilities associated with noncancelable operating leases. We also have other off‑balance sheet obligations involving letters of credit and surety guarantees.

We enter into noncancelable operating leases for many of our facility, vehicle and equipment needs. These leases allow us to conserve cash by paying a monthly lease rental fee for use of facilities, vehicles and equipment rather than purchasing them. At the end of the lease, we have no further obligation to the lessor. If we decide to cancel or terminate a lease before the end of its term, we would typically owe the lessor the remaining lease payments under the term of the lease.

Certain of our vendors require letters of credit to ensure reimbursement for amounts they are disbursing on our behalf, such as to beneficiaries under our self‑funded insurance programs. We have also occasionally used letters of credit to guarantee performance under our contracts and to ensure payment to our subcontractors and vendors under those contracts. The letters of credit we provide are actually issued by our lenders through the Facility as described above.Facility. A letter of credit commits the lenders to pay specified amounts to the holder of the letter of credit if the holder demonstrates that we have failed to perform specified actions. If this were to occur, we would be required to reimburse the ~~lenders. Depending on~~lenders for amounts they fund to honor the ~~circumstances~~letter of ~~such a reimbursement, we may also have to record a charge to earnings for the reimbursement.~~credit holder’s claim. Absent a claim, there is no payment or reserving of funds by us in connection with a letter of credit. However, because a claim on a letter of credit would require immediate reimbursement by us to our lenders, letters of credit are treated as a use of Facility capacity. The letter of credit fees range from 1.00% to 2.00% per annum, based on the ~~Facility’s capacity just the same as actual borrowings. Claims against~~Net Leverage Ratio.

As of March 31, 2024, we have $81.2 million in letter of credit commitments, of which $55.1 million will expire in 2024, $26.0 million will expire in 2025 and $0.1 million will expire in 2026. The substantial majority of these letters of credit are ~~rare~~posted with insurers who disburse funds on our behalf in connection with our ~~industry. To date~~workers’ compensation, auto liability and general liability insurance program. These letters of credit provide additional security to the insurers that sufficient financial resources will be available to fund claims on our behalf, many of which develop over long periods of time, should we ~~have not had~~ever encounter financial duress. Posting of letters of credit for this purpose is a ~~claim made against a~~common practice for entities that manage their self-insurance programs through third-party insurers as we do. While some of these letter of credit ~~that resulted~~commitments expire in the next twelve months, we expect nearly all of them, particularly those supporting our insurance programs, will be renewed annually.

Commitment fees are payable on the portion of the revolving loan capacity not in use for borrowings or letters of credit at any given time. These fees range from 0.15% to 0.25% per annum, based on the Net Leverage Ratio.

The Facility contains financial covenants defining various financial measures and the levels of these measures with which we must comply. Covenant compliance is assessed as of each quarter end. We were in compliance with all of our financial covenants as of March 31, 2024.

Notes to Former Owners

As part of the consideration used to acquire ten companies, we have outstanding notes to the former owners. Together, these notes had an outstanding balance of $89.1 million as of March 31, 2024. At March 31, 2024, future principal payments of notes to former owners by ~~a lender or by us.~~maturity year are as follows (dollars in thousands):


	Balance at		Range of Stated
	March 31, 2024		Interest Rates
2024	$	4,800	2.5	%
2025		21,645	2.3 - 3.0	%
2026		31,625	2.5 - 5.5	%
2027		26,000	5.5	%
2028		5,000	5.5	%
Total	$	89,070

Outlook

We have generated positive net free cash flow for the last twenty-five calendar years, much of which occurred during challenging economic and industry conditions. We also continue to have significant borrowing capacity under our

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credit facility, and we maintain what we feel are reasonable cash balances. We believe ~~that it is unlikely that we~~these factors will ~~have~~provide us with sufficient liquidity to fund ~~claims under a letter of credit in~~our operations for the foreseeable future.

Other Commitments

Many customers, particularly in connection with new construction, require us to post performance and payment bonds issued by a financial institution known as a surety. If we fail to perform under the terms of a contract or to pay subcontractors and vendors who provided goods or services under a contract, the customer may demand that the surety make payments or provide services under the bond. We must reimburse the sureties for any expenses or outlays they incur. ~~To date, we are not aware of any losses to our sureties in connection with bonds the sureties have posted on our behalf, and we do not expect such losses to be incurred in the foreseeable future.~~

Under standard terms in the surety market, sureties issue bonds on a ~~project‑by‑project~~project-by-project basis, and can decline to issue bonds at any time. Historically, approximately ~~20%~~10% to ~~30%~~20% of our business has required bonds. While we currently have strong surety relationships to support our bonding needs, future market conditions or changes in our sureties’ assessment of our operating and financial risk could cause our sureties to decline to issue bonds for our work. If that were to occur, our alternatives include doing more business that does not require bonds, posting other forms of collateral for project performance, such as letters of credit or cash, and seeking bonding capacity from other sureties. We would likely also encounter concerns from customers, suppliers and other market participants as to our creditworthiness. While we believe our general operating and financial characteristics would enable us to ultimately respond effectively to an

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interruption in the availability of bonding capacity, such an interruption would likely cause our revenue and profits to decline in the near term.

~~Contractual Obligations~~

As of September 30, 2017, we have $39.6 million in letter of credit commitments, of which $11.3 million will expire in 2017 and $28.3 million will expire in 2018. The substantial majority of these letters of credit are posted with insurers who disburse funds on our behalf in connection with our workers’ compensation, auto liability and general liability insurance program. These letters of credit provide additional security to the insurers that sufficient financial resources will be available to fund claims on our behalf, many of which develop over long periods of time, should we ever encounter financial duress. Posting of letters of credit for this purpose is a common practice for entities that manage their self‑insurance programs through third‑party insurers as we do. While many of these letter of credit commitments expire in 2017, we expect nearly all of them, particularly those supporting our insurance programs, will be renewed annually.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

We are exposed to market risk primarily related to potential adverse changes in interest rates, as discussed below. We are actively involved in monitoring exposure to market risk and continue to develop and utilize appropriate risk management techniques. We are not exposed to any other significant financial market risks, including commodity price risk, or foreign currency exchange risk ~~or interest rate risks~~ from the use of derivative financial instruments. ~~We do not~~At times, we use derivative financial ~~instruments.~~instruments to manage our interest rate risk.

We have exposure to changes in interest rates under our revolving credit facility. ~~We have a modest level~~There were no outstanding borrowings on the revolving credit facility as of ~~indebtedness under our debt facility~~March 31, 2024 and ~~our indebtedness could increase in the future.~~December 31, 2023. Our debt with fixed interest rates consists of notes to former owners of acquired ~~companies.~~companies and acquired notes payable.

~~The weighted average interest rate applicable to borrowings under the Facility was approximately 2.6% as of September 30, 2017.~~

We measure certain assets at fair value on a nonrecurring basis. These assets are recognized at fair value when they are deemed to be other-than-temporarily impaired. ~~During the first quarter of 2017 we recorded a goodwill impairment charge of $1.1 million based on Level 3 measurements. See Note 5 “Goodwill” for further discussion.~~ We did not recognize any ~~other~~ impairments in the ~~first nine months of 2017,~~current year on those assets required to be measured at fair value on a nonrecurring basis.

The valuation of ~~our~~the Company’s contingent ~~earn‑out~~earn-out payments is determined using a probability weighted discounted cash flow method. This analysis reflects the contractual terms of the purchase agreements (e.g., minimum and maximum payment, length of ~~earn‑out~~earn-out periods, manner of calculating any amounts due, etc.) and utilizes assumptions with regard to future cash flows, probabilities of achieving such future cash flows and a discount rate.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our executive management is responsible for ensuring the effectiveness of the design and operation of our disclosure controls and procedures. We carried out an evaluation under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules ~~13a‑15(e)~~13a-15(e) and ~~15d‑15(e)~~15d-15(e) under the Securities Exchange Act of 1934) as of the end of the period covered by this report. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures (as defined in Rules ~~13a‑15(e)~~13a-15(e) and ~~15d‑15(e)~~15d-15(e) of the Securities Exchange Act of 1934) are effective as of the end of the period covered by this report.

2331

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Changes in Internal Control over Financial Reporting

There have not been any changes in our internal control over financial reporting (as such term is defined in Rules ~~13a‑15(f)~~13a-15(f) and ~~15d‑15(f)~~15d-15(f) under the Securities Exchange Act of 1934) during the three months ended ~~September 30, 2017~~March 31, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II—OTHER INFORMATION

Item 1. Legal Proceedings

We are subject to certain legal and regulatory claims, ~~and~~including lawsuits arising in the normal course of business. We maintain various insurance coverages to minimize financial risk associated with these claims. We have estimated and provided accruals for probable losses and related legal fees associated with certain litigation in our consolidated financial statements. While we cannot predict the outcome of these proceedings, in ~~our~~management’s opinion and based on reports of counsel, any liability arising from these matters individually and in the aggregate will not have a material effect on our operating results, cash flows or financial condition, after giving effect to provisions already recorded.

In the first quarter of 2023, we recorded a pre-tax gain of $6.8 million from legal developments and settlements that primarily relate to disputes with customers regarding the outcome of completed projects as well as an obligation to perform subcontract work under two executed letters of intent for subsequent projects that we believed were not enforceable. The pre-tax gain of $6.8 million was recorded as an increase in gross profit of $6.6 million, a reduction in SG&A of $0.7 million, an increase in interest income of $1.3 million and an increase in the change in fair value of contingent earn-out obligations expense of $1.8 million in our Consolidated Statements of Operations.

Item 1A. Risk Factors

In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part 1, “Item 1A. Risk Factors” in our Annual Report on Form ~~10‑K~~10-K for the year ended December 31, ~~2016,~~2023, which could materially affect our business, financial condition, or future results. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition, or future results.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Recent Sales of Unregistered Securities

None.

Issuer Purchases of Equity Securities

The share repurchases will be made from time to time at our discretion in the open market or privately negotiated transactions, as permitted by securities laws and other legal requirements, and subject to market conditions and other factors. The Board may modify, suspend, extend or terminate the program at any time. During the ~~nine~~three months ended ~~September 30, 2017,~~March 31, 2024, we repurchased ~~0.3~~less than 0.1 million shares for approximately ~~$8.9~~ $0.3 million at an average price of ~~$34.18~~$196.89 per share.

2433

Table of Contents

During the quarter ended ~~September 30, 2017,~~March 31, 2024, we purchased our common shares in the following amounts at the following average prices:

Total Number of Shares

Maximum Number of

Purchased as Part of

Shares that May Yet Be

Total Number of

Average Price

Publicly Announced Plans

Purchased Under the Plans

Period

Shares Purchased

Paid Per Share

or Programs

or Programs

July 1 - July 31

—

$
—

7,449,784

662,709

August 1 - August 31

143,667

$
33.18

7,593,451

519,042

September 1 - September 30

9,737

$
33.56

7,603,188

509,305

153,404

$
33.20

7,603,188

509,305


				Total Number of Shares	Maximum Number of
				Purchased as Part of	Shares that May Yet Be
	Total Number of	Average Price		Publicly Announced Plans	Purchased Under the Plans
Period	Shares Purchased	Paid Per Share		or Programs (1)	or Programs
January 1 - January 31	1,500	$	196.89	10,257,824	686,301
February 1 - February 29	—	$	—	10,257,824	686,301
March 1 - March 31	—	$	—	10,257,824	686,301
	1,500	$	196.89	10,257,824	686,301

(1)

Purchased as part of a program announced on March 29, 2007 under which, since the inception of this program, 10.9 million shares have been approved for repurchase.

Under our stock incentive plans, employees may elect to have us withhold common shares to satisfy statutory federal, state and local tax withholding obligations arising on the vesting of restricted stock awards and exercise of options. When we withhold these shares, we are required to remit to the appropriate taxing authorities the market price of the shares withheld, which could be deemed a purchase of the common shares by us on the date of withholding.

ITEM 5. Other Information

Securities Trading Plans of Directors and Officers

During the three months ended March 31, 2024, no directors or officers of the Company adopted or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as defined in Item 408(a) and (c) of Regulation S-K.

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Item 6. Exhibits


		Incorporated by Reference to the Exhibit Indicated Below and to the Filing with the Commission Indicated Below
Exhibit Number	Description of Exhibits	Exhibit Number	Filing or File Number
3.1	Second Amended and Restated Certificate of Incorporation of the Registrant	3.1	333-24021
3.2	Certificate of Amendment dated May 21, 1998	3.2	1998 Form 10-K
3.3	Certificate of Amendment dated July 9, 2003	3.3	2003 Form 10-K
3.4	Certificate of Amendment dated May 20, 2016	3.1	May 20, 2016 Form 8-K
3.5	Amended and Restated Bylaws of Comfort Systems USA, Inc.	3.1	March 25, 2016 Form 8-K
31.1*	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2*	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1**	Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2**	Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS*	Inline XBRL Instance Document
101.SCH*	Inline XBRL Taxonomy Extension Schema Document
101.CAL*	Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF*	Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB*	Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE*	Inline XBRL Taxonomy Extension Presentation Linkbase
104	Cover Page Interactive Data File (the cover page XBRL tags are embedded in the Inline XBRL document)

* Filed herewith.

** Furnished herewith.

~~Item 6.~~ ~~Exhibits~~

Incorporated by Reference
to the Exhibit Indicated Below
and to the Filing with the
Commission Indicated Below
Exhibit
Number

Description of Exhibits

Exhibit
Number

Filing or
File Number
3.1

Second Amended and Restated Certificate of Incorporation of the Registrant

3.1

333‑24021
3.2

Certificate of Amendment dated May 21, 1998

3.2

1998 Form 10‑K
3.3

Certificate of Amendment dated July 9, 2003

3.3

2003 Form 10‑K
3.4

Certificate of Amendment dated May 20, 2016

3.1

May 20, 2016
Form 8‑K
3.5

Amended and Restated Bylaws of Comfort Systems USA, Inc.

3.1

March 25, 2016 Form 8‑K
31.1

Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes‑Oxley Act of 2002

Filed Herewith
31.2

Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes‑Oxley Act of 2002

Filed Herewith
32.1

Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes‑Oxley Act of 2002

Furnished Herewith
32.2

Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes‑Oxley Act of 2002

Furnished Herewith
101.INS

XBRL Instance Document

101.SCH

XBRL Taxonomy Extension Schema Document

101.CAL

XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF

XBRL Taxonomy Extension Definition Linkbase Document

101.LAB

XBRL Taxonomy Extension Label Linkbase Document

101.PRE

XBRL Taxonomy Extension Presentation Linkbase

Table of Contents

SIGNATURES

~~SIGNATURES~~

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	Comfort Systems USA, Inc.

~~October 26, 2017~~April 25, 2024	By:	/s/ Brian E. Lane
		Brian E. Lane
		President, Chief Executive Officer and Director

~~October 26, 2017~~April 25, 2024	By:	/s/ William George
		William George
		Executive Vice President and Chief Financial Officer

~~October 26, 2017~~April 25, 2024	By:	/s/ Julie S. Shaeff
		Julie S. Shaeff
		Senior Vice President and Chief Accounting Officer

2736


(Mark One)
~~(Mark One)~~☒
☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


~~For the quarterly period ended September 30, 2017~~
OR
☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.01 par value	FIX	New York Stock Exchange

Large accelerated filer ⌧	Accelerated filer ◻	Non-accelerated filer ◻	Smaller reporting company ☐	Emerging growth company ☐
~~Large accelerated filer~~ ☒	~~Accelerated filer~~ ☐	~~Non‑accelerated filer~~ ☐ (Do not check if a smaller reporting company)	~~Smaller reporting company~~ ☐	~~Emerging growth company~~ ☐


		Page
~~Part I—Financial Information~~
~~Item 1—Financial Statements~~
~~Consolidated Balance Sheets~~Part I—Financial Information		1 2
Item 1—Financial Statements		2
Consolidated Balance Sheets		2
Consolidated Statements of Operations		2 3
Consolidated Statements of Stockholders’ Equity		3 4
Consolidated Statements of Cash Flows		4 5
Condensed Notes to Consolidated Financial Statements		5 6
Item 2—Management’s Discussion and Analysis of Financial Condition and Results of Operations		13 22
Item 3—Quantitative and Qualitative Disclosures about Market Risk		23 31
Item 4—Controls and Procedures		23 31
Part II—Other Information		24 33
Item 1—Legal Proceedings		24 33
Item 1A—Risk Factors		24 33
Item 2—Unregistered Sales of Equity Securities and Use of Proceeds		24 33
Item ~~6—Exhibits~~5—Other Information		26 34
~~Signatures~~Item 6—Exhibits		27 34
Signatures		36


~~DELAWARE~~Delaware (State or other jurisdiction of Incorporation or Organization)	~~76‑0526487~~76-0526487 (I.R.S. Employer Identification No.)
675 Bering Drive Suite 400 Houston, Texas77057 (Address of Principal Executive Offices) (Zip Code)


							Additional				Non-		Total
	Common Stock			Treasury Stock			Paid-In		Retained		Controlling		Stockholders’
	Shares	Amount		Shares	Amount		Capital		Earnings		Interests		Equity
BALANCE AT DECEMBER 31, 2015	41,123,365	$	411	(3,696,781)	$	(46,845)	$	323,765	$	69,390	$	18,284	$	365,005
Cumulative effect of change in accounting principle	—		—	—		—		—		(38)		—		(38)
Net income	—		—	—		—		—		64,896		—		64,896
Issuance of Stock:
Issuance of shares for options exercised	—		—	111,761		1,568		10		—		—		1,578
Issuance of restricted stock & performance stock	—		—	172,727		2,282		(306)		—		—		1,976
Shares received in lieu of tax withholding payment on vested restricted stock	—		—	(41,788)		(1,304)		—		—		—		(1,304)
Stock-based compensation	—		—	—		—		3,502		—		—		3,502
Dividends	—		—	—		—		—		(10,264)		—		(10,264)
Acquisition of noncontrolling interest	—		—	—		—		(17,346)		—		(18,284)		(35,630)
Share repurchase	—		—	(460,170)		(13,088)		—		—		—		(13,088)
BALANCE AT DECEMBER 31, 2016	41,123,365		411	(3,914,251)		(57,387)		309,625		123,984		—		376,633
Net income (unaudited)	—		—	—		—		—		47,733		—		47,733
Issuance of Stock:
Issuance of shares for options exercised (unaudited)	—		—	90,498		1,366		(70)		—		—		1,296
Issuance of restricted stock & performance stock (unaudited)	—		—	134,646		2,037		(421)		—		—		1,616
Shares received in lieu of tax withholding payment on vested restricted stock (unaudited)	—		—	(39,335)		(1,419)		—		—		—		(1,419)
Stock-based compensation (unaudited)	—		—	—		—		3,178		—		—		3,178
Dividends (unaudited)	—		—	—		—		—		(8,199)		—		(8,199)
Share repurchase (unaudited)	—		—	(260,697)		(8,909)		—		—		—		(8,909)
BALANCE AT SEPTEMBER 30, 2017 (unaudited)	41,123,365	$	411	(3,989,139)	$	(64,312)	$	312,312	$	163,518	$	—	$	411,929


	Three Months Ended
	March 31, 2023
							Additional				Total
	Common Stock			Treasury Stock			Paid-In		Retained		Stockholders’
	Shares	Amount		Shares	Amount		Capital		Earnings		Equity
BALANCE AT DECEMBER 31, 2022	41,123,365	$	411	(5,362,224)	$	(187,212)	$	332,080	$	854,644	$	999,923
Net income	—		—	—		—		—		57,216		57,216
Issuance of Stock:
Issuance of shares for options exercised	—		—	1,000		36		(18)		—		18
Issuance of restricted stock & performance stock	—		—	31,960		1,131		3,384		—		4,515
Shares received in lieu of tax withholding on vested stock	—		—	(12,728)		(1,798)		—		—		(1,798)
Stock-based compensation	—		—	—		—		3,438		—		3,438
Dividends ($0.175 per share)	—		—	—		—		—		(6,254)		(6,254)
Share repurchase	—		—	(29,400)		(3,568)		—		—		(3,568)
BALANCE AT MARCH 31, 2023	41,123,365	$	411	(5,371,392)	$	(191,411)	$	338,884	$	905,606	$	1,053,490


	Three Months Ended
	March 31, 2024
							Additional				Total
	Common Stock			Treasury Stock			Paid-In		Retained		Stockholders’
	Shares	Amount		Shares	Amount		Capital		Earnings		Equity
BALANCE AT DECEMBER 31, 2023	41,123,365	$	411	(5,438,625)	$	(209,807)	$	339,562	$	1,147,663	$	1,277,829
Net income	—		—	—		—		—		96,319		96,319
Issuance of Stock:
Issuance of shares for options exercised	—		—	1,369		53		(26)		—		27
Issuance of restricted stock & performance stock	—		—	17,018		657		4,696		—		5,353
Shares received in lieu of tax withholding on vested stock	—		—	(6,763)		(2,126)		—		—		(2,126)
Stock-based compensation	—		—	—		—		4,350		—		4,350
Dividends ($0.25 per share)	—		—	—		—		—		(8,921)		(8,921)
Share repurchase	—		—	(1,500)		(295)		—		—		(295)
BALANCE AT MARCH 31, 2024	41,123,365	$	411	(5,428,501)	$	(211,518)	$	348,582	$	1,235,061	$	1,372,536


	Revenue
Service Activity	$ in thousands		%
HVAC and Plumbing	$	1,207,434	91	%
Building Automation Control Systems		66,343	5	%
Other		53,073	4	%
Total	$	1,326,850	100	%


Balance at beginning of year	$	2,531
Issuances		11,755
Settlements		(2,578)
Adjustments to fair value		(1,845)
Balance at September 30, 2017	$	9,863


	Consolidated Total Indebtedness to
	Credit Facility Adjusted EBITDA
	Less than 0.75		0.75 to 1.50		1.50 to 2.25		2.25 or greater
Additional Per Annum Interest Margin Added Under:
Base Rate Loan Option	0.25	%	0.50	%	0.75	%	1.00	%
Eurodollar Rate Loan Option	1.25	%	1.50	%	1.75	%	2.00	%


		Aggregate
		Contract
	No. of	Price Value
Contract Price of Project	Projects	(millions)
Under $1 million	4,722	$	546.7
$1 million - $5 million	387		856.8
$5 million - $10 million	70		469.5
$10 million - $15 million	19		233.8
Greater than $15 million	12		273.7
Total	5,210	$	2,380.5


				Total Number of Shares	Maximum Number of
				Purchased as Part of	Shares that May Yet Be
	Total Number of	Average Price		Publicly Announced Plans	Purchased Under the Plans
Period	Shares Purchased	Paid Per Share		or Programs	or Programs
July 1 - July 31	—	$	—	7,449,784	662,709
August 1 - August 31	143,667	$	33.18	7,593,451	519,042
September 1 - September 30	9,737	$	33.56	7,603,188	509,305
	153,404	$	33.20	7,603,188	509,305


		Incorporated by Reference to the Exhibit Indicated Below and to the Filing with the Commission Indicated Below
Exhibit Number	Description of Exhibits	Exhibit Number	Filing or File Number
3.1	Second Amended and Restated Certificate of Incorporation of the Registrant	3.1	333‑24021
3.2	Certificate of Amendment dated May 21, 1998	3.2	1998 Form 10‑K
3.3	Certificate of Amendment dated July 9, 2003	3.3	2003 Form 10‑K
3.4	Certificate of Amendment dated May 20, 2016	3.1	May 20, 2016 Form 8‑K
3.5	Amended and Restated Bylaws of Comfort Systems USA, Inc.	3.1	March 25, 2016 Form 8‑K
31.1	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes‑Oxley Act of 2002		Filed Herewith
31.2	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes‑Oxley Act of 2002		Filed Herewith
32.1	Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes‑Oxley Act of 2002		Furnished Herewith
32.2	Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes‑Oxley Act of 2002		Furnished Herewith
101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema Document
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	XBRL Taxonomy Extension Label Linkbase Document
101.PRE	XBRL Taxonomy Extension Presentation Linkbase


	September 30,		December 31,
	2017		2016
	(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	29,496	$	32,074
Accounts receivable, less allowance for doubtful accounts of $4,328 and $4,288, respectively		390,497		318,837
Other receivables		13,651		20,363
Inventories		10,778		9,208
Prepaid expenses and other		11,622		6,106
Costs and estimated earnings in excess of billings		39,333		29,369
Total current assets		495,377		415,957
PROPERTY AND EQUIPMENT, NET		74,883		68,195
GOODWILL		203,771		149,208
IDENTIFIABLE INTANGIBLE ASSETS, NET		78,527		42,435
DEFERRED INCOME TAX ASSETS		27,282		27,170
OTHER NONCURRENT ASSETS		4,747		5,938
Total assets	$	884,587	$	708,903
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt	$	618	$	600
Current maturities of long-term capital lease obligations		90		163
Accounts payable		122,203		103,440
Accrued compensation and benefits		68,294		61,712
Billings in excess of costs and estimated earnings		103,049		83,985
Accrued self-insurance		32,774		33,520
Other current liabilities		46,774		34,261
Total current liabilities		373,802		317,681
LONG-TERM DEBT		80,951		1,955
LONG-TERM CAPITAL LEASE OBLIGATIONS		33		93
DEFERRED INCOME TAX LIABILITIES		2,289		2,289
OTHER LONG-TERM LIABILITIES		15,583		10,252
Total liabilities		472,658		332,270
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS’ EQUITY:
Preferred stock, $.01 par, 5,000,000 shares authorized, none issued and outstanding		—		—
Common stock, $.01 par, 102,969,912 shares authorized, 41,123,365 and 41,123,365 shares issued, respectively		411		411
Treasury stock, at cost, 3,989,139 and 3,914,251 shares, respectively		(64,312)		(57,387)
Additional paid-in capital		312,312		309,625